Many would argue that getting rid of the middle man is the way of the future, but a newspaper has more brand recognition and still gets more eyeballs. The problem facing them right now is how to convert the readership into an effective revenue stream.

Most newspapers already have Twitter accounts and Facebook pages, and have had them for some time now. These accounts have quite a few followers and fans. The main concern is accurate calculation of the return on investment (RoI) in social media so that they can convince their advertisers to come back. One method to measure RoI is through tracking the click-through from the respective social media accounts and pages. Another method is to use social media to sell advertising space. Some newspapers are already exploring this avenue to generate more revenue.

One such newspaper is the Austin Statesman. Advertisers looking to tap into the Twitter follower base of the Statesman can do so. Mingled within the tweets of their twitter account, which include tweets on the local happenings in Austin, TX, and replies to their followers are advertisements from local businesses. The tweeted ads are distinguished by the hashtag ‘ad’, and it doesn’t look as if the newspaper has lost many followers over its decision to incorporate advertisements into its Twitter account. This probably has to do with the fact that each advertiser only gets two tweets in a day, one in the morning, and one in the afternoon, and that the paper has strict guidelines on what gets tweeted and how.

Another newspaper experimenting with generating ad sales in social media is the Wall Street Journal. In Sept 2011, they released their WSJ Social app on Facebook.  Since the advertisements appear in the app itself, and not on the Wall, it doesn’t violate Facebook’s policy. WSJ uses space within the app to advertise, and Facebook uses the right-hand side column to showcase its sponsored posts. Furthermore, readers are able to read articles written by the favored editors without navigating away from Facebook to the WSJ’s website.

For every newspaper trying to monetize its social media presence there are hundreds who are not. Social media outsourcing doubled from 14 percent in 2010 to 28 percent in 2011. Of all the tasks that marketers outsourced, design/development, analytics and content creation comprised the top three (Social Media Examiner, 2011). If a newspaper is already outsourcing its digital content production, it could leverage its service provider’s capabilities to create a Facebook app and sell advertising space there. Tweeting ad images is a viable alternative for advertising through Twitter accounts. To such effect, service providers, who serve newspaper publications, need to anticipate their client’s needs, and ramp-up their skill set to provide such services.

I believe that social media can be effectively used as a source of revenue for newspapers, as long as they don’t turn their accounts into one giant billboard space.

- Deepti Krishnan, Analyst, Sourcing Practice

This holiday season, consumers are looking at buying and gifting another transformational format for the media and entertainment industry – the e-book. With the foundation being built slowly over the past two years, the e-book industry is now unleashing its full marketing potential to convince tablet owners to make the “digital switch” from traditional hard covers and paperbacks to its electronic form. Amazon and B&N have already established their proprietary e-book formats and dozens of other publishers are getting on-board to digitize their output.

This has spelled a boon for publishing outsourcing companies who are experiencing a record boom in demand for services such as digital publishing, document conversion, electronic publishing and online content services. The major market for these services includes, not only fiction and non-fiction work, but extends to the highly lucrative academic and text book markets.

My alma mater, the Michigan State University, too has joined the digital bandwagon, with their Environmental Stewardship Initiative gathering interest and building demand for students to make the switch to digital courseware. Digital formats will be a huge breakthrough for reducing paper waste and as a student, I would prefer loading all my e-texts onto a compact tablet rather than lugging around a bunch of heavy text books. Pricing, however, remains a challenge with administrators and students alike, and will most likely be the deciding factor to make the change to digital a success.

As a lighter, festive note, I would like to wish “Happy Holidays” to each and every one of you, while I go ahead and browse through and gift a few e-books to my friends and family.

– Guest post by Ashmita Gupta, Research Analyst, ValueNotes

“Technology will become a pre-requisite. And it is going to be a differentiator.”

For long, the pre-press services industry has always viewed technology as an enabler. However, that has since changed. As the publishing industry aggressively ‘goes digital’, providers will need to incorporate technology that is as advanced as the buyer’s – in some cases even more advanced. The need of the hour is to view technology not only as an enabler but as a service in its own right.

