Buying Consortia Attracting Publishers
With last week's announcement that five magazine and newspaper publishing giants—Time Inc., Condé Nast, the Hearst Corporation, Meredith and the News Corporation—have joined forces to build an industry-standard platform to present their work on the Web, phones and e-readers in a richer, more flexible and more lucrative form than is possible today, consortia were thrust into the spotlight.
Publishing consultant Dedra Smith took time last week to talk everything consortium, from evaluating the pros and cons of joining one to deciding which is the right one for your business—and even which steps publishers must take internally for consortia to work. (Editor's note: To hear more of Smith's thoughts on buying consortia, register for the Publishing Business Conference & Expo, where she'll lead a session on this ever-evolving topic.)
INBOX: What benefits can publishers gain from being in a buying consortium?
DEDRA SMITH: Theoretically, there are two ways to benefit by cooperative buying. The first is by amortizing the costs of certain services, such as production management, ad trafficking, IT, Web development and circulation management over more than one title, reducing the redundancy costs of personnel, office space and equipment―assuming that schedules can be offset so that work flows all month. The second is by increasing the volume of business that you can take to various vendors―e.g., prepress, printing, circulation management, paper purchasing, etc.―you should see the power of that consolidation reflected in pricing.
The value of this type of consolidation can depend on such considerations as whether the specifications of each job are similar, whether schedules are streamlined or even final delivery destinations. Prepress houses, printers and paper merchants are already consortia of sorts in that they consolidate the needs of many clients into an efficient workflow for their own enterprises. A publishers' consortium is really trying to group volume, workflow and/or payment in a way that's of enough value to the vendor to get a percentage of savings in exchange for their efforts.
Paper, because it's such a large percentage of any publisher's purchase, is the first target for a consortium. In many cases, it's trying to replace the function of a merchant and take the merchant's percentage of the paper commission. However, the merchant not only acts as a consolidator by bringing various publishers together and then creating volume purchases based on their needs, but also as a lender, since merchants take some of the credit risk off the mills by extending credit to the publishers and creating their own terms.
What happens to a consortium if an individual member defaults on a payment or isn't considered credit-worthy by a mill? Do members share the risk inherent in extending credit, and how do they operate with the mills ― as a single legal entity or each member on the strength of its own credit? Fee structures should be set up depending, in part, on how the risk is shared.
The perfect consortium would consist of equally credit-worthy partners with approximately the same size businesses, using the same trim size, roll width, paper stock and printer, with schedules and workflows that spread out evenly over a month. The trick is dealing with the variables.
INBOX: What potential downsides exist for publishers joining a consortium?
SMITH: There are usually compromises that are required in order to get the best deals. Publishers need to look at what and when it buys, and whether it puts its own titles into a better or worse situation in regard to its own business goals.
Ask the following questions: Would you change paper stock, paper purchasing method, printer, schedule, or be comfortable with the risk incurred by partnering with other publishers who must also meet deadlines, payment terms and other requirements? These answers should be part of your assessment of the cost/benefit analysis.
If you're the "big fish" in the pond, are you willing to compromise or take on the risks of partnership when the benefits to you might be negligible?
INBOX: How can publishers determine whether joining a consortium is the right move for them?
SMITH: The first consideration is whether the publisher is buying full-time expertise when less-than-full-time is enough. Bi-monthlies might find that consolidating staff is appealing from the standpoint of cutting costs, especially if the consortium is offering more professional or experienced production, circulation, ad or IT management than the individual title might be getting otherwise.
Publishers must also determine if they can save enough money by joining a buying consortium to either begin purchasing paper directly for the first time or to get significantly better pricing at a higher volume than the title gets on its own. Personnel and paper are the two biggest buys, and that's where any publisher should start evaluating their options.
Finally, there's the question of transparency. How does the publisher know the consortium is offering it the best deal unless it sees their prepress, printing, mailing and paper pricing? Paying for a single dollar amount at the bottom of a summary invoice doesn't give the publisher much information for evaluating the deal. Be able to go out on bid periodically to ensure that the consortium isn't overcharging, just as you would for other vendors. If you're buying printing through a consortium, what are your rights to bid out work or opt out of certain services? Who takes the paper allocation, the consortium or the individual partner?
INBOX: What metrics should publishers track to determine if they're getting the full benefits of being a consortium member?
SMITH: Very often it's the intangible values that aren't measured or valued when initially reviewing a plan that prove its eventual failure. Use a matrix that weights the intangibles you value before the change and measures them, along with cost savings, after the fact. Track pricing, errors and overall satisfaction by scoring each line item in your matrix against the weight you originally assigned. That'll give you a better understanding of the consortium's value than a straight ROI study.
A consortium is a huge outsource buy. Publishers already do this on a large scale buying printing. Think about the effort, contracts and recuperation from error necessary to keep that partnership afloat. Assume that a consortium relationship will have similar issues.
INBOX: What internal steps must publishers take to make buying consortia work?
SMITH: Each publishing company has to weigh the benefits and risks independently, but the key is to know your own organization and find a consortium that offers the transparency and lift―without exposing your own company to undue risk. Be prepared to compromise on specification changes, either in trim size, paper stock or even changes to your scheduled print dates.
Create a matrix that looks at all the pros and cons of your current workflow, and assign each a value to the business. Ask what would happen if this particular task or function weren't done, or done incorrectly. Examine the informal systems that exist in your organization for transferring important information.
Sometimes it's a single individual who may be fairly low-level, but who has the institutional memory that everyone relies on to clarify why something is done a particular way, or where old data exists, or when workflow changes took place. Eliminating the position may make total sense, but eliminating the individual's informal function can wreak havoc. Drill into the detail of your organization before choosing a new path.
If you do participate in a consortium, be prepared to devote some time to managing the relationship, and know that the skill set you need to bring is the ability to negotiate and compromise. You'll be managing your business operations from a distance, and it really is a different way of working.