The changing face of service provision in the broadcast & media business.
As another production and media content supply chain operator files for bankruptcy and with some big names rushing out of the market, Julian Wright examines what went wrong for outsourcing in media and broadcast and what the emerging business models look like.
This article first appeared in Content & Technology Asia magazine, the original version is available here: Outsource – Insource
The Rise of Outsourcing
Outsourcing is the slightly ugly portmanteau of ‘outside’ and ‘resourcing’ which has sadly, and probably wrongly, become synonymous with large, private firms making lots of money by providing services to publicly funded government bodies. Actually, it’s unlikely that these outsourced capabilities would be any more cost effective if they were managed internally as a public service function, but broadly there is the perception that the outsourced service provider has the best end of the deal.
In our industry, broadcasters started outsourcing the linear playout function in the 90’s – leading to a significant number of service providers springing up or divesting from the bigger broadcasters. These new service providers could make a simple economies of scale business case to investors – because playout is largely the same for broadcaster A as it is for broadcaster B, by centralising the function they could provide services to both broadcaster A and B without a proportional rise in cost.
This model also offered the potential for external service providers to increase their earnings by providing additional services, particularly mandated services – including subtitling, audio description and visual signing The unspoken view was that, once broadcaster A was signed up for five-year term for playout, they would also be locked in for the provision of as-yet unforeseen and, crucially, un-priced ancillary services which may be mandatory in the future. This opportunity has grown significantly in recent years with commercially motivated ancillary services from ‘red button’ to OTT (Over the Top) becoming an increasingly important part of the broadcaster’s offering.
The outsourcing model quickly spread further up the production chain – to content preparation, compliance, versioning, format conversion etc. – and the industry perception was that these service providers had a lucrative business model. But now, as more operators flee the market or go into administration, the question is why did such apparently robust, indeed lopsided, business models fail and what is replacing them?
An Overly Competitive Market
Many of the problems stemmed from the basic issue that the supply-side of the market rapidly became too crowded and is, therefore, now overly competitive. The broadcasters, aware that they have the upper hand in the service tendering process, are able drive down the price to barely sustainable levels with one hand, whilst setting out punitive measures for transgressions of operational service levels (which they themselves were unable to achieve when they directly owned the operational function) with the other. Perhaps relying on the promise of the ancillary services upsell opportunity and economies of scale, the service providers accede to these pressures and agree deals that have an attractive top line but a dangerously open-ended set of costs.
Not only do the service providers sign up to tight-margin deals, they also allowed their broadcaster customers to dictate even the technology that is to be used in the provision of service. This has resulted in facilities being forced to run different playout engines and different transmission automation systems for different clients. This completely negates the economy of scale business case and actually drives up costs for resourcing and training. Some of these costs are passed back to the broadcasters so the model in part represents an equipment financing package.
Rushed Implementations = Sub-Optimised Workflows = High Operational Costs
Invariably the contract negotiations and award run late, but the commencement of service date does not move – either for a new operation or migration of services. This puts extraordinary pressure on the service provider who can either agree to a compressed implementation schedule or risk losing the deal. Having spent potentially tens of thousands on the bid process already, invariably the service provider will convince themselves that by ‘throwing resources’ at the problem they can get the operation on-air in time.
The first casualty of this approach is always the operational business modelling in the context of people, process and data mapped to the services that have been sold. Without a service and operating model there is a rush to buy kit due to those (false) long delivery lead times. But without an operating model the only way to build an operational workflow which can service the contract is with humans, potentially lots of them. The stance on this is that “we will build properly defined and automated process as soon as we are in operation and generating revenue, the staffing level is only temporary.” In reality, having spent money to get into service, there is reluctance to spend more on what is seen as re-engineering, particularly if this highlights that some of the must-have equipment purchased only weeks before is inappropriate. The staff – usually highly experienced and therefore fairly expensive contractors – are retained and the business model is further compromised. The operation enters service with the provider on the back foot, and then the real pressure starts.
Genuine Partnerships are More Effective than Asymmetric Master / Servant Relationships
A modern ‘broadcast’ operation, from raw material arrivals to consumer delivery, is complex and becoming increasingly so. But the contracts between the broadcaster and service provider don’t accommodate the changing nature of the industry or the inherent risk associated with ‘leading edge’ consumer experience. With the broadcaster’s operational margin also under pressure and all costs closely monitored, service managers run their contracts tightly, but account management is adversarial in too many cases. Frankly, the broadcasters need to recognise that outsourced operations need to be managed as true partnerships else more operators will exit the market – which will ultimately hurt the broadcaster.
We have an industry in genuine disarray with long-standing names cutting their losses and leaving the market, filing for bankruptcy protection or in full administration.
As with most failures there is no single cause, no single ‘thing’ to blame. The overused and somewhat glib term ‘management failures’ fits as well here as it did to the manufacturing industry in 1970’s Britain, in that apportioning blame is complex and that new and robust business models are evolving from the maelstrom.
Emerging Operating Models
This year we have delivered a number of projects that are not just concerned with a technology refresh – a new MAM and new storage architecture – but with implementing new business and operational models. These are true operational transformation projects which are based on operating models that may indicate a new approach in the industry.
These projects concern either media operators and broadcasters who are bringing an operational function back ‘in-house’ using SaaS platforms or service providers who, in addition to manged services, are providing PaaS (Platform as a Service) on a self-service basis. These emerging hybrids of outsourced technology and in-house operational resourcing are increasingly common and afford a number of significant operational and business benefits. Broadcasters and content owners are taking back control of their operations, principally to gain flexibility which was stymied in the fully outsourced model.
In a self-service PaaS model, workflows can be built and proven in a few hours and any additional operational costs are quickly forecast and only incurred when the workflow is in service. Overall the contracts are looser, in a helpful way, and allow a model in which services can be migrated in a controlled manner. The approach means that operators can start small, prove the concept and operational flow and transfer services incrementally. This greatly reduces risk and contrasts markedly with signing up to a 5-year term on the basis of the operational needs of the day the contract is signed.
Similar to the fully outsourced service model there is no need for the broadcaster or content owner to invest in infrastructure and costs are incurred in cyclical billing or, better still, on a per-use basis. Most cloud-based platforms are constantly evolving so operators benefit from access to the latest technology, and integration with other on-line service platforms is also straightforward and, therefore, rapidly proven.
In cases where the service provider is offering a self-service PaaS, they may augment this by providing additional managed and resourced services to cover specific functions (like promo production) or to extend scale (such as providing editing capabilities during sports events.) By operating on the same platform as the self-service provision, the service provider contribution is transparent and can work directly alongside the broadcasters’ internal teams.
2020 and Beyond
There are very clearly significant problems with the outsourced business models in media and broadcast. Perhaps this was the case from the very beginning and the issues were previously masked with cheap debt. More broadcasters and content owners are bringing media operations functions in-house but utilising third party provisioned SaaS and PaaS to facilitate the technology.
With broadcasters managing the people and process while data and technology are outsourced, maybe the 2020s will be more equitable for both media owners and service providers.
Contact us to find out how we are helping media operators like Off the Fence insource their content supply chain operation using BLAM as the PaaS platform.