Pearson CEO: this is an opportunity to accelerate shift to online learning

Pearson CEO John Fallon joins Yahoo Finance’s Zack Guzman to discuss how the coronavirus is impacting the education landscape.

Video transcript

ZACK GUZMAN: Welcome back to "The Ticker" here on Yahoo Finance. Of course, this coronavirus pandemic has raised a lot of questions about the current state of education. If you have kids at home, you've been seeing the shift to online learning play out with a front row seat. Also, impacting colleges around the country, as people start to think about what admissions might look like in the fall and whether or not students will be coming back. We've heard some updates there.

But it's a big question mark for the textbook publishing industry, and we are delighted to have the CEO of one of the largest companies in that industry. The CEO of Pearson, John Fallon, joins us now for more on this. And, John, I mean, when we look at it, I know you've been talking to a lot of parents out there to get their take on the shift to online learning. But how does that impact your main business of-- of actually bringing in textbooks to students here? What have you seen on that front?

JOHN FALLON: Yeah, so, I mean, Pearson is now the world's leading digital learning company, so over $3 billion in our new revenues that come from digital learning. We've been making some big investments in this area over the last decade. And, you know, we've long held the belief that this idea that it's easier face-to-face or online learning is the wrong way of looking at it.

The future in education is in, you know, health care and every other sector is, how do we use technology to get the best out of combining, you know, enabling teachers to be much more effective and successful and spend more time in-- in a much more personalized way of learning, and also bring all of the sort of engagement and energy and the brilliant experiences that young people are used to having from the digital lives they lead? And obviously, unfortunately, that's not too often been missed from the classroom.

So this is, you know, in the most awful and tragic of circumstances, this is an opportunity to accelerate the shift to online learning in a way that I think is-- is incredibly exciting. The problem, of course, was March. You know, everybody was scrambling. You know, probably the biggest disruption to public educations since universal basic education was-- was established. And I think parents were-- parents and students were saying in March, you know, we value teachers.

We understand how hard it was. We're grateful for what they did, and they did what was good enough. But what was good enough in March isn't going to be good enough for the fall. And now is the time, we've got the time to plan and prepare. Let's make sure we do something that's much better and really finally, finally, brings the full benefit of personalized digital learning to-- to millions of people in the way that it could be done.

ZACK GUZMAN: Yeah, let's talk about that too, though, because, I mean, when we look at the analysts looking at your company, Berenberg, an analyst over there, downgraded your company's stock earlier this week because of some fears that college students particularly don't necessarily want to learn online and assuming a 10% decline in student enrollment based on surveys that they looked at too, who, you know, students who say that they don't want that online learning experience. Obviously, the US market is huge for you guys. You're a big player here. How does that play out for you in terms of maybe if you do see fewer students needing textbooks, if that shift to digital would be enough to make it whole?

JOHN FALLON: Yeah, so, I mean, we already have 10 million college students a year who use our digital courseware. We now have over 400,000 students taking purely online degrees with our university partners who never set foot on a-- on a campus. But I think what you're seeing is, I think, you know, students are understandably concerned, particularly if you look at what high school graduates are likely to do. A recent survey from McKinsey saying that actually on balance at the moment, most high school students are still planning to go to college.

ZACK GUZMAN: Yeah.

JOHN FALLON: Many of them are choosing to go more local. Many of them are choosing perhaps to go to a state university. Affordability is becoming a bigger issue. Many of them are probably waiting to see exactly what's on offer.

ZACK GUZMAN: Yeah, let's--

JOHN FALLON: And I think what's going to-- yeah, I think what's going to be on offer from most colleges is more of a hybrid approach. So I think what you'll find is, you know, no sitting in big lecture theaters. Those big 500,000-seat lectures will be delivered online.

ZACK GUZMAN: Yeah.

JOHN FALLON: But face-to-face tutorials will still happen, but probably in different groups with social distancing. You know, lab work will probably still being able to go on. So it's going to be more of a-- a hybrid approach is what we see.

ZACK GUZMAN: Yeah.

JOHN FALLON: And I should say, I think that hybrid approach can actually make the best of both models, you know?

ZACK GUZMAN: When you talked about that cost, I mean, I'm-- I'm curious to get your take on-- on how much money you guys stand to gain if you do shift to a more digital offering here. Because the US college students pay already an average of about $1,200 a year on textbooks and supplies, and that cost has been rising pretty substantially when you look at it. I mean, up 184% the cost for textbooks over the last decade. That's triple the national inflation rate over the same time. So, I mean, when you look at that, do you necessarily have the same pricing power when it's a digital offering versus a--

JOHN FALLON: No--

ZACK GUZMAN: --a physical textbook? How does it change the bottom line?

JOHN FALLON: No, I-- I think we've actually lost our pricing power over the last decade, and that has been financially painful for the company in the short term. But I think it's been in the best long-term interests of students, and actually, in the best long-term interests of our company as well. So you can now, you know, we-- we, you know, the popular image of the college textbook being $200 to $300, actually you can get a-- an e-text from us for $40.

You can get a combined e-check with all the online assessment that you need to complete your course and get personalized feedback for sort of, you know, for around $70. So prices have come down very significantly. That's good news for students, and actually long-term, it's good news for Pearson's shareholders because it gives us a more sustainable business. Because actually, the big disruption that we've suffered is actually the growth in the secondary market. Textbook rentals have grown very significantly because of those price points.

ZACK GUZMAN: Yeah.

JOHN FALLON: I think if we go back to digital, we can offer much better value. But I was also-- I mean, I-- I think value and affordability is not just about the courseware. And the-- and the-- the shift from physical to digital, as I say, I think offers better value for students. But I was--

ZACK GUZMAN: Oh, sure.

JOHN FALLON: --listening in to your-- I was listening to the end of your previous piece, and, you know, suddenly, you know, having gone from, you know, we've gone from a world of full employment to, what, 30, 40 million Americans out--

ZACK GUZMAN: Yeah, a lot of changes right now.

JOHN FALLON: The-- the biggest and most urgent job that higher education has to play in America, as it does here in the UK and around the world, is to help to get people back to work--

ZACK GUZMAN: Yeah.

JOHN FALLON: --a work that was already a--

ZACK GUZMAN: And we're hoping-- we're hoping for a quick return, no doubt. John Fallon, Pearson CEO, appreciate you taking the time. I got to leave it there, but thanks again for joining us.