Radiohead phenomenon in school textbooks

Freeload Press (www.freeloadpress.com) have a catalogue of school textbooks and study material, which they have made available online, free of cost. Their business model relies on selling advertisement space on both the website and on the downloaded pages (the first few pages) of the free text book. It also sells advertisement-free, stripped down, black and white print versions of some of the downloadable textbooks, at a much lower cost.

The Freeload Press describes their mission statement thus, "We publish and distribute premium textbooks from the best authors in their respective fields. We then deliver our textbooks using an innovative combination of commercial support and direct fulfillment. This allows us to provide the textbook as a free e-book. Print versions are also available for reasonable prices – typically 65% less than competitive textbooks!"

School textbooks are typically very expensive, and retail at much higher prices than normal. (Though this is not much a problem in India now, it will soon become one as the copyright regulations get stringent in the coming years) The substantial secondary market, reliance on school library, and the limited market is repsonsible for this. The Free Exchange argues that, "Each year, students will find it easy to return to the download source for the text, thereby providing new revenue to the author--secondary markets become pointless. Lower prices should also increase consumption. Professors should feel no compunction about assigning students reading from multiple textbooks if the cost of each to the student is zero. This should provide some reinforcement to the free download model; since traffic to the download sites drives revenue, an overall increase in the average number of textbooks consumed by a student should improve the market for authors."

An advertisement-based, free online download model has the potential to unsettle the traditional textbook industry, just as Radiohead-like free downloads could do to the music industry. This model is also likely to generate demand for the really good textbooks, even by the less well known authors, thereby unsettling the "superstar effect", so widely prevalent in textbook retailing. However, it is also likely to generate a much higher degree of "network effect", as the well written books, become even more popular.

A few observations on this
1. The high cost of the most popular textbooks and the fixed cost arguement is much like the drugs industry with its high R&D costs for patents and the obscenely high drug prices. The numbers sold and the prices charged, do not square up, even assuming the most avaricious profit margins! A few explanations (thanks to Free Exchange, and some with less merit) that mitigate against the igh fixed costs and cost recovery hypothesis - disproportionately less price declines even after many editions, frequent revisions with little change in susbstance, small proportion of used books getting back to secondary market, poor production quality of such textbooks etc.

2. It is hugely distorted by "network effects". The text books prescribed by instructors and more popular in the better and bigger schools, drive out the others from the market. (This is especially true in the IITs where the overwhelming bias in favor of foreign textbooks, tend to leave the students unexposed to some better textbooks by Indian authors.) In a field like education, especially graduate, where conceptual clarity is no more important than exposure to the full spectrum of views and positions, reducing the available repertoire to a few superstar books, can affect the balanced development of the students and the field itself. This is something similar to the trends in the media industry with its increasing mergers and industry consolidation, that seek to monopolise and thereby limit the public dissemination of ideas and opinions.

3. It is easier for the publishers to get this model through because the peculiar nature of textbook market. Again like what role the doctors do for drug industry, the instructors play a crucial role in prescribing textbooks and influencing the purchase decisions of the sutdents. And the instructors, in turn are influenced by the "superstar instructors", who invariably have their own "superstar textbooks" to push through. The instructor-publisher relationship suffers from the same well documented problems that afflict the doctors-pharmaceutical companies relationship in teh drug industry. Further, instructors like to prescribe textbooks that reduce their workload and let students rely more on the textbooks. There is clearly a form of "principal-agent" problem, as what is best for the instructors is not necessarily good for the students.

4. Another distortion arising due to the superstar effect. Due to the overwhelming importance of the superstar textbooks, the slightly less well written, but more than adeqaute and very cheap textbooks do not get a look in. This is an economically inefficient outcome, as the students pay disproportionately higher prices for a textbook, even as only a slightly inferior standard book is available at a much cheaper price, for only a slightly more utility. (Note: Standard is generally inferior only in relation to the presentation of the matter, and not on the substance.)

5. Textbooks, especially the basic and introductory ones, have very long shelf lives. Unlike the R&D costs for drug discovery, human capital cost forms the overwhelming share of the fixed development cost. Also, unlike the music industry, it does not depend on a grand collaborative effort of different individuals. In fact, basic course textbooks rely on a lot of free lunches from the Research Associates, PhD students and others who assist in the development of the book and who do not get remunerated (proportionately) for the same.

6. The example of textbook industry in countries like India is instructive. Textbooks, even the superstar ones, are not expensive. This is despite the market suffering from a massive problem with pirating and photocopying. A few characteristics of this market - publishers are not as powerful, textbooks are sold directly to the students, reading material is prescribed in the syllabus/curriculum and not by teachers, multiple textbooks are prescribed thereby providing choice and eliminating the monopoly problem etc. Therefore in a market not distorted by publisher power, indirect sales, and principal-agent problem, the high fixed costs argument breaks down.

7. The publishers tend to cream off a disproportionately high share of the margins. (I do not have figures on this, but this is a suspicion)

Clearly we have a market failure. Solutions to the same invariably involve regulation (whether we like it or not). Some of these solutions include
1. All textbooks should be published by Government or by some independent, non-profit agency. As an alternative, like some suggestions that prescribe Governments buying patents, the copyrights on the more profitable books can be purchased and brought to public domain.
2. Textbooks should be prescribed along with the curriculum and should involve choice. Don't leave textbook choice to teachers
3. Or else go to the other extreme and make certain textbooks mandatory for the course and let the universities/colleges negotiate with the publisher and get it at lower costs. This approach, while lowering the costs, will create other distortions.
4. Regulatory restrictions on new editions.
5. Wiki textbooks or Opensource textbooks! A whole market could develop around them, like the Linux versions, thereby profitting the major contributors.
6. Encourage the Freeload Press model, with free downloads.
7. More copies made available in libraries. Or copies given along with the course materials after collecting a fixed user fees, and taken back after the course.
8. Making available cheaper, stripped down, black and white versions.