Blogpost

Technological domination within the publishing industry

Key facts

  • Driven by technological change, consumer behaviour is changing at ever shorter intervals,
    thus, creating significant opportunities for low-threshold market entry and disruptive business
    models
  • In this context, traditional publishing houses are under significant competitive pressure, as
    well as under the pressure to take action. The primary challenges here, are the progressive
    shift away from traditional (print) media, the increasing market power of technology-focused
    platform providers, and the business-critical dependence on historically established legacy
    systems
  • In this context, the IT system landscapes, some of which have grown historically, are not
    geared to the exponentially increasing technological competitive situation. Primarily, the
    modern architectural approaches of loose coupling, full modularity, scalability, interoperability
    and specific modern architecture attribute are undermined, which is primarily due to the use
    of partly monolithic "all-in-one" software solutions
  • In addition to the disregard for modern architectural approaches, this results in significantly
    higher maintenance and operational complexity, which is ultimately reflected in the cost
    structure. The necessary operating and run costs increase, while change budgets decrease
    to same characteristic value. Internal IT structures are thus becoming a business-critical risk
    factor
  • As a result, it will be necessary to initiate a transformation in the direction of cost-effective
    structures and open-market offerings. The associated technological modernization will have
    an impact on the process and organizational structure and will initially require a fundamental
    realignment in many places
  • The main challenge here is the correct identification of the adequate time frame for efficient
    core modernization with minimum effort. Due to the constantly rising run costs for maintaining
    the status quo, a business-critical downward trend arises from the missed modernization point
    in time, which can only be stopped by making significant efforts
  • To select the correct modernization path, it is initially necessary to answer the question
    regarding the extent to which a unique technological selling point can be identified within the
    company that legitimizes the maintenance of its own infrastructure and the current number of
    internal IT resources
  • It is advisable to evaluate the outsourcing and modernization approach along the 5 core areas
    of application / services, ERP core components, infrastructure, office IT and IT resources
  • Savings potentials of up to 50% can be realized on average, on the basis of technological
    modernization and outsourcing
  • Regardless of the respective corporate strategy, the implementation of structured technology
    management in the publishing industry is a sustainable necessity and should be regarded as
    a primary lever for the development of new business models

Technological change as an opportunity and risk of the same kind

Digitization, including the associated opportunities and challenges, is a cross-industry
phenomenon that has recently become increasingly visible in analogy to other industries in the
environment of traditional publishing. Driven by technological change, consumer behaviour is
changing at ever shorter intervals, creating significant opportunities for low-threshold market
entries and disruptive business models. On this basis, long-standing market structures are
destabilized and the requirements or prerequisites for active market design are raised.
As a result, it will be necessary to initiate a transformation in the direction of cost-effective
structures and open-market offerings. The associated technological modernization will have an
impact on the process as well as the organizational structure, and will initially require a
fundamental realignment in many places.
In times of hyper-personalization and real-time availability, the primary task for securing mediumterm
competitiveness is to recognize the importance and urgency of this profound change and to
initiate a short-term migration path to reverse the downward trend currently being observed.

Customers turn away from classic media

The steady decline in consumption of traditional media has been clearly identified and
substantiated for several years. The clear shift away from print media in the direction of audiovisual
sources of information was recently substantiated on the basis of the latest surveys and
polls.
While media consumption in Germany continues to rise on average, peaking at 620 minutes a
day in 2020, consumption of print media is stagnating at a low level overall1. Of the almost 10.5
hours of daily media consumption, only 22 minutes are spent on print products, including epapers.
The findings of media researchers also suggest that this trend could intensify in the near future.
The authors of the ARD/ZDF Online Study 2020 observe a steady decline in text usage in the
environment of the media Internet, with a simultaneous significant increase in the consumption of
available audio offerings. The focus surveys conducted among the 14-29 age group show how
great the dominance of audio-visual communication will be in the future.

Figure 1: Measuring the range of media internet usage

This finding is supported by a 2019 Infratest dimap survey on preferred sources of political
information among 14–29-year-olds. The survey concludes that only 24% of respondents in this
age group use2 printed newspapers as their primary source, preferring online offerings of varying
degrees instead.

