NCLB@10: THE TESTING INDUSTRY’S BIG FOUR

Profiles of the four companies that dominate the business of making and scoring standardized achievement tests.

A backgrounder from the PBS Frontline series on No Child Left Behind (March 2002) | http://to.pbs.org/e1LVvg

●●smf: Do not miss that the testing companies and the textbook publishing companies are one and the same. Or four and the same. This will be a question on the final exam!

FOR EXTRA CREDIT: Consider the the effect of of Common Core Standards on the Testing Business and the Textbook Publishing Business.

Common Core Standards will make both businesses easier.
Common Core Standards will make both businesses more lucrative.
All of the above.

When Congress increased this year's budget for the Department of Education by $11 billion, it set aside $400 million to help states develop and administer the tests that the No Child Left Behind Act mandated for children in grades 3 through 8. Among the likely benefactors of the extra funds were the four companies that dominate the testing market -- three test publishers and one scoring firm.

Those four companies are Harcourt Educational Measurement, CTB McGraw-Hill, Riverside Publishing (a Houghton Mifflin company), and NCS Pearson. According to an October 2001 report in the industry newsletter Educational Marketer, Harcourt, CTB McGraw-Hill, and Riverside Publishing write 96 percent of the exams administered at the state level. NCS Pearson, meanwhile, is the leading scorer of standardized tests.

Even without the impetus of the No Child Left Behind Act, testing is a burgeoning industry. The National Board on Educational Testing and Public Policy at Boston College compiled data from The Bowker Annual, a compendium of the dollar-volume in test sales each year, and reported that while test sales in 1955 were $7 million (adjusted to 1998 dollars), that figure was $263 million in 1997, an increase of more than 3,000 percent. Today, press reports put the value of the testing market anywhere from $400 million to $700 million.

It's likely that other companies will enter the testing market. Educational Testing Service (ETS), which until recently had little to do with high-stakes testing and was best known for its administration of the SAT college-entrance exam, won a three-year, $50 million contract in October 2001 to develop and score California's high-school exit exam, beating out other bidders such as Harcourt and NCS Pearson.

Alternatively, the states themselves could become major actors in the test-making industry. Though some states now use commercial "off-the-shelf" tests, states are increasingly developing their own tests or are customizing the commercial tests to better "align" them with their curricula standards. Georgia, for instance, uses Harcourt's Stanford Achievement Test for grades 3, 5, and 8, yet it uses its own state-developed tests in grades 4, 6, 8, 11, and 12. Many states now use such hybrid assessment systems. (See In Your State for more.)

Media coverage of the testing movement tends to focus on testing flaws and mishaps, and none of these companies has emerged unscathed from the intense scrutiny. A May 2001 investigation conducted by The New York Times documented each of the test flaws reported by the states since the 1997-1998 school year. In all, states reported more than two dozen incidents in which the testing companies or their products disrupted the states' testing systems or incorrectly scored or analyzed students' results. (For the complete breakdown, see the chart titled "Four Giants in Testing" in The New York Times' special report "None of the Above: The Test Industry's Failures.")

Here are profiles of the market leaders.

Market share: 40 percent of test-design market

Signature test: Stanford Achievement Test (SAT-9)

Parent company: Harcourt Education, which is owned by London-based publisher Reed Elsevier. Reed Elsevier also owns LexisNexis, the legal research service, and Reed Business Information (formerly Cahners Business Information), which publishes the entertainment-industry trade magazine, Variety. HEM is based in San Antonio, Texas, and is part of Harcourt Education, which operates the Holt, Rinehart and Winston imprint and is one of the leading K-12 educational publishers in the nation.

Harcourt Educational Measurement (HEM) is best known for the Stanford Achievement Test (SAT-9), which is taken by more than 15 million students every year. Harcourt is involved in all of the tests discussed in "Testing Our Schools" -- the MCAS in Massachusetts and the TAAS in Texas, which students must pass in order to graduate from high school; the Standards of Learning tests, which Virginia uses to certify its schools; and California's SAT-9. Standards-based tests now represent 70 percent of the company's overall business.

London's Reed Elsevier, one of the world's largest publishers, acquired Harcourt for $4.5 billion in July 2001. In order to gain antitrust clearance for the purchase of Harcourt, Reed Elsevier had to sell off some of Harcourt's businesses: It retained the testing business and sold Harcourt's higher education and corporate training businesses instead. Before the acquisition, Reed Elsevier's education sales accounted for only 5 percent of the company's total sales ($301 million out of $5.6 billion total).

Market share: 40 percent of test-design market

Signature test: TerraNova (CTBS)

Parent company: McGraw-Hill, based in New York, which also owns Standard & Poor's, Business Week magazine, and four TV stations.

Industry estimates accord CTB McGraw-Hill nearly 40 percent of the test-design market, slightly behind Harcourt Educational Measurement. In The New York Times' May 2001 survey of state education departments, 19 states indicated that they relied on CTB McGraw-Hill's tests to assess student progress. The company's best-known test is the TerraNova, a norm-referenced achievement test.

McGraw-Hill, which acquired CTB in 1965, had $4.2 billion in sales in 2000. Its education-related businesses generate 34 percent of its total operating income.

Market share: 20 percent of test-design market

Signature test: Iowa Test of Basic Skills (ITBS)

Parent company: Houghton Mifflin, which is now owned by France's Vivendi Universal, the French publishing and film empire. Vivendi Universal also owns Motown Records (part of the Universal Music Group) and Universal Pictures.

Riverside Publishing controls the remaining 20 percent of the test-design market. Its Iowa Test of Basic Skills (ITBS), a norm-referenced achievement test, is taken every year by 4 million to 5 million students. Eight states use Riverside tests, according to a May 2001 survey of state education departments conducted by The New York Times.

The company is based outside of Chicago in Itasca, Ill., and is a direct subsidiary of Houghton Mifflin. After a century as an independent company, Houghton Mifflin was acquired for $2.2 billion by Vivendi Universal in August 2001.

Market position: Leading scorer of standardized tests

Parent company: Pearson Education, a subsidiary of London-based Pearson. Though Pearson once owned part of Madame Tussaud's wax museum, NCS Pearson now finds itself stabled alongside businesses such as The Economist, The Financial Times, the Penguin Book Company, and the Family Education Network.

Each year, NCS Measurement Service scores tests from nearly 40 million students, more than any other company in the U.S. It provides services to 15 states, including some of the largest markets (Texas, Florida, and New York).

Minnesota-based NCS was founded in 1962 (it was then known as National Computer Systems) and went public six years later. The company was acquired by Pearson in September 2000 for $2.5 billion and folded into the Pearson Education unit. Pearson reported $629.5 million in sales in 2000, and assessments and testing services accounted for $202.4 million of that, or 32 percent.

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