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Leveraging language

As globalisation accelerates, language specialists can offer tailor-made, country-specific content
October 25, 2018

Language: arguably the most valuable currency on earth. Among its infinite applications, we use it to identify ourselves and others; to teach, learn and lead; and to negotiate and implement business transactions.

But that’s not to say language is monolithic. Rather, as the ancient Rosetta Stone itself reflects, multiple languages are spoken around the world – today, approximately 6,000-7,000 in total. And multiple dialects often exist within each region.

This presents both a challenge and an opportunity for companies pursuing globalisation-dependent strategies. Beyond establishing a physical presence overseas, significant developments in technology, mobile communications and internet connectivity have brought the option – or perhaps the necessity – to expand digitally too. The emergence of numerous websites and social media channels means that there are now several ways to engage with consumers – anytime, anywhere.

Still, to succeed in attracting and retaining customers in new geographies, it’s vital to employ the appropriate language, including tone and medium. Everyone from digital streaming colossus Netflix (US:NFLX) to a fast-fashion retailer or an investment bank must tailor and translate wording to suit different audiences.

But that’s good news for businesses offering language and localisation services. Indeed, industry expert Nimdzi estimates that the market for language service providers will be worth $50bn (£38.4bn) for 2018, and could enjoy a compound annual growth rate (CAGR) of 7.4 per cent to reach $66.5bn by the end of 2022.

As with so many aspects of our everyday lives, language translation has benefited increasingly from advances in artificial intelligence (AI) and machine learning. And perhaps unsurprisingly, US tech behemoth Alphabet (US:GOOGL) is a leader in this space. Its AI-driven Google Translate service is now ubiquitous, and can translate more than 100 languages. And in November 2016, the group launched its neural machine translation platform. This allows entire sentences to be translated in one go, instead of just individual words and sentences – encouraging greater accuracy and fluency.

Meanwhile, fellow giants Apple (US:APPL), Microsoft (US:MSFT) and Amazon (US:AMZN) all offer their own translation apps and services too, aiding individuals and businesses alike.

But Silicon Valley isn’t the only hub for language-related innovation. In fact, a number of listed players exist on this side of the pond, too.

 

London linguists

SDL (SDL) is a prime example. The company offers global content management and language translation software and services via 1,200 internal linguists.

But in 2017, SDL faced challenges, including some software deals failing to close before the year-end and revenues constrained by a faster-than-expected move away from perpetual licences, towards software-as-a-service sales. The largest language services segment also endured a lower gross margin in the first half, although this improved in the second.  

Reassuringly, for the six months to June 2018, sales climbed 3 per cent on a continuing basis, with continuing pre-tax profits up 30 per cent to £7.8m – excluding profits from business disposals in 2017.

Meanwhile, the largest language services division reported gross margin expansion, thanks to increased usage of machine translation, more translations being undertaken in-house, and good progress made by SDL’s own automation programme – Helix. Post-period-end in July, Helix was processing nine million words per week.

The group has also focused increasingly on "higher value premium services content" – something recently bolstered by M&A activity.

This isn’t wholly unexpected, given the broader market’s composition; chief executive Adolfo Hernandez notes that the industry is very fragmented. SDL bought US-based Donnelley Language Solutions (DLS) in July this year for $77.5m (£59.5m), supported by a £36.2m share placing and – in so doing – gained a specialist language service and linguistics provider that operates in the premium sectors of financial services and life sciences. 

Highlighting the nuances among listed language specialists, SDL falls under 'software and computer services' on the London Stock Exchange, while peer RWS (RWS) sits under support services. RWS is an intellectual property and translation specialist, helping companies to translate and file patents in new jurisdictions, and monitor patent filings.  

And RWS, too, has enhanced its footprint via acquisition, simultaneously bolstering its technological capabilities. Last November, buying Moravia brought it a tech-enabled localisation business. And interim results to March showed that the acquisition had contributed £52.1m to the top line over five months, constituting a significant proportion of RWS’s overall sales of £140m.

In a sign of continued momentum, a recent full-year trading update to September revealed that RWS "enjoyed by far its best year ever" – with significant revenue growth propelled by Moravia and a good recovery in currency exchange rates during the second half. Indeed, adjusted pre-tax profits are now expected to be slightly ahead of market expectations.

 

Subbing and dubbing

The entertainment industry is an obvious beneficiary of the recent content surge. The aforementioned Netflix, along with Amazon Prime Video and other over-the-top (OTT) TV platforms, can now disseminate their shows and films all over the world via the internet. Indeed, investment by over-the-top (OTT) operators in new original content is said to have reached $13bn in 2017.

But language remains key to the seamlessness and enjoyability of the viewer experience. Zoo Digital (ZOO) works with major Hollywood studios and the BBC, among others. For the year to March, Zoo revenues soared by almost three-quarters to $28.6m – buoyed by its larger subtitling business, and bolstered by the introduction of its newer dubbing offering.

Zoo’s strength arguably lies in the fact that both 'ZOOsubs' and 'ZOOdubs' are cloud-based, essentially managing content in the digital realm and reducing the requirement for physical facilities, expensive equipment and personnel.

 

Global gaming

According to sector expert NewZoo, the global gaming market is expected to be worth $180bn by 2021 – up from $122bn in 2017. And – like TV and film content – video games are increasingly disseminated online, reaching a far broader international customer base. On top of that, gaming content has become far more expansive and complicated over time – meaning games developers often outsource work to external partners.

That’s where Keywords Studios (KWS) can help. A supplier of technical services to the video games industry, including nearly all the best-known games companies, Keywords’ repertoire includes – among other offerings – art services, software engineering, player support and – most importantly for our current purposes – language translation and localisation services.

The notion of localisation is considered more fully within the 'expert view' column. But localisation – which for Keywords includes in-game text translation, audio scripts and cultural and local adaptation – constituted around a fifth of group revenues for the half-year to June at €21.4m (£18.9m), up 13 per cent. Localisation testing, meanwhile, constituted 9 per cent of total revenues at €9.6m, up 10 per cent.