Continuously declining circulation and sales figures are putting traditional publishing under zugzwang

This negative trend is also reflected in the print circulation figures, which have been in constant
decline since 1995. Although the use of electronic offerings is increasing dynamically in the
meantime, the new format alone cannot compensate for the losses in print circulation. In this
context, the circulation of German daily and Sunday newspapers fell by a total of 15.2% between
2014 and 2019. However, the decline is greater if only print products are taken into account: in
this case, the difference is a business-critical 22%3.

Figure 2: Revenue and circulation trends in the German newspaper market

This decline in circulation is having a significant impact on the reach-based revenue potential of
established publishing houses. A closer look at the sources of revenue reveals two key points.
On the one hand, many have succeeded in stabilizing circulation revenues despite the massive
decline in circulation. Generous price increases in print sales, both in subscription sales (31.5%)
and single-unit sales (29.8%, from 2014 to 2019, in western Germany)4 , serve as leverage for
this. In the short term, this strategy certainly makes sense in order to finance the necessary
expansion of new, technology-driven revenue sources. In the medium to long term, however, this
trend reveals the critical dilemma facing many publishing houses: compensating for continuous
volume declines with massive price increases in a market where there is great growth, especially
on the supply side, undermines the nature of sustainable business models. Price leverage is thus
an inherently short-lived instrument. The urgency of the situation is underscored by a second
observation. The losses in the advertising and insert business essentially correspond to the
decline in circulation. Unlike the circulation business, this segment has not been able to
compensate for the losses. This leaves the paid content segment, i.e., revenues generated by
the sale of digital media offerings, especially the e-paper and digital subscription models, as a
source of hope. Although the publishing houses are succeeding in expanding modern revenue
sources on a large scale, the growth of digital revenue sources can only cushion the rapid loss of
revenue due to falling print circulations to a limited extent.


The bottom line is that both price increases and new digital revenue sources cannot fully
compensate for the decline in revenues resulting from the loss of reach. In addition to the loss of
relevance already mentioned, the reasons for this lie primarily in the intensified competitive
environment, which is increasingly being occupied both by technologically advanced lateral
entrants and by niche players.

Density of competition increases significantly as emerging
technologies are exploited

The frequency with which new market participants appear in the mass media sector is constantly
increasing; recent examples include Twitch, TikTok, and most recently Clubhouse. Platforms
such as Facebook, Instagram, and Twitter can already be described as the cornerstones of the
digital media landscape, and some of them are themselves struggling with migratory outflow.
Primarily, the willingness of young users to try out and accept new platforms and communication
channels remains high.
Here, the defining characteristic of the market players established in recent years, in analogy to
comparable industries, is their focus on emerging technology innovations as a significant value
driver (see Publishing in transition - Technology as a success factor). In contrast to the core
business of traditional media companies, the new players are focusing on efficient distribution of
existing content over as large an area as possible. In this respect, they imitate platform-based
business models known from other industries - for example, Amazon, Netflix, or Spotify - and
benefit from similar mechanisms.
In this context, alongside new platform providers and aggregators, established technology
companies such as Google and Apple are also increasingly entering the media market. Their
offshoots (e.g. Google News, Apple News) benefit from the enormous reach of their parent
companies and can thus address a large part of the market on an ad-hoc basis.

