School Climate & Safety

Downturn Threatens Ed. Business More Than Terrorism

By Mark Walsh — November 21, 2001 7 min read
  • Save to favorites
  • Print

The education industry has emerged from the past two months largely unaffected by the terrors of Sept. 11 and anthrax-tainted mail. Whether it can endure the economic downturn is another question.

“I don’t think that the education markets have been marked by the tragedies in any special way,” said Peter Stokes, the executive vice president of Eduventures.com, a Boston firm that researches the for-profit education sector. “Companies that were hurting before September 11 may be worse off. But the companies that were running healthy businesses, they are bouncing back quickly.”

Mr. Stokes said he was unaware of any loss of life from the education industry in the attacks on the World Trade Center and the Pentagon. A Children’s Discovery Center operated by the child-care giant Knowledge Learning Corp. of San Rafael, Calif., was located at the trade center. The children’s center was safely evacuated before the twin towers and other buildings in the complex collapsed.

New York City is the headquarters for numerous education- related businesses, including educational publishers such as Scholastic Inc., school management companies Edison Schools Inc. and Mosaica Education Inc., test-preparation businesses Princeton Review Inc. and Kaplan Inc., and a number of education-related start-ups doing business on the World Wide Web. Some of those companies had short-term disruptions to their operations, especially if they were at all close to the site of the World Trade Center.

EChalk, a provider of Web-based e-mail communications systems tailored for schools, has its offices in lower Manhattan, not far from the devastated area now known as Ground Zero.

“We are about four or five blocks away, and that has had a very profound effect on the people who work here,” said Daniel C. Watts, a co- founder and the chief operating officer of the company.

The offices were closed, and eChalk’s 15 headquarters employees were displaced for about seven days after the Sept. 11 attack, he added. But because eChalk’s Web computer servers are located elsewhere, its services to schools were not seriously disrupted.

The 21/2-year-old company provides service to about 100 schools in 22 states. After the terrorist attacks, there was a spike in interest in eChalk’s products because some districts were looking for better ways to get the word out about school closings, Mr. Watts said.

“Schools want to have a more effective emergency-response system,” he said. EChalk’s e-mail service can be limited to just a school’s employees and student families, he noted, making it less likely students will be the subject of unwanted e-mail come-ons. Revenues come from subscription fees paid by districts, typically $8 per user.

At Princeton Review, there was a different effect in the two weeks after the attacks. Enrollment in the company’s preparation courses for the SAT and other tests took a nosedive as students’ lives were disrupted or they had other things on their minds, company officials say.

But enrollment has come roaring back, according to the company, both nationally and in the two markets most directly affected by the terrorism: New York and Washington.

“Each of the last seven weeks, enrollment nationally has been up 30 to 45 percent over the same week of a year ago,” said Stephen W. Quattrociocchi, the executive vice president of Princeton Review’s test-preparation division. “It seems that futures are more precious now, and people want to do something about their futures.”

For some people, Mr. Quattrociocchi has noticed, that means joining a gym or following through on training to run a marathon. For others, it has meant signing up for a course to prepare for the law school or graduate school admissions test.

“We haven’t had any special marketing,” Mr. Quattrociocchi added. “We never did anything but answer the phone.”

Positive Signs

He pointed out that enrollment in graduate school test- preparation courses tends to run countercyclically to the economy. When more adults are laid off, many decide to enroll in graduate school. But enrollment in SAT-prep courses tends to take a dip in tough economic times because families can’t afford them as easily.

Princeton Review recently reported that revenues for the quarter ending Sept. 30 were 66 percent higher than for the same three months in 2000. The company, which has been losing money in recent years, narrowed its losses in the most recent quarter to $892,000.

Peter P. Appert, an analyst who follows the education industry for the investment bank Deutsche Banc Alex. Brown, said it was unlikely that terrorism was having any significant effect on the sector. But he is worried by signs that states and school districts are beginning to see decreased revenues.

