The digital shakedown has cut a swathe through another major publisher, with 75 redundancies expected across the country.
Pearson Education Australia announced in January that it would be undertaking a review of the business, spurred on by lacklustre sales figures from 2012. It wasn’t a localised event. At the beginning of the year Pearson Global CEO John Fallon announced a $329 million restructure of the entire company.
In the UK the Telegraph reported that this restructure would involve ‘job losses in every country in which Pearson operates.’ In June, Pearson announced the closure of its New Zealand business.
This week the axe was raised in Australia when employees were told they could expect 75 ‘potential redundancies’ across the country.
Pearson said the redundancies were the culmination of the six-month review. The company will consolidate its print and digital production teams, marketing and customer services functions, and sales teams. Traditional publishing activities in the vocational education & training market will also be shut down.
As part of the restructure, Pearson’s offices in Perth, Brisbane and Adelaide will close, with most staff there offered redundancies while some may remain and work from home. These offices are mostly made up of small sales teams. The rest of the redundancies will be across the Melbourne and Sydney offices, where teams will be streamlined to create greater efficiency.
Those fundamental changes in the industry are simple yet profound. ‘Nobody buys books anymore – that’s it,’ a Pearson employee told artsHub.
Employees have been expecting a ‘head count reduction’, where staff numbers would be reduced to try and make the business profitable again.
Pearson's mainstay is textbook publishing but students now rely on online resources. Online shopping has also been a boon for the second hand market so that where textbooks are used they are more likely to be sold on.
Educational publishing is facing the same challenges as traditional book publishing. Digital is becoming more popular than print, which people don’t want to buy because it’s too expensive, meaning the money being poured into creating this content isn’t returning enough profit. Of course, sales are also down.
Publishers can’t make content quickly enough or cheaply enough to have a reasonable profit margin.
In the past Pearson's has had a huge list, perhaps creating 1000 different titles each for minimal profit. It now plans to concentrate on a smaller number of titles, around 100 to 200, which will have a larger profit margin.
Generally speaking, these will be high value digital products, rather than the conventional print products.
While Pearson is turning attention to digital products, that’s only one aspect of restructuring the business model.
‘As trends in education change, it has become apparent that we need to rethink some of our current business models as we support Pearson’s global education mission,’ Pearson Australia CEO David Bennet said.
That mission is truly global, and focuses on offering educational services, rather than products like textbooks. One of the factors in Pearson’s restructuring is the growing middle classes in emerging markets like China and Brazil. This is an area the company is turning its efforts towards, and it’s no secret.
‘This is absolutely the right thing to do now and we really have to get on with it very urgently. The rise of the global middle class is probably the single most important trend for Pearson’s future,’ Fallon said of the restructure in February.
At the moment, around 15% of Pearson’s revenue is generated in markets like Brazil, China, South Africa and India. Fallon hopes to grow that to 25% by 2015. At the same time traditionally strong markets like the US aren’t yielding enough profit. In America, pre-tax profits fell nearly 60% despite a 4.3% rise in growth.
It’s a similar situation in Australia. While Pearson has actually gained market share, that market is contracting. ‘They’re actually making less money as they gain market share,’ says the source.
These trends are noted in Pearson’s 2012 results report, which states:
‘Market conditions generally weak in developed world and for print publishing businesses; generally strong in emerging economies and for digital and services businesses.’
‘It really is about shifting the focus to emerging markets, either by acquisition or growth in core markets,’ the source says. ‘The idea there is to leverage that growing middle class to make more profit – it’s a business.’
This week’s press statement outlines a plan to ‘build greater capacity and capability’ in services businesses, with Pearson highlighting professional development for teachers and course development.
This indicates a fundamental change in Pearson. While it’s traditionally been an education publisher, it’s restructuring itself into an educational service provider.
‘It’s not about printing text books, it’s about putting people in front of classes and teaching them how to speak English, or consulting on learning solutions for universities. It will be selling a whole educational structure plan, which can include textbooks and digital content, but could also be advising universities on the best way to deliver and structure their course.’
Pearson has already begun this process. In 2010 Pearson paid $92 million for the Wall Street Institute, which according to The Bookseller, teaches English using ‘a proprietary learning model combining web-based content, class-based instruction and digital and printed learning materials’. It has around 340 franchised learning centres in 25 territories across Asia, Europe, the Middle East and Latin American. That business has been combined with Wall Street English, based in China, and demonstrates Pearson’s increased services offerings.
‘The big model at this stage is putting the learner at the centre of everything, so not thinking about telling them what they want, but trying to figure out what they actually need,’ our source says, ‘rather than the conventional format of text books for x dollars and a huge profit margin, because that’s just not going to happen.’
The Chinese education market was valued at $240 billion USD in 2009, with an expectation to grow 15% a year, so it’s no wonder that Pearson is looking to expand there and other developing countries. ‘Everyone wants to learn English and everyone is willing to pay. The wall is coming down and Pearson is moving in.’
Still, knowing this business plan isn’t going to be much comfort for Pearson employees made redundant. While our source wasn’t certain if everyone facing redundancy has been told officially, everyone in the company was reportedly met on the day of the announcement, and those being made redundant effective immediately have been notified.
While employees knew changes were afoot, the scope and size of those changes wasn’t predicted. ‘I think it’s the scale of the change that probably surprised people more than anything.’
The closure of the New Zealand business may have hinted at the significance of the changes. ‘It made people realise they weren’t messing around, it wasn’t just going to be a job here or a job there, it was going to be wholesale – a very big business change.’
The restructure also isn’t related to the recent merger of Penguin and Random House, although Pearson owned Penguin, Penguin Random House is separate from Pearson Education.
‘Many of our people will be directly affected by these changes and our focus right now is on their welfare,’ Barnett said.