Figure 3: Provider landscape of journalistic products

This shows that new platforms do not necessarily displace existing ones. Coexistence is possible,
although the durability of this cannot be fully assessed at present. However, coexistence on its
own suggests that new entrants are effectively differentiating themselves from existing offerings.
For example, both YouTube and Twitch offer video content, but the platforms are aimed at two
different audiences: YouTube focuses more on the passive consumer with video on demand,
while Twitch focuses on the direct interaction of the media creator with his/her audience. It should
be noted that each individual can be part of both target groups in a time-defined manner. As
existing platforms do not disappear at the same rate as new ones emerge, the distribution of
attention is continuously increasing, especially at the expense of venerable publishers. A further
increase in overall media consumption is unlikely in view of the permanently high level.
On the other side of the provider spectrum, new journalistic start-ups and collectives are emerging
that specialize in consumers' need for in-depth research or focus exclusively on singular topics
such as feminism or ecology. These niche providers are attacking established newspaper
publishers in their core competence, the objective preparation and subjective evaluation of
information.
To the same extent that technology creates space for new providers, it is the basis for new, more
complex business models that can hold their own in well-networked ecosystems. Bundled
subscription models, which maximize the breadth of the content on offer and thus the added value
for the end customer, are likely to be a key success factor here. What Netflix and Spotify have
initiated for the film and music industry has great potential to become established in the publishing
industry.
In this way, platforms with a wide reach can put together attractive packages of combined content
from different providers. Additive economies of scale are activated here, so that prices for the end
customer are reduced and advertising revenues are maximized. For medium-sized publishers in
particular, this means the gradual loss of relevance of their own front end and the associated
advertising revenues.

Limited entrepreneurial success of traditional publishing is largely due to given restrictions of established legacy systems

Looking at the potential causes of this development, a deeply interwoven and complex process
and system landscape has been built up over time with a strong focus on the underlying task –
print journalism as efficient as possible. However, the entry into the information age and thus
exponential acceleration of technological development is now driving a wedge into the media
landscape. On the one hand, forward-looking experimental platforms and other new media
formats are emerging that exploit the diverse possibilities of digitization to reach existing and new
target groups. On the other hand, providers of classic print products are suffering a steady loss
of relevance. Although there is a willingness to adapt to new developments, they are held back
by the complex and cumbersome print-oriented structure and associated rigid IT system
landscape. If they fail to catch up with the digital revolution, they risk slipping into irrelevance in
the medium term.

A detailed look at the technological market situation reflects the findings outlined and potential
causes: over many years, the "general-purpose" systems used in the publishing industry today,
led by the top dog SAP, have grown into system-critical core components. Today, they cover the
entire range of services along the primary business areas of ERP, reader market, advertising
market, and ad market - from content creation, subscription and customer management, and
logistics management to finance and controlling. However, it is also clear, that although a platform
such as SAP is modular in itself, it still represents a gilded cage in a figurative sense. The
integration of and interaction with third-party software is deliberately complicated and creates
incentives to remain loyal to the system house. This also creates a strong dependency on the
part of the customer: Only those innovations that the software provider itself considers essential
will find their reflection in the system.


Legacy systems currently in widespread use are thus prevented from keeping pace with the speed
of technological development by the proprietary nature of their software components.
To counteract this situation, modular and scalable Software-as-a-Service (SaaS) solutions have
recently become established, which allow an individual and effort-saving combination of diverse
software components using standardized interfaces.


The exploitation of SaaS potential and the associated cost optimization requires technological
flexibility, which largely requires the use of cloud ecosystems as the basic technological
infrastructure. An examination of the market using the core criteria of interoperability and
functional scope reveals a clear divide in this context: solution providers such as SAP or InterRed
shine with a high functional scope and excellent adaptation to traditional editorial and publishing
processes. However, the proprietary nature of their platforms keeps them from keeping pace with
the speed of technological development.

Looking at the emerging market challenges of dwindling revenue streams, cyclically changing
customer behaviour, exponentially increasing frequency of technical innovations, and significantly increased competitive pressure, the analysis of the respective corporate orientations within the media and publishing industry thus reveals the technology used as a success factor as well as a risk factor. In this context, the IT system landscapes, some of which have grown historically, are
not geared to the exponentially increasing technological competitive situation. Primarily, the
modern architectural approaches of loose coupling, full modularity and scalability, interoperability
and specific modern architecture attribute are undermined, which is primarily due to the use of
partly monolithic "all-in-one" software solutions. For the possible use of emerging technology
innovations and consideration of the changing customer behaviour, the legacy systems are
extended by additive services and adjusted within the application logic with significant effort and
under consideration of partly proprietary interfaces. Due to the limited modularity and flexibility of
the historical system landscapes, a large number of potentially necessary application adjustments
require direct intervention in the source code of established software components. In addition to
ignoring modern architectural approaches, this results in significantly higher maintenance and
operational complexity, which is ultimately reflected in the cost structure. The necessary operating
and/or run costs rise with in same characteristic falling change budgets. By analogy, the number
of IT resources required to maintain the status quo and focus on legacy systems is also
increasing. Internal IT structures are thus becoming a business-critical risk factor. Unless this
downward trend can be stopped by defining a dedicated IT strategy and deriving mitigation
measures, the company will move inexorably toward business-critical manoeuvrability.

