Jerry Sullivan, former LA Business Journal editor who now runs his own media outlet called SullivanSays SoCal, interviews Michelson 20MM Foundation CEO Phillip Kim about the campaign to make textbooks more affordable for community college students.
Jerry Sullivan 00:01
This is Jerry Sullivan for ‘Making an Impact with Michelson Philanthropies.’ This edition has been recorded remotely in observance of social distancing, please excuse any inconsistencies in the audio. We’re going to talk today with Phillip Kim, Chief Executive of the Michelson 20MM Foundation. Philip came to the organization with a background in the world of venture capital to lead the development of the Michelson 20MM Foundation’s social impact investment platform to provide seed funding to mission aligned education technology startups. You might not make a link between technology startups and the seemingly stodgy world of textbook publishing. But check the prices that community college students pay for their textbooks and you’ll see why now is a timely moment to talk to someone with Phillip’s perspective. Welcome, Phillip. And let’s get started with this. It’s been mentioned that the textbook situation for kids, especially at community colleges, some people have referred to it as a racket, which is a pretty strong word. Why would some people call it a racket? And why do students need protection from the publishing industry?
Phillip Kim 01:13
Yeah, thank you, Jerry, for having me. We can’t take credit for that term, unfortunately, that was Governor Gavin Newsom himself when he held a press conference earlier this year around his budget, in speaking about some of the historic investments that he was making toward educational affordability. And I’ll paraphrase but several of those investments were going after what he called the racket that is the textbook industry. He referred to it as being abusive and making no sense, except to those that are the beneficiaries, the publishing oligopoly, the beneficiaries of this system on the backs of our children. So he was very strong in his language and his position on wanting to address this problem in the higher ed landscape, which does contribute very significantly to the total cost of education. But to the question of why particularly now do we need to be maybe more than ever thoughtful about how our large public systems are engaging the major publishers. I was recently at a conference, the first one back since COVID, and I was in a keynote session with the new CEO of Pearson, this gentleman who was formerly chairman of Walt Disney International, and he was speaking about the launch of Pearson+, which is the new streaming service, the Netflix subscription model that they have for their entire content catalog. And interestingly, to a room full of educators, ed tech founders, ed tech investors, he said that the company must view faculty and students as they would any consumer. And he in fact, doubled back on that and reiterated that point and that label. We should always remember these are publicly traded companies that must answer to boards and investors and chase profitability, and we certainly can’t fault them for that. But I think we would be well served to remember that they exist that way, and that we should protect our most vulnerable students accordingly. The reality is that right now, this term, previous terms, system leaders are inking contracts with these large publishers that will obligate our students to pay hundreds of millions of dollars in the coming years. Many of those contracts automatically enroll every single student in the class to pay these subscription fees. Many of those contracts do not cap fee increases. Many do not allow students to find affordable alternatives. Many ask institutions not to share the terms of some of these contracts. We know all of this because we funded the Public Interest Research Group a number of months ago to dig through dozens of these contracts, and they found these common threads consistently. So I think there’s good reason for us to be cautious in the moment. That aside, I think we’ve been tracking the space for decades, but have been looking at the last 30 years really, if you consider the bigger picture, we have to think that their past behavior is probably their best indicator of their future behavior. And over the last 30 years, textbook prices have outpaced inflation by 3x. For much of that time, students have been paying over $1,000 a year on textbooks, which for community college students, one of our focus areas, that’s more than the cost of registration and fees. During all that time, the publishing industry was really five big players that controlled 80% of the market. There’s been some consolidation and now we’re actually down to only three big firms that control 80% of the market. So rarely do you ever see more consolidation like that and higher concentration of power, leading to reduced prices. I think we’re expecting it to go the other way.
Jerry Sullivan 04:47
And you said some interesting things. Now first, Pearson, just for listeners, is a major academic publisher of textbooks. And you’re talking about a gentleman who is now running Pearson who has experience at Disney, which I find very interesting, and talking about the consumer experience of this. You also mentioned subscriptions that we’re talking about, maybe online stuff. But the heart of this problem is still, and it seems increasingly outdated, but it’s still hardcover or printed textbooks, is really the bulk of the cost still, isn’t it?
Phillip Kim 05:21
That is rapidly changing. The first emergence of ebooks, it’s been quite some time, more than a decade. But now the trend lines are just starting to pick up and you’re starting to see a more accelerated and aggressive move to digital first. Students will still prefer a printed version. But the publishers have realized that it is a much more lucrative model.
Jerry Sullivan 05:46
Given that, the transition to digital which one would think would reduce costs in a lot of ways, but I guess the consolidation perhaps offsets that. So are the prices remaining at the levels that you would consider a racket, despite the digital transformation?
