The transition from print to digital in STM [part 1]

An interview with Quincy McDonald — Publisher at F.A. Davis

Quincy McDonald is a publisher of F.A. Davis, an independent Nursing, Medicine, and Health Sciences publisher founded in 1879. F.A. Davis is dedicated to providing print, mobile, and web resources for students and professionals. Before becoming the publisher of F.A. Davis in 2008, Quincy was a Senior Editor at Lippincott, Williams & Wilkins, the world’s largest nursing publisher, and later, Senior Editor at McGraw-Hill Education, one of the world’s largest publishers, where he was in charge of the nursing list and developing digital products. Ever since Quincy stepped foot into STM publishing in 2002, he has been dealing with the sector’s transition from print-to-digital.

I had a chance to talk with Quincy about the changes at F.A. Davis and in STM for the last 15 years, especially how it has been transitioning from print to digital and his predictions for the future.

Q: From LinkedIn, I learned that F.A. Davis is an independent publisher with 51–200 employees. What is the precise size of the company?

It’s somewhere in the neighborhood of 150. It’s composed of sales representatives, marketers, editorials, production specialists, art and designers, directors and many others. Technically, if you look at all the American businesses, we’re probably mid-size company. If you look at us now in the publishing industry, we’re tiny in compared to Elsevier and all the other people that are multi-billion dollar conglomerates. We are also rather rare that publishing is the only thing we do. Most publishing companies are small appendages to companies that do different things. For instance, the largest publisher in the space is Elsevier, which has a wide variety of businesses, and publishing is a relatively small aspect of it. The digital content is the big aspect of it, but it’s a little bit different from publishing.

Q: So what F.A. Davis is doing is publishing books and online learning platforms?

We do a variety of things. Obviously, a lot of what we do is still print textbooks. However, we also publish content in a wide variety of formats, specifically for students and instructors. And it does not have to be distance learning only. Most of our digital content is used in the environment where there is an in-person lecture, but maybe students do all their homework via Blackboard or online, or maybe they are now trying to do a Flipped Classroom. This is probably the largest trend in higher education as well as in primary and secondary education.

When I was a professor or a graduate student assistant, the way we did things was we would assign readings to prepare students for the lecture, students would do their reading and they would come to the lecture, listen to lecture, and there would be homework assignments based on both. What generally happened was that students didn’t do their reading; they just went to lecture to see if they could skate on that and then only read as much as would allow them to complete the assignment. So this pigeonholed the professors to say: “I can’t go into small group work. I can’t go into a more focused discussion on a singular item because I have to cover my basis on the basic content for these folks.”

What the Flipped Classroom does is to utilize online technology to have a didactic lecture of some sorts. Students actually have a video lecture, introducing foundational material, an e-book. And then there are exercises which test them on the reading of the e-book and their view of the video lecture, such that they do all of this before they have their group learning experience, which normally was their lecture. Now the professor can reasonably tell, based on the grade book, whether or not students come to class prepared. So now, when you are in the group learning space, students can develop that small group work, where the lecturer, instead of lecturing in front of the classroom, floats between small groups to see how they are doing and what they are discussing, or can spend that lecture time focusing on a various specific applications of a very small subset of the materials.

The cliché expression is replacing the sage on stage with the guide on your side. So that’s the professor’ role that differs. It is about taking the material that was previously covered in the group learning space, putting it in the individual learning space, and then in the new group learning space, doing highly interactive material.

Q: Can you share about the revenue streams of F.A. Davis?

A: We are divided basically in digital and print. For most of us [publishing companies in STM], you are seeing digital growth accelerating and essentially print revenue reducing. Print is still the majority of the revenue for most of the publishing companies that are, at least, in the education space, but that’s shifting. Print reference books still cover 86 percent of the revenue, which is shocking because if you think of reference books you think of those will be the first [to go digital].

