Chegg 2015 Annual Report Download - page 62

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If the transition from print to digital distribution does not proceed as we expect, our business and financial condition will 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
or make additional payments to Ingram under our inventory purchase and consignment agreement. 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, 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 users 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 mobile app stores such as iTunes and Google Play to allow students to locate
and download Chegg 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’ search engine optimization (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 experienced fluctuations in search result rankings in the past, and we anticipate similar fluctuations in the future. Any
reduction in the number of students directed to our website could harm our business and operating results.