We all know what the politicians and economists are saying about the general economic downturn. Yet what are publishers who are working at the coalface actually forecasting for their own businesses? How much of what is happening is the result of this economic downturn and how much is due to structural change which is altering the publishing model forever? What is the publishing business doing in practice to respond to the changes? And is print dead in an online age?
Those are the kind of questions that lie at the core of Publishing Futures, a major survey of the UK publishing business, involving 187 publishing companies - newspapers and magazines as well as consumer and B2B operators, from the major international groups down to small independent publishers.
The full survey report contains a wealth of detailed information and can be viewed at a dedicated Wide Area microsite (www.widearea.co.uk/pf), but the topline results show an industry which is facing tough times with remarkable optimism and resilience. It is also an industry which is examining a business model which is changing, but not necessarily as quickly or as radically as many pundits are suggesting.
What the industry looks like now
Publishers were asked what their current turnover trend looks like and what they anticipate happening over the next year.
While 40% of respondents are seeing their turnover currently reducing, an encouragingly high 60% are looking at a business which is growing or holding steady. Overall, the total industry trend is for turnover to be sliding backwards at the rate of -1% year-on-year, but those companies that are growing are growing at a rate of +8% year-on-year.
Looking forward and publishers become a little more cautious. While 44% of the sample is seeing current growth in turnover at the moment, the number who expect to see continued growth over the next year slips down to 35%. Yet rather than predicting a dire future, many expect to tread water with sales remaining steady, rather than with turnovers plunging.
Profit margin trends
Behind the topline sales figures, the industry is essentially in profit: only 9% of companies are currently loss-making and another 12% are at break-even. The remaining 79% are in the black with profit margins running at an average of just over 11% of turnover, although these figures do vary significantly from sector to sector.
Profitability looks to be broadly following turnover. Those companies who foresee sales growth are also expecting an increase in their profit margins. Yet where the turnover trend is tighter, cost control is tighter too and margins are being maintained even when turnover is static or declining. Overall, 34% see profit margins rising over the next year, 42% holding steady and only 24% declining.
It is headcount reduction which has understandably been grabbing the trade press headlines in recent months, yet the Publishing Futures survey points to much of this pain having been already gone through: 26% of companies anticipate falling staff numbers over the next year, with 54% holding headcount steady and with 20% ready to grow their staff numbers. While there appears to be no overwhelming rush to replace permanent staff with subcontractors or with outsourced services, there is a slow but clear trend in that direction: while 20% of companies intend to increase permanent staff numbers in the year ahead, a higher 28% are increasing their use of outsourcing.
Marketing budgets are also clearly under pressure and are easier to cut in tough times. The focus of these budgets is also changing with the emphasis shifting from print into online and from retail sales into subscriptions. Yet there is a rumbling concern that the industry recognises that it may be cutting back too much and that a significant increase in investment is going to be required in the future if general brand awareness with the end reader is going to be maintained and developed.
Digging into the detail
www.widearea.co.uk/pf shows the detailed forecasts for each of the key revenue streams where online growth is clearly outstripping print revenue trends. Circulation revenues are performing better than advertising sales; and subscription sales better than retail copy sales. “Other revenues”, (which include reader offers, events and services, as well as contract publishing) are showing medium growth, behind online, but ahead of mainstream print revenues.
The electronic dimension
The growing importance of digital and online publishing is a massive and recurring theme running through the survey. It is generally seen as a great opportunity, especially in helping to construct more flexible and creative packages for advertisers, rather than as a dark threat that is going to put everyone out of business. Yet there are two very important provisos.
First, electronic is still a theoretical opportunity for many publishers rather than a present reality. While the average across the whole publisher sample is for 15% of total turnover to be coming currently from electronic applications, this average conceals a massive range, with almost 60% of companies claiming under 10% of turnover as being electronic.
What comes very clearly through the survey feedback is the fact that many publishers do not feel that they have the required resources and straightforward “know how” to make the most of the electronic future.
Second, while online offers new opportunities, it is also at the same time a major competitor in terms both of eating up the reading time of end-users and consumers, and soaking up much-reduced advertiser budgets.
What publishers are actually doing
So, if all this is the context to what is happening in the marketplace at the moment, what are publishers actually doing about it? www.widearea.co.uk/pf provides much more detail, but the topline overview is as follows:
* “Business streamlining” is the most obvious area of action. Yet cutting headcount is not the prime response, as the impression is that most of this has already taken place. Instead, looking at other costs and overheads and renegotiating supplier contracts are the key areas of focus. The recession has been the prompt for many companies to review their internal structures and the way they do things – clearly long overdue in some cases!
* “Developing existing products” is a massive and complex area which covers a wide range of issues, but central to it all is developing more creative, multi-platform packages for advertisers. Integrating online and print, both in terms of content and of pricing is another key theme.
* “Developing new products” is very much centred on growing a bigger online presence. New print launches currently have a much lower priority.
What the future holds
Respondents were asked about the “turning point” in their own trading environment. The answers varied considerably depending on the specific market sector, but the majority of companies saw next year as when the recovery starts, albeit slowly in most cases.
The question “On a scale of 1 to 10, how confident do you feel about the financial success of your company over the next two years?” produced an average score of 6.7 with 39% of respondents falling into the Optimist category with a score of 8 or more. So, considering the current climate, business confidence is remarkably robust.
Respondents were then asked to look at how radically they felt their core business model would change in the medium-term. The overall average score out of 10 was 6.0, pointing to significant shift, but not the dramatic sea-change predicted by many media pundits.
The industry is rapidly adapting to changing conditions rather than being radically transformed.
So what is the overall view?
The Publishing Futures website (www.widearea.co.uk/pf) provides a mass of detailed insights and allows anyone to add additional comments and thoughts. While the feedback varies significantly from market to market, there is a real overall sense that the publishing business is managing to surf the wave of change rather than being drowned by it. Online is both a friend and an enemy, but it is opening up more opportunities than it is closing off. The recession is forcing most companies to take a hard look at the way they do things and to be ruthless about the real value and return on investment of activities that may have been taken for granted in the past. That means cutting headcount and squeezing costs, but it also involves retraining staff (or hiring new staff who already have the right skills) to operate in a fast-moving, multi-platform world. It is also making publishers look at new areas – new markets, tighter niches, new revenue streams and more international opportunities.
The repeated hope running through the survey is that recession will force weaker competition out of a market which is simply over-supplied in terms of the number of magazines, newspapers and websites available to both readers and advertisers.
Yet behind this Darwinian theory is a massive practical issue. There is no doubting the resolve of the publishing industry in facing deep recession, but do all the companies have the resource and knowledge to turn their creative ideas into profitable practice? The simple answer to that is “no”. It is that which is the real challenge of the next 12 months, and that, as a number of respondents in the survey point out, comes down as much to positive and lateral thinking as to money. It is all about the survival of the fastest.
About the project sponsor: Wide Area
Wide Area is a web development business that specialises in delivering successful web projects to publishers. Our content management application is built around publishing work-flows and we are experts in producing content-rich websites. Our CMS also includes a range of subscription marketing tools that can be integrated with any fulfilment system. We are happy to discuss any web-based opportunity that presents itself to you.
Contact: Gill Lambert or Simon Brock (info@widearea.co.uk, 0207 631 9280, www.widearea.co.uk)
