Cengage Revenue Off 22% - Analysts Nervous

Describing a 22% revenue decrease as a "self-inflicted wound" and the result of a single customer reducing their purchases will represent a tough backdrop when Cengage management calls on their Bankers in the next few months to refinance some of their debt.  Quoted in the Financial Times, CFO Dean Durbin stated that he doesn't "think that we are moving toward a restructuring,” telling analysts on a conference call. “I believe based on the analysis of our cash flow over the next 12 months that we’re going to be able to meet all of our obligations.”  (FT).  Notice there was almost an hour and twenty minutes spent on questions which reflects the concern the financial community has with these results.

Here are the bullets from the management discussion section of their Nov 9th earnings announcement:

The following section summarizes our results of operations for the three months ended September 30, 2012 compared to the three months ended September 30, 2011:
• Revenues decreased by $153.6 million, or 22.2%, to $538.3 million. The revenue decline was primarily in the Domestic segment due to lower sales across all markets. Revenues decreased in the International segment primarily due to lower sales in the higher education market, as well as the unfavorable impact of foreign currency translation.
• Operating income decreased by $116.7 million, or 48.7%, to $122.7 million reflecting lower revenues, partially offset by lower employee-related costs.
• Adjusted EBITDA decreased by $115.7 million, or 33.2%, to $233.1 million, reflecting lower revenues, partially offset by lower employee-related costs.
• Net cash provided by operating activities decreased by $57.7 million, or 40.4%, to $85.2 million, primarily due to lower net income, partially offset by favorable working capital movements and lower debt payments in lieu of interest.
• Unlevered Free Cash Flow decreased by $88.0 million, or 32.8%, to $180.4 million, primarily due to lower net income, partially offset by favorable working capital movements.
• In July 2012, we completed a privately-negotiated exchange (the “July 2012 Debt Exchange”) whereby we exchanged $710.0 million aggregate principal amount of 10.50% Senior Unsecured Notes due 2015 (the “Senior Unsecured Notes”) for $710.0 million aggregate principal amount of newly issued 12.00% Senior Secured Second Lien Notes due 2019 (“Senior Secured Second Lien Notes”). In connection with this transaction, we purchased approximately $28.7 million aggregate principal amount of Senior Unsecured Notes at a discount to par. These transactions resulted in a net loss of $2.2 million during the three months ended September 30, 2012.
• In addition to the Senior Unsecured Notes purchased in connection with the July 2012 Debt Exchange, we purchased $73.1 million of Senior Unsecured Notes, $29.2 million of the 13.25% Senior Subordinated Discount Notes due 2015 (the “Senior Subordinated Discount Notes”) and $7.1 million of the 13.75% Senior PIK Notes due 2015 (the “Senior PIK Notes”), resulting in a net gain of $28.8 million. During the three months ended September 30, 2011, we purchased $174.1 million of the Senior Subordinated Discount Notes and $14.1 million of the Senior PIK Notes resulting in a gain of $42.2 million. See Note 5 “Debt” to our Financial Statements for further information.
• Also in July 2012, we made mandatory principal redemptions of $72.1 million pursuant to the terms of our Senior Subordinated Discount Notes and Senior PIK Notes. These payments were calculated in accordance with the applicable high yield discount obligation (“AHYDO”) regulations issued by the Internal Revenue Services of the United States (“IRS”).

In the company's PowerPoint overview of the results the company outlines their plan of action in dealing with the current situation and this section of the presentation was delivered by CEO Michael Hansen who has only been there since the summer.  Action points include, a key performance measures program tied to compensation, development of a channel management team, improved selling focus on print and digital and a longer team focus on better digital solutions.