“What we are starting to see, in effect, is a replay of the early 1990’s, when Saddam [Hussein] invaded Kuwait,” Mr. Appert said. “There was a deferral of school purchases at that time.”

In recent weeks, executives of major textbook publishers have hinted in remarks to analysts that spending for their products may feel the effects of the downturn.

“Political officials are subject to crises of confidence, just like consumers are,” Marjorie Scardino, the chief executive officer of Pearson PLC, the parent of Pearson Education, said at an analysts’ conference last month. “The expectations of lower tax receipts may make them more timid, and that may hit local education budgets.”

Harold McGraw III, the chairman and chief executive officer of the McGraw-Hill Cos., told analysts that “in the face of falling tax receipts, some states in the South and Midwest have started to squeeze education funding and reduce the level of their buying.”

“Based on the conditions we are seeing, the growth of the el-hi [elementary and high school] market may not be quite as robust as originally expected,” Mr. McGraw added.

New York City-based McGraw-Hill and London-based Pearson are the two largest publishers of textbooks in the United States.

Mr. Appert said, “Across the board, I think we’re going to see much lower rates of growth in terms of school purchases.”

Of course, the education industry is not facing the dire circumstances of sectors such as transportation and tourism, where the impact of the September terrorism has been severe. Some young education companies are even getting venture funding, which has not been easy to come by in recent months, said Mr. Stokes of Eduventures.com.

In October, Carnegie Learning Inc., a Pittsburgh-based developer of mathematics products for middle school and high school students, secured $14 million in venture funding. Also last month, Digi-Block Inc., which develops math products for students in prekindergarten through 4th grade, attracted $5.4 million in new capital.

The investments are significant because venture funding for education-related businesses had all but dried up over the past six months, Mr. Stokes said.

A Magical Hedge

Some companies may even be getting a short-term boost from the increased attention to world events. Scholastic, which publishes classroom magazines and other supplementary educational materials, has mobilized to produce content for magazines, Web sites and books to help “teachers and children understand the changed world we live in,” the company’s chairman and chief executive officer, Richard Robinson, said in late September.

Raymond Marchuk, Scholastic’s vice president for finance, said last week that the company’s book-club and book-fair sales appeared to be performing well even after Sept. 11.

“We are hearing rumblings about school budgets being tightened,” he said. “But if you look back, in fiscal 1991, our school book-club and -fair businesses grew that year.”

Scholastic has another hedge against economic downturns: a character named Harry Potter. The company holds the U.S. publishing rights to the best-selling J.K. Rowling children’s series. In fiscal 2001, the publication of the fourth book in the series, Harry Potter and the Goblet of Fire, was the main driver of some $190 million in revenue for Scholastic’s bottom line. The company had total 2001 revenues of nearly $2 billion.

In Scholastic’s current fiscal year, which ends next May 31, there will be no new volume in the series, with the fifth book expected next summer. And Scholastic has no direct financial interest in the first Harry Potter movie, released last week. But it expects to sell more books because of it.

“You can look at any best-seller list and see that the movie is helping sales of our backlist,” Mr. Marchuk said.

Related Tags:

Funding for this story was provided in part by the Ford Foundation, which helps underwrite coverage of the changing definition of public schooling.
A version of this article appeared in the November 21, 2001 edition of Education Week as Downturn Threatens Ed. Business More Than Terrorism

Events

This content is provided by our sponsor. It is not written by and does not necessarily reflect the views of Education Week's editorial staff.
Sponsor
School Climate & Safety Webinar
Praise for Improvement: Supporting Student Behavior through Positive Feedback and Interventions
Discover how PBIS teams and educators use evidence-based practices for student success.
Content provided by Panorama Education
This content is provided by our sponsor. It is not written by and does not necessarily reflect the views of Education Week's editorial staff.
Sponsor
IT Management Webinar
Build a Digitally Responsive Educational Organization for Effective Digital-Age Learning
Chart a guided pathway to digital agility and build support for your organization’s mission and vision through dialogue and collaboration.
Content provided by Bluum
This content is provided by our sponsor. It is not written by and does not necessarily reflect the views of Education Week's editorial staff.
Sponsor
Data Webinar
Drive Instruction With Mastery-Based Assessment
Deliver the right data at the right time—in the right format—and empower better decisions.
Content provided by Instructure

