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NACS Monitors CourseSmart
12/14/07
The NACS Board of Trustees asked its legal counsel, Arent Fox, to review the background and organization of CourseSmart LLC, and evaluate whether its organization and operation were in compliance with U.S. antitrust laws.
"Our evaluation thus far has not permitted us to reach specific legal conclusions," reported Marc Fleischaker of Arent Fox.
CourseSmart LLC was founded earlier this year with a stated purpose "to improve teaching and learning by providing instructors and students better exposure and access to digital course materials." The founding publishers are Bedford, Freeman & Worth Publishing Group; Cengage Learning (formerly Thomson Learning); Houghton Mifflin; McGraw-Hill Education; Pearson Education; and John Wiley & Sons.
In November, the NACS Board alerted members to developing concerns that had been apparent ever since CourseSmart rolled out its "beta version" web site. Because the company is owned by six major textbook publishers (shortly to be five with Cengage's recent agreement to purchase the assets of the Houghton Mifflin College Division), there is potential for its business model or those publishers to exercise unreasonable control over the release and pricing of digital assets to the higher education marketplace. Antitrust laws preclude competitors from acting together in restraint of trade.
"The method in which CourseSmart will operate has not yet been finalized or made public," noted Fleischaker, "and it is not yet clear whether the publishers will continue to act independently regarding the actual distribution and pricing of their products, or if CourseSmart is intended to create uniform policies for the publishers in the context of the sale and distribution of digital textbooks."
Although no specific conclusions about legality have yet been reached, Fleischaker said he'll continue to monitor CourseSmart as it evolves and will advise NACS and its membership about the legal issues connected to its operation.
"It will be important that the publishers disclose details about the operation of CourseSmart as quickly as possible," he said, "so that the public, including the college stores that are traditionally the major distribution source for college textbooks, can understand how CourseSmart will operate, how the individual publishers will distribute digital products in the context of CourseSmart, and how publishers envision the role of traditional college bookstores in the future."
Another concern was that CourseSmart's Basic Affiliate program doesn't provide adequate compensation to college stores for their role in aggregating course materials information and facilitating a sales transaction. At present, a CourseSmart affiliate receives only 5% of net sales (sales minus any applicable taxes, refunds, or re-subscription) on all purchases made by students directed to CourseSmart from their site.
By contrast, when its new affiliate program went into effect in October, Cengage's iChapters store (which launched with 5% and 8% commissions) began offering 12% to 15% to stores on click-through purchases made by students on their campuses.
Cengage plans to continue operating and growing iChapters.com despite being a founder of CourseSmart, which could be seen as a direct competitor to iChapters.
Adam Gaber, Cengage's vice president, corporate communications, claimed the two sites' features are "complementary," citing iChapters' "range of formats, price points, and study tools" for students. By contrast, he said, "one of the major functions of CourseSmart is to provide electronic review copies to instructors on a common platform, which is of great benefit to faculty as well as to publishers."
However, even a casual review of the CourseSmart site shows that e-commerce in digital course materials, rather than review copies, will be its primary business.
Nonetheless, Gaber said, "We believe there will continue to be benefits to our customers and to us in maintaining a proprietary site as well as participating in an industrywide solution."
A CourseSmart Premier Affiliate Program is still under development to "support deeper integration with retail partners," according to the CourseSmart web site. Premier-level retailers will supposedly earn higher fees than basic affiliates. Four or five pilot sites will test the Premier program in January, with a broad rollout planned for sometime in spring 2008.
"My affiliate programs will need to be competitive in the market," said Frank Lyman, CourseSmart's executive vice president, marketing. "The experience with the pilot schools will help us make both the operational and financial details of the Premier program concrete. At that point, I will likely have a public rate sheet for various types of Premier implementations. But at this point I can't say what those commission rates will be."
Lyman added his goal is to review the pilot sites and then make details of the Premier program publicly available by March or April, "well in time for schools thinking about implementing them for summer or fall classes."
He also reiterated that "we see bookstores as important partners in bringing CourseSmart to students alongside the other options students want and with the various payment options students need." However, in a Boston Globe interview, Lyman said he believed that publishers and college stores would find the gradual shift from print to digital would cause "some shaking out of their relationship."
For more background on CourseSmart, go to "Six Publishers Launch Joint Digital Textbook Venture (11/6/07) and "The Book on CourseSmart (11/9/07).
—Michael von Glahn
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