Media increasingly outsources tech, copy editing

A push to cut costs without splitting infinitives

IT services firm HCL Technologies Ltd., one of the major India offshore companies, this week said it won a multimillion-dollar contract to manage data centers and infrastructure operations for News Corp.'s U.K. subsidiary, News International. It was a routine deal for the tech sector, but the Indian firms are also looking for more work from publishers, including larger shares in areas such as advertising and content management.

In short, as advertising declines, the pace of onshore and offshore outsourcing in the media industry appears to be picking up. And it involves many aspects of the news media businesses, including editorial employees.

The Toronto Star late last month announced it was laying off 78 people, including copy editors. It is planning to use a new company, Pagemasters North America, for copying editing and pagination. Pagemasters is part of an Australian company, but was launched in August in Toronto as a joint operation with the Canadian Press news service.

Bob Hepburn, the Star's spokesman, said the reason for the move to Pagemasters is to save money on copy editing and pagination. The strategy was explained in a staff memo by publisher John Cruickshank. A copy of the note, heavily edited by an apparently disgruntled Star editor, was republished as the Torontoist, under the headline: " Why the Star needs its own editors ."

Pagemasters wants to offer its services in the U.S., which would make it a nearshore outsourcing firm, in the tech industry's parlance, giving it the ability to leverage wage differentials between the U.S. and Canada.

But Stewart Muir, Pagemasters managing director, said the company isn't planning "a wage arbitration model of turning dollar jobs into nickel jobs - we are not that."

"What we do is take the processes of editorial operations in daily newspapers and apply efficiencies and economies of scale," Stewart said. The company will have offices near U.S. customers to benefit from "local knowledge." Employee pay will be based on market conditions and skill levels, he said.

If media companies are warming to outsourcing, tech may help lead the way. HCL, for instance, reported in its quarterly results ending Sept. 30 that its media publishing and entertainment business had grown nearly 53% year over year, second only to infrastructure services, which increased 55%. The percentage gains are large, in part, because media publishing accounts for only a small part of its business, 6.8% of revenue, as of Sept. 30. In June, media was 5.6% of revenue.

Not all outsourcing tech companies report the gains that Noida, India, based HCL did, and many don't break out publishing-specific numbers.

Media and publishing is a relatively small market for outsourcing firms generally, in contrast to financial services and life sciences, but the offshore companies aren't letting the opportunity slip in a difficult advertising market.

Bangalore-based Wipro Technologies Ltd., told investors last month that it can reduce the cost of advertising creation by about 50%, and said it is developing an online strategy for managing online content with a major North American media company that it didn't name.

Ken Doctor, an analyst at Outsell Inc., a research and consulting firm for publishers in Burlingame, Calif., said the major area of the publishing business for offshore outsourcers has been advertising creation, and the firms are generally promising savings of about 40%.

Although there have been occasional news reports of editorial work heading offshore, Doctor said the need for familiarity with a local community will limit the use of offshore labor, but said niche-oriented publications may see offshoring as a possibility. "For the most part, we have seen some small experimentation," he said.

In the media companies themselves, the trend has been to centralize some editorial functions, such as copy desks, among multiple publications, Doctor said, but he also acknowledged that this centralization can make it easier to outsource that aspect of the business.

Eric Simonson, managing principal of research at the Everest Group, said media-related outsourcing deals have increased over the last 18 months. Mergers among media companies are driving some of those deals, but most of the push to outsourcing is due to pressures in the ad market, and publishers "see labor arbitrage and offshoring as one of the easiest things they can do" to cut costs.

If offshore firms see opportunity with media companies, it may also be because the industry has not moved as quickly as others to turn to it. "In general, the media companies have been slower than other industries to take up alternative sourcing," Simonson said.

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Patrick Thibodeau

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