The publishing services industry has seen an influx of IT/BPO/ITeS providers, fully capable of offering pre-press services – with significant experience in offering technology services. While pure play pre-press service providers do have the added advantage of domain and process expertise, threats still loom large, primarily to do with the lack of expertise in providing technology services.

The buyer’s need is now centered on functional technology – technology that will help address issues with various functions in an increasingly complicated workflow. Providing functional technology provides a sizeable opportunity for providers. Almost all publishers globally have a requirement for such technology. While the technology could be packaged as a bundle, customized (outsourced product development) or off the shelf, it represents a market that could accommodate providers of varying types, sizes and skills.

Of the vendor groups, pre-press providers are best positioned to offer functional technology solutions to publishers. Having already developed a significant expertise in industry specific services, pre-press providers are capable of addressing various issues and challenges that publishers might face. Several pre-press vendors have already created proprietary solutions that are being offered to clients as a value addition.

For some publishers, the digital market has become a critical source of revenue, for others, a channel to augment existing revenues. Either way, technology has emerged as a pre-requisite. And in my opinion, pre-press  services providers have the home advantage…

On a completely separate note, I will be moving on from ValueNotes Sourcing Practice. I have thoroughly enjoyed researching the industry and have been fortunate to have interacted with such a vibrant community.  If you would like to get in touch with me, please contact me through LinkedIn.

Should you have any queries on ValueNotes’ Publishing Practice, please get in touch with Jui Narendran.

]]> http://www.sourcingnotes.com/blog/technology-in-publishing-what-next/feed 3 http://www.sourcingnotes.com/blog/why-is-the-outsourcing-of-publishing-services-still-taboo http://www.sourcingnotes.com/blog/why-is-the-outsourcing-of-publishing-services-still-taboo#comments Wed, 12 Jan 2011 11:14:25 +0000 Vivek http://www.sourcingnotes.com/blog/?p=677 In the recent months, we have been studying the effect of the digital market on the publishing industry. Across segments and geographies, publishers are experiencing challenges centered on costs, resources and technology that have made it necessary for them to re-invent their business models.

Of the 200+ publishing professionals we interviewed, we found that close to 4 in 5 publishers are either outsourcing or considering outsourcing publishing services. So, if the whole industry is pretty much outsourcing technology, back office processes and industry specific publishing services, why is it still taboo? Perhaps some context would help.

A couple of months ago (November, 2010 to be precise), ValueNotes was invited to participate in a speaking capacity, at the ‘Globalocal 2010‘ publishing conference organized by the German Book Office, New Delhi. In addition to speaking about outsourcing, our session included a discussion on the state of publishing BPO services in India.

My earlier interactions with the ‘buy-side’ (read: publishers) was peppered with hesitance, trepidation, and to some extent, hostility. When our session began, I could sense restlessness – as if publishers were ignoring the elephant in the room. Even if the elephant was trumpeting, stamping it’s feet, and begging to be acknowledged in general. Now I understand the political and cultural implications of outsourcing; I have read (and written) enough reports and spoken to enough publishers to understand that job losses are very much real. But what I don’t understand is why there is a stronger sense of taboo for the outsourcing of publishing services than IT-BPO services.

Our session had three other participants – a moderator, an IT-BPO provider, and a pre-press services provider. During the course of our discussions (and at times arguments) about outsourcing within the industry, the IT-BPO provider dropped all his client names at regular intervals. All the pre-press provider could offer was a meek explanation – “We have non-disclosure agreements with the client and are not allowed to reveal client names.”

So, for publishers – is outsourcing technology perfectly acceptable, and outsourcing of service not? Or is it where it is being outsourced to that’s the cause for worry?

If you are a publisher that’s currently outsourcing publishing services, I would really appreciate your thoughts on this. Do you freely discuss outsourcing of services?

This week, I came across an article that mentioned a few numbers about the publishing industry – which I think is indicative at best. While the numbers might be debated upon (and that would be welcome), it does not discount the fact that China is a strong contender – as a destination to outsource printing and as a potential market to sell in.

