Chegg 2013 Annual Report Download - page 72

If the transition from print to digital distribution does not proceed as we expect, our business and financial
condition may be adversely affected.
The textbook distribution market has begun shifting toward digital distribution. If demand for eTextbooks
accelerates more rapidly than we expect, we could be required to write-off excess print textbooks for which the
rental demand has eroded. Further, our sale of used print textbooks represents a substantial source of cash from
investing activities, and a substantial diminution on the value of these assets due to a shift in demand toward
digital, or any other reason, could materially and adversely affect our financial condition. Conversely, if the
transition to digital distribution of textbooks does not gain market acceptance as we expect, our capital
requirements over the long-term may be greater than we expect and our opportunities for growth may be
diminished. In that case, we may need to raise additional capital, which may not be available on reasonable
terms, or at all, and we may not realize the potential long-term benefits of a shift to digital distribution, including
greater pricing flexibility, the ability to distribute a larger library of eTextbooks compared to print textbooks and
lower cost of revenues.
If publishers refuse to grant us distribution rights to digital content on acceptable terms or terminate their
agreements with us, or if we are unable to adequately protect their digital content rights, our business could be
adversely affected.
We rely on licenses from publishers to distribute eTextbooks to our customers. We do not have long-term
contracts or arrangements with most publishers that guarantee the availability of eTextbooks. If we are unable to
secure and maintain rights to distribute eTextbooks to students upon terms that are acceptable to us, or if
publishers terminate their agreements with us, we would not be able to acquire eTextbooks from other sources
and our ability to attract new students and retain existing students could be adversely impacted. Some of our
licenses give the publisher the right to withdraw our rights to distribute eTextbooks without cause and/or give the
publisher the right to terminate the entire license agreement without cause. If a publisher exercises such a right,
this could adversely affect our business and financial results. Moreover, to the extent we are able to secure and
maintain rights to distribute eTextbooks, our competitors may be able to obtain the same rights on more
favorable terms.
In addition, our ability to distribute eTextbooks depends on publishers’ belief that we include effective
digital rights management technology to control access to digital content. If the digital rights management
technology that we use is compromised or otherwise malfunctions, we could be subject to claims, and publishers
may be unwilling to include their content in our service. If consumers are able to circumvent the digital rights
management technology that we use, they may acquire unauthorized copies of the textbooks that they would
otherwise rent from us, which could decrease our textbook rental volume and adversely affect our results of
operations.
If Internet search engines’ methodologies are modified or our search result page rankings decline for other
reasons, student engagement with our website could decline.
We depend in part on various Internet search engines, such as Google, Bing and Yahoo!, to direct a
significant amount of traffic to our website. Similarly, we depend on providers of mobile application “store
fronts” to allow students to locate and download our mobile applications that enable our service. Our ability to
maintain the number of students directed to our website is not entirely within our control. Our competitors’ SEO
efforts may result in their websites receiving a higher search result page ranking than ours, or Internet search
engines could revise their methodologies in an attempt to improve their search results, which could adversely
affect the placement of our search result page ranking. If search engine companies modify their search algorithms
in ways that are detrimental to our search result page ranking or in ways that make it harder for students to find
our website, or if our competitors’ SEO efforts are more successful than ours, overall growth could slow, student
engagement could decrease, and fewer students may use our platform. These modifications may be prompted by
search engine companies entering the online networking market or aligning with competitors. Our website has
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