Figure 4: Vendor overview foorr CCMMSS aanndd CCRRMM ssyysstteemmss

In the sense of a potential reaction pattern, the internal IT structures are partly separated from
the central core business area in the form of separate subsidiaries and positioned as
independently operating service providers as far as possible. However, since the primarily
historically established existing systems of print publishing continue to be served and the
procedural stability of flattening business areas must also be ensured in the interests of the
publishing house, the probable long-term success of this orientation must be questioned,
considering the prevailing density of technological competition. This type of bipolar corporate
alignment thus regulates the necessary focus for the possible establishment of a competitively
differentiated market positioning. Regardless of the mitigation measures selected for the
organization, however, the central legacy components remain a significant risk potential that must
be taken into account, so that a step-based overall system migration must be considered.

In addition to technological modernization, process and organizational structures must also be realigned in order to fully leverage potential efficiency gains

In addition to the need for technological modernization described above, it is also important to
look at the current processes, workflows, and governance structures, which have grown
organically over the past decades in the same way as the technological system landscape and
are essentially geared to print publishing. Additively required process chains have been added
on a large scale without fundamentally remodelling the already established workflows. In some
cases, a strict separation of digital and print publishing and thus a parallelization of similar process chains can be identified. As a result, the necessary efficiencies and savings potential of a
communication channel-agnostic orientation can only be partially leveraged.


In the course of a fundamental modernization of existing process landscapes, the necessary
restructuring of internal organizational areas and areas of responsibility must also be provided for
in this context.


However, before defining the possible solution space, it is essential to fundamentally understand
that the existing challenges are due to cross-industry, technological causes.

 

Figure 5: Technology management

In principle, the aging of established IT landscapes cannot be prevented, but only delayed and
limited in its effects. The aging process of IT systems is not a new phenomenon. However, its
significance has increased sharply in recent years because technological innovation cycles are
becoming shorter and IT systems are playing a much stronger role in value creation as the
digitization of processes in companies progresses.


In this context, it is also essential to recognize that the given market requirements can only be
implemented up to a certain technology barrier. In the case of dedicated technology leaps, partial
modernization or expansion of existing legacy systems will not be sufficient.

Figure 6: Technology cycles depending on the respective development and aging phase

The main challenge here is the correct identification of the adequate time frame for effort-saving
and efficient core modernization. The potential reasons for missed modernization opportunities
are manifold, but in the final instance, in many cases, they can be traced back to the budget
management that needs to be optimized. Since technology management efforts are not directly
linked to higher revenue streams, the budgets required for this are increasingly reallocated to
other business areas in the annual planning due to continuously increasing challenges. Due to
the constantly rising run costs for maintaining the status quo, a business-critical downward trend
arises from the missed modernization point in time, which can only be stopped by making
significant efforts. If the modernization phase is missed, the downward trend described must be
mitigated by a necessary restructuring of the core software components. Extending the existing
system landscape to include modern technology components or selectively replacing them proves
to be insufficient over a large area and temporarily provisional (see white paper "Anti-Aging for IT
Systems - Evolutionary architecture: taking advantage of technological innovation cycles"). 

