Commentary & Analysis
Free Special: Part 4 - Freedom of the Press in the Printing Industry: The Eagle's Odyssey
By WhatTheyThink Staff
Published: January 23, 2003
Terminations, Disloyalty and Collapse of the Domestics
As the official journal of the first dealer-only association in the graphic arts industry, THE EAGLE promoted and stimulated more open dialogue between graphic arts dealers and manufacturers but little discernible change resulted.
As the 90's neared, the domestic film manufacturers terminated scores of dealers in what was widely viewed as a last ditch effort to stop "offshore" lines. THE EAGLE analyzed these traumatic events but no public discussion was ever held. The sudden dealer terminations were officially attributed to "no cause" as the manufacturer sales contracts permitted.
Eventually, the growing channel conflict and mistrust resulted in some major vendors being unable to gain dealer advocacy and also unable to afford selling on a direct basis. Manufacturer consolidation followed as the industry's largest players collapsed. 3M spun off its graphic arts business. DuPont sold its film and plate business to the European, AGFA, which also acquired the German Hoechst. Kodak merged its business with a Japanese competitor to form Kodak Polychrome Graphics and the Japanese-American joint venture took over the Anitec business from International Paper.
As this massive restructuring occurred, the 1990's ushered in the digital revolution that eclipsed all channel issues. The channel was now in danger of being passed by as the industry moved away from film. This overshadowing threat led to the merger of the two existing dealer trade associations. The new association, NAGASA as it is now known, sought to bring parties together and foster a "forum" where the vital issues could finally be discussed. As part of this mission, NAGASA provided EAGLE subscriptions to all its members as a basic service.
Poolside Meetings and Hospitality Suites
Strict policies were adopted by NAGASA to protect free speech and to uphold non-commercial, collegial dialogue. Speakers at the annual meetings were not allowed to show their logos. Sales pitches were not allowed from the podium.
It was a noble effort. But, a culture of censorship and avoidance does not die easily. The meetings grew more lavish, the conference hotels more luxurious. Open bars reigned again. Despite excellent agendas with high quality speakers and experts, there were many empty seats in the meeting rooms. Poolside sales meetings were conducted and evening hospitality suites opened for private gatherings. The sales culture, which precluded "negative" issues and "confrontation," regained dominance.
Boom and Bust
At NAGASA meetings, dire warnings were issued, some from the editors of THE EAGLE, that the channel was becoming obsolete. Massive change was needed. E-commerce was looming that could automate some distribution functions. Digital technology required value added selling. Manufacturer consolidation would require dealers to focus on one brand and possibly lose or give up others. And sales of digital products would require major financial investments by dealers in technical service expertise.
Speakers warned that the industry was trapped in the shrinking market of offset printing while other forms of printing that the dealers were not serving, such as digital printing wide-format inkjet, were rapidly growing. Some analysts predicted a rise in direct selling. THE EAGLE analyzed and reported all these subjects and predicted massive channel restructuring in the near term.
Yet, these warnings and EAGLE articles provoked little actual response at meetings or in later actions. The information culture diminished "negative" perspectives. Instead, the old self-satisfied culture focused on more comforting facts. Despite all the ominous signs, printing supplies sales, including film, were still growing. "Film still has a long future," it was said. The dot-coms were going public. The stock market was rising, the US economy expanding. Digital equipment sales added new revenue even though few dealers could install or service the systems. And for all the talk of the Internet, the printing trade was not embracing e-commerce. The old sales model remained safe and sound, or so it seemed.
Few were paying heed to more telling phenomena - stock values of graphic arts companies had stopped growing in the middle of the national stock market boom. Despite huge infusions of start up cash in the technology field, capital for graphic arts could not be found. The book value of the largest graphic arts dealer, PrimeSource, exceeded its total stock capitalization. A distribution Gulliver, it could not leverage stock for acquisitions of smaller dealers, nor could it borrow money against its diminished capitalization. Other large dealers faced a similar response from their bankers.
Amidst the dot-com explosion, many in the channel lost sight of what constituted "value". On April 1st, 2000, THE EAGLE published a satirical press release announcing that it had received millions in pre-IPO venture capital from "Pyramid Partners, LLC." The bogus announcement quoted a VC president named "Lasdwun N. Luzes." EAGLE co-editor, Robert FitzPatrick offered the nonsensical observation, "The companies of the future have vague business plans, unfathomable products, and no prospect for ever achieving profits. THE EAGLE.com fits that profile. Few people understand its articles or heed its advice, and it has never been profitable. It is therefore poised for explosive growth."
To the dismay of THE EAGLE editors who concocted what they thought was an obvious hoax, some dealers and manufacturers sent warm letters of congratulations. Without the benefit of dialogue and debate, some in the channel were losing a grip on reality.
Just three months later, however, the channel was shocked out of its fog. Catching many in the industry completely unaware, one of America's largest dealers, BESCO Graphic Systems, totally collapsed. So sudden was the crash and so unsalvageable were BESCO's ruined finances, the company melted into liquidation. Some of the industry's largest manufacturers were taken for millions in bad debt. BESCO revealed the channel's soft underbelly.
Yet, true to the culture of avoidance, many in the industry wrote the BESCO debacle off as "bad management." (Translation: It can't happen to me.) THE EAGLE wrote that BESCO was the "canary in the mine shaft" signaling that the environment was poisoned for the old dealer business model.
Approximately one year after the BESCO disaster:
- In a presentation at the 2001 NAGASA conference THE EAGLE's editors reported that Imagesetter Film, the last bastion of film growth, had declined 7% and all film was down 13%. Laminate Proofs declined 23%, and total metal plates for offset presses were off by 2%. The long growth era – in which the conventional dealer model was based – was over.
- In September 2001, Fujifilm announced the acquisition of the three of the industry's largest dealers, including the publicly traded PrimeSource. Enovation Graphic Systems was launched as the first manufacturer-owned supply dealer. Enovation has since acquired three more regional dealers, making it the nation's largest dealer. The dominance of the independent dealer was finished.
- AGFA terminated the Fuji-owned Enovation, pushing the entire channel further toward channelwide "alignment" and hastening the end of "grocery store" dealer model.
- Pitman Company acquired PrintNation, the industry's first e-commerce portal for selling graphic arts supplies. The door to Internet selling was opened.
- Kodak Polychrome Graphics acquired Tech Services International (TSI), forming the industry's largest – and manufacturer-owned – technical service company focused totally on digital color systems.
- And in the past two years, NAGASA, the dealer/manufacturer trade association, suffered a huge loss in members and faced financial insolvency. It was forced to eliminate most of its staff and ceased offering THE EAGLE as a member service.
THE EAGLE was now poised to take its newest step forward to today's alignment with WhatTheyThink.com and its move from a print journal to the Internet.
We welcome the opportunity to reach the additional members of the community that WhatTheyThink.com represents and to begin a new set of dialogs aimed at strengthening the print and digital imaging channel from creation through to the final communication to the reader.