Times are challenging. No one needs to be told that, but, writes Jim Bilton, the latest wave of the Publishing Futures project provides a lot more shape and detail to that bald statement.
It also shows how publishers are responding to the challenges. “Bifocal management” seems to be the best description – trying to plan for a long-term digital future while still running the current business operation day-to-day. It is this constant “two tier thinking” which is creating real stress for many publishing executives.
Publishing Futures is run by Wessenden Marketing in association with PPA and InPublishing. From the pilot survey in 2009, the project has developed into an annual benchmarking of the key trends and issues in publishing, across consumer magazines, B2B operations, newspapers and digital publishers – 121 companies in total participated in this latest survey. This project is what we call “near futures” as it is “near” in two ways. Firstly, it relies on what the people actually working inside the publishing industry are doing and thinking and planning for their own businesses. Secondly, it looks no further into the future than one to two years from now. That is not to reject “future scoping” or longer-term “blue-sky” thinking, but it is to put it into perspective – the bright blue sky can be challenging and thought-provoking, but ultimately it is highly speculative and subjective and often does little to help executives do their “day job”.
The full report shows that the detailed picture varies markedly from company to company and from sector to sector, but the topline results give a sense of the overall direction of the industry. The first aim of the project is to give a clearer picture of how the business is performing now…
Publishers were asked in each survey what their current turnover trend looked like.
* The 2009 survey caught publishers still on the downward track with the topline sliding for 40% of the sample and with the average being -1.1%.
* 2010 saw steady growth returning from the bottom of the trough with a +3.2% rise.
* 2011 sees a slight increase in the rate of growth to +4.2%, with a forecast for the end of 2012 of +5% growth. 61% of publishers are currently growing, with another 4% expecting growth to return in the next twelve months.
While the overall picture of strengthening turnover growth is very positive, it is not quite the bounceback anticipated a year ago. In 2010, the forecast for end-2011 was of +7% growth, which has actually turned out to be +4.2%. As with the general economy, the growth is variable from sector to sector and is still fragile, but is most definitely there.
Publishers were asked to provide the profile of their revenue streams, both currently and what they are forecasting for two years out from now. These profiles vary massively from publisher to publisher and from sector to sector, but the topline trend figures give a real sense of what publishers are thinking about the future direction of their business.
While the overall picture is of rapid and fundamental shifts, it is not a throwing out of the old business model and starting with a blank sheet of paper.
Own Print Brands
Although declining in share, print remains the engine room of the publishing business, currently accounting for 66% of total industry revenues.
* Yet in two years’ time, publishers foresee a 7% percentage point drop in print’s share to 59%.
* The share of copy sales versus ad-funding, which now stands at 43:57 is predicted to edge slightly towards copy sales in two years’ time.
The key conclusions are that… Print is still massively important and remains the most profitable part of most companies’ operations. Print is declining fast, but it is not as fast as many commentators have been predicting. The level of digital activity ranges massively. Many publishers, particularly the smaller ones, look as though they are in danger of being left behind – for many, digital still remains more a theoretical future opportunity than a present reality.
Own Digital Brands
Behind the significant 6% point growth in overall digital revenues (from 17% now to 23% in two years’ time), there are some important shifts in emphasis:
* The importance of paid content is predicted to increase, but will still represent only 29% of total digital revenues in two years’ time, up from its current 25%.
* Adding ad sales and sponsorship together shows that digital will remain a largely ad-funded model (accounting for 65% of total digital revenues now and for 61% in two years’ time).
* Although growing, the rise of ecommerce looks very slow, showing that many publishers have still not yet really cracked how to sell extension products and services.
This revenue stream is an add-on activity within paid-for publishers. It is predicted to edge up slightly overall, but behind that there is a significant shift out of print and into digital.
Often under-estimated in the great print vs digital debate, live events are a significant and growing element of many publishers’ activities.
Behind the rising turnover figures, the profit picture is much more mixed, but is still robust given the difficult trading conditions.
* 70% of respondent companies are currently in profit – the average profit margin for these companies is 11.6% of turnover.
* 19% of companies are breaking even and another 10% are loss-making.
Looking at the trend in profit margins…
* The number of publishing companies who are profitable has been slipping, but the respondents are much more optimistic about the next twelve months with 16% expecting to break into profit by the end of 2012.
* Secondly, there looks to be an increasing polarisation between the weak and the strong – the strong are getting stronger while the weak are getting weaker.
It is clear that the industry took much of the pain in headcount reduction in 2008. The subsequent Publishing Futures surveys show the following trend…
* 2009 saw the industry steadying, with the majority of companies (54%) foreseeing a stable workforce over the coming year and with 20% already beginning to staff up cautiously.
* 2010 saw a major increase in confidence with 45% looking to headcount growth.
* The optimism of 2010 has cooled in 2011, with static workforces being in the majority again and with ongoing staff pruning becoming more widespread at 15%.
Interestingly, the use of outsourcing / sub-contracting has also moderated. In 2010, 36% of publishers saw this as being on the increase, whereas this has slowed down to 32% currently.
Digging into the detail
The full report zooms in on each of the following areas in much more detail to show what is driving these topline shifts in revenue and profit, listing key opportunities and threats in each area:
* International activity, which is growing in importance from 22% of total industry sales currently to a projected 25% in two years’ time.
* Advertising, where publishers are trying to hold firm on core yields while creating more sophisticated ad bundles and trying to enter new markets.
* Retail and subscription copy sales, where the balance continues to shift towards subs – 43% of companies see their subs sales outperforming their retail sales – but where there are significant threats to both channels.
* Marketing budgets are beginning to come back, but from a low base, rising from 4.5% of company turnover in 2010 to their current 5.4%.
* Digital and online activity, which is growing, but is creating all kinds of issues in terms of the structure and skill-sets of the organisation and is producing some very different strategies regarding paid content.
Managing the future
So, if all this is the context to what is happening in the marketplace at the moment, what are publishers actually doing about it in terms of shaping the organisation? The report details three distinct areas:
* Business streamlining – essentially cutting costs.
* Developing existing product and services – fine-tuning and refining what is there already.
* Developing new products and services.
The relative importance of each area continues to shift between surveys and from company to company.
What the future holds
In terms of confidence about the future financial success of their company over the next two years, on a scale of 1 to 10, the average industry score is 6.9, down from the 7.1 seen last year, but still ahead of the 6.7 of 2009. In addition, 47% claim to be more confident about the future than a year ago – this is down on the much stronger 64% from last year’s survey.
Behind all this, there lies a recognition that the underlying business model has already changed significantly, but that there is even more change ahead over the next year or so.
What does it all mean?
The mood of 2009 was one of panic and doom, with traditional publishers feeling that they were caught helplessly in the headlamps of the digital juggernaut. By 2010, the mood had changed as publishers started to grapple with the challenges, but were stressed by the pressures of deciding where to focus their resource and attention.
The current mood is different again. Stress and overchoice and resource are still big issues and the anticipated revenue bounceback has faded into a slow and grinding clawback, based on relentless cost control. Yet there is a real sense of emerging from the fog of the last couple of years into something that is beginning to have more shape, but which is moving and changing very, very fast: like stepping out from a sinking bog into the fast lane of a motorway.
Publishers clearly have more hope that there really is a future for them in the new digital world, but it is all raising new challenges… new platforms and channels, but ones over which they have less control… new opportunities, but ones that demand new skills, more investment and different business models. The publishing future feels more robust than it did a year ago, but it still looks very confusing and challenging. Yet the industry is actually looking better placed than ever to have a go at making the most of the challenges ahead.