The now-ailing media mogul Sumner Redstone is widely credited with popularising the phrase “content is king”. The intuitive appeal of this aphorism has separated investors from their money across a wide range of media businesses.
The basic fallacy inherent in the sentiment, however, has ensured that these stories have ended unhappily from a financial point of view, and not just in movie making. In particular, pursuit of the content dream has been behind many disastrous forays into the business of education by some of the world’s most sophisticated investors.
But the business of investing in the hope of generating a hit is not a very good one. The source of the unattractiveness of this business is basic: there are few barriers to entry in content creation.Why isn’t content king? Surely what underlies the success of all media — whether a landmark film, a breakout TV series, a standard textbook or popular educational software — is compelling content. “Hits” are indeed valuable.
Take a look at the more than $1bn Rupert Murdoch spent between 2010 and 2015 to try to revolutionise primary and secondary education through a business called Amplify, the digital education division of News Corp.
The single biggest money drain, before the business was sold for scrap value to a group of investors led by Laurene Powell Jobs, the philanthropist, came from investing hundreds of millions of dollars to develop an entirely new digital curriculum.
Losses from Amplify Learning, the curriculum division, were more than from the other two divisions combined, yet had been projected to account for only 20 per cent of the combined revenues well into the future.
Amplify created good content. Its middle-school reading curriculum was adopted in California, one of the most important states for the market. But California’s Instructional Quality Commission recommended adoption of 25 of the 29 English language arts programmes submitted. These included not just established programmes from all the major textbook publishers, but also from a wide range of newer digital players. Amplify will be one of many competing on a district-by-district basis for sales.
The recent wave of exciting new educational products and services has caused unprecedented confusion and disappointment among teachers, parents and students
Content would be a great business if one produced only hits, but it never seems to work that way. The lack of barriers to anyone spending prodigious amounts of capital to create the next smash is what ensures a pedestrian return on that capital.
The market and universities’ current infatuation with Moocs (massive online open courses) reflects a misguided belief that the internet will make educational content creation a bigger and better business. The two largest venture-backed Mooc providers, Udacity and Coursera (which compete with university-backed non-profit EdX), have now attained a unicorn valuation status of more than $1bn, despite generating modest revenues and less modest losses.
The education content businesses that have done well over time, such as textbook publishers who long dominated the for-profit education landscape and are still highly profitable, benefited from economies of scale. These advantages are primarily due to the fixed marketing and distribution costs that industry leaders can spread across their larger customer bases.
The ubiquitous availability of digital distribution has reduced the fixed cost requirements. This has facilitated the introduction of innovative new competitors but also undermined financial returns across the board.
What’s so bad about multiple new entrants, even if the long-term viability of many of the businesses is questionable? The education industry has always represented a mix of public, non-profit and for-profit enterprises.
For-profit enterprises with sustainable business models provide a level of continuity that government and non-profits — subject as they are to the fickle preferences of politicians and funders — cannot. The recent wave of exciting new educational products and services, most of which fail to live up to their hype and can disappear quickly, has caused unprecedented confusion and disappointment among teachers, parents and students.
Misunderstanding the structure of educational markets can result not just in unexpected financial outcomes but also undesirable policies. Universities across the country have felt pressure to introduce hundreds of Moocs, often generating significant losses. The inspiration behind the Mooc movement is to improve access to education — particularly among poor students. It turns out, however, that students from less-advantaged economic backgrounds are less likely to enrol in Moocs at Harvard and MIT than their wealthier peers.
Understanding the structure of educational markets is essential for building strong and sustainable businesses. It is equally important for successful non-profit planning, and developing effective government regulations in the sector. Our collective interest in ensuring a better appreciation of the true drivers of resilient education business models is not just as shareholders and managers but as citizens and taxpayers.The perverse result is that by subsidising the development of Moocs, which in turn puts further pressure on tuition costs and financial aid, less well-off students are effectively funding the educational aspirations of their wealthier counterparts.