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MediaWeek (V4, N46): Library Clouds and Data, Open Ed Resources, GOP, Pearson Investigated

Campus Technology looks at Bucknel University's libary and their implementation of OCLC's cloud based library system. In addition to saving the library money and allowing them to reallocate resources the experience for users is also significantly improved (Campus Tech):

The OCLC implementation radically changes the library experience for students, researchers, and faculty. In a traditional library system, a search of the digital library catalog typically retrieves only those materials owned or licensed by the library. To explore further afield, a patron must access multiple databases, locate items of interest, and then hope that the full text is available. If the library is not a subscriber to that particular content, users must fill out an interlibrary loan form and await delivery.
With OCLC's cloud-based service, however, the research process is more streamlined and simplified: A patron can use the same interface to search the holdings at both Bucknell and WorldCAT--a Bucknell icon indicates which materials are local. In addition, books and journal articles can be searched in one
Since Bucknell's move to the cloud, the acquisition and processing of new material have also been greatly simplified. Previously, Bucknell would place orders directly with Yankee Book Peddler Library Services (YBP) and then receive files via FTP for loading into its catalog. It would then have to update WorldCAT to indicate that the school owned these items. It was a time-consuming process.

Libraries are finding that sharing data on their users can be problematic (Chronicle):

Harvard suspended the practice after privacy concerns were raised. Even though the Twitter stream randomized checkout times and did not disclose patrons' identities, the worry was that someone might somehow use other details to identify the borrowers.
The episode points to an emerging tension as libraries embrace digital services. Historically, libraries have been staunch defenders of patrons' privacy. Yet to embrace many aspects of the modern Internet, which has grown more social and personalized, libraries will need to "tap into and encourage increased flows of personal information from their patrons," says the privacy-and-social-media scholar Michael Zimmer.
Millions of people now share what they're reading through social-networking sites like Facebook, or smaller services including Goodreads and LibraryThing. They're accustomed to the personalized recommendations that Amazon provides by tracking customers' buying and browsing habits.
Libraries are following suit. They're beginning to share data to build tools for recommending and discovering books. They're lending e-books, even though Amazon monitors reading on Kindles, and they're enabling reviews and tags in the once-sacred realm of library catalogs.

Interesting summation of a session on Open Educational Content from the Educause conference last week (IHE):

It turns out that there is a lack of understanding among top academic officials about OER in general. A new study from the Babson Survey Research Group, based on 2011 data and released here on Wednesday, found that 51 percent of chief academic officers were “aware” of OER in any meaningful sense of the word.
“We then probed to see what it is they’re talking about,” said Jeffrey Seaman, the co-director of the Babson Survey Research Group, in a session convened around the study by its corporate sponsor, Pearson, which this week made its first appeal to proponents of OER by unveiling a discovery service for "open" content.
“What we find is that their answers are all over the map,” said Seaman. One of the most common definitions volunteered by the participating academic officers in an open-ended survey question was that “open” simply means “free.”
And what about “open” as it refers to intellectual property and the licensing, re-purposing, or re-mixing of someone else’s materials? “Not mentioned,” said Seaman. “Not on the mindset at all of these chief academic officers. The idea of who did it, how I can use it, what the permissions are for use, can I re-purpose it -- never appeared in any of the examples that they described.“

The Government Printing Office has released a five year plan detailing how they plan to meet the challenges of the electronic world but they've already done a lot particularly since 2009 (GCN):

GPO has been making documents and publications available online since 1994, when it created the GPO Access Web site. This was upgraded to the Federal Digital System (FDsys) portal in 2009, which included the ability to digitally sign and authenticate online documents, giving them the status of official records. This is an important element of GPO’s digital document management, Vance-Cooks said.
“Our market niche is authentication,” she said. “That is very important for customers who want the information for legal purposes and for Congress when using it to make decisions.”
Today, FDsys has 680,000 documents online with more than 13 million downloads a month. GPO is partnering with other agencies, including the Library of Congress and the Treasury Department, to make document collections available electronically through FDsys; has agreements with several e-book publishers to make documents available for popular readers; and is developing applications to make information available in formats friendly to mobile devices.

From The Economist: Do readers know they don't own e-Books?

It may come as a surprise that this sort of thing is even possible. After all, a high-street bookseller would not spontaneously remove paperbacks from a customer’s home, whatever infractions they may have committed. But, unlike with paper books, customers do not actually “own” the e-books they buy. Instead, they are licensed to the purchaser. Customers cannot resell them and there are restrictions on lending them. The transaction is more like renting access to a book than owning one outright. Plus, e-book sellers have the capability to take them back without warning.
The furious backlash against Amazon’s Orwell deletions in 2009 suggests that many customers do not realise this distinction. (Those that do are clued-up on software of dubious legality that can strip the electronic locks—called “digital rights management”, or DRM—from e-books.) Yet this lack of awareness of the legal terms-of-use is largely the fault of the e-book sellers. Their websites talk of “buying” books as if the digital transaction is exactly the same as one in a bookshop. And the explanation that customers are, in effect, merely “renting” their e-books is buried in long, jargon-filled license agreements that almost nobody reads.