In terms of the streams of revenue, books still drive a lot of revenues, both print and digitally. So what happens is we have a book that comes with an access code in the front of the book. Publishers [is trying] to decrease the use of used books and rental books because, obviously, we want to sell books that we sell. [We use] pricing to make it highly attractive to buy new books because even the new book cost more, if you buy the used book, the online component is much more expensive. In other words, this technology comes for free with the new book, but you have to pay extra for the online. So that’s one place of revenue. That’s probably the biggest arena of digital revenue right now for most academic publishers. There is no distinguishing way to look at what the general revenue is and what the print revenue is. It all goes into the print revenue because it’s a component of the book. If you buy the digital product separately, then it’s digital revenue. So right now, for most companies, we are talking about 85 percent of the total revenue. It’s shifting downward, and a lot of folks are starting to tilt the curve. However, even at you are best companies, you are at around 60 percent to 65 percent print revenue.

A: Is digital and print bundling a popular product package strategy adopted among STM publishers?

I would say that packaging tactic has been around the longest. STM includes trade publishing and publishing for professionals in educational publishers. This [packaging tactic] is specifically for educational publishing. There are a lot of reference books that do digital and print bundling as well. The most successful book in content packaging in medical publishing is Harrison’s Principles of Internal Medicine. This book comes with an access code and a DVD, where you can access a whole bunch of additional chapter content, images that you can put into Power Point, and all other sorts of things. So that works essentially in the same principle. And that is the first revenue stream.

The second revenue stream is through licensing, where we take digital content, and we license it either directly to customers, schools that doesn’t want a book but want all the digital assets so that they can incorporate into their courses, or license it through partners. There are e-book vendors like CourseSmart and some other groups that license our content so that they can put it into their proprietary interactive e-book application. We also work with Skyscape, which is a smartphone application that allows you to have multiple references that interact with one another in one environment.

And the third way is direct-to-consumer, kinds of downloads and sales of access cards. One of the channels we have in education is direct to students who are on financial aid. There are a lot of them, and they can get assistance to buy their books through financial aid. In some places, there is a requirement that students receiving the financial aid have to make the purchase of their textbooks through the bookstore, which is very good for online purchases. So we have little cards that have the access code in there, and we send them [to customers]. Also, we have place like Medical Language Lab at medicallanguagelab.com that you can buy access right at that landing site.

Those are the three revenue streams, whether or not something is an app or it is a client server application. Those distinguishing characteristics I see dissolving more and more. They are already pretty gray and blurry. If something is an app created for a full monitor experience, but it’s adaptable so when you open it on your phone it’ll become a mobile website. Is that an app or is it not an app? So we have a tendency not to divide our revenue based on its expression and in any particular environment. We have a tendency to divide our revenue by the channel that it goes through to get that revenue.

Q: When I researched the professional and scholarly book market, I found that the total market size increased from 3.14 billion dollars in 2009 to 5.2 billion dollars in 2010, remained stable for three consecutive years and then dropped to 4.68 billion dollars in 2013. Do you see that F.A. Davis experienced that overall trend?

The vast majority of revenue in STM is on sales to companies, libraries and professionals. The educational aspect is a very important aspect but it’s by far the minority of it. When you hand in the professional reference, the vast majority of sales of reference books used to be from big print books, huge print books. What happened is when they said, “Well, do you want to keep stocking your array of print books all over the office and having to buy a new one every edition or would you rather just subscribe and every single person in your hospital can review it via the internet?” Now, during the transition to digital content, you lose a lot of revenue because people stop buying your print textbooks. That transition has been very difficult because not only are you probably getting less revenue from your digital, you haven’t gone down on the cost curve of your technology investment yet. You are still building your platform. So it costs so much money that your profit is a lot less than when you actually have a lot of those platforms already existing, and you start getting economy of scale. So the huge reason that transition from print to digital is not that people care less about STM content. It’s that the content is being delivered in different way that so far has been less profitable. That’s why all of those companies are making a huge move to digital-only content.

I think F.A. Davis certainly has been affected by a larger trend in higher education publishing, which is a reduction of self-growth. That means you have a class of 100 people, who all choose to use this textbook but only 30 copies get purchased. And there are various reasons for it. One is you have students who don’t buy any book at all. Another is students buy books from an alternate source like renting the book online and other things like that. So all of us are moving to focus more on digitally-delivered content and moving away from print as quickly as possible.

Q: Because you see the needs of customers are changing dramatically that way?