Figure 7: Exemplary IT budgets

In order to identify individually suitable options for action, the planned modernization procedure must be evaluated along 5 defined core areas

In order to be able to select the correct modernization path, it is initially necessary to answer the
question of the extent to which a unique technological selling point can be demonstrated within
the company that legitimizes the maintenance of the company's own infrastructure and the current
number of internal IT resources. If the necessary unique selling propositions cannot be clearly
demonstrated, the path of full outsourcing should be considered in a focused manner. In this
context, it is advisable to evaluate the outsourcing and modernization approach along the
following core areas:

  • I. Application / services
  • II. ERP core components
  • III. Infrastructure
  • IV. Office IT
  • V. IT resources

Especially in the area of infrastructure and office IT, established cloud offerings have existed for
several years, which allow the internal cost structure to be significantly minimized with increased
security and scaling options. Depending on the company's internal technology stack and
overarching regulatory requirements, one of the three major cloud providers Amazon Web
Services, Microsoft Azure or Google Cloud should be preferred in this case due to the solution
maturity and optimized cost structure. If the company already uses Microsoft-specific software on
a large scale and does not have a significant degree of container-based components, then
migration in the direction of the Microsoft Azure Cloud would be recommended as an example.

Figure 8: Comparison of established cloud providers

Although the same approach also applies to the application level, the correct solution model must
be selected in advance and the required domain intersection defined. When considering different
technological approaches with the weighting of a lean cost structure and maximum flexibility and
sustainability, the cloud-based software-as-a-service (SaaS) offerings stand out in particular.
Once the technical and business domains have been classified, it is possible to integrate the most
suitable solution in each case in the form of the SaaS approach and to link it with other
components of the overarching system landscape. In this way, existing legacy systems can be
separated into individual modules and replaced by market-leading SaaS solutions.

Figure 9: Classification of technology providers

The main advantages of this solution approach are that the technological sovereignty and control
can be secured within the company with a significantly reduced use of resources and that it is
therefore possible to adapt flexibly and modularly to market requirements by replacing individual
components.

Based on technological modernization and outsourcing, savings potentials of up to 50% can be realized

A step-based migration path should be defined here, taking into account different obligations to
the software suppliers and potential customers. Other relevant planning variables are the
dependency structures of the current system landscape, the degree of functional complexity and
the given interoperability of existing software components. In deriving this approach, the number
of IT resources involved can be reduced and increasingly focused on the management of modern
technologies and DevOps task areas, away from maintenance of the legacy systems.
Based on several, relevant empirical values of successfully implemented modernization projects,
average cost savings of ~50% can thus be realized.


In addition to the overarching challenge of adequate technology management, internal processes
and governance structures must also be aligned with modern requirements.
In this context, the internal processes based on the traditional print publishing focus have been
optimized in many places and selectively expanded to include the necessary digital publishing
workflows. However, since this sometimes results in parallel processes of low efficiency, the first
step is to align the editorial work with an omnichannel distribution of content. The basic division
of purely editorial tasks and downstream optimization for each distribution channel has proven to
be effective. The editors can concentrate fully on content creation in each area of responsibility
under agreement of dedicated KPIs, while the exemplary page planning for the print section or
the e-paper is the responsibility of a separate distribution team. This also means a move away
from day-to-day content preparation for the production of the daily newspaper in the direction of
continuous information preparation in compliance with agreed performance indicators. This
change of direction accordingly requires a governance restructuring to be defined so that the
desired realignment can also be culturally anchored within the company..

Conclusion

Figure 10: Excerpt of required modernization measures to meet strategic goals

Taking into account the changing market and customer needs, the derived challenges and
possible solution options, it is primarily necessary to recognize a lack of technology management
as an industry-wide cause and problem, as well as to define the necessary modernization path to
reverse the downward trend in the short term. Among other things, the following objectives must
be pursued:

  • Significant, short-term cost reduction
  • Less effort to implement new, functional requirements
  • Creation of technological independence and modularity to avoid possible vendor lockin and flexible market orientation
  • Higher level of efficiency and automation of required processes and workflows in terms of omnichannel distribution
  • Restructuring of internal governance structures to anchor strategic realignment culturally

To initiate the required modernization path that pays off on the defined objective, the following
dimensions should be evaluated in extracts and transferred into dedicated measures:

  • Re-evaluation or definition of overarching, non-functional requirements
  • Analysis of current system landscape and specification of a derived, modular domain
    model
  • Conducting market research and analysis per domain in search of better alternatives
    more fitting to the target solution model
  • Definition of notified target architecture
  • Analysis and optimization of current process chains on the basis of the technological
    target image
  • Establishment of overarching migration planning, taking into account overarching
    dependencies and obligations
  • Cost / revenue calculation of the planned migration path
  • Analysis and realignment of existing corporate structure

Even if the modernization path has to be determined individually for each publishing house due
to significantly different framework conditions and diverse positions are taken on the known
challenges on the basis of the respective corporate strategy, it is possible to fall back on a
foundation of proven measures that have been successfully tested several times and thus
significantly minimize the implementation risk.


