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Thoughts on Endurance, Mergers, and Shows, Oh My!

Give credit where credit is due,

By Dr. Joe Webb
Published: September 29, 2009

Give credit where credit is due, they say. Isn't it interesting that in the late 1990s if you were to bet which trade event would survive and which one would not, the smart money would have bet on Seybold, and not on the GraphExpo and Print shows. The Seybold we knew (and miss) is gone, but Print and GraphExpo remain. Perhaps they are more adaptable than originally thought.

* * *

It is a continuing outrage that no one from our industry leadership has a presence at the ad:tech shows as a speaker, moderator, or exhibitor. Just look at the advisory board; none of these executives shoulders have been rubbed by us in this venue. The next one is in New York, November 4-6. Printers! If you want to get into diversified digital services that tie into print and program management, this is the show to see the latest product offerings. Decision makers from agencies, corporate, and publishers are all there. Read Cary Sherburne's review of the San Francisco event earlier this year.

Printable Technologies, one of our key web-to-print suppliers, however, has been at a ad:tech. They have created a product with one of the show's regular exhibitors that integrates e-mail campaigns and print. The company is ExactTarget, which I wrote about in 2005. The company worked on an e-brochures project for the Greater Phoenix Convention and Visitors Bureau.

Cary says ad:tech has a “Seybold feel” to it. But if there's no more Seybold show, is it worth it? Does it matter? Of course it does. It matters just like Lasers in Graphics mattered in the 1980s and how VuePoint mattered in the 1990s. Shows may change, but the need to get together to see, feel, and taste technology does not. We need to be in touch with the changes in the marketplace no matter the location, and right now, ad:tech is the place. Remember: technology is never the issue, but how people use technology is.

* * *

The PIA-NAPL merger kerfuffle is almost laughable. One look at their websites and while you may see overlapping services at a glance but when you dig deeper, the business strategies of the individual organizations are more distinct than commonly assumed. Just like all cars have four wheels, they can drive quite differently. And as for synergies, they are only valid at a point in time, and more in retrospect than in forward vision. Harold Geneen, the legendary conglomerate manager, titled his final book “Synergy and Other Lies” for good reason; he made so many acquisitions over the years he got tired of hearing the word and he knew there were many other reasons for buying or merging companies. Rather than becoming forward looking, merged businesses become too introspective, distracted by transitions and integrations of departments, while the marketplace keeps moving ahead without them. This is why most business mergers fail.

Someone sent me an instant message after Frank Romano's comments about the associations last Friday: “do you think Frank needs a bodyguard today?” Frank and I disagree on the cure, but our assessments are virtually the same.

* * *

The paper industry will probably get its tariff on paper imports from China and Indonesia because of the change in Presidential administrations compared to the prior attempt. It does nothing to help print when paper prices are not responding to communications market forces.

A reader recently sent me the following, which is related to the issue of getting better paper prices:

“I was appalled earlier this week when our paper peddler told me that later this month the mills are going to increase the price of offset, opaque and bristol [by] 5%. IP and Domtar, who have obviously colluded, are doing it in lock step. Now that they control this market, what's a poor printer to do? We can't raise prices. We're already having to discount much of our work. Our supplier didn't say, or didn't know, how much of the 5% was going into their pockets. If you think this is a legitimate issue, put it out on WTT and let's see what the industry says.”

The prior tariff attempt failed. At that time, PIA made a statement against tariffs, which was a pleasant surprise. I wonder what the industry's response will be this time. NewPage, one of the companies requesting the action, is an elite supplier partner of NAPL. I cannot find any reference to NewPage on the PIA site.

As far as the comment from the reader, we don't know whether or not there is collusion, which is for lawyers and judges to decide. There is, however, a common understanding of business conditions that would lead companies to similar tactical decisions. Paper companies would agree that the use of print is declining, and that there is significant environmental pressure to eliminate printed materials. If the elimination of printed materials is not an explicitly stated goal among many communicators, there is a at minimum a preference to do so. The sale of timberlands is now a business strategy in paper companies because of the volume declines. The environmental problems of certain mill facilities, and in some cases the lower productivity of older facilities, makes closing them a choice for top paper executives.

The effect on print prices is obvious. Since 2005, paper prices are up about 14%. Print's digital competitors are quite different, however. Computers are down -25% since that time, and cell phone service is down -15%. Commercial printers have been able to increase their prices +5% since that time. Anyone who says paper prices are “just passed through” to print customers is wrong.

This year through July is a bit different. Paper prices were up only 0.2% at an annualized rate, and printing prices were down -1.2% since December 2008.. Computers are down -6.2% and cell phone service is down -2.6%. Add to that mix the dysfunctional and counterproductive (but legal so therefore it's okay) postal increase, and you get a mess. If paper's flat, then it's not following the price declines of substitutes, which are headed down. If there's a victim in this process, it's the worker in the printing business whose job is eliminated or cannot get a raise in wages despite increases in productivity they might muster.

In this situation, paper prices are clearly not going in a direction that are competitively favorable for the demand for print. The paper industry obviously needs the competition from other mills, wherever they might be, to keep a lid or create downward pressure on the prices printers pay. The labyrinth of various regulations and high investment costs create barriers to new market entrants in the US market, so it is of no surprise that the competitors would be offshore). This tariff request obviously does nothing to stimulate competition and lower market prices, which is why such actions are called protectionist. In market terms, it would make more sense for the paper industryto sue Google, Adobe, the inventor of SGML, modem manufacturers, and the original ARPANET team (the folks who developed the early Internet; they're in their 60s and 70s now, but they can probably still do a perp walk). It's not practical, of course, but it goes to the actual issue of paper pricing being set not just by the specific paper goods, but by the availability of alternatives to those paper goods. Just last week, it appeared that a price war was likely in the smartphone market. Those are the devices, such as iPhone, that will continue to create a dependence and expectation of instant access to information in digital format regardless of one's location.

Rising paper prices will continue to push communications to digital formats. When an industry is intent on downsizing and reducing its capacity, rather than expanding demand for its products (and therefore an increase in the potential revenue opportunities of the printing industry), this is what happens. It's like the old proverb: when elephants fight, the biggest losers are the ants. Small and mid-size printers know who the ants are.

This provides is all the more reason for print businesses to diversify their services and build revenue streams that are not as dependent solely on getting liquids and powdered plastics to adhere to substrates. Focus instead on the larger picture of total client communications and the logistics that support multichannel and integrated approaches, of which print may be a significant part.

Dr. Joe Webb is one of the graphic arts industry's best-known consultants, forecasters, and commentators. He is the director of WhatTheyThink's Economics and Research Center.



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