I think there are two reasons: the altruistic and the realistic, both of which are absolutely true. The altruistic aspect of it is that we know a lot more about how people learn now, and we can do things via interactive technology, that really enhance and compliment individual learning style than we ever could with a two dimensional textbook. Two dimensional textbook, even for folks that want it to be highly visual, is still not going to help them to be a static learner. It’s not going provide people a multi-sensory type of experience for learning. Digital can. So I think a lot of people, who are our customers, are seeing how students learn these days from this multi-sensory and interactive technology, and they don’t want [their] students to try and learn the way learning was done 20 years ago. They want their content to perform in the way students learn now. That’s one end of this story. The other end is, at the end of the day, you have to earn a profit. And if textbooks have become so expensive and unwieldy that we can’t earn a profit by doing them, that’s a very business decision. You don’t stay in business very long doing things that you don’t earn a profit on.

Fortunately for us, those two aspects of the decision are coordinated. And so we can make the shift from a corporate perspective. It’s not just F.A. Davis. In fact, others are moving much more quickly like McGraw- Hill, which basically isn’t selling textbooks anymore, or at least is only selling them as a supplement. But all of us are moving in a direction of trying to get that most of our revenue based on digital aspects.

Q: How long does it usually take for publishers to amortize the technology investment?

Generally, amortization for technology from a regular accounting perspective, you want to see it in less than 5 years, but that just doesn’t happen. And the problem is that people look at it from product to product. From a product perspective, we’d like to amortize investment in every singular product in a year. Digital investment is generally amortized in a year. We have to look a little bit differently at this, though, and look at capital investment, which is the same as purchasing a new building because we see this is the cost of doing business. It’s actually not a product, it’s a storefront by which our product is hosted. I’ve seen it is anywhere from amortizing within the first year to amortizing over 15 years. It’s because you are continuously investing.

Q: It’s a tough game.

It is, but it’s a lot of fun because the game is a lot more fun when it’s changing. Anyone who wants to compete and wants to do something better for customers has a very hard time in a static environment. “Ultimately, why would I change if everything’s the same and I already know this way?” That’s a good question. If everything’s changing, the dynamic of that question changes as well. If everything’s changing, I have to change. “Who can help me change in the best fashion?” It [STM publishing] is a very innovation-focus industry right now that I’m sure you wouldn’t say that 20 years ago.

Q: Besides the decreasing print revenue, what are the key challenges of F.A. Davis when transitioning to digital? Are these typical challenges of the STM publishing houses in general?

The main challenges are cultural (adjusting people’s context towards thinking of digital content first), and procedural (adjusting people’s job descriptions such that their efforts are more in line with digital content production.) Both take several years, and everyone in the industry is dealing with both.

Q: Does F.A. Davis use a Content Management system? If yes, can you share which system you are using and how does it meet the requirements of the organization? If no, how do you control and manage the content at the moment?

Every publisher utilizes a content management system. The question is how sophisticated that system is. The system that we use is proprietary; however, it is utilized to store simple (pieces of art) and complex (whole texts) assets in order to be able to reuse and repurpose them for a wide variety of different projects and in a wide variety of different media. It is used to customize solutions for large customers and to allow in house personnel to quickly find assets needed for revisions/new products.

Q: How do you see F.A. Davis in 5 years from now in regard to the company’s digital business? F.A. Davis certainly will enjoy a larger percentage of net sales than it has now. The paradigm is likely to shift from seeing digital assets as ancillary to print assets to the other way around: the print text, while still available, is simply an optional item of convenience for those customers who wish to have one above and beyond the required digital version.

Q: Professional books are still projected as a “leading market for digital uptake.” What is your opinion about this?

This has been true for at least ten years (15 may be more accurate). Most STM publishers are seeing the majority of their top line and bottom line growth coming from digital assets, and are maneuvering to increase the prevalence of such products.

Q: What are the major changes that you see in STM publishing in the next 5 years?

I see them more as continuing trends: 1) further consolidation of the industry; 2) Larger media companies abandoning vertical textbook offerings in favor of high-investment digital assets in only the largest textbook markets; 3) great expansion of the “Flipped Class” model in higher education (along with products to support it); 4) Further deterioration of outside field sales forces, replaced with telephone-based customer service; and, 5) greater product development to support increasing use of smartphones for LMS platform functionality.

This is the first part of the interview with Quincy McDonald. The second part is about how digital publishing has changed to meet the changes in online learning education.