EdWeek Top School Jobs

Teacher Jobs
Search over ten thousand teaching jobs nationwide — elementary, middle, high school and more.
View Jobs
Principal Jobs
Find hundreds of jobs for principals, assistant principals, and other school leadership roles.
View Jobs
Administrator Jobs
Over a thousand district-level jobs: superintendents, directors, more.
View Jobs
Support Staff Jobs
Search thousands of jobs, from paraprofessionals to counselors and more.
View Jobs

Read Next

School Climate & Safety Fla. School Board Reverses Decision to Censor Yearbook Photos From ‘Don’t Say Gay’ Protest
The Seminole County School Board scrapped the plan in response to public backlash.
Skyler Swisher, Orlando Sentinel
2 min read
Demonstrators gather on the steps of the Florida Historic Capitol Museum in front of the Florida State Capitol, Monday, March 7, 2022, in Tallahassee, Fla. Florida House Republicans advanced a bill, dubbed by opponents as the "Don't Say Gay" bill, to forbid discussions of sexual orientation and gender identity in schools, rejecting criticism from Democrats who said the proposal demonizes LGBTQ people.
Demonstrators gather on the steps of the Florida Historic Capitol Museum in front of the Florida State Capitol, Monday, March 7, 2022, in Tallahassee, Fla.
Wilfredo Lee/AP
School Climate & Safety Fla. High School to Cover Yearbook Photos of ‘Don’t Say Gay’ Student Protests
Lyman High School’s yearbook features photos of students holding rainbow flags and a “love is love” sign during a walkout protest in March.
Skyler Swisher, Orlando Sentinel
3 min read
Marchers wave U.S. and rainbow flags and signs as they walk at the St. Pete Pier in St. Petersburg, Fla., on Saturday, March 12, 2022 during a rally and march to protest the controversial "Don't say gay" bill passed by Florida's Republican-led legislature and now on its way to Gov. Ron DeSantis' desk.
Marchers wave U.S. and rainbow flags and signs as they walk at the St. Pete Pier in St. Petersburg, Fla., on Saturday, March 12, 2022 during a rally and march to protest the controversial "Don't say gay" bill passed by Florida's Republican-led legislature and now on its way to Gov. Ron DeSantis' desk.
Martha Asencio-Rhine/Tampa Bay Times via AP
School Climate & Safety What the Research Says What a Researcher Learned From One School's Underground Snack Market
Cracking down on unofficial school snack sales can have unintended consequences.
5 min read
Hand reaching into a potato chip snack foil bag for chips
iStock/Getty Images Plus
School Climate & Safety Lawmakers in 19 States Want Legal Refuge for Transgender Youth
Democratic lawmakers are following California’s lead in seeking to offer legal refuge to displaced transgender youth and their families.
2 min read
State Sen. Scott Wiener, D-San Francisco, discusses his proposed measure to provide legal refuge to displaced transgender youth and their families during a news conference in Sacramento, Calif., March 17, 2022. Democratic lawmakers in more than a dozen states are following California’s lead in seeking to offer legal refuge to displaced transgender youth and their families. The coordinated effort being announced Tuesday, May 3, by the LGBTQ Victory Institute and other advocates comes in response to recent actions taken in conservative states.
State Sen. Scott Wiener, D-San Francisco, discusses his proposed measure to provide legal refuge to displaced transgender youth and their families during a news conference in Sacramento, Calif., March 17, 2022. Democratic lawmakers in more than a dozen states are following California’s lead in seeking to offer legal refuge to displaced transgender youth and their families. The coordinated effort being announced Tuesday, May 3, by the LGBTQ Victory Institute and other advocates comes in response to recent actions taken in conservative states.
Rich Pedroncelli/AP