China as a publishing market

China is the world’s most populous country. With around 1.5 billion people, China contributes close to 20% of the world’s population. This in itself provides tremendous opportunities for consumption of educational books, reference books, newspapers, magazines, trade books, etc. The total publishing revenues is estimated to be around RMB 1 trillion Yuan (USD 148 billion) as of 2009 – an increase of 20% compared to 2008.

There has been growth across various segments of the industry:

• The book sales have increased by 20% in 2009 culminating to 7 billion copies printed
• China continues to have the world’s largest consumption of daily newspaper – with 43.7 billion copies being published last year
• In 2009, China also published 3.1 billion periodical copies
• 9000 electronic periodicals and 500,000 e-books resulted in a circulation of more than 30 million
• While print has been going strong, digital publishing in China has experience a 50% growth compared to 2008. The digital publishing market is estimated at RMB 80 billion Yuan (USD 12 billion)
• Printing remains a forte of the Chinese publishing industry. Printing in China has experienced an increase of 25% from the previous year, and is now valued at RMB 575 billion Yuan (USD 85 billion). This includes the vast number of orders Chinese printers fulfill for publishers abroad

Source: China Institute of Publishing Science (CIPS)

Revenues generated by the industry are tremendous. China’s revenues from print alone are greater than the GDP (PPP) of countries such as Serbia, Azerbaijan, and Uzbekistan.

What does this mean? – Opportunity of course!

One thing that these numbers do not indicate is revenue contribution by languages. I suspect, English is not a major contributor to China’s publishing revenues. And this is an opportunity – a significant one at that. Walt Disney (not exactly a publisher) has already assessed the market and created a strong footprint. After a successful trail phase in 2008, the company is looking to educate 150,000 children by 2015 through its language schools. For the population willing to learn English, there will be demand for reference material, language books, etc. As English becomes prevalent, the opportunity will grow to include magazines, trade books and newspapers.

Source: ValueNotes Research

Dissatisfied buyers reflect badly on providers (including captives) servicing the segment. The growth in production-related outsourcing (and offshoring) by STM publishers has over the years spawned several small, fly-by-night operators, incapable of providing sustained and consistent delivery of services. Also, several mid-sized providers have not innovated sufficiently to match the growing expectations of STM publishers. In general, complacency, lack of consistent quality and delivery amongst providers has contributed to this dismal rating.

The education segment, on the other hand, has close to 80% of respondents being moderately satisfied – of which 20% have indicated high levels of satisfaction. Educational publishing requires somewhat niche capabilities. The large providers that cater to educational publishers have taken the effort to develop these capabilities. Even the mid-small vendors in this space have built their businesses around differentiated offerings with a clear focus on content and design capabilities and not merely production services.

While providers catering to both segments have a long way to go, those servicing STM publishers need to go all out to enhance customer satisfaction, else some of these risk losing business. On the other hand, providers servicing the educational publishing segment face an uphill task of pushing satisfaction levels from moderate to high. This will entail higher levels of servicing, quality in output and consistency of delivery.

- Setting up training arm within the company to develop and absorb trained manpower

- Relocating onshore experts and trainers to provide training for their offshore employees.

In Chennai – the publishing offshoring hotspot, industry-academia affiliations are gaining traction and there is continuous effort to make academic training more relevant to the industry needs. Service providers are contributing with their inputs and obviously benefiting to a certain degree from greater interaction with the academia..

Various steps continue; however another common complaint by service providers is that trained employees are actively poached by (or lost to) competitors. Poaching may be a temporary respite for the hirer (poacher) but the problem remains… lack of an abundant talent pool to choose from! From a training perspective, copy-editing is a difficult skill to develop. The cycle time for achieving optimum levels of efficiency cannot be shortened beyond a point. Despite continuous and concentrated efforts by the Indian publishing offshoring industry, does the answer lie elsewhere? Will a model that involves and integrates cross-border outsourcing by Indian vendors provide a viable, sustainable solution… especially at a juncture when the industry is desperately seeking to move up the value chain?

Does a drop in revenues merit a need to re-invent the business model? How are publishers coping with the dip in revenues? Will the digital market provide a strong revenue source? Will this mean more outsourcing/offshoring?  In this post I look at the magazine segment.

