This month’s “Ask the Chefs” feature poses a tougher question, one that not all the Chefs felt they had the proper perspective to answer with confidence. Despite a limited field of responses, there seems to be a nuanced consensus.
The question this month was:
“How do you see the economy factoring into publishing decisions these days?”
There is no doubt that the economic downturn has affected publishing, just as it has affected many other industries. From pressures on investment funds to commodity prices to sluggish national economies to unemployment to budget cuts at key payers, nothing seems to be immune from the economic slowdown. Do you wait it out? Do you find advantage?
Joe Esposito: How does the economy factor in? This is one of those questions that you have to unpack before you respond. Different organizations respond in different ways, and not everyone’s sense of the economy is the same. My own view is that we are living with two economies. There is the economy of the big statistics. This is how we know that unemployment is high, that overall growth is just inching along. If you look at this economy, you get discouraged from making investments, as you don’t know if they will pay off. Also, you may be struggling with weakened cash flow. On the other hand, there is the economy of innovation. Even as we have 10% unemployment, Apple launches new tools for creating multimedia textbooks, Amazon expands globally, and smartphones are showing up in almost everybody’s hands. Well, far less than everybody: we still have that 10% unemployed. There is venture capital pouring into digital media businesses right now (one firm has created a fund to take on Hollywood). So I think that the question about the economy has much to do with what part of it your own enterprise faces. If you have a legacy operation that primarily markets to libraries, you are cautious and worried. If you are looking at entirely new products and markets, you push the pedal to the floor. There is a great disconnect in American society right now: gloom and doom on one hand, Emersonian optimism on the other. I am, of course, on the side of my Uncle Ralph.
Kent Anderson: Economic turmoil drives change. There are two basic choices to make — pull back or push ahead. Organizations that push ahead are innovating and shifting their sales to find areas that are still growing in the midst of an overall downturn, or consolidating their positions through strategic shopping or expansion. Organizations that pull back are waiting for something, and I think they are surrendering some control of their fates. Whichever course an organization chooses, economic change creates real pressure to morph, a pressure that may be stronger than any these organizations have previously faced. Change isn’t optional. Leadership is tested, and not all leaders are ready for what the economy has put on their doorstep. For instance, the CEO of WebMD recently stepped down because the pharma ad market is taking a nosedive, and that business will need to recast itself. He wasn’t up to the challenge for whatever reason. It’s a time of change. Smarter organizations are thinking long-term and more strategically. In some ways, this is a very good time to hire some excellent people who might otherwise not be available, to leapfrog competitors playing it safe, and to elevate your reputation as the preferred source of information. While economics create uncertainty, we have to solve it. Things are uncertain until you make them certain.
David Wojick: The US Federal government has a number of large scientific publishers, whose products range from metadata and abstracts to research reports and publicly accessible journal articles. To them, the economy is defined by the federal budget, and the news has been grim and is getting grimmer. For the last several years, there has been no new budget, just what are called “continuing resolutions,” which equal flat funding in many cases. Now they are seeing cuts, some of which are large. Publishing by these science funding agencies typically gets cut before research. So far, no one has gone dark ,but it could happen. Wholesale early retirements by senior staff are occurring. New product development has dwindled. On the other hand, shake ups often lead to innovation down the road. Time will tell as this painful process is far from over.
Ann Michael: Back in the third quarter of 2008, it seemed as though most organizations (not only publishers) stopped doing everything. The financial climate and its uncertainty caused everyone to freeze. About 12-18 months later, though, organizations realized that they couldn’t stay still forever and, especially in publishing, that they were falling behind by not moving forward. Now, publisher reactions seem to vary — but are often polar opposites. There are some that use the current economy as a reason not to experiment, and others that cite it as the reason they should! However, if I reframe this question as how should the economy factor into publishing decisions, I would say that it should cause publishers to take more calculated risks and perform more goal-oriented experiments. For a very long time in publishing, innovation has been done in a haphazard manner as if innovation were some unmanageable, magical occurrence. Those that feared something they could not manage stayed away and those that felt they had the mojo jumped in, but often wasted money, didn’t learn from their efforts, and, therefore, did not bring that learning forward into future experiments and product development. We have the challenge of living in a time when the economy is fragile and our industry is transforming and unpredictable. We can’t afford to make decisions solely based on either of those conditions, but instead on a combination of those factors as well as a clear understanding of our desired place in the market (i.e., first mover, early adopter, follower, etc.) and risk tolerance.