Phillip Kim 06:05
So we are seeing right now and I think for the first time in 30 years, just a year ago, we saw the first downtick in the average textbook costs. There is some discussion of how OER plays into that. But the bigger concern is what happens now over this next decade. And I think people have to appreciate what a seismic shift we’re actually in. The last time there’s been a fundamental change in medium was back when the printing press came into play. We shouldn’t underestimate the destabilization that’s going to happen here. And what we are seeing now is that yes, prices are dropping as publishers engage in a subscription model. It could be $14.99 for access to their whole catalogue. But for a student, particularly one that might be lower income, a grant recipient, or a first generation student, someone that’s working and on financial aid and thinking about every dollar mattering to the total cost of their education, they may have to access three different publisher platforms in a given semester. And those are going to range from, let’s say, on the low end $14.99, but in some cases, $50. They may have to access now an interactive homework platform. They may have to access a chemistry lab application, or a clicker to allow them to participate in the question and answer back and forth in a class. So these are accumulating costs for students, where I think if you look at any one textbook price, even though that’s dropped, the total costs that a student may have to shoulder for any given semester may continue to climb. And from the publisher perspective, the beauty of this model is that it’s quite sticky. Once you’ve got a school auto enrolled, and you have full sell through, meaning every student in the classroom has your product, and you continue to deepen and become the one-stop, single sign-on platform for a school, and there’s no caps on price increases and things like that, that we get into a situation where I think we’ll look back and with hindsight, we will have wanted to be a little bit more prudent in terms of the parameters and some of the constraints that we put on publishers,at this stage when all of this is being instituted and set up here. I do feel and I think our organization and many in our coalition feel that this is a moment where we really need to be cautious and make sure that if we are going to set down this path of a digital content ecosystem that we do so in a way that is mindful of not just the students that can afford this with no issue but certainly the students that are the most vulnerable and will suffer and in many cases, make choices with regard to their educational futures based on the cost of these content platforms.
Jerry Sullivan 08:54
It seems as though you’ve really chosen a focus on community college where there seems probably the rubber really meets the road on an issue like this. Can you give us a little overview of California’s community college system and why that’s been the focus?
Phillip Kim 09:10
Sure, it was a pretty natural start in terms of Dr. Michelson’s relationship with a local institution. But if you look at the CCC system as a whole, it’s 116 colleges, it’s over 2 million students, 60,000 faculty, something like that. It is the largest single system of higher ed in the entire country. And within that community, you’ve got one out of five is a Pell grant recipient, you’ve got 40% of those students are first generation. And then you see more and more as we continue to track these things really pretty shocking numbers. Seven out of 10 students have reported experiencing food or housing insecurity in the recent years. What we’re talking about is one of the state’s if not nation’s most critical vehicles for upward mobility and economic prosperity, maybe in the world, this one system. And certainly for us, we focus here on this particular issue because relative to the cost of tuition and fees, this is where the cost of textbooks has a relatively greater impact. And we know from plenty of research studies, that those material costs are ultimately real factors in students’ decisions to withdraw. And that was actually the original origin story of how we got into this space, was Dr. Michelson heard of a group of students at Santa Ana College that were all qualified, were not able to return explicitly because the cost of textbooks and that there were faculty members there that were reaching into their own pockets to support those students. So he, of course, made a small grant there. But we immediately started to think about how do we deal with this problem.
Jerry Sullivan 10:50
Now, whenever talk of this comes about, the term “open educational resources” comes up. Can you walk us through that?
Phillip Kim 10:59
Sure. Hopefully, it’s a little bit more known now than when we started out 10 years ago, but it was really an uphill battle for us. But OER for short, open educational resources, that movement has been around for about 20 years. It really started when a few institutions took a cue from open software, and borrowed that ethos. There was momentum around campuses like MIT, where leadership posed this interesting question, what would happen if we opened up all of our courseware, all of our catalog and curriculum to the entire world? And so in a way they were really trying to flip this, like the classic paradigm, that the value of that educational asset, this prestigious university, is not actually tied to its exclusivity but it actually could be increased by making it more accessible by opening the walls of the campus to the entire world. And so today, OER broadly holds that there are these large parts of accumulated human knowledge that no one should lock behind a paywall, but that should be available to everyone. And if you use Wikipedia, or any of these other open resources that are more prevalent, you understand that spirit, and how the collaboration and community coming around it actually increases the value to everyone.
Jerry Sullivan 12:26
Tell us about how this disrupts or holds the potential to disrupt an industry like textbook publishing.