Not always good news for Pearson (here at least) and the company is being investigated in the UK for possible conflict of interest between a business unit that evaluates course materials and the textbook division (FT):

Ofqual, the UK’s qualifications regulator, said on Wednesday that it was reviewing the effectiveness of the “business separation” between Pearson’s qualifications awarding organisation – Edexcel – and its textbook publishers. The purpose of the review into Pearson, the largest provider of teaching resources in the UK and the parent company of the Financial Times, is to preserve “confidence in the exam system”, Ofqual said. Responding to the announcement, Pearson said: “Pearson has robust conflict of interest processes and works with a full range publishers, not just our own imprints.” Pearson licenses third-party textbooks for Edexcel courses and also sells “Edexcel Own” branded textbooks. These latter books share the same designs and logos as Edexcel’s examination resources and documents.

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Photo "Democracy Plaza": Election Night 2012

Wandered around here early on Tuesday evening before the election results came in.  Turns out democracy plaza is brought to us by Microsoft Windows 8.  It's all over now though and the right guy won.

This image carving is above the door to 30 Rock and that crown is normally in gold leaf; however I thought it looked more interesting with all the reflected red and blue lights.

Another weekly image from my archive. Click on it to make it larger.

In addition to the images I've posted on Flickr and those I've periodically posted on PND, I have now produced a Big Blurb Book: From the Archive 1960 -1980 of some of the images I really thought were special.

I now have an iPad version of this book for sale ($4.99) on the Blurb site which you can find here: STORE

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Pearson's Blue Sky Project

At lunch with a media banker several weeks ago, she had me thinking differently about the proliferation of aggregated content platforms such as Deepdyve, Credo Reference and others (particularly in medical).  In education, there's a rush for content going on and big incumbent education companies such as Blackboard and Pearson are starting to take notice. While these companies are big and retain influence they may not find it easy to establish agreements with partner publishers and content providers unless they can prove mutual benefit and trust. It could be a long process which is why my banker friend suggested there is a lot of M&A activity in this area where the decision point is on the buy versus make side of the analysis.

I was reminded of this conversation by Monday's Pearson announcement of Project Blue Sky which will allow faculty to search for and include open resource collection content into a custom Pearson textbook.

From their website:

Project Blue Sky allows instructors to search, select, and seamlessly integrate Open Educational Resources with Pearson learning materials. Using text, video, simulations, Power Point and more, instructors can create the digital course materials that are just right for their courses and their students. Pearson’s Project Blue Sky is powered by Gooru Learning, a search engine for learning materials.

Noting that there is so much open source content out there that it is impossible to ignore, the inclusion of this content became an imperative according to Don Kilburn, vice chairman of Pearson's higher ed division. To my mind this may be a slight smoke screen; after all, what took them so long?  Secondly, it seems only logical that they would be planning to add more content from more publishers to expand the universe of content available to their faculty users. Adding content beyond the Pearson materials will expand the options available to faculty, and faculty are already seeking easy access to multiple publishers content and don't want to be force-fed "off the shelf" products that diminish their ability to teach their class the way they want.  Their ability to build their own learning products is in process and inevitable and publishers and education providers like Pearson understand this.  That's what Project Blue sky is about.  Take a look at their video.

The inclusion of Gooru in this effort is also interesting since it suggests that indexing, collating, organizing and presenting open resource and publisher content is no easy get. Even Google is listed as a partner of Gooru. Either this implies the effort was too great even for a company like Pearson or they wanted to get out quickly into a market they feel they should dominate. Perhaps both issues are at play here.

Pearson and other large education publishers have direct relationships with the faculty who buy their books via their large sales forces.  What they don't want to see happen is something like the Amazon experience where a faculty member defaults all their activity to a common provider of both content and their user experience.  Imagine if a faculty member could go to one site to select and build their course content using content from every source available mimicking their current trade book experience.  Once they tried that there would be no going back which is the scenario the incumbent education publishers want to avoid - unless they are that platform that is.

