The global print publishing industry is seeing challenges like never before. Driven by different sets of challenges and revenue models, almost all publishing segments are being threatened by the economic downturn and the digital revolution. While dwindling subscriptions and ad revenues are posing a survival challenge for newspapers and magazines, a decline in government funding is affecting the revenues of STM and educational publishers.

The current economic climate raises a potent risk – investing in new media and innovation involves risk that has been compounded by unpredictable consumption patterns. Increasing revenues (or even consolidating existing revenue streams) has not been an easy task, and publishers are focusing on reining costs to sustain profitability.

Publishers are experimenting with costs – reducing and consolidating operations, identifying and removing manpower flux, and outsourcing intensive cost overheads such as distribution and circulation.

• Gannett will cut 1400 jobs in its US newspapers in 2009
• Transcontinental Inc announced 1750 job cuts in February this year
• Cambridge University Press announced 150 job cuts in April
• Yell, UK’s yellow pages publisher has planned to cut 1300 jobs during this year. This is in accordance with the publisher’s plan to cut costs by GBP 100m by April 2010

(The above examples are merely illustrative, but are signs of a longer state of distress in the publishing industry)

Coping with costs by offshoring

Publishers in the STM/Academic, Educational and Legal segments have leveraged cost arbitrage by offshoring their publishing work to countries like India and the Philippines. Major international STM publishers have been offshoring for over two decades…the concept of ‘offshoring’ is not just well established, but it is a key component of their production process.

  Source: ValueNotes Research Report: Offshoring in the Publishing Vertical, 2009

While offshoring has been prevalent in the STM/Academic, Educational and Legal segments, other segments such as newspapers, corporate, B2B, and magazines have started considering offshoring as a viable option.

Offshoreability matrix for publishing segments

As demonstrated in the Offshoreability matrix, all these segments have different drivers and offshoring potential and are dependent on certain ‘must-haves’ for the providers servicing the segment.

Magazines - a new frontier for outsourcing

Providers have evinced great interest in the magazine publishing segment. 2009 has already witnessed the closure of over 300 titles in the US and Canada. Cost has been the primary concern for most magazine publishers in the US and UK and this is expected to drive outsourcing and offshoring.

The magazine segment represents a major chunk of the global print publishing market - more than 100,000 magazine titles are published in the US and UK alone. Each year the US and UK magazine markets sell upwards of 4 billion magazine copies. However, all is not well with this segment.

The business model of magazines is driven by ad spend (corporate spending) rather than consumer spending. Since ads are driven by readership, magazine publishers tend to:

Price each copy of the magazine at a highly subsidized rate to encourage and increase readership
Rely heavily on ad spend to recover costs and make profits

The current economic condition has certainly exposed the fragility of this business model. Readership of most magazines has shrunk due to a fall in consumer spend. Corporate spending too has reduced significantly – with budget constraints being a major reason.

Reduction in ad spend

    Source: Magazine Publishers of America, April 2009

The popularity of web advertising has also added to publisher woes. The shift in ad dollars to digital forms (a cheaper advertising option) has seen a substantial decline in print ad revenues. Magazine publishers are now looking at increasing revenues by addressing new media platforms, redefining their value proposition and trying to monetize all avenues of content. They are either reducing their printing costs or redefining their model to a web-only format.

To make an impact on their bottom line, publishers have started looking at wage and cost arbitrage by outsourcing their work. The magazine industry has always been outsourcing. Photography and features, for instance, are outsourced by many. Some publishers have even outsourced their circulation or distribution to vendors.

Service providers that do cater to the magazine segment have developed hybrid models where they have a presence at the client’s end, while the execution is done from an offshore center. While outsourcing by magazine publishers to US-based vendors has been tried and tested, offshoring work is still nascent.