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As one door opens...

There’s a spectre haunting the technology and media world. Companies as powerful as Microsoft and Apple have seen it slash their margins and been forced to adapt. Those that couldn’t have been brought to their knees, or even bankrupted.
 
That spectre is ‘openness’, the willingness to give away intellectual property for free, and now it’s starting to hit educational publishing, too. The problem is ‘open educational resources’, or OERs, and already it’s clear there’ll be winners and losers. 
 
OERs usually fall into one of two categories. In the case of things like MIT’s OpenCourseWare or the Open University’s OpenLearn, they can be resources – reading material, lecture notes, exams, or multimedia content – that other universities can use in their own courses, or which students can use for self-study. At the more sophisticated end of the market, though, they can be complete textbooks, available in their entirety online, that lecturers can recommend to students on their courses.
 
What both categories have in common is the fact the resources are free. What’s more, they’re almost always released under a ‘creative commons’ licence, allowing anyone who has the material to copy, share, modify or reuse it, provided they don’t do so for commercial gain. All this is clearly a threat to publishers. But there’s little obviously in it for the OERs’ producers, either. So why is it happening?
 
In part, it’s simply an altruistic response to the perceived high cost of materials. In the US, where OERs are gaining the biggest traction, textbooks are big business, with the market for new ones worth around $5.5 billion (£3.4 billion) and the second hand market worth around a third of that again. Academics have found themselves having to recommend books that can cost anything up to $200 each. In 2007 a US congressional advisory committee reported that the average student’s textbook expenditure “can easily approach $700 to $1,000”. All this has made free alternatives a very attractive prospect.
 
OERs can also have a number of benefits for higher education institutions, too, reckons the UK’s university technology consortium, JISC, which has teamed up with the Higher Education Academy to run a pilot OER programme. So far it’s found that OERs have the potential to increase student satisfaction, enhance the global academic reputation of the UK higher education system, and increase applications to UK courses from international and non-traditional learners. Good OERs can even promote individual lecturers, it found, by showcasing the quality of the courses on offer.
 
Leading the field here in Britain is the Open University, with its own OpenLearn  and Apple’s iTunes U services. These have been incredibly popular, says Peter Scott, director of the Open University’s Knowledge Media Institute, and last year received 14 million visitors and 30 million downloads respectively. It’s also working as a marketing tool. “We’ve tried to track cookie sessions to see if people have gone on to register for courses,” says Scott, “and so far, there have been at least 6,000 registrations.” That’s more than 2% of the OU’s 250,000 students – hardly insignificant.
 
So the motivation for universities is potentially strong. But there are obvious losers in this brave free world, too. Some businesses, such as CrossKnowledge, have invested millions in creating content to sell to universities for use in their courses. And mature university OER providers ambitions’ can extend to more complex products such as textbooks and workbooks, impinging on more traditional publishers. Since October, for example, the OU has released 100 out-of-print textbooks a month through iTunes U (there are no plans to offer in-print books at present, says Scott). 
 
As a result, says Nick Platts, chair of educational publisher Schofield & Sims, OERs are becoming a problem for the entire industry. After all, why would you buy a textbook when there’s one available for free? “They’re not good for a publisher,” says Platts. “It’s a bit like people writing a book and saying ‘I don’t want royalties on it’ and a publisher saying ‘I don’t want to be paid.’ It’s not great at all.” 
 
Producing OER material does, of course, take time and money, even if it could save money in the long run. At the OU, Peter Scott says the creation of electronic OER material is now just a standard part of the university’s production workflow, so separate figures for OER costs are not available. But MIT’s OpenCourseWare initiative is clearer about its costs, and has an annual budget of $3.7 million dollars.
 
At the moment these costs are being subsidised: MIT pays for only half of that budget directly, with the rest covered by grants, corporate underwriters and donations. In Britain, the Hewlett Foundation has been responsible for a number of OER investments, while the Higher Education Funding Council for England provided the initial £5.7 million for the first phase of the JISC/Higher Education Academy’s piloting. 
 
