Pearson Rakes in the Profit (Update)

by Alan Singer

A financial analysis for 2012 of the British-based publishing giant Pearson is available online at 4-traders.com. It tells a very interesting, if frightening story that needs to be more widely circulated in the United States, especially among parents, teachers, and educational policy makers. Something consistently missing in a report that emphasizes growth and profit is students and whether Pearson's high tech snake oil actually promotes student learning.* Pearson is a money making machine, but is this education?

The headline summarizes the multi-page post. "Pearson accelerates global education strategy: Restructuring and investment in digital, services and emerging markets for faster growth, larger market opportunity and greater impact on learning outcomes."

It is followed by "Financial highlights." Sales were up 5 percent in 2012 to £6.1 billion or $9.21 billion, with "digital and services businesses contributing 50% of sales." Operating profit in 2012 was £936 million or $1.4 billion.

But there are business problems that Pearson is moving rapidly to address. According to the report, "Market conditions generally weak in developed world and for print publishing businesses; generally strong in emerging economies and for digital and services businesses." However, there is "Considerable growth opportunity in education driven by rapidly-growing global middle class, adoption of learning technologies, the connection between education and career prospects and increasing consumer spend, especially in emerging economies."

As a result of this repositioning, Pearson's "North American Education revenues" were "up 2% in a year when US School and Higher Education publishing revenues declined by 10% for the industry as a whole," while "International Education revenues up 13% with emerging market revenues up 25%." Pearson plans further restructuring and investment in "fast-growing education markets" that by 2015 should "produce faster growth, improving margins and stronger cash generation."

Pearson hopes to "capture the once-in-a-generation opportunity that comes with being the world's leading learning company... Over the past 15 years, through a major programme of organic investment and acquisitions, Pearson has become the leading education company in the world, with unique geographic reach, product breadth and professional depth. More recently, we have achieved particularly rapid growth in digital products and in education services businesses, which together now account for half our sales... We are therefore planning significantly to accelerate our push into digital learning, education services and emerging markets."

To achieve its business goals, Pearson promises that its "products and services deliver demonstrable learning outcomes to the student or the institution. We have therefore developed the Pearson efficacy framework: a unique, rigorous and scalable quality assurance system that checks that the necessary conditions are in place for an education programme to deliver intended learning outcomes. We now require that all Pearson acquisitions and all product investments over $3m go through the Pearson efficacy framework and set out a plan to implement its recommendations before approval."

Pearson is targeting higher education as well as K-12 schools, but many of these profit-making innovations can be transferred to elementary and secondary levels. According to the report, "Student registrations at eCollege grew 3% to 8.7 million," which includes "new online enterprise learning contracts with California State University and Rutgers University" and continued partnership with Arizona State University. Students register for online courses through eCollege at their own institutions, but Pearson provides the technological house or platform for the operation. In a budget saving move, the California state legislature is considering requiring California State colleges to accept online classes offered by other institutions if their own classes are oversubscribed, a potential bonanza for Pearson and similar companies..

Pearson is also making money with "MyLab" digital learning, which provides students with homework help and preparation for standardized assessment, assessments which are often designed and marketed by -- guess who? -- Pearson. Pearson's "OpenClass," currently offered to institutions without charge, is used by 1,300 U.S. K-12 schools and colleges.

Curiously, revenues were flat in Pearson's "Assessment and Information business." The report complained, "State funding pressures and the transition to Common Core assessments continued to make market conditions tough for our state assessment and teacher testing businesses." But there is a rainbow hidden in the clouds. "The Partnership for Assessment of Readiness for College and Careers (PARCC), a consortium of 23 states, awarded Pearson and Educational Testing Service (ETS) the contract to develop test items that will be part of the new English and mathematics assessments to be administered from the 2014-2015 school year." Pearson also won "new state contracts in Colorado and Missouri and a new contract with the College Board to deliver ReadiStep, a middle school assessment that measures and tracks college readiness skills" and five Race To The Top (RTTT) state deals in Kentucky, Florida, Colorado, North Carolina and New York).

Pearson has been able to extract these profitable deals through a systematic campaign of buying good will from state and local officials and educational institutions. Pearson's not-for-profit foundation has paid for local and state educational commissioners whose schools do business with the for-profit Pearson corporation to attend international conferences in Rio De Janeiro, London, Singapore, and Helsinki where they meet with Pearson executives. Pearson is a major funder of the American Educational Research Association and the Association for Supervision and Curriculum Development, sponsoring sessions at their annual conferences, advertising and marketing in their exhibition hall, and giving away corporate labeled "swag" to participants. The foundation hosted the welcoming party at the 2013 South by Southwest (SXSW) Conference on emerging education technologies in Austin, Texas, at the same time that Pearson is trying to dominate the digital technology educational market. The foundation paired with the Gates Foundation to develop digital learning material for state Common Core standards at the same time that the company was marketing common core instructional material and assessments. Pearson is developing a new national teacher certification system with Stanford University, and is contracting with states to administer the program.

Money, money, money, money, money. Profit, profit, profit, profit. No discussion of educational philosophy, educational achievement, or student needs in the entire report. Is this the company cities and states in the United States should trust with the education of our children?

Oh, you would think that with all of these profits made from the public purse, Pearson would be paying a heavy tax bill and pouring money back into the public coffers. But you would be wrong. Pearson was able to take advantage of a Hurricane Sandy tax deferral to significantly lower its 2012 United States tax bill.

*Addendum, 3/21/2013: I think my basic disagreement with Pearson Education centers around different definitions of what Pearson means by education and educational achievement. In their financial report, Pearson does discuss student achievement, but appears to equate it with student performance on standardized assessments. There is a national debate going on about the value of high stakes tests such as the ones designed and marketed by Pearson. For me, the question is whether improving test scores through test prep programs constitutes actual student learning and in any way reflects a thought out educational philosophy, an understanding of educational achievement, or meets student needs. In New York City where I live and my grandchildren attend public school, thousands of young children participate in test prep programs, not to learn, but to score higher on Pearson designed and marketed standardized tests. I do not believe executives at Pearson would want this type of education for their own children or grandchildren.

My goal is to expand discussion of education in the United States so I would like to suggest two possible resolutions to my disagreement with Pearson. First, I give Pearson permission to reproduce my blogs on own their websites. This would afford them the opportunity to provide an extended response. Second, I like the idea of collaboration. I propose that I write an analysis of the Pearson educational philosophy as presented on a Pearson website and that an agent for Pearson write a response and we post them on Huffington as a joint blog. I also welcome other suggestions from Pearson representatives for expanding dialogue on educational issues in the United States.