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Answers to December 10th's Webinar Questions

Thanks again to all who attended,

By Dr. Joe Webb
Published: December 10, 2008

Thanks again to all who attended, downloaded post-event, and who worked behind the scenes for today's webinar.

Here are answers to the questions that we did not have time to get to online today. I'm pleased to answer any others that come up as you read these.

Q. You stated that you see an increase in small format digital color. Do you see an increase in large format color?

A. Large format digital? If you mean grand and wide format, I suspect that will be a good business for quite a while as it replaces other more traditional methods. If you mean large format offset, the folding carton and related businesses is a more resilient part of the market, but one of the segments. The segment has been in consolidation for a while. Large digital color (like 4-up) would get business from offset displacement.

Q. Did you mention a Government Beige book to find growing industries that should demand our attention? Where can I find that?

A. The Federal Reserve publishes the Beige Book which gives an overview of regional trends. The 2008 editions can be found at their web site.

Q. This is the first time I've joined in on Dr. Joe's webinar. Where can I download all the questions and answers for this last Webinar. Thank you.

A. The September webinar can be accessed on our site. In general, all of these items for all of the WhatTheyThink webinars can be found on the general webinar page, including our live event at Graph Expo.

Q. Do you see printers being more profitable or growing in one region of the country vs another region?

A. Sorry I neglected to get to that in the session. Here's how the respondents answered for revenues being up 6% or more:

New England 17%
Mid-Atlantic 20%
South 13%
Midwest 26%
Rockies 11%
Southwest 16%
Pacific 33%

Q. How do you see digital newspapers growing?

A. Not certain exactly what you mean. This has at times meant websites of newspapers (a revenue disaster except for The Wall Street Journal), downloadable versions (a small market), and e-book versions. For the latter, the New York Times has 10,000 subscribers through the Amazon Kindle. Newspapers have serious problems. Even if digital newspapers take off in whatever format or definition we use, their fixed costs are now exposed to the light of day. The Fitch report I mentioned in the webinar is discussed in this Editor & Publisher article.

Q. Your data predicts the commercial printing industry is going to shrink by 20% to $72B. Did I read this correctly? That is a dire forecast with a tremendous amount of companies going out of business.

A. Yes. I don't know what else to say. It will still be a big business, and there is still a lot of capital investment to be made with the surviving businesses. It's what the combination of our statistical forecasts and my judgmental assessment of what's in the cards for us by 2013. It could be worse. It could be better. Our job as managers is to create a particular future, and marketplaces are much to complex to let a forecasting model decide what we do. I like to remind people that in 1999, statistical forecasts were showing a market now of about a $150 billion printing business, and models based on GDP would be forecasting even higher than that. We, and our clients, and their clients decide how big or small the market will be by our decisions and innovations, and our use of technologies that come from outside our industry. Most executives do not consider Google and search engines to be competitors to us. They are. Nor do they consider technologies like wi-fi or cellular networks to be competitors. They are. But they also can be part of what we do in shaping our future. So think of it as a forecast "if we do virtually nothing, this is what we will have." in my mind, doing nothing (or applying the same tired solutions or reciting the same old tired laments) should not be an option. What happened to our entrepreneurial spirit? That's where we need to focus: in reigniting that desire.

Q. With regards to the marketing services operations: are printing companies calling themselves marketing services companies actually able to sell consulting hours and are they noticably generating consulting revenue vs. production revenue?

A. There are lots of flavors to the marketing services thing because it's such a fungible definition. Generally, billing for consulting is possible, much as an agency or design firm would. It's all about the positioning and the actions that support it.

Q. What do you believe the multiples will be for commercial print, direct mail, digital and transaction statement print companies in 2009 and 2010?

A. I'm not really an accounting or financial guy so I never really know how to answer that. All I know is that the bottom line for the aggregate industry is headed to 2% profit on sales or less. There are companies that will defy that, in the positive direction, significantly.

