Newspaper Industry Creates Offshoring Opportunities

Wednesday, 18 March 2009

Globally, the print newspaper industry has shown varying growth trends across geographies over the last few years. While the Asian economies are registering a growth in consumption, thanks to rising literacy levels, the US and European economies are witnessing a secular downward trend in newspaper circulation. The pressures on newspaper companies in the developed economies have intensified to a point that their fundamental positioning is under a severe threat.

The gross profit margins of most newspaper companies have been declining over the last three years. The exhibit below shows the gross profit margins of some of the leading newspaper companies over the last three years.

Declining Gross Profit Margins of Newspaper Publishers

Source: ValueNotes Research

This highlights the trend across the industry. To arrest the decline, companies are trying all possible means to sustain their profitability. Some of the recent news is also indicative of this scenario:

The New York Times Co. reported a fall in operating profits for the quarter to $63.3 m from $101.5 m in Q4 2007.
Revenues from property ads fell by 60% year on year in the last quarter of 2008 for Newsquest.
Guardian Media Group including the Guardian and Observer newspapers announced a pay freeze for the FY 2009-2010.
The News & Observer Publishing Co. plans to cut 11% of its work force.
Several leading newspaper companies are being forced to rethink their business models in an era of evolving technologies and challenges.

Offshoring Trend
Over the last couple of years, there has been an increasing trend of US-based newspaper publishers offshoring to India along with sporadic instances amongst UK-based publishers.

Leading newspaper publishers like Gannett, McClatchy, EW Scripps, New York Times and Media Newsgroup have started outsourcing parts of their ad production and some editorial processes to Indian service providers. There are a handful of service providers in India actively focusing on the newspaper segment currently. Affinity Express, Express KCS, Mindworks Global and 2AdPro are amongst the notable service providers with an early mover advantage. Some of the other players in this segment include Ninestars and Apex Covantage.

The beginnings of editorial services in the news industry have originally been made by Reuters which established its offshore captive in Bangalore in 2004 and currently employs approximately 1,200 people. The offshore center provides editorial services including content aggregation, copyediting and editorial layout.

Currently, Ad production services are being provided by most service providers and there are very few third party service providers offering editorial services to newspaper publishers. Going forward, the basic business model of newspaper publishers is set to transition from being merely print advertisement-driven to one that is more web-intensive and information-driven. Ad production will have maximum offshore potential for India in the near term. However, as newspaper publishers look to innovate and reap more cost benefits, areas like content aggregation and promotional writing (advertisement editorials) will emerge as significant opportunities for offshore service providers.

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