Apple in Talks with McGraw-Hill, Hachette over Tablet

Apple (AAPL) is in talks with the McGraw-Hill Companies (MHP) and Hachette Book Group to include educational and trade titles on its planned tablet computer, according to people familiar with the negotiations.

McGraw-Hill Education, the third largest educational publisher in the U.S. by sales, is discussing getting electronic textbooks and parts of its online learning system onto the tablet, say two people. Apple has also held talks with trade book publisher Hachette Book Group about distributing e-books on the tablet, says one person involved in the discussions.

Apple's tablet, due to be introduced Jan. 27, is likely to feature content from a wide range of book, magazine, and newspaper publishers, as well as entertainment. "Everyone is expecting e-book capabilities and services," says Roger Kay, president of Endpoint Technologies Associates. "This generation of tablets is all about the consumer and media consumption." As it has pushed deeper into consumer electronics, Apple's strategy is to combine cutting-edge hardware design with access to music, video, games, and other applications.

The company's interest in educational content underscores the longstanding popularity of Apple products among schools and institutions of higher learning.

Publisher John Wiley & Sons (JWA) also has talked with Apple about including Wiley content on Apple devices, says Peter Balis, director of digital content sales at Wiley. "We have had ongoing conversations with Apple about their interest in including educational content," Balis says. "We will continue to support their efforts in whatever iteration it takes next week." He declined to comment specifically on the tablet.

Talks Cover Marketing, Software

Apple's talks with McGraw-Hill cover how the two companies can market textbooks for the tablet and ways their software development teams can collaborate to publish digital textbooks and educational content on Apple's latest device, two people say. "The talks are as much about marketing as they are about software development," says one of the people involved in the discussions.

HarperCollins Publishers is negotiating with Apple to make electronic books available for the tablet, The Wall Street Journal reported Jan. 18. "I have heard a lot of publishers are working with Apple," says Kathy Mickey, senior analyst with Simba Information.

McGraw-Hill spokeswoman Mary Skafidas and Apple spokeswoman Katie Cotton declined to comment. HarperCollins spokeswoman Erin Crum and Sophie Cottrell, a spokeswoman for Hachette Book Group, which is owned by Lagardère SCA (MMB:FP), also declined to comment.

For McGraw-Hill, Apple's tablet provides a way to showcase Connect, an online service that delivers educational coursework over the Web. Textbook publishers are ramping up investment in the fast-growing area of online education. "The more Connect can be displayed and distributed, the more it will resonate with students," says a person familiar with McGraw-Hill's plans. "The tablet would be relevant to the ways students study and the way teachers instruct."

Apple has long considered education a key market, offering discounts for students and teachers. For years its Mac computers commanded the highest share of the U.S. education market. In 2000, Dell (DELL) overtook Apple with lower prices, according to data compiled by Needham & Co. As of the third quarter of 2009, Apple's share of the market for PCs sold to U.S. educational institutions was 28.3%, compared with Dell's 31.9%, according to Gartner (IT).

Apple, McGraw-Hill Connect on Project

Connect is just the latest collaboration between Apple and McGraw-Hill. The publisher has been in discussions with Apple about the tablet for the past year, the people say. In October, McGraw-Hill announced it was making 600 of its business titles available as e-books for the Apple iPhone and iPod Touch. To offer those books, McGraw-Hill formed a partnership with ScrollMotion, a New York startup that is working with publishers to develop electronic versions of books that work on Apple's iPhone and iPod Touch.

The result of years of research, Connect is designed to help professors manage homework, quizzes, and exams all in one place. College students can use the online tool to watch video lectures, read electronic books, and take personalized tests. It is being used by 1.2 million students in the U.S. this semester, up from 500,000 last semester, McGraw-Hill says. That's still a fraction of the roughly 15 million students the U.S. Education Dept. says are enrolled in undergraduate degree-granting institutions.

A typical Connect course costs students $40 for the semester, or $80 per semester with an embedded e-book. McGraw-Hill also plans to release Connect to high schools, says Mickey at Simba Information. "McGraw-Hill is making much more of a drive in terms of technology," she says. "Publishers want to be careful that they don't get squeezed out in this digital migration."

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