On the 19th of November 2007, Amazon released its first generation Kindle – an event that shaped the digital market. Since then, large corporations such as Sony, Barnes and Noble, Google, and more recently Apple, have been giving the digital content market significant attention – adding credibility and more so, validating the digital market as a strong revenue source. Consumers have responded well to digital content as evident by e-book sales in the US: The International Digital Publishing Forum (IDPF) reports sale of digital content/books in the US, for the first two quarters of 2010, in excess of $150 million – a 200% growth since the same period last year.

Publishers, over the last few years, have faced significant cost and revenue challenges – challenges that have shaped how the industry is currently operating. For publishing companies undergoing cost and revenue pressures, the digital market presents a holistic solution – one that opens a channel of revenue with non-linear growth, while ensuring minimal costs of production & sales. Whether it is opening a new channel of revenue through digital sales or migrating to digital only operations, the publishing industry worldwide is getting a digital facelift. However, creating digital offerings presents its own sets of problems.

Optimal Production of Digital Content is a Challenge

To better understand how publishers address the digital market the ValueNotes Sourcing Practice is conducting a survey on “The Current State of Digital Content”. Initial responses from our survey suggest that integrating a digital workflow in addition to the existing print workflow is a challenge – more than two-thirds of the respondents having indicated so. Most publishers view the creation of digital content as two activities:

• Digitisation of backlist/archives
• Digitisation of existing/future content

Digitisation presents its own set of challenges and is highly dependent on the value of the content (particularly for STM/Academic, reference and trade book publishers). Publishers with a large backlist have faced issues while organising content, identifying source files (due to multiple versions), developing workflows in-house and most importantly organising the resources required while undertaking the digitisation.

On the other hand, digitisation of existing/future content is highly dependent on developing strong workflows that incorporate multiple formats. The biggest challenge remains in maintaining a uniform user reading experience – across various e-readers and formats. To truly monetise the digital market, publishers need to not only develop the necessary technology skills and infrastructure, but also develop the resources in-house – a significant cost outlay.

Leveraging the Outsourcing Model

Traditionally, publishers have leveraged outsourced publishing services providers to cut costs. However, with the onset of digital content, publishers are going beyond cost as the primary criteria for choosing a vendor. For example, a large education publisher we interviewed rated product expertise as the primary driver for choosing a vendor. Varying formats, ensuring uniformity of reading experience and integrating deliverables in the buyer’s workflow all require capability and skill on part of the vendor.

Buyers have also indicated lack of in-house capability (technological expertise) and resources (scalability of operations) as other important drivers of outsourcing. While buyers might consider outsourcing more, satisfaction levels are a concern. Quality, timeliness and delivery processes remain areas where most buyers seek improvement.

Providers (pure-play publishing services and otherwise) now stand at the threshold of a significant opportunity – that of digital production. This opportunity includes volume driven services such as conversions, XML, etc. to value added services such as workflow and process consultancy. However, to successfully address this opportunity; providers will need to match up to the buyers expectations of quality and delivery.

Publishers will soon need to find a lasting solution to quality issues – consumer expectations from digital content is increasing rapidly. As the market grows, the publishing industry will adopt digital content on a wide scale and as the market matures, there will be more opportunities to cross-sell content. Whether publishers outsource or not, the need of the hour is to digitise in a holistic manner – one that will facilitate the digital production of existing/future content optimally.

Vivek Shenoy is Analyst - Publishing, ValueNotes Sourcing Practice