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MOOCs, MOOCs and more MOOCs

Short on conclusions (but then this is all quite new) the Education section of the Times this weekend gushed about those Massive Open Online Courses (NYTimes)

“This has caught all of us by surprise,” says David Stavens, who formed a company called Udacity with Sebastian Thrun and Michael Sokolsky after more than 150,000 signed up for Dr. Thrun’s “Introduction to Artificial Intelligence” last fall, starting the revolution that has higher education gasping. A year ago, he marvels, “we were three guys in Sebastian’s living room and now we have 40 employees full time.”

“I like to call this the year of disruption,” says Anant Agarwal, president of edX, “and the year is not over yet.”

MOOCs have been around for a few years as collaborative techie learning events, but this is the year everyone wants in. Elite universities are partnering with Coursera at a furious pace. It now offers courses from 33 of the biggest names in postsecondary education, including Princeton, Brown, Columbia and Duke. In September, Google unleashed a MOOC-building online tool, and Stanford unveiled Class2Go with two courses.

Nick McKeown is teaching one of them, on computer networking, with Philip Levis (the one with a shock of magenta hair in the introductory video). Dr. McKeown sums up the energy of this grand experiment when he gushes, “We’re both very excited.” Casually draped over auditorium seats, the professors also acknowledge that they are not exactly sure how this MOOC stuff works.

“We are just going to see how this goes over the next few weeks,” says Dr. McKeown.

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MediaWeek (V4, N45): Flatworld Knowledge, McGraw Education, Conde Nast + More

Things were so bad last week, I actually read a paper newspaper, maybe things can get back to normal this week.

Hoboken from the storm (WaPo)

Education textbook trailblazer Flatworld Knowledge is changing their business model to paid rather than free content (IHE):

As usage of Flat World’s materials increased (the company’s latest promotional materials assert that the texts are being used in more than 4,000 classrooms at 2,000 institutions), the company became a darling of supporters of open educational resources and critics of high textbook prices. A 2010 report commissioned by the Student PIRGs, for instance, heralded open textbooks as “the path to textbook affordability.”

But that’s only true if the providers of open textbooks can make their materials available sustainably, and the shift in gears by Flat World Knowledge suggests that, for one company at least, providing free and open textbooks is not a viable business plan. While company officials hoped that they’d be able to persuade many of the consumers of the basic, free versions of its textbooks to pay for printed copies or versions enhanced with study aids and other add-ons, “we don’t convert [from free to paid] as much as we used to,” said Shelstad, the Flat World co-founder.

Economic viability is not the only reason Flat World is dumping the free model, Shelstad said. So is fairness. Some of the company’s 15 current institutional partners pay a $20-$25 licensing fee for every student whose use of the materials they subsidize, and others pay less. Raising the minimum price for use of the materials to $19.95 (the company’s tab for its Study Pass product, which includes the full online textbook, note-taking, highlighting and study aids) is fairer and still affordable for students, Shelstad said.

McGraw Hill sees lower results in advance of their Education sell-off (FT):

Several analysts had expected a decision in mid-to-late October over the future of McGraw-Hill Education, which competes in the school and higher education market with Pearson, owner of the Financial Times.

Terry McGraw, chairman and chief executive, told analysts that he would have news on the plans for the education division “in the coming weeks and hopefully sooner”.

“Critical to this decision is ensuring that we choose the option that maximises shareholder value,” he said.

Operating profit at McGraw-Hill Education fell 20 per cent, or 15 per cent when costs of the group’s restructuring programme are excluded. Most of the decline stemmed from weak US state and local spending on schools.

Revenues in McGraw’s school education group fell 16 per cent, while professional, higher education and international revenues slipped 6 per cent. About a third of the fall was because of revenues being deferred as the business moves from publishing textbooks to selling more digital subscriptions.

Also from the FT a look at Bertelsmann's Thomas Rabe (FT):

Mr Rabe thinks he is. Although low key – he wears sober dark suits and drives a Mini – he has a self-assurance that has driven some colleagues to distraction. One reason his predecessor Hartmut Ostrowski quit as chief executive late last year, according to people familiar with events, was that he “was tired of having someone by his side who always signalled he could do things better”.

