Saturday, May 12, 2007

All-out outsourcing

All-out outsourcing
Alan Mutter

Struggling to sustain their traditional profitability amid weakening sales, newspaper publishers are looking to outsource everything from composing ads and printing papers to producing content and answering the phones.

After nipping and tucking headcount in newsrooms over the last few years, publishers appear to be poised to eliminate a significantly greater number of jobs in their plants by focusing on areas that previously were immune to cutbacks.

The initiative likely to claim the largest number of positions in the near future is the outsourcing of advertising composition to places like India and other low-wage countries.

In light of the apparent success of a pilot ad-outsource program at the Media News Group properties in Northern California, publishers like Gannett, McClatchy, the New York Times Co. and Scripps are considering whether they, too, should export such duties to offshore vendors, according to insiders familiar with the discussions.

These talks may or may not result in a decision to outsource jobs at any given property. But, human costs aside, the economics are powerfully persuasive.

Newspapers sending ad production offshore typically can reduce payroll costs by some 45%, says Robert Berkeley, president of Express KCS, one of the outsourcing companies. Thus, a paper could cut its costs to $30,000 a year per outsourced worker from $55,000 for an American doing the same job. These savings are even higher in unionized metro environments, where papers are struggling the hardest to sustain their margins.

The Columbus (OH) Dispatch was among the first to shift ad production to India, eliminating 90 jobs from a paper with daily circulation of 231,355. Assuming savings of $25k per employee, the paper should be able to add roughly $2.25 million a year to its bottom line.

Putting it another way: If a paper paid each departing employee a generous half-year of severance, the outsourcing project would begin to pay for itself in little more than 12 months – a terrific return on investment.

In what may be a harbinger of future initiatives elsewhere in the country, the San Francisco Chronicle has signed a 15-year contract with a Canadian company to begin printing the paper in in a new plant being constructed by early 2009. The opening coincides with the termination of the contract covering the newspaper’s 230 unionized press operators. When the new plant opens, their jobs will be gone.

While not outsourcing their production altogether, companies like the New York Times, Gannett, Media News and Journal Register have consolidated the printing and mailroom operations among certain of their geographically contiguous properties. In New Jersey, 200 production positions were eliminated when Advance Publications opened a plant to combine the production of the Newark Star Ledger and the Trenton Times.

While outsourcing production is complicated and not always feasible, the easiest jobs to shift are those of the people who work in telephone rooms or perform accounting, billing, accounts payable, human resources and other clerical functions.

Many newspaper groups already funnel want-ad and circulation calls to regional or national centers, where a single group of workers serving multiple time zones is far more efficient than a team dedicated to a single market. Many chains also have either consolidated clerical functions at in-house service bureaus or outsourced them to domestic vendors.

Sending call-center and clerical work offshore can shave 25% to 30% off the present costs of such operations, according to Gartner Research, a private firm. The New York Times and Boston Globe, among others, are each sending 40 to 50 clerical jobs to offshore contactors.

Even editorial and online operations are not immune from outsourcing.

Knight Ridder had a plan to create regional copy desks to handle headlines and layouts for groups of newspapers, a concept that was shelved prior to the sale of the company last year. Preposterous as the idea might sound, this is exactly what is being implemented in New Zealand by the publisher of the country’s largest daily and several other publications.

APN News and Media, a division of Britain’s Independent News & Media, is outsourcing about 70 jobs to an Australian company, according to Deutsche Presse-Agentur. If it works well, Independent News may extend the program to its titles in England and Ireland.

Reuters has more than 300 journalists in India writing many of the routine stories on its financial wires, according to MediaGuardian. Reuters has said it may increase the size of the Indian staff to 1,500 writers, though this could be affected by the potential merger with Thomson Corp.

And today's Los Angeles Times reports that a hyper-local website in Pasadena (not affiliated with a newspaper) has hired two writers in India, who, among other things, will cover city council meetings via webcam.

As valuable as Internet operations are to the future of newspaper companies, some publishers are having at least a portion of the work done overseas. London’s Financial Times, for example, relies on a staff in the Philippines to help edit and maintain its web site.

With offshore development, testing, hosting and technical support common in the information-technology sector, it is only logical that newspapers could achieve additional economies by moving – or expanding – many of these functions abroad.

When everything from designing buildings to analyzing X-rays can be performed by lower-paid professionals in another part of the world, there’s no reason to believe newspapers can avoid the workforce shake-ups that have jolted most other industries.

Institutional inertia and economic self-satisfaction have maintained the status quo until now. As an increasingly challenging business environment forces newspapers out of their comfort zones, many dedicated workers, unfortunately, will be forced out of theirs, too.

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