E-textbooks expected to grow with iPad on campus

LOS ANGELES Wed Sep 15, 2010 6:06pm EDT

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LOS ANGELES (Reuters) - Video and color graphics are key to why many people think Apple Inc's iPad and other tablets will usher in the era of electronic textbooks.

Analysts say that unlike Amazon.com Inc's Kindle -- briefly touted as an educational tool -- the iPad can play video and illustrate charts and graphics in full color. It also allows for easy note-taking and the online component allows for integrated tests, exercises and updates.

"If I had the potential to buy all my textbooks as e-textbooks, I would," said Alexis Chavez, 22, of the University of Arizona. "It's just easier to carry an iPad than to have to carry a bunch of books in your backpack."

A growing acceptance of digital delivery in the $4.5 billion university textbook market, until now hampered by the lack of a suitable platform, will have major implications for dominant players such as Pearson PLC, privately held Cengage Learning and McGraw-Hill Companies Inc.

Publishers can save on printing and shipping, said Morningstar analyst Michael Corty. But they may also be hard pressed to maintain prices as publishers try to lure early adopters and compete with free Web offerings.

"The jury's out right now. I think at worst it's a neutral," said Don Kilburn, CEO of Pearson Learning Solutions.

Digital textbooks are expected to grow to 4 percent of overall sales this year from under 3 percent, rising to 11 percent by 2013, according to Simba Information.

"What the tablets have to do and in many ways can do are to make reading easier for students and a better experience," said senior Simba analyst Kathy Mickey.

'SCOURGE' OF PUBLISHERS

At CourseSmart.com, students can download McGraw-Hill's "Macroeconomics, 10th Edition" for $43, versus $107 in print.

One potential benefit for publishers of lower prices is the recovery of sales from the used-book segment. For every two new books sold in U.S. college textbook market, one used book is sold, according to the National Association of College Stores.

Used books are "the scourge of traditional textbook publishers," said Evercore Partners analyst Doug Arthur.

"If it all went to e-books and you needed a password to access them online for the latest and the greatest and for testing and everything, that would make the used textbook market less valid, and would help the publishers."

But smaller companies and university officials say the growth of digital distribution could also allow them to challenge the majors by lowering barriers to entry.

"It is going to be very disruptive" to publishers, said Eric Frank, president of Flat World Knowledge, which offers free texts to 1,300 instructors and their students on the Web.

Not all students are enamored with digital textbooks. A National Association of College Stores survey last year -- before the iPad came out -- showed that 74 percent of students still preferred physical texts. Students complained of eye fatigue and of the lack of color on the Kindle, said Charles Schmidt, a spokesman for the association.

The true "digital natives" are middle school students, he said. "For them, e-books are more normal, once they start moving up into higher-ed, they'll be more acceptive of it."

Mickey does not expect "major shifts in the who's who of college publishing" -- for now.

"Long term, the biggest threat to publishers will be if there's some kind of major adoption of open access (free course material), meaning there is a change in how college instructors and professors view content," she said.

Some aren't waiting to see. Houghton Mifflin Harcourt, an educational publisher that focuses on course material for elementary, middle and high schools, sold its college publishing business to Cengage in 2007 for $750 million.

"We absolutely accept and agree that there are secular risks to the future of textbooks" in the college market, said CEO Barry O'Callaghan.

Pearson says digital textbooks dovetail with its strategy of moving away from print and toward online educational services, such as MyLabs, a tutorial and assessment product that helps students work on their weak spots.

"If our main competitive advantage was paper and binding, I'd say we're in a world of hurt," Kilburn said.

(Reporting by Alex Dobuzinskis. Additional reporting by Christine Kearney in New York. Editing by Robert MacMillan)

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