Michael Hansen, Cengage CEO, joins Yahoo Finance's Akiko Fujita to discuss the outlook on shifting higher education online in the wake of COVID-19, as its subscription service reaches more than 2.2M subscribers.

Video Transcript

AKIKO FUJITA: With an increasing number of colleges and universities beginning fall classes remotely, there's a growing debate about just how much that education should actually cost. Is a $50,000 education tuition annually, is that worth it if, in fact, all the classes will be done remotely? Well, our next guest is helping students save costs by a program, through a program he describes as a Netflix for textbooks. Let's bring in Michael Hansen. He is the CEO of Cengage.

Michael, it's great to have you on today. I want to get into the Cengage Unlimited program in just a bit, but I'd love to talk about the cost of digital learning, because we have seen this huge acceleration since March. A lot of these universities were not positioned to be able to teach all online courses. How much does this cost universities?

MICHAEL HANSEN: Yeah, thanks for having me, Akiko. You know, the reality is the universities are finding out, over the summer, they have found out that this is a very expensive proposition for them. And actually, the interesting thing is it's not expensive because the technology doesn't exist, it's expensive because they have to train the faculty how to teach effectively online. Just switching on a Zoom doesn't make for an effective online course, and they are finding out that they have to invest a lot of money into the professional development of their teachers and their faculty, who so far, have been very reluctant to engage in online and remote learning.

AKIKO FUJITA: So what's the role that Cengage Unlimited plays in all of this?

MICHAEL HANSEN: Well, the anchor for us is affordability. You mentioned it at the top of the broadcast. The cost of education has been a topic, frankly, for a decade. And now, with the switch to online learning, it's becoming a real focal point, because people are saying, why am I paying $50,000 for this? And we, as a publisher of textbooks, we said, you know? We can point to other people, but why didn't we start with ourselves? Why don't we launch something that students can access their textbooks. Instead of paying $100 per copy, for all of the textbooks that they need, they can pay less than $120 for a semester, and they get access to everything and every platform that they need to learn effectively digitally.

AKIKO FUJITA: It's interesting you mentioned, you know, instead of looking elsewhere, let's start with our own business. Because I'm looking back to the debate initially when that initial merger was announced between Cengage and McGraw Hill, and a lot of the concern was about the lack of competitors that were in the market and how that was driving costs higher. So are you essentially trying to disrupt your own business model at this point? Because some would argue, look, costs have gone so high because of the monopoly, as some described it, especially within textbooks.

MICHAEL HANSEN: Yeah, Akiko, absolutely, we are disrupting our own business model, And we're disrupting our own business models deliberately. We believe that if you don't provide value for students, you will eventually be sidelined, and we're seeing this today. Students are opting more and more for, you know, getting no textbook at all, for potentially just renting a textbook for a few weeks prior to the midterm exams. You know, the consumer is very crafty. Don't try to fool the consumer, because ultimately you will pay the price. So we believe we need to disrupt ourselves, and that's what we've done with Cengage Unlimited.

AKIKO FUJITA: You talk about the consumer being really smart. One of the things that struck me in speaking to a lot of incoming university students when they were deciding whether to actually attend classes or not whether it was worth paying that tuition. A lot of them said, look, you know, if we wanted to just learn just the academic side of things, we could just go to YouTube, and we could learn in that way. We go to college, because we want that in-person engagement. So given that there are so many universities that are learning online right now, how do you calculate the value of that education?

MICHAEL HANSEN: Yeah, Akiko, I can tell you, I have the same debate at home. I have two children in college right now, and we have the debate at the kitchen table, so to speak. I think that what is important to remember, yes, the social aspect of being on a college campus is important to people, and I do believe that what we're seeing right now in terms of pure online learning will be a temporary phenomenon, hopefully. By the time we have a vaccine, hopefully people will be back on campus.

But what we're going to learn is that hybrid learning is actually the way of the future. And what I mean by that is, look, there are some courses that you're better off learning in front of the computer, being tested, having modes of interactivity with your teacher. That is way better than sitting in an auditorium with 500 other students. But there are some other smaller classes where it's absolutely critical that you have the debate with students. So, so to speak, the right horse for the right course is absolutely the way of the future, and right now, we're seeing all the institutions experimenting with it, but very few have figured it out.

AKIKO FUJITA: And Michael, really quickly, going back to Cengage Unlimited, I mean, can you talk about the kind of growth that you have seen over the last several months? You've had this program in place for more than a year, how has the subscriptions accelerated?

MICHAEL HANSEN: Yeah, we've seen phenomenal growth. And just to give you a number, we have 2.2 million subscribers right now, and we amassed them quicker than Spotify has in a faster period of time. And I think what it speaks to is very clearly that students are willing to pay a fair price for-- whether it's educational materials that they get from us or whether it's the tuition. People want to see the value, but increasingly they're asking, what is the price that I'm paying for it? And you've got to be able to step up and essentially confront that value equation, and we believe with Cengage Unlimited, we've done so successfully.

AKIKO FUJITA: Michael Hansen, the CEO of Cengage, good to talk to you.

MICHAEL HANSEN: Thanks for having me.