Michael Clarke: The most obvious response to the current economic climate from the perspective of the publisher would be to curtail new product launches and/or new feature development on core product lines until the economy improves. This would also be the wrong decision. Library budgets are flat to negative while publisher prices continue to rise (and indeed must rise as publishers are continuing to publish more and more content while at the same time managing increasingly complex technologies, user demands, and distribution channels). This is leading to a library purchasing environment that is more competitive than ever before. Librarians must make difficult decisions about which products/titles to cut and which to keep. Publishers’ wares are therefore coming under far more scrutiny. If your product is in the top tier, you’ll likely make the cut. If not, then you may find yourself like Charlie Brown on Valentine’s Day looking all the way in the back of your mailbox for the renewal check that never materializes. To make matters more challenging, superior content is no longer sufficient for being considered a top product. In the recent past, content and brand (which flowed from a sustained quality of content over time) were what distinguished one product from another. No one has (successfully) differentiated their STM books and journals by having better printing or superior typesetting. Not that these things are not important but printing and typography are mature technologies employed with more-or-less equal expertise by all publishers. In today’s market, technology is not deployed in such a uniform manner. Products that offer a superior user interface, superior mechanisms of information discovery, or superior integration with user workflows will be perceived as more valuable than less able products, even if those competitive products have content of similar quality. By not investing in keeping one’s products up-to-date, publishers create an opening for more nimble competitors. There is a second wrinkle to the flat to declining library budgets, however. Publishers have relied for years for revenue growth on price maximization and market segmentation strategies. Today, most publishers have already segmented their markets and long since implemented tiered pricing models, geographic discounts, consortia pricing, and other pricing techniques. Moreover, most publishers have spent the last decade expanding their sales channels globally and have at this point largely saturated the global library market. Because publishers cannot raise prices to the extent they have in the past, because they have already segmented their markets, and because there is no significant market growth possible (geographically speaking), the only strategy left for growth is to develop new products. And because of the competitive environment for library budgets, these products must be (as Steve Jobs would say) “insanely great” in order to succeed or they must appeal to new categories of customer (such as Individual readers, departments, authors, or funding agencies). In either case, publishers must leverage technology to build user-centric products that end-users really want. Customers must want them enough to insist that their libraries or departments buy them on their behalf, or they must shell out their own monies (or that of their funding agency) to buy them. In short, the days of differentiation through content alone are over. Content is still critical, but it is now in the category of “necessary but not sufficient.” Context is now king – and publishers must develop sophisticated approaches to delivering the right content to the right people at the right time in order to both drive growth via new product but also to maintain existing marketshare via mature products.
David Smith: There’s an old joke that goes something like this: For every subject except economics, teachers change the questions on the test each year; when it comes to economics, they keep the questions the same and change the answers instead. From this side of the pond, the precarious state of the Euro and the Eurozone nations is front and centre with respect to the economy. Opinions seems to be divided on whether Greece will default (surely it has already . . .) and whether such a default will cause chaos or not. Opinions are also divided on whether politicians in Europe have a clue about what to do — Step 1) massive austerity, Step 2) magic, Step 3) growth, appears to be the plan at the moment. If the Euro goes bad, then we are all in trouble. Those of you reading this from the US will maybe have more time to react, but how much time is very much open to question. If you are smart, you’ve already done a lot of scenario planning and maybe you have a Bayesian model of your business to help you update your assumptions as the hard data comes in. Something else is going on as well. Ever since the credit event of 2008, the issue of what constitutes value has become a factor in all sorts of debates, whether it’s banker’s bonuses, pay gap disparities, the amount of tax being paid, or the value being added by services, all is under the microscope, and it’s a pretty febrile debate. Then there’s the debate about trust and the multiple breaches that have occurred to break the flow of money through the economy. The cultural and social responses to an unprecedented situation in the current economic environment is terra incognita. Companies and organisations could be seriously damaged or fall based not on the numbers, but on the opinions of the customers they serve deciding that they no longer deserve a place in the scheme of things. There’s a lot of anger out there. There’s also precious little goodwill. There isn’t a playbook for this kind of situation — you need to be able to have a very good grasp of where your users are. It’s vital to be listening out for the ebb and flow of sentiment from your constituents. It’s also vital to be keeping an eye on things that might seem to be unconnected to your business, but which could sideswipe you. Pay attention to the social economy, or else.
Discussion
5 Thoughts on "Ask the Chefs: "How Do You See the Economy Factoring Into Publishing Decisions These Days?""
I am surprised that none of the commentators mentioned the most important economic development since the industrial revolution – the “Great Convergence.” Certainly technological innovation is a very important development but it pales in comparison to the really big event, the shift of the economic center of the global economy from the Atlantic to the Pacific. The authors here write of economic dislocation and decline. While that may be the state of the economy in North America and Europe it is not true for Asia and Latin America. The growth rates in these regions have averaged well above 6% a year since the financial meltdown in the West. With all due to respect to David Smith’s comments about Europe, economic developments there are indeed grave but Europe is now only the third largest economic region in the world. The high growth rates of Asia more than compensate for the economic slowdown in Europe. Though I have no doubt that a Euro crisis would negatively impact all of us and it should be an issue of great concern for everyone.