Q. Are traditional commercial printers benefiting from introducing mail and fulfillment to their list of services, and if so, where should one go to find this business?

A. Direct mail linked with aggressive e-commerce initiatives is the place to be. Not all print users have e-commerce businesses, of course, but they often do have transactional information that must be exchanged over the Internet, such as filing of insurance claim forms, or any manner of similar things.

Q. Do you see an opportunity for commercial printers to capture more of the inplant business or do you see that market trying to contain costs by keeping it in house?

A. Keeping it in house has expenses, too. Those inplant facilities need investment dollars as well, and those dollars have to compete with those needed by the core business of their host organization. It may be a good time to get the pencil and accounting pads out and visit some CFOs.

Q. Digital printing and directs mailing seem to be what to push for in the near future. Would you have any statistics/forecast regarding full color VDP?

A. Any stats I have seen indicate it is less than 10% of digital color printing volume. But, oh, the contribution to the bottom line is quite beyond that. It will grow over time, too.

Q. Do you recommend a small percentage of commission to all employees as a way to give an incentive to control waste and cost and also to increase sells of current accounts?

A. I am not a fan of commissions overall and feel they create dysfunctional behavior that is inconsistent with the desired strategy, especially when that strategy needs to change. I like company or departmental bonuses far better. It's in more detail in Renewing the Printing Industry. It can be downloaded for free.

Q. What can be done in working with our vendors?

A. It depends on what you mean. Select vendors that have an interest in your business and not just looking to pick up orders. There are many that have good opportunities for business development and training resources. User groups are especially important in this kind of environment, too. If it's credit problems that you're talking about, honesty actually works, especially if it is advance warning.

Q. Since creatives are moving to being freelancers; how should they position/sell themselves to printing companies? What would be their “blue ocean” strategy?
Q. I am a Graphic Designer specializing in Direct Mail. How would you partner with a printer?

A. Many printing companies do not have an understanding of new media, nor how print campaigns fit in a total communications campaign. In some sense, the designer can bring new capabilities to the printers who work with them, and the printer has an infrastructure and a sales force that can aid in bringing in work or business contacts. As far as direct mail, printers are typically very good at the logistics, but not at the messaging concepts. Creating a more comprehensive approach can often have a profitable synergy.

Q. Do you have insights of the new products that appear to be strong contenders in the market?

A. I refer you to my book again for ideas about this. In general, however, anything that enhances the feedback or management of the feedback from communications campaigns would fit that category. Remember also, that there are many forms of offline media that are naturals for print businesses, from many kinds of signage to promotional items and the activities that spur their use.

Q. Do you have any data on whether targeted direct mail (variable data) is actually a growing segment?

A. It definitely is. Total direct mail is in retrenchment now, but variable is getting a bigger piece of the pie.

Q. I am an Executive Recruiter focusing primarily on sales executives in digital printers offering PURLs and transpromo advertising and secondarily, on the software companies that provide document and communications management. Will these positions be in high demand in 2009? If not, what positions will be in demand and in what related industry or which solution offering?

A. Anytime I hear printers talking about these things I hear “I never thought I'd have a full time programmer on staff.” I don't know how many positions there are, but the skills are needed, and I would think there would be an interesting freelance or outsource opportunity for it.

Q. Views on shifts in NAFTA based print volumes given recent changes in comparative currency valuations.

A. This is often related to questions I get about offshore printing. Canada's exports to the U.S. are down considerably over the years. The amount is practically equal to the amount of the increase in Chinese imports. The Fed's expansion of the money supply did not help Canada, especially last year.

Q. What effect do you think that "brokers" will have on the selling prices of print? Examples are InnerWorkings taking the lowest price and asking the other printers to match or beat.