The Magazine Segment

The magazine segment represents a major chunk of the global print publishing market. Considering that more than 100,000 magazine titles are being published in the US and UK alone, the magazine publishing industry is huge in scale and operations.  Each year the US and UK magazine market sell upwards of 4 billion magazine copies. However, like the newspaper industry, over exposure to ad revenues is hitting the segment hard.

December 2009 figures reported by the Magazine Publishers of America suggest that advertisements with finance, automotive and retail themes have drastically reduced. Advertising revenues dropped by 18% and while the segment generated almost 169,218 advertising pages through the year, there was a drop of 25% from the previous year.

The emergence of Web advertising has added to publisher woes. Print ads are billed higher and the shift in ad dollars to digital forms has seen substantial decline in print ad revenues. While publishers tend to push for print ads, advertisers look at digital ads as a cheaper yet effective means to address the reader.

Production costs and increasing salaries coupled with distribution and printing are crippling publishers. The diagram below illustrates the relative cost and revenue contribution of each functional head in a typical magazine publisher’s work flow. It illustrates the pressures brought on by declining revenues and increasing costs:

Source:ValueNotes

What options do magazine publishers have?

We have mapped the probable course of a magazine publisher’s operations – the purpose of which is to determine stages during which magazine publishers will evaluate options – to increase revenues and look to decrease costs.

These options are illustrated below:

Source:ValueNotes

Many publishers are now moving to Web only form to cope with cost pressures and dwindling revenues. While this might be considered a favorable option, the shift of ad revenues to Web advertising is one of the biggest challenges that magazine publishers face. Presstime, the monthly magazine of the Newspaper Association of America (NAA) has transitioned to a Web form that saves them up to $500,000 per year for a circulation of 20,000. While this might suit the NAA, it might not necessarily suit a small publisher whose circulation is too small.

The advantages of migrating to web-only form are:

• Massive cost savings, attributed primarily to the absence of printing and circulation.
• Cost saving from scaling down operations – building and office overheads are done away with.
• Sizeable reduction in manpower redundancies.
• Easier management of  workflow.
• Easier monitoring and monetization of content.
• Opportunity to tap a larger subscriber base that can be generated due to internet percolation.

However, there are severe repercussions to transitioning completely to a web-only form:

• Shift in ad dollars from print to Web advertising may not sustain the publisher. There is a massive difference in pricing and this will not help the publisher unless there is drastic reduction in operations and manpower.
• Redundancies in the workflow may remain especially with smaller publisher where one person does many jobs. In cases where certain publishing heads are removed (printing and circulation), there may exist employees who are not used to complete capacity. This will require severe restructuring of the workforce and thereby a dip in productivity.
• The online competition is high. To retain attention is a challenge and there would to be a need for strong in-house presence for content and new media expertise.
• Lot of employees will need to be reduced, leading to lower employee morale amongst existing employees.

The biggest of them is the fact that not many people are conforming to paying for content – thereby resulting in the publisher looking at ads for revenues. While some magazines like Time have already started restricting access to non-subscribers, the trend is yet to catch on. More often than not, when a reader is faced with restricted access, he/she might just look for another source. Traditionally, magazine publishers have encouraged a digital paradox – wherein they have provided content for free in the hope that it would result in a subscription for the printed form. Paying for content online is a trend that is slowly picking up, but might just hinder a publisher’s plan to shift to a Web only form.

Publishers have also grappled with excessive printing. Take for example news magazine, Newsweek. In May 2009 Editor Joe Meacham announced plans to cut magazine circulation by half, and was met with skepticism and in some cases ridicule. However, it makes sense looking at the cost aspect. While ensuring that the printing costs do not overwhelm them, Newsweek’s plan to cut back circulation has allowed them to retain their loyal readers – thereby creating and retaining an elite (read: high quality) subscriber base. With magazine print operations under control, Newsweek can now concentrate on its other subscribers using its web form. (How is Newsweek doing – got any comments?)