China is already the second largest economy in the world, in ten years time (by some estimates) it will pass the US to become the world’s largest economy. That is an economic event of significant magnitude to warrant a mention here. Stop and think about that for a moment. This is a development with profound implications, especially for Americans. For nearly 100 years the American economy has lead and often dominated the global economy. That era is now drawing to a close. Most of our business models and plans work on the assumption that the US is the most important market (by far). Have you given any thought to how your business plans and marketing strategies will be different when China assumes that role?
Good point, Mark, and there’s more to this, as you well know. The Eurozone’s impact on the growing Asian economies isn’t clear, but the longer it drags on or deeper it gets, the more of a chance for some domino effect. But these are macroeconomic trends in manufacturing, commodity trading, and so forth.
From a publishing standpoint, it’s interesting Asia didn’t come up in the answers specifically. Possibly, this was viewed by us all as more a “temperature-taking” post than a specific tactical post. There’s no doubt that Asia is on everyone’s minds, but exactly what to do about it still isn’t clear. From an authorship standpoint, there’s a reason to be competitive, but our brands are doing that well enough — and the papers vary widely in quality and novelty. From a sales standpoint, these economies can be difficult to enter and relatively low-yield in the short-term, so it’s hard to assign them top priority when the rest of your business needs attention. That said, I think the overall tone of the responses was, “Don’t stop investing, don’t stop trying to grow.” And I feel confident Asia is part of such efforts overall.
Hi Mark, I see you offer consultancy services in the area of doing business of the Asia Pacific region.
I focussed on Europe as it’s where I’m based and because I thought SK readers might appreciate a European perspective. I’m not sure how much decent information is making it across the pond/to other parts of the world. It’s very serious. VERY serious. Here’s an example of just how serious it is:
http://www.guardian.co.uk/business/2012/feb/06/greek-politicians-delay-rescue-package-agreement
Even if the Greek Government does what’s required in order to get the next tranche of money they need to avoid a disorderly default, it’s not at all certain that the Greek people will stand for what is required of them. If you haven’t read it already, I recommend Boomerang by Michael Lewis, for an insight into the Greek story.
Then there’s the issue of whether the Euro is a functioning currency. Europe might be third in the list of economic powers, but consider this. Greece is tiny, economically speaking. Yet they’ve borrowed so much money that they could utterly wreck the global economy. If it goes south, who is China going to sell stuff to?
I recommend Robert Peston from the BBC for excellent writing on what is happening in Europe:
Responding for myself only, the reason I did not call out Asia and Latin America specifically is that most publishers have spent the last decade focusing selling into Asia and (more recently) Latin America. Publishers have built extensive sales networks, sold to emerging consortia, and fine-tuned price segmentation. Most STM publishers are fairly well established at this point in both regions. While overall economic growth in Latin America and Asia (as well as Russia) is, of course, welcome and will lead to increased sales and/or price leverage, this will not lead to the kind of revenue growth publishers have seen in the last decade as there is just not much market left to grow into.
Kent and Michael there is nothing that you have written with which I would disagree. Asia (China in particular) is a very difficult market and returns are indeed low. To that I would add that the deck in China is stacked against Western publishers.
But none of that changes a fundamental fact. In our working lifetimes the baton will pass from America to China. This year will mark the point where the medical market in China will pass Japan, making China the second largest market in the world. Ten years from now, China will even outspend the United States. Research budgets and the number of researchers are growing at a much faster rate than in the United States. I firmly believe that one should never offer a projection, the future is too hard to predict and there are many unknowns. But I will go out on a limb here. By the year 2025, global publishers should be generating at least 25% of their revenues from China alone, Asia as a whole should account for more than 33%. If I am right Asia and not Europe or North America will be the world’s largest publishing market. Certainly by that date Asia will account for more than 25% of published research (putting it on a par with the USA).
My point is, if I am right, this would represent a fundamental shift in our business that is at least equal to the shift caused by technological change. For that reason, I think this change would warrant a mention in a blog entitled; “how do you see the economy factoring into publishing decisions?” China will move (or should) from being an emerging market where publishers can gain a few extra sales to a market that is as central to our plans as the US. By 2025 global publishers should be spending as much time money and effort on China as they do on the US. That would represent a dramatic change from present practice. One could even argue that the US should be of secondary importance to China.
Kent, you have been a great advocate on how the new technology could be used to provide new services and products in North America. In the future, we will need to think of products and services specific not only to American and European scientists but to Chinese as well.