How does Conde Nast see their future? (Folio):

“The post recessionary moment is really the introduction of alternative platforms that takes the pressure off of the print business, but doesn’t replace the print business,” he said. “Our print business continues to grow post-recession, but this year is a miserable year. Not because of Condé Nast or any other media company, but because of the anemic U.S. economy—nobody can escape the problems the U.S. economy imposes on us.”

Townsend said Condé Nast’s Web business has grown at half the rate expected so far this year, by about 15 percent topline growth, and print has also been trending upward despite the current fiscal climate.

“Even in this worst moment that any of us can remember with the U.S. economy, the print business continues to grow and the margins are sharper—the growth profit margins are mouth watering,” he said. However, he added, with “net margins, we try to run at 10 percent [but] we’re going to fall short of that on the print side, but we are still an expanding business. When this economy recovers, and it must for all of us, the print business is going to be on fire.”

The print business model will now be complimented by a variety of assets, said Townsend, including, digital and mobile, among others. In November, the company will also announce that it is increasing rate-bases for several of its titles due to growing digital tablet circulation, which Townsend estimated to be around 1 million, or close to 10 percent of total circulation.

A long look at how Paul Reid undertook to finish William Manchester's biography of Churchill (Times):

In 1996, The Palm Beach Post assigned Paul Reid to cover the reunion of a group of veteran Marines from World War II that included William Manchester. Although Manchester was too ill to attend, Reid got along so well with the other Marines that in 1998 they invited him to join them on a trip to Manchester’s home in Middletown. Reid and Manchester bonded over their mutual love of military history and eventually became such close friends that Manchester revealed to Reid the trouble he was having finishing his Churchill biography.

Reid regularly traveled from Florida to visit Manchester in his home, always trying to raise his new friend’s sagging spirits. During one visit, on Oct. 9, 2003, the two men sat in Manchester’s bedroom drinking — whiskey in Manchester’s case, red wine in Reid’s — snacking on popcorn and watching the Boston Red Sox try to upset the New York Yankees for the American League pennant. Reid says he noticed Elmore Leonard’s novel “Maximum Bob” on the bed. After the game, Manchester asked Reid to retrieve a large suitcase from his study. It was a big room, more than 16 feet long, with an oversize desk taking up most of one wall; Yousuf Karsh’s famous photograph of Churchill and a picture of Jacqueline and John F. Kennedy autographed for Manchester by the first lady were on display. What Reid noticed most of all, though, were the empty wastebaskets, the still-sharp, unused pencils, the uncluttered desktop. The room was more like a museum exhibit than a working office.

In Reid’s telling, he brought the suitcase to Manchester, who had another whiskey and told him to have a seat. “I’d like you to finish the book,” he said. At first, Reid thought Manchester meant he wanted him to read aloud from “Maximum Bob,” much as Manchester himself had read “Huckleberry Finn” to an ailing, elderly Mencken years before.

UAE is providing all students with iPads (NYTimes);

The plan to offer iPads across the U.A.E.’s three main higher education institutions has been in the works for one year by government decree. With the support of the government, a team of specialists visited Apple’s headquarters in Cupertino, California, in April to form a partnership and agree on training services for teachers and students.

Apple then completed a feasibility study to determine that the campuses had the proper infrastructure for the project. They shipped 14,000 iPads to the country and asked faculty members for their opinions on which 20 free applications should be downloaded for student use.

Teachers were “panicky” before they realized how easy it would be to use the device, said Andrew Blackmore, curriculum supervisor at Zayed University. He added that educators were now working directly with Apple to develop their own apps and create their own reading material as e-books on iBooks Author. By reducing paper use and waste, the iPads also promote environmentally friendly values in a region where fast cars and massive shopping malls rely on low-cost energy without thinking twice.

Photos from the storm (Atlantic)

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Hurricane Outage

At PND towers we've only had to worry about our power supply while many others in Hoboken have lost everything.  That accounts for the lack of posts this week.  Power at PND HQ is not expected before Monday but we've not lost anything relative to many other unlucky neighbors.  Here's what Manhattan looks like from our side of the river.

Manhattan Black Out

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