Regardless of the different framework conditions, defined objectives, and various implementation
options, one thing is certain - the current downward trend can only be stopped with the help of
decisive action.

 

Sources 

  1. Media Activity Guide 2020, Seven One Media GmbH, https://www.sevenonemedia.de/documents/924471/1111769/Media+Activity+Guide+2020.pdf/f5d31769-e7f0-97a4-1f7e-254d56000e59?t=1603709458463
     
  2. Woher bekommst du Informationen über das politische Geschehen in Deutschland und der Welt?, Statista,
    https://de.statista.com/statistik/daten/studie/1081295/umfrage/genutzte-politische-informationskanaele-von-jungen-menschen-in-deutschland/
     
  3. Schätzung der jährlichen Umsätze der deutschen Publikumspresse mit Paid Content in den Jahren 2013 bis 2020, Statista, https://de.statista.com/statistik/daten/studie/501454/umfrage/umsaetze-der-publikumspresse-mit-paid-content-in-deutschland/
     
  4. Zur wirtschaftlichen Lage der deutschen Zeitungen 2020, Bundesverband Digitalpublisher und Zeitungsverleger e.V., 
    https://www.bdzv.de/fileadmin/content/7_Alle_Themen/Marktdaten/Bericht_Umsatzerhebung_Herr_Keller_V2.pdf

Abbildung 1: CORE, ARD/ZDF-Onlinestudie 2020,https://www.ard-zdf-onlinestudie.de/files/2020/2020-10-12_Onlinestudie2020_Publikationscharts.pdf

Abbildung 2: CORE
Gesamtumsätze der Tageszeitungen und der Wochen- und Sonntagszeitungen in Deutschland in den Jahren 2009 bis 2019, Statista, https://de.statista.com/statistik/daten/studie/239831/umfrage/gesamtumsaetze-der-zeitungen-in-deutschland/
Zur wirtschaftlichen Lage der deutschen Zeitungen 2020, Bundesverband Digitalpublisher und Zeitungsverleger e.V., https://www.bdzv.de/fileadmin/content/7_Alle_Themen/Marktdaten/Bericht_Umsatzerhebung_Herr_Keller_V2.pdf
Schätzung der jährlichen Umsätze der deutschen Publikumspresse mit Paid Content in den Jahren 2013 bis 2020, Statista, https://de.statista.com/statistik/daten/studie/501454/umfrage/umsaetze-der-publikumspresse-mit-paid-content-in-deutschland/

example

Authors

Reference items

Expert En - Artur Burgardt

Artur Burgardt
Managing Partner
Artur
Burgardt

Artur Burgardt is Managing Partner at CORE. He focuses, among other things, on the conceptual design and implementation of digital products. His focus is on identity management, innovative payment ...

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Artur Burgardt is Managing Partner at CORE. He focuses, among other things, on the conceptual design and implementation of digital products. His focus is on identity management, innovative payment and banking products, modern technologies / technical standards, architecture conceptualisation and their use in complex heterogeneous system environments.

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Expert EN - Thomas Henschen

Thomas Henschen
Senior Transformation Manager
Thomas
Henschen

Thomas Henschen is Senior Transformation Manager at CORE. With his many years of consulting experience in complex transformation projects, he ensures that the necessary adjustments are optimally im...

Read more

Thomas Henschen is Senior Transformation Manager at CORE. With his many years of consulting experience in complex transformation projects, he ensures that the necessary adjustments are optimally implemented. He uses his comprehensive systemic understanding to occupy the interface between the business requirements and the technical constraints and to shape them in the interest of our customers.

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