Outsource to Insource
06/12/2019
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
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