The publishing industry has changed dramatically over the last two years. The global economic slowdown has hit the industry’s revenues hard. Moreover, with rapid technological advancements, publishers were in for a rude awakening – their business models were no longer adequate.

The publishing industry (in English language) was over USD 250 billion in 2008. Every segment of this industry – including STM/Academic, educational, magazines, newspapers and trade publishing – is experiencing tremendous cost pressures. While revenue models of all segments are slightly different, content and distribution are the common themes. All segments are challenged as well as enabled, albeit in differing degrees, by digital technology. Rise in costs of print and production has led to a “two pronged” dilemma for publishers - increase revenues or decrease costs.

Challenges faced by trade publishers

Trade publishing is the most commercially focused category among all publishing industry segments. Trade books are targeted for the general consumer and are sold through channels like bookstores, libraries and wholesalers. The target consumers of trade books range from children to adults, and include a variety of works ranging from fiction to nonfiction, with hardcover or paperback books. While it is difficult to estimate the exact contribution of trade publishing to the overall publishing industry, we estimate that the size of trade publishing industry (English language) could be anywhere between USD 30 to USD 45 billion in 2008.

The trade publishing segment has been an early adopter of the digital media. The recent pressures that publishers faced in the wake of the economic recession have stimulated the e-book market. In the US alone, trade wholesale electronic book sales amounted to USD 167 million according to the International Digital Publishing Forum (IDPF). The e-book segment is growing and has witnessed serious attempts by publishers to make it a strong revenue source.

In a fast changing business environment, it is of paramount importance for businesses to adapt and react effectively. We conducted a survey of publishers about the challenges faced while operating in the trade publishing segment. The discussion below illustrates some of the highlights of our survey findings.

The top challenges faced by trade publishers are cost and margin pressures, diversifying into new areas of business and creating value addition within current offerings. The exhibit below highlights the severity of challenges experienced by trade publishers.

• While adapting to new technology was a considerable challenge, it was also believed to be a manageable challenge with more than half of the respondents indicating so. Half the respondents also indicated 'adding value' as a manageable challenge.
• More than half of the respondents indicated that cost pressures were a key challenge; however only a third of them considered it to be manageable.
•  Opinion was fairly divided regarding the lack of in-house capabilities. For a third of the respondents, it was not a challenge at all; and another third believed that it was not a key challenge. Access to capabilities was clearly not a major issue for trade publishers.

Diversifying into new areas of business was another constraint, followed by the concern to provide value addition within current offerings. Trade publishing was closely related to consumer interests and driven by popular themes and topics. Keeping in constant touch with trends was vital for trade publishers, especially since the business was driven by volume sales from retail customers as against 'value' sales to a niche segment like STM/Academic publishing. Besides, margins for trade publishers are thinner than those of STM/Academic or educational publishers.

Is outsourcing the answer?

Publishers are looking at the digital market with renewed interest. Most publishers have joined the e-books bandwagon – digitizing titles and packaging existing content for online consumption. However, will the digital market alleviate revenue pressures sufficiently? Is the industry going to outsource more or less? Can some of the challenges be addressed by outsourcing?

Trade publishers have been outsourcing parts of their functions for over a decade, not just as a means to tackle cost pressures, but also as part of their business model. Do trade publishers believe that outsourcing can mitigate their challenges? Our research provides some insights:

• The survey indicated that the challenge to adapt to new technology could be effectively dealt with by outsourcing. Trade publishers also considered outsourcing to be highly effective to address the lack of in-house capabilities. Addressing new geographies was another constraint that outsourcing could mitigate effectively, indicated the survey. 
• In spite of the pressures, current level of servicing did not offer publishers a strong reason to outsource. Outsourcing for cost arbitrage and value-addition had not been successfully mitigated while outsourcing. Interestingly, a small percentage of respondents felt that outsourcing could not mitigate any challenges!
• Cost and margin pressures can be successfully mitigated by outsourcing, yet not all respondents believed so. Diversifying into new areas of business and providing value-addition within current offerings was another area where outsourcing was yet to be viewed as a complete solution.

On a positive note, while 44% of the respondents expect outsourcing to continue at current levels, 41% of them expect to increase outsourcing by 25%.  Despite some signs of dissatisfaction with current sourcing, growing economic pressures and reservations about the quality of outsourced work, the majority of our survey respondents believe that outsourcing will grow. Current circumstances notwithstanding, the trade publishing industry is set to experience a new wave of outsourcing, and service providers can continue to look for a silver lining.