With the market value for most media companies based upon a multiple of their free cash flow, “Earn more, spend less,” is a tactic being employed by many media firms to face today’s economic challenges. Prime example of this strategy are the growing use of outsourcing and shared services to cut costs and improve operational performance.
“Earn more, spend less,” was the answer given by WaveDivision Holdings CFO Wayne Schattenkerk at a recent industry conference when asked about meeting the challenges faced by media today.
With the market value for most media companies based upon a multiple of their free cash flow, Schattenkerk certainly sums up the strategies driving many of our business decisions.
For instance, the practice of “shared services” as a way of cutting costs and improving operational performance serves as a good example of the “earn more, spend less” strategy.
Initially introduced within finance departments as a means to deploy centralized management systems in place of market-based departments for such back-office activities as credit and collections, the application of shared services has continued to expand.
A number of station groups are using IP connectivity to move such functions as traffic management and master control operations from their local markets to regional hubs or national operations.
In fact, as attendees at our annual conference learned, companies like Meredith Broadcasting are centralizing master control, traffic and billing, business administration, graphics production and research functions, among others.
However, in order for shared services solutions to support the “earn more” objective, some corporate mindsets may need to change. As Trisha Allen, director of broadcast accounting for Gary Television, explained, “You have to go to a customer service model, where our customers are our TV stations.”
Conference attendees also discussed the role of outsourcing as part of a shared services strategy. In a session entitled “How to Evolve and Prosper in a Digital World,” Bruce Benson, senior managing director of the economic consulting practice in FTI Consulting’s New York Office, talked about the role of outsourcing in “build to adapt” companies.
Unlike the traditional “built to last” organizational model, which sought to lower costs through business integration activities, such as vertical acquisitions, companies that are “built to adapt” distinguish between the activities that are core to their business from the contextual functions, which they are more likely to outsource.
Examples include newspapers that don’t maintain their own printing presses or independently-owned TV networks that outsource their channel origination and transmission functions to vendors that provide better economies of scale by serving multiple networks from the same facility.
While there are numerous examples of domestic companies that are used for outsourcing, most Americans assume that the practice is nearly always detrimental to American workers and typically involves moving their jobs overseas. However, a recent column in BusinessWeek described how many companies are hiring temporary and contract workers in the United States at a faster clip than they’re sending jobs to India and other overseas locations.
Written by Vivek Wadhwa, senior research associate at the Labor & Worklife Program at Harvard Law School and executive in residence at Duke University, the article describes the role of online contracting that is supported by companies like oDesk and Elance, which “connect people in need of skilled temporary work with employees who fit the bill.”
Wadhwa believes the success of companies such as oDesk, which has seen a threefold increase in the number of hours worked on contracted projects over the past 12 months, illustrate how the world has become not only a freelance economy but also, by extension, an outsourced economy.
Wadhwa says that the most interesting facet of this new brand of outsourcing, which he describes as “smallsourcing,” is the truly global nature of the workforce and the work being outsourced. While oDesk has contractors from dozens of countries, including China, Singapore, Russia, and Bolivia, work is being outsourced to U.S. contractors from such countries as the the United Kingdom, Canada, Australia, Spain, Saudi Arabia and the United Arab Emirates. In fact, the U.S. ranks No. 3 among outsourcers, and the number of hours worked by U.S. contractors is growing at a pace of 267 percent a year, which is considerably faster than the 188 percent growth rate for top-ranked India, according to Wadhwa’s analysis.
Wadhwa also found that the salary differentials between India and the U.S. are far smaller than one might expect. According to oDesk billing data, Indian workers were paid roughly $11 an hour on average and U.S. workers were paid roughly $17.50 an hour. Americans also receive higher evaluations for their work — an average 4.48 out of 5, compared with 4.12 for India.
Because companies will pay more for higher quality work, Americans don’t have that much of a disadvantage, he believes. With health care expenses and the costs of full-time employment growing in tandem, “outsourcing inevitably will increase,” Wadhwa concludes.
Industry professional associations, including MFM, are looking for these same outcomes. Our staff manages a number of the operational requirements shared by MFM and our BCCA subsidiary, including membership services, communications and administration.
When it became evident that meeting planning is not part of our core competency, we outsourced it and now have better agreements for our meetings along with lower costs.
MFM’s ongoing collaboration with the Interactive and NewsMedia Financial Executives has included collaborating on the agenda for our 2009 conference; a continuing relationship with the Media Industry Tax Group, which serves both print and electronic media companies; and extending opportunities to participate in relevant Distance Learning Seminars to INFE members.
It’s really all about “core versus context.” Our August distance learning seminar, “Sale/Leasebacks of Towers and Hidden Transmitter Site Costs,” is another example of this way of looking at our businesses. It is scheduled for Thursday, Aug. 20, from 3:30 to 4:45 p.m. ET. More information is available on MFM’s Web site.
The role of shared services is also the theme for the September/October issue of MFM’s The Financial Manager magazine. Articles included in this issue cover everything from other examples of how the shared services model is being implemented by media companies, to tips for optimizing the effectiveness of these initiatives, to a look at how some states are trying to refill their depleted coffers by taking a broad view of what’s taxable when business processes are handled centrally.
In yet another instance of shared services, MFM and BCCA are teaming up with the Federation of Credit and Financial Professionals for our fall regional seminar. Scheduled for Tuesday, Nov. 17, at the McGraw-Hill Building in New York, the seminar will cover hot topics for members, including an in-depth look at the process for getting interactive advertising into companies’ financial statements. The CPE program will include joint sessions of interest to the broader community of credit and finance professionals as well as separate sessions focused on topics of specific interest to MFM members.
Like your companies, MFM is continuously looking for ways to maximize the return on our investments. Our mission is to deliver programs and services that support the professional development of our members.
As Gray Television’s Tricia Allen reminds us, we can only succeed in earning more and spending less by also ensuring our members’ satisfaction with the quality and relevance of the services we provide.
Mary Collins is the president and CEO of the Media Financial Management Association, a professional society addressing the diverse needs of the industry’s financial and business professionals. Her column appears here every other Friday.