Top global publishers are more likely to be customers of the largest ERP providers, such as SAP or Oracle, given the business risk associated with large global software implementations. Medium- and smaller-sized publishers may also choose a large package solution but are more likely to select one of the publishing industry’s specialized software providers such as Klopotek, Iptor, or Virtusales. Implementation costs and total cost of ownership are critical issues for all publishers, but will be of paramount importance for medium and small publishers who generally struggle to find money to spend on technology infrastructure and software applications.
Large package solutions provided by SAP and Oracle are generic solutions that require significant configuration and enhancement to support the specific requirements of the publishing model. For all but the largest global publishers, solutions like SAP and Oracle will not be a viable solution because implementation is too expensive, the solutions are too broad, and the ongoing operating expense is too high. Even in instances where one of these large-scale solutions has been implemented, the publisher may also purchase specific modules provided by another, smaller vendor to support certain specialized publishing functions such as royalties management (sometimes referred to as two-tier ERP).
Even for publishers in the top tier of publishing who have the financial resources to implement expensive solutions, the data needed to compare their “to be” environment is scarce and may be provided by a vendor (with a vested interest). Other publishers of size struggle to understand whether they pay too much or too little for technology and cannot predict how new technology investment might improve their operations and expand their business opportunities. The comparative information just does not exist to illuminate their opportunity.
Potential Market Size and IT Spending in Publishing
The market for IT software and services in the publishing industry is difficult to accurately quantify. There are few comprehensive research reports, and no current industry group (BISG, BIC, etc.) has undertaken a complete study. But, generally, it is possible to conclude that the market for technology, software, and services is at least $3 billion per year worldwide. This assumes the top 60 global publishers (with annual total revenues of approximately $70 billion) spend 4.5% of their revenues on technology (see figure, IT Spending as a Percent of Revenue). Extrapolating this to include all international publishers suggests the amount spent on technology in publishing likely exceeds $6 billion per year.
This number is not only a reasonable estimate, it represents a significant opportunity, yet it is a “dumb number” without a breakdown of the spending into its component parts. For vendors and publishers alike, this dearth of detail makes it difficult to commit business plans on cost and infrastructure. More troubling, the publishing and media industry is slow to adopt new technology solutions. Other business segments report that IT spending dedicated to supporting legacy solutions represents between 60% and 75% of expenditure and it is probable that legacy support costs represent at least 70% of IT budgets at most publishing and media companies. In a rapidly changing business environment in which technology should be helping support digital transformation, companies will find it difficult to adequately support the growth (or the transformation) of their business unless expenditure can be freed from legacy support. Benchmarking current spending levels and understanding the impact of replacement technology and implementation models can help accelerate this process, but the lack of shared knowledge makes decision making very difficult for executives.
The level of current technology spending in publishing may already be inefficient and ineffective, which makes the starting point for improvement weak. With a focused effort, even modest improvement in the balance between legacy and new technology expenditures can prove beneficial. For example, a small reduction in legacy support spending from 70% to 65% of total costs could represent a large dollar return that could then be “reinvested” in new digital applications. As the chart from Kew Associates indicates, UK publishers are paying more per tech staffer than other industries, which may reflect (in part) a dependence on staff with specialist, legacy software knowledge. As the report writers noted, “the use/implementation of packaged application software solutions is driving the wide disparity at the top end where spending in publishing is reported to be 3x the levels in other industries.”[1]
Individual application modules supporting specific business processes are likely to show variability in spending levels and growth expectations. Specifically, the management of intellectual rights and royalties is becoming more complex for publishers and content owners as the breadth of intellectual content and distribution models expands. It is also a growing services and software market segment. The research company MarketsandMarkets estimates that “the intellectual property rights and royalty management market size for the global publishing vertical is expected to grow from $490.0 million in 2016 to $1,367.8 million by 2021, at a CAGR of 22.8%. The . . . vertical in North America is expected to grow from $161.5 million in 2016 to $390.6 million by 2021, at a CAGR of 19.3%.”[2]
Where Does This Leave Us?
Publishing does not see investment in technology to be strategic or value enhancing, which is a mistake. One only needs to look as far as Facebook or Uber to understand how technology platforms can reinvent businesses. Publishing companies with inflexible and antiquated technology infrastructure may not be spending large dollar amounts on maintenance and support of these systems but they likely are paying a penalty: stunted growth opportunities, limited eCommerce capability, weak community development and CRM environments, all of which could be enabled and enhanced with the application of the right technology. However, in the absence of useful data intelligence regarding the solutions in use, the spending deployed, and the staffing required for these investments publishers remain stuck with the status quo. Even the most strategic CTO would have difficulty proposing any but the most riskless and conservative solutions available, which, by their nature, will fail to create a breakthrough approach to technology strategy. Without industry data we remain blind to the possibilities and the opportunities. That needs to change if we want publishing to remain relevant and important.
[1] IT & Telecom Spend, www.kewassociates.co.uk
[2] www.marketsandmarkets.com, August 2016
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