Will the need to cut costs result in more outsourcing or offshoring? While publishers have been outsourcing, offshoring is still nascent. Overcoming language issues, quality, delivery, etc is critical if the segment is to open up. However, more on this when we analyze our survey data.

On a side note: I am waiting to read the  World Magazine Trends 2008/2009 published by FIPP.

To gain clarity on where the industry is heading, we needed to understand:

• whether more publishers are considering outsourcing
• what functional areas are publishers looking to outsource
• what are the primary drivers for outsourcing
• what are the cost savings publishers expect

We would like to thank all our respondents  (237 of them) – your inputs and insights has helped us gain better understanding of one of the most important questions, will publishers outsource?

Who took the survey?

We got 237 responses from across the industry value chain – buyers, industry trackers and sellers. The following illustration gives a snapshot of our survey demographics:

Source: ValueNotes

The responses so gathered are diverse in terms of:

• Geographical presence of the respondent and his/her company
• Size of the respondent company (from below 300 employees to more than 10,000)
• Segmental presence (newspaper, magazine, education, etc)

The diversity of responses has been instrumental in understanding how industry perceptions vary based on the attributes mentioned above.

Of all the insights we have got through the survey, none is as important as buyer expected cost savings and vendor projected cost savings. Cost savings is one of the key drivers of outsourcing and there still remains a significant misalignment between buyer side and seller  side savings.

What do buyers expect in terms of cost savings?

We asked buyers “what cost savings are you looking to achieve?” The responses are below:

Source: ValueNotes

Most responses indicate that savings of 15-25% is realistic and attainable. There also exists a portion of buyers that have achieved/looking to achieve 25-40% savings. These publishers represent shrewd buyers – ones that have nurtured their vendors.

However, seller projected savings indicates there is a misalignment.

Source: ValueNotes

While buyers expect 15-25% savings, sellers project 25-40% savings.

So, why is there a misalignment?

The misalignment exists because seller end savings are never the same as buyer’s actual savings. The diagram below illustrates this:

Source: ValueNotes

• Buyers do not account for overheads from their end – project management, in-house quality checks, etc.
• Sellers need to ensure that the buyer understands the difference between seller end cost savings and actual cost savings.
• Time. This is often overlooked as buyers expect immediate cost savings and sellers do little to dispel the myth. Transition requires time and costs tend to go down once productivity and efficiency kicks in. This in turn will require lesser effort by the buyer while monitoring outsourced work and thereby reduce actual cost to the buyer.

Expectations and realizations are too far apart to result in a good experience while outsourcing. For their part, sellers need to include buyer costs in their savings projection. More stress needs to be put on when projected cost savings will emerge.

Some other insights from the survey:

• 75% of buyer responses indicate considerable improvement is required in terms of quality of outsourced work.
• Quality requires a drastic improvement.
• Outsourcing in the publishing industry is set to increase by 15-20%
• In addition to cost savings, value addition in current offerings is a strong challenge for publishers.
• Overcoming lack of in-house capabilities is also a strong driver for outsourcing.
• 64% of buyers will continue outsourcing.
• Demand from buyers lie more for content and production.
• India remains a favored publishing outsourcing destination followed by US, Philippines , China, UK.

Download the findings of the survey here.

Please do comment – would love to know what you think.

Does a drop in revenues merit a need to re-invent the business model? How are publishers coping with the dip in revenues? Will the digital market provide a strong revenue source? Will this mean more outsourcing/offshoring?  Over two posts, I will answer these questions, starting with the newspaper segment.

The Newspaper Segment

The newspaper segment contributes 36% to global publishing revenues. The prominent revenue sources for newspapers come from:

• Readers/Circulation (Subscriptions/News stand sales)
• Ad sales
• Classifieds

Circulation is one of the critical performance indicators for a newspaper publisher. It demonstrates the number of copies that a publisher sells and is often used as marketing collateral while selling ad space or classifieds (refer to the diagram below).

Source: ValueNotes

The need to boost circulation has often induced publishers to decrease subscription prices or single copy prices. While this leads to loss on subscriptions/news stand sales, it allows for more traction and leverage while negotiating ad and classified sales. Ad space sales compensates for losses made on subscriptions/news stand sales.