A. The process is not so different than what happens every day when multiple printers are requested for bids every day. The biggest problem with printing prices is that electronic media are chewing up budgets and not leaving much for print, especially with electronic media having perceived better ROI. Print brokerage has been an essential part of the printing industry, probably for more than a hundred years. It reduces total costs, increases industry productivity, and reduces “transactional friction” because the clients do not have to manage jobs. Companies like InnerWorkings and others bring a different aspect to the process. Print brokers worked on projects. Print management companies work on the entire use of print of a large organization whatever its form.

Q. At Graph Expo there were sessions on new services printers can add to assist in retaining customers and increasing profits. What is your view on this and any suggestions for services to consider.

A. Customer retention always has high economic returns. I hate to mention my book again, but this time I'll mention that it's also available in hard copy in black & white or in color.

Q. How will printers absorb paper price increases?

A. They're not. It's coming out of their bottom lines and the wages paid to workers. I wrote about this as a blog post in October. It's not going to get better, so something has to give on an operational level.

Q. How does the availability of skilled labor for the operations side look like?

A. This is always a topic of contention in the industry, and I seem to get myself on the unpopular side of it. If we're dropping an average of 30,000 employees per year, the lack of availability is often regional (shortages in growing areas, surpluses in other areas) or equipment related (need for workers of a particular model or category). I wrote about this in a recent column about industry education.

Q. What's the best way to stay on top of increasing revenue and new business developments - for example, face-to-face events, online publications, blogs, etc...

A. Learn as much as you can about client industries and their challenges and problems. Industry publications should not be your only resource. In the slide file for the webinar, the “Winter Reading List” had some of my favorite resources for doing that.

Q. What is your prediction for conventional sheetfed press manufacturer? Will their business remain the same or will it decline?

A. In North America, print businesses need to restructure themselves and change their costs considerably to meet changing formats and job characteristics. So there is need for new equipment. Financial issues for the printers and the vendors complicate the issue. In my book (hey, did you know I wrote a book?) I discuss the difference between the marketing life and production life of equipment. The marketing life is shorter in this marketplace. That creates a problem when you have 1998 equipment, purchased with the confidence that it fit the needs of clients then, in a 2008 market, which is quite different. This is a tough environment for all capital equipment suppliers. But, for the printer with a healthy business and in the market for new equipment, you never knew you had so many friends who work in equipment sales, right. The buyers have the power now.

Q. Are there any specific sub-markets of the overall commercial market that are growing or any sectors that are declining more rapidly than others?

A. Every sector and size of business has suffered almost equally, for years. The favorite printer right now is in the $1.5 to $4 million range because they can reach downmarket and upmarket, and have enough financial capability to invest in new technology, and can also benefit the most from it. The large printers are dealing with a declining magazine business, newspapers with declining circulations that affect the need for Sunday inserts, and a catalog business that is printing fewer pages and mailing less frequently. That sector is the one that affects the aggregate industry sales the most, just because of their sheer size.

Q. What size companies are ordering from Internet printers?

A. All sizes, that is, if you include web-to-print, which makes any printer and Internet printer, conceivably. The pages of WhatTheyThink had a good interview with Robert Keane of Vistaprint this week. The printing business will not be able to operate without the Internet, no matter what size of business you have. All kinds of printed matter are being handled that way.

Q. To compare forecasts, can you provide total print shipment $ for 2007, 2006 and 2005?

A. Here are the data back to 2003 in current dollars and inflation-adjusted dollars:

Current dollars
2003 $92,553
2004 $93,595
2005 $96,922
2006 $99,688
2007 $101,806

Inflation-adjusted:
2003 $108,962
2004 $107,290
2005 $107,455
2006 $107,094
2007 $106,325

Q. This last survey showed about 20% of respondents beating inflationary growth. How does this compare with past surveys? Given the long term downtrend in the industry, and survivor bias, it would seem this should be comparable, especially if one leaves out acquisitions.

