Pearson PLC, the world's largest education company, made a major
miscalculation on the Common Core academic standards, expecting a
windfall that failed to materialize as it headed into a downward
spiral in sales, stock price and staff.
The company's Common Core strategy ran into trouble on two
fronts: It struggled to develop and deliver new digital courses on
time, as the academic standards themselves faced a political
backlash in which several states pulled out.
Pearson's strategy included a digital curriculum for the common
academic standards approved by most U.S. states starting in 2010,
and a vigorous pursuit of standardized testing contracts that
backfired. Those were among several factors that hurt the
U.K.-based Pearson, exacerbating a decline in U.S. college textbook
sales that company executives say is the primary culprit for its
problems.
Pearson's share price has declined 32% over three years and
sales have fallen in three of the past four. It has laid off
thousands of employees. Investment analysts have predicted that
Chief Executive John Fallon could be replaced if the situation
doesn't turn around.
Mr. Fallon, in a recent interview with The Wall Street Journal,
said Pearson will eventually make money on its Common Core courses
and is heading for recovery. "We are testing the patience of our
shareholders, and we have to get on and deliver," he said.
Reduced college enrollment and the closure of some for-profit
colleges in the U.S. have cut college textbook sales, Pearson's
largest North American revenue stream. Those problems and others
reduced Pearson's profits by $338 million a year, "which for a
company of our size is a lot to absorb," Mr. Fallon said.
As for Common Core, Pearson invested more than $125 million to
build the digital courses, but they are three years behind schedule
and haven't produced returns, current and former executives say.
Last year Pearson took a write-down of about $103 million on that
and other digital products. Worse yet, its high-profile role in
controversial Common Core testing brought a backlash in some
states, and it lost several big U.S. contracts.
"The simple fact is that Pearson's brand is politically toxic in
the United States," Ian Whittaker, an analyst at Liberum Capital
Ltd., wrote in January. A Pearson spokeswoman called that view "an
outlier," saying many education stakeholders view Pearson
positively.
The company's Common Core experience is a far cry from what
Pearson's previous chief, Marjorie Scardino, envisioned.
Adopted by 46 states, Common Core was intended to improve
instruction and afford all students a comparable education.
Education companies prepared to cash in on revised classroom
materials, training, and tests.
"I think we will benefit from it," then-Pearson executive
William Ethridge said to analysts in mid-2010. "And more
importantly, the students will benefit from it."
On the curriculum side, Pearson set out to build the "Common
Core System of Courses," interactive digital courses for elementary
through high school that were aligned to the standards.
Development of the courses went slowly under Judy Codding, an
academic with little technology experience whom Ms. Scardino hired
for the project. In an interview, Ms. Codding said she wanted to
produce tablet-based courses to emulate in school how students
learn on devices at home.
Her vision sometimes clashed with technological realities,
causing friction with some colleagues. "The technology had to
support the learning and teaching, and so when it didn't I spoke
up," Ms. Codding said.
However, the app nearly filled up all the storage on the devices
and crashed often, according to current and former Pearson
employees.
An agreement to try the courses on iPads in some Los Angeles
schools in 2013 ended disastrously. Students couldn't download
material. Teachers stopped using the product. Pearson reimbursed
$6.4 million to the district because of the problems.
Common Core testing seemed to be a brighter spot. Pearson won a
competition in late 2014 to give a test on the standards in more
than 20 states in a coalition called the Partnership for Assessment
of Readiness for College and Careers, or PARCC.
Meanwhile, resistance grew to Common Core. Some conservatives
called it a federal takeover of education. Some parents found the
testing excessive, and targeted their complaints at Pearson.
At least a dozen Common Core states have repealed, revised or
renamed their standards. The predicted market for Common Core
products fizzled.
Pearson wasn't alone. News Corp, which owns The Wall Street
Journal, last year sold education division Amplify Insight, which
marketed Common Core-related products, after significant losses. A
News Corp spokesman said "the market for a digital curriculum was
slower to develop than was expected."
The PARCC contract failed to deliver the $2 billion in revenue
over eight years Pearson hoped for, as all but six states dropped
out. Pearson lost testing contracts in other states, too, costing
it some $147 million in annual revenue. Those contracts were
competitively bid, but the losses came at time when Pearson had
been widely criticized for some content on Common Core tests and
other factors.
Pearson executives insist the company will rebound. Corporate
restructurings will save Pearson an estimated $515 million a year,
though other factors are out of its control, like college
enrollments, they say.
"Sure, there's been some short-term bumps and controversies
around Common Core and we've got caught up in that along with
others at points, but the commitment is unchanged," Mr. Fallon
said
The digital product is now the Pearson System of Courses—Common
Core was removed from the name. Pearson said it has reduced file
sizes and made other improvements, and expects to release it next
year.
As for his future at Pearson, Mr. Fallon said he was "doing the
best I possibly can for Pearson and it's not really for me to focus
on anything other than that."
Write to Michael Rothfeld at michael.rothfeld@wsj.com
(END) Dow Jones Newswires
November 22, 2016 12:25 ET (17:25 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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