Phillip Kim 12:32
As OER turned its focus to more concrete and formal education applications, it started to build out a really diverse range of teaching, learning and research materials that are either in the public domain or licensed in a way that allows everyone to what they call kind of the five R’s: retain, reuse, remix, redistribute, revise. The community can kind of improve this. But for us, as our entree was around this textbook issue, we really wanted to focus in here because we thought that the cost issue was a huge problem for students. It was an area where we can have a real focused impact. And we became a founding catalytic funder of an early initiative called OpenStax out of Rice University. And this was almost 12 years ago. That program, the intention was to become an open publisher. So we recognize the shortcomings of open educational resources, they were incomplete, unvetted, for the most part did not have a professional dimension to them. So we set out to build a catalog. And we used the same processes as the world’s leading publishers. A lot of folks don’t know that publishers actually outsource their content development to other content houses, which we found surprising as well. But it was very convenient that we were able to then buy full titles from publisher catalog or from these content houses. And today we have more than 40 volumes in OpenStax. They are used in over 60% of the schools in the country. Cumulatively, we’ve saved students over $1 billion dollars. And so the intention was to create this to obviously have direct impact on the students and direct immediate savings. But we really wanted to impact the market and to your question of how we disrupt the market, this catalog and now the proliferation of such open educational resource repositories, was intended to provide this consistent downward price pressure on the market and accelerate the market’s realization and the publisher realization that they were charging $250 for what is actually commoditized content. This is knowledge that hasn’t changed in a long time. This is knowledge that everyone should have access to, and certainly not at that price point. And that publishers themselves, who by the way, now all brand themselves as digital media learning companies and in that kind of world, no longer publishers, they should realize that they can turn their attention to higher value products, higher value tech and interactive products, which will actually improve student learning, versus hanging their hat on these commoditized subject areas that everyone should have access to and shouldn’t be a deterrent to actually continuing their education.
Jerry Sullivan 15:19
And you’ve been hammering away at this for quite a while now, approaching it from various aspects and trying to address it. And just recently, the state of California, I believe, made a $115 million investment in something they call the Zero Textbook Cost program. Can you tell us about that and how it plays into what you’ve been doing these many years, and how might look going forward?
Phillip Kim 15:43
After a decade of growing these titles in this catalog, Dr. Michelson began to advance this particularly promising vehicle for OER, in which and this is the Zero Textbook Cost degree program, in which we could create these complete two year degree pathways that could give a student the clear assurance that they would pay nothing for course content all the way through. In 2016 or so, a first pilot was set up with the community college system here in California, just $5 million in funding at the time. And that created 37 pathways, which encompassed over 400 courses across 23 campuses. And the immediate impact was to generate $42 million in direct student savings, so more than 8x return on that investment. That, of course, is just in the early years. This is something that continues to give in perpetuity. And that’s the beauty of this. And when you compare apples to apples, you have to recognize that the cost of OER goes down and down and down as the years go on. Whereas we expect the publisher pricing to move in the other direction. So the savings was immediate. The bigger, I think, discovery, and we want to validate this as we get into this next iteration of the $115 million, is that you started to see great increases across the board, with the most pronounced improvement coming with Pell Grant recipients who when compared to non-ZTC students, had a 7.6% increase in grade performance. So we’re really starting to see that this is not just a savings issue or an affordability issue. This is absolutely an equity issue. Students perform better with this content, because it’s available, and it’s affordable. Now the next $115 million, if we extrapolate it out, has the potential to create 240 degree pathways and that would touch all campuses in the community college system. And the potential there is to generate over $1 billion dollars in savings in just the first few years. And again, that pays dividends in perpetuity. And there’s already conversation at the leadership level, whether this content can then be used in the other 49 states. There’s no reason why it can’t. And is there even a way for California to recoup any of that investment, the $115 million initial outlay, through mission support fees and other things that have been proven out in other OER deployments? So we really see this not as a budget spend but this is an investment that returns immediately by saving students money, and has the potential to be sustainable as we move forward. So we’re very excited. We think it’s an incredible validation of the last decade of work that’s been done here. We couldn’t be happier that Governor Newsom has taken on this issue directly and recognizes the impact that it’s having on student persistence and success rates as well.
Jerry Sullivan 18:38
And is this $115 million of the validation of the expected growth, is that what scale looks like?
Phillip Kim 18:44
It’s definitely a step in that direction. And this is really the first time I think, nationally, I’m trying to think if there are others, I mean, New York has done some great things and some other states have taken real steps, but I do think that this is the single largest implicit endorsement and participation at a public level to attempt to scale the positive impact of OER.
Jerry Sullivan 19:07
Well, it’s wonderful to get that review and overview and I appreciate it very much. Is there anything else you’d like to add about where someone could go to get more about the program or your organization?
Phillip Kim 19:17
Our foundation website is at 20mm.org. You can find information about all our work here and our work in other areas, which includes Student Basic Needs, Smart Justice, so criminal justice reform, intellectual property education, as well. And we do quite a bit now on the digital divide, which has really been underscored by the pandemic, and making sure that access to broadband isn’t a barrier for our students as well. We also have a website at ztc4ca.com, where you can find more information about the Zero Textbook Cost program in particular, and what positive impact it can have for our system.
Jerry Sullivan 19:54
Philip Kim, thank you very much.
Phillip Kim 19:56
Thank you, Jerry.
Jerry Sullivan 19:58
This has been ‘Making an Impact with Michelson Philanthropies.’ For more information, visit michelsonphilanthropies.org. That’s Michelson spelled M I C H E L S O N.