A. It's less. In June it was 26%, September, 22%, and this time, 19%. The survivor bias issue is really related to aggregate revenues of the industry, but the issue of how much of those revenue dollars are organic growth versus acquired growth is a good one. For this survey, not much. For individual companies like Consolidated Graphics, it could be substantial in some years, and that is reported in their 10K filings. I'll include those data in a chart of the week or a column sometime in early 2009.

Q. With regard to Dr. Joe's forecast that "big printer" mergers are likely in 2009, could he elaborate a bit more? Can he cite examples of "big printers" he thinks are likely merger candidates? Is the reference to newspaper printers? (I've seen reports that in the UK, some newspapers are now being printed on competitor's presses.) Or to book publishers? Or to transaction printers (i.e., "high volume transaction output" -- HVTO)?

A. I don't think there is any “big printer” that will be able to afford to say that the right deal in either direction would not be considered. As far as I'm concerned, they're all up for grabs in this economy. In the U.S., newspapers have often shared presses under joint operating agreements. I think the trend that will play out in favor for some of these large commercial printers is the printing of dailies and non-dailies that finally realize that they can't support their printing operations. Transcontinental is working in this area. Generally, big printers do the whole M&A think with the bankers and the big law firms and the consultants. Smaller printers are much more practical. Two printers decide that going it alone doesn't make sense anymore, so they form a new business and shut down their old ones. Sometimes the mergers for small companies are just buying books of business from former competitors (Paul Reilly of Compass Capital taught me this is called a “tuck-in”).

Q. What is the market telling us relative to re-tooling activities? And how do we expect to see investments in new equipment with higher efficiency, versus re-purposing of older, less productive equipment?

A. Re-tooling? What you describe is absolutely critical to occur. It will be harder now as financing is less generous. We can't get rid of our older equipment fast enough. We need a revolution in production with lots of new, more productive equipment. Some people would think that's strange in light of the continuing industry slowdown, but it's more urgent every day.

Q. Can you put a number to the ad page decline due to the economy vs. the internet, or are they really related.

A. Yes they are related. Ad pages in consumer magazines are down 12% For the first three quarters of the year. The USPS ended their fiscal year on September 30, and periodical pieces were down -2.1% for their fiscal year while the weight of the periodicals was down -5.6%. Of course the Internet is related. We know that because consumers report that to advertising and communications researchers, advertisers state where their budgets are being allocated, but we also see it in hard data. It's real. Remember, I write about the printing industry... on the Internet.

Q. What is the market telling us we should expect in document process outsourcing demand and how to succeed in a challenging environment (traditional on-site outsourcing services, e.g. print/copy centers, fleet management, mail management)?

A. Print's two biggest costs are paper and production labor. Together, they are about half of the print dollar. They are the two biggest obstacles (aside from postal fees) in competing with electronic media of all types. The recession will further increase interest in avoiding print, especially print inside organizations. There is an article cited in my “Winter Reading List” that might put it in perspective; here is the link. The traditional way it has been looked at by printers is “how do I get the print job to person X.” The communicator looks at it as “how do I get the information (contained in the print job) to person X.” There's a big difference. On-site outsourcing is in the information logistics business... of which a variant is mentioned... in my book... sorry, couldn't help myself.

Q. Since January 2008, market caps for the top 7-8 publicly traded printing companies has declined 70% compared to the overall market reduction of 40%. Is there some explanation for this huge additional reductions in the value of print companies in the marketplace?

A. Is there any wonder? It's all in the profit outlook. A lot of it has to do with Quebecor's problems, I'm sure, with some investors wondering if the rest of the industry will end up having similar difficulties. Some of the publicly traded companies have lots of debt, and that concerns investors as well. Remember, also, that many stock analysis companies stick printing companies in with publishers in their industry groupings. So we're getting painted with the same brush, and it hurts! It also means that there are probably some severe undervaluations in the price for a small number of those companies, and they may break out from the pack to the upside when stocks in general have a rebound in 9 or 12 months.

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

What do you think? Please send feedback to Dr. Joe by emailing him at drjoe@whattheythink.com.

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