The ACCC states
1. Educational publishing businesses Cengage Learning Holdings II, Inc (Cengage) and McGraw Hill Education, Inc (McGraw-Hill) propose to merge their global businesses (the proposed merger). Cengage and McGraw-Hill both operate educational publishing businesses in Australia through various subsidiaries.
2. This Statement of Issues:
- gives the preliminary views of the Australian Competition and Consumer Commission (ACCC) on competition issues arising from the proposed merger;
- identifies areas of further inquiry; and
- invites interested parties to submit comments and information to assist our assessment of the issues.
3. Statements of Issues do not refer to confidential information provided by the parties or other market participants and therefore may not necessarily represent a full articulation of the ACCC’s preliminary position.
Overview of ACCC’s preliminary views
4. The legal test which the ACCC applies in considering the proposed acquisition is set out in section 50 of the Competition and Consumer Act 2010. In general terms, section 50 prohibits acquisitions that would have the effect, or be likely to have the effect, of substantially lessening competition in any market.
5. The ACCC divides its preliminary views into three categories, 'issues of concern', 'issues that may raise concerns' and ‘issues unlikely to raise concerns’. In this Statement of Issues there is one “issue of concern”, one “issue that may raise concerns” and two “issues that are unlikely to raise concerns”.
Issue of concern – reduction in the number of major publishers in higher education publishing in Australia
6. The ACCC is concerned that the proposed merger would substantially lessen competition in the supply of higher education publishing in Australia.
7. Higher education publishing in Australia is highly concentrated, and there are very few firms that operate on a scale comparable to Cengage and McGraw-Hill. Most other competitors are much smaller and are only active in a narrow range of disciplines. Further, the barriers associated with new entry or expansion appear to be high.
Issue that may raise concern – loss of competition for the acquisition of authors’ rights for higher education content
8. The ACCC is concerned that the proposed merger may substantially lessen competition in the acquisition of authors’ rights for higher education content in Australia.
9. The ACCC’s preliminary view is that the proposed merger will further reduce the already limited number of major publishers with whom higher education authors can publish their works. This will likely enhance the merged entity’s bargaining power with authors and increase the merged entity’s ability and incentives to impose onerous terms in contracts with authors.
Issues unlikely to raise concerns – supply of primary education publishing and secondary education publishing
10. The ACCC’s preliminary view is that it is not likely that the proposed merger will raise significant competition issues in respect of the supply of primary education publishing.
11. The ACCC’s preliminary view is that it is not likely that the proposed merger will raise significant competition issues in respect of the supply of secondary education publishing.The ACCC is seeking submissions, particularly on the following key issues:
- whether there is a market for publishing in higher education (incorporating university and Vocational Education and Training (VET)) or whether there are separate markets for publishing in university and vocational education, or separate markets for publishing in individual higher education disciplines (for example, psychology or accounting) or courses (for example, introductory psychology, management accounting or financial accounting),
- whether there is a market for the acquisition of authors’ rights in higher education (incorporating university and VET) or whether there are separate markets for the acquisition of authors’ rights in university and vocational education or separate markets for the acquisition of authors’ rights for individual higher education disciplines or courses,
- the extent to which a merged Cengage-McGraw-Hill would be constrained from reducing the quality of its products, eliminating titles or increasing its actual or effective prices by remaining publishers of higher education materials,
- the height of barriers to entry in higher education publishing,
- the height of barriers to expansion into higher education publishing in particular disciplines,
- the ease with which authors can switch publishers, or may be able to do so post-merger, and
- the extent to which a merged Cengage-McGraw-Hill would be constrained from lowering royalties or otherwise adversely changing terms of its contracts with authors
