Education Is A Losing Proposition

With the recent bankruptcy proceedings of Houghton Mifflin Harcourt, you might think that there's no money to be made in education.

Back in the bad old days when they were publicly struggling, there was talk of splitting off the trade division and selling it as a going concern to raise funds to keep the conglomerate afloat.

Now McGraw-Hill has gone and split off their educational publishing division, to keep it separate from the non-fiction and financial publishing. What's the point of that? The stockholders don't like how education is looking these days. There's just no money in it.

As HMH showed us, the market for textbooks is down. School boards have to pare expenses, and there isn't much room to maneuver. Teachers, janitors and lunchroom monitors are holding to their contracts, so there's no cutting of salaries. It's the supplies that have to go, and that includes books.

Now comes word that the spin-off isn't so much a spin off as a split, the sort of thing that HMH considered but dropped because trade publishing was making money.

McGraw-Hill may be planning to dispose of the drag on the bottom line that is educational publishing, assuming that someone would want the thing.

Certainly Barry O'Callaghan might have lusted after it at one time, but his little minnow of an educational publishing materials company choked to death and the dream of building the world's biggest education publisher expired.

Given what happened to Houghton Mifflin, Harcourt, Riverdeep, Greenwood, et al., you'd think that hedge fund managers might be hesitant to dip a toe into such dangerous waters.

Even if countless synergies were realized (countless employees shown the door), could McGraw-Hill's education unit be made profitable enough to appeal to investors? Is it really worth $3 billion, given the decline in sales?

All you hear about these days is that textbooks and other educational materials are going digital, getting downloaded onto e-readers and iPads and tablets. The book is going the way of the dinosaur.

There's something in that notion. The public's appetite for new, updated textbooks every couple of years has declined and isn't likely to build any time soon. Why not just download the new material and be done with it?

The buyers are looking to save money, while the likes of McGraw-Hill are looking to make money. If an investor could find the place where the two conflicting notions meet, the education division could make it.

But the return on investment won't be high.

There's just no money in education.