But such subsidies can’t be relied upon forever. Sarah Porter, head of innovation at JISC, asks, “In the longer term, how will we pay for this? What are the business models? People are worried about the bottom line.” In other words, the big question is whether OER providers could create a self-sustaining model that could threaten publishers over the long term.
 
Flat World Knowledge, a US start-up created by two ex-Pearson employees, offers one promising OER business model. The company was seeded with $12 million of venture capital, and recently received $15 million in series B funding from Bertelsmann Digital Media Investments. The company, which now has over 100 authors under contract, makes its books available online for free as web pages under a creative commons licence. Anyone can edit them, print them off and use them. Despite the fact all this is free, Flat World co-founder Eric Frank predicts that the company will break even within two years.
 
The company has several revenue streams that’ll help it achieve this feat. Flat World provides its books in a number of other formats, for devices such as mobile phones and e-book readers, and it also offers a printing service. All these the user has to pay for. It charges, too, for study aids, flash cards and other tools related to the textbook. Although the author gets paid relatively little to write the book, he or she gets 20% from sales of all these formats, even though the study aids are usually created by someone else.  The company is also turning the creative commons licence to its advantage: anyone creating modified versions of the textbook is also able to give the work back to Flat World Knowledge and sell it through the company, getting a percentage of the royalties determined by the scale of the changes they’ve made. 
 
Frank says the model is working well. “We’re hitting about the same penetration rate [as other publishers] in courses at the moment: we’re very close to less than half a per cent off, being used in over 900 colleges by more than 
100,000 students in 44 countries.” And although the company has made few efforts to expand overseas, its books are now being used by 80 universities around the world, including ones in the UK and China.
 
Flat World is not alone in embracing OER textbooks, and smaller companies in the US and Europe  are producing books using similar models. The effect on mainstream publishers’ margins is notable. “A drop in price of 50% is the predominant response,” Flat World’s Frank says. 
 
Schofield & Sims’ Nick Platts says the value added by his company is what now differentiates it in the market. While Flat World and other professional OER publishers might be producing high-quality materials, the ‘bittiness’ of most OERs, which frequently only cover parts of courses, means adoption of these OERs also takes additional resources to make them usable. “What we’re finding is we’re persuading schools that dropped workbooks years ago to take them up again,” says Platts. “They have so much more structure than those pulled down willy nilly off the internet.”
 
But this message, notes Flat World’s Frank, isn’t one that other publishers are shouting too loudly, particularly in respect to his company’s texts. “They try to broadcast the message that our content is no good. But more than half our authors are their authors, so they can’t push that message too hard.” 
 
Another response from the publishers has been to offer traditional books in new formats. In part to combat OERs, Macmillan and other publishers have begun to offer e-books, in response to student and faculty demand. A consortium called CourseSmart, including Pearson, Cengage Learning, McGraw-Hill Education, Bedford, Macmillan and John Wiley & Sons, claims to offer 90% of core textbooks in electronic formats at much cheaper rates than print, usually through a rental model in which the ebook is no longer readable after a certain time. 
 
But this is unlikely to be a panacea for the problems OERs are bringing. Paper is still the most popular format for books, according to the US’s National Association of College Stores, with digital books making up just under 3% of textbook sales (although that should rise to 10-15% by next year as more titles become available). So the central problem remains: the high cost of mainstream publishers’ quality publications is increasingly unattractive when compared to the zero cost of the quality OER publications.
 
It’s clear that OERs are here to stay and are going to continue their slow revolution of education. Although mainly popular in the US and poorer countries at the moment, their effect is likely to continue to spread to the UK and Europe in the next few years. Publishing companies are going to have to change how they distribute and sell their books, or potentially cut costs and profits to deal with the arrival of ‘open’ competition. There may well be casualties along the way. 


Posted on: 18/02/2011