This over reliance on advertising increased the risk exposure of newspaper publishers in the wake of the economic slowdown. With companies cutting back on costs, advertising in print dropped significantly. Consumers, too, were cutting back and this in turn affected subscriptions and news stand sales.

WAN-IFRA surveyed publishers, editors, MDs, CEOs, etc. to better understand the state of the industry. Ad revenues dropped 20% in North America, 16% in Western Europe, 19% in Eastern Europe and 11% in Asia Pacific in 2009. The US, alone, experienced 29% decline in y/y advertising revenues!

The online market

Like with many publishers across segments, newspapers are looking at generating revenues from online offerings. However, this presents some inherent challenges:

• Going completely online will result in publishers having to cut back on the scale of operations. While many newspapers have made the transition, I don’t see that happening with larger companies.
• News reporting as a differentiator for newspapers no longer exists. Publishers will have to compete with news aggregators such as Google and Yahoo.
• The dynamics of the internet will present a unique set of challenges that print publishers have to adapt to. A shift towards the way Net companies operate will be required.
• Consumers have been consuming content for free. Paying for content online will require publishers to rationale with the consumer’s mindset and find ways to demonstrate value proposition that will convince consumers to pay.

Digital advertising will never match the value of print advertising as forecasted by PricewaterhouseCoopers (PwC) estimates:

• The print advertising revenues to be valued around USD 182 b as of 2008 and digital revenues at USD 6 b.
• By 2013, digital revenues will grow to USD 8.4 b. However, print and digital ad revenues will barely match up to the print revenues generated in 2008.

Adopting a hybrid model needs to be thought through. Publishers will need to identify and adopt a realistic mix in terms of revenues that can be generated through digital sources and print revenues that can be retained.

Content transition

Content will remain the core and Les Hinton, CEO of Dow Jones, is right when he says the newspaper has undervalued its content by giving it out for free. However, this does not hold true for news reporting. Publishers will need to push news reporting as one of the offerings and focus on opinions, analysis and back stories as the core.

This in turn will present an immediate challenge – generating highly analytic, opinionated content will require more focus and resources on part of the publisher. This focus and need for resources will ultimately translate as costs, and at this point publishers should look at outsourcing. I am by no means promoting outsourcing or offshoring, but I am looking at what outsourcing can do strategically.

The newspaper has already been outsourcing and has recently begun offshoring (sourcing has been from freelancers, third party players or in-house low cost offshore centers).  Publishers can therefore source production, printing, distribution and other process driven functions from third party players to not only reduce costs but also restructure internal operations to accommodate for more focus on core processes.

Sourcing is not without its challenges. Overcoming quality issues and inculcating cultural sensibilities still requires significant effort from service providers. However, this bottleneck in content services can be overcome by bringing more freelancers with the required capabilities into the mix. After all, if Wikipedia can do it, so can the newspaper industry!

Side Note: Some other interesting finds from the WAN-IFRA survey

The fear of ending up with a 50 page blog post prompted me to post these findings as a side note. I thought these were quite interesting and each might just merit a post of their own.

• India is the largest consumer of newspapers. Pegged at 107 million copies daily, it contributes around 10% to the global circulation.
• India, China and Japan accounts for about 60% of worldwide circulation.

I was really interested in how Japan has fared as a newspaper market. The Japanese newspaper market has been surprisingly robust witnessing only a 4% drop in circulation since 1998.  Japan also has the highest adult newspaper consumption with 612 newspapers sold per 1000 people. The market has also demonstrated that the subscription model works with 90% of newspapers being home delivered. This is in part due to Japan’s ageing population that will continue to sustain the industry in the short and medium term. However, the real test of the hybrid model will come in 2010, when Nikkei (a Japanese publisher) will start charging for online content.

I would love to hear from your thoughts, opinions and comments. Do check my next post on magazines.

(ValueNotes Outsourcing Practice had the opportunity to present on Editorial Outsourcing at the WAN conference held in Hyderabad during the start of December. To download Arun’s (CEO, ValueNotes) presentation, please follow this link.)