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Economics & Research Blog

News, Unproven Illusions, and Plain Speaking

Latest Economic News I don&

By Dr. Joe Webb
Published: November 4, 2008

Latest Economic News

I don't have a column scheduled this coming Monday, so I will be posting some notes in this blog, especially after Friday's unemployment release.

Monday's ISM Manufacturing report deteriorated further, down to 38.9 from last month's discouraging 43.5. The only thing positive about the report is that prices of materials were down. That's because demand has contracted so much, not because inflationary forces are not with us. The ISM Global Manufacturing Index was also at a low level not seen since 1998 when that index was started. The slowdown is global and has been coming for a while, and should not be solely attributed to a banking crisis, but monetary mismanagement worldwide. As inflation picked up from “stimulative” monetary policies, goods and services production started to go down. Gee, what a surprise.

(Note added 11/5/2008: The ISM Non-Manufacturing Index was 44.2, down from 50.2. Of greatest concern was that inventories were too high, which means that they have to be drawn down before any turnaround occurs. Holiday sales should be aggressive, followed by empty shelves in January, which may stay barren for a few months).

Printing shipments for September were down considerably on a current dollar (-3.8%) and inflation-adjusted basis (-8.4%). More details are in our Monthly Printing Shipments report where we have updated our forecasts and discuss the commercial printing market of 2009. It's clear that the signals that we got from the spring employment data in ad agencies and graphic design are unfortunately playing out as expected, and as unwanted.

Unproven Channels

One unfortunate choice of words in a press release was the description of competitive media as being “unproven.” The Direct Marketing Association has released some data that at first glance should send a chill down the spine of everyone who prints for a living or who thinks that electronic media are something less than successful.

In their latest Power of Direct Marketing report, e-mail campaigns have a return of $45.06 for every dollar spent, catalogs have $7.28 and direct mail has $15.55. That is, e-mail's return for catalogs is 6x greater per dollar, and direct mail's is 3x. The difference will decline over the years ahead, but e-mail will still have a significantly superior return. Unproven? The DMA data doesn't indicate that.

Note that these returns are despite the deliverability issues of e-mail compared to traditional mail. Nearly 100% of mail is delivered, while e-mail can lose anywhere between 1/3 and 2/3 depending on spam filtering and blocking at the end user, server, or ISP. Yet, the benefit still remains. The old saying “anything worth doing well is still worth doing badly” comes to mind.

For a perspective on the B2B applications of direct marketing techniques, this article might be helpful.

We all know how good electronic media have become and are becoming, but we also know how good the interaction of media are. There are few catalogers who would eliminate print completely, but they can change the nature and scope of their print efforts (direct mail is the winner in that shift). We still have to deal with audiences of mixed ages, education, and media preferences and habits, and any singular use of a medium should be discouraged as counterproductive in the long run from a strategic perspective. Not all communications lend themselves to current digital formats. We should be leading the way, not trying to “fit in.”

Google Must be an Illusion

Any discussion of today's Internet environment includes Google. In keeping with the unfortunate description, Google has $21 billion in “unprovable” revenues. The strangest thing of all is that Google's market capitalization (number of common shares multiplied by its stock price) is more than $100 billion. Though it's apples and oranges, that's more than the shipments of the U.S. commercial printing business this year.

Assuming the printing industry had $3 billion in profits over the last four quarters, and a generous 20x earnings valuation totaling $60 billion dollars to buy the entire U.S. commercial printing business, Google could swap its stock and still have $40 billion left over.

The other proof that electronic media are not “unproven channels” is the collapse of the newspaper industry, mainly occurring in the big metro dailies. Radio, network television, and cable television had their effects, but not like this. They never made the vicious attack on newspaper revenues that new media have. Newspaper economics started to collapse when its high margin classified business could not withstand the onslaught of eBay, CraigsList, and other ventures. Then, older, loyal, readers started to disappear as their special content of travel, investments, and other news was withdrawn and replaced by cable and the Internet, together. The last stronghold of newspapers is the non-daily market, where local news and local retailers dominate. It seems quite strange to even consider that thought.

The ongoing problems in newspapers may be an opportunity for commercial printers. Many newspapers will no longer be able to afford the maintenance, managerial support, and ongoing investment of their printing operations. Commercial printers may be able to provide more efficient and cost-effective solutions. Transcontinental is in the thick of this possibility. Will there be others?

Ignore the Grey Skies

Some executives at Graph Expo were intent on putting a happy face on things in company presentations and speeches at the show. Print business owners are rather grizzled, if not shellshocked, and they tell me that they have come to expect the platitudes and have learned to ignore them. Not enough CEOs and leaders seem willing to say the following: “You may have heard that we are restructuring the company because of the slowdown in _____ purchases. We're in the same boat as many of you are are. We're tightening our belts, and we couldn't bring as much ____ equipment to the show as we would have liked. You may not see your local sales rep here even though you did in at past shows. We couldn't run our ____ event this year the way we wanted to, to thank you for your business in the same way we have in other years. We understand first hand what our customers are going through because we have to make the same kinds of tough decisions they have to.”

The refrain of one of Billy Joel's hit songs comes to mind...

Honesty is such a lonely word.
Everyone is so untrue.
Honesty is hardly ever heard.
And mostly what I need from you.

It's particularly a problem when the company is public, and news of its financial condition are widely covered in business and in printing industry media. Denying those reports in public is by claiming something quite different is a fruitless exercise that only undermines the credibility of the intended message. Sometimes concerns about investment laws can make communicating with members of the press and customers less than forthright, especially when it might be about future prospects.

Tough economic times are where we really learn how good our skills in management and in communications really are. Print business owners are entrepreneurs, usually, and they often have had a many failures in their past as well as successes. In fact the failures often outnumber the successes considerably. They know what it's like. They're not embarassed to talk about it or admit it, and past failures are often badges of honor earned on their way to success. Corporate execs should feel comfortable admitting their own problems and challenges because it connects with these business owners in a more effective way.

Road Warrior

Boingo is a wi-fi service found in many airports, and can access many different networks such as AT&T, T-Mobile, and others. They recently made a significant change in their billing procedures for “AsYouGo” customers. Prior to October 22, you could access Boingo for 24 hours from any location. So if you connected at an airport, you previously could reconnect at your destination for the single charge. Now you will be charged separately for each destination, even on the same day.

My affection for the Linux operating system is sometimes tested, and this past weekend was one of those times. I was so looking forward to installing the new Kubuntu 8.10 to my desktop and wasted a day for nothing. Not only was the new KDE 4.1 desktop rather horrible, it could not recognize my monitor resolution properly. I switched back to version 8.04. That release will be supported on a long-term basis by Canonical Software until 2011. Canonical sponsors the Ubuntu project. Kubuntu 8.04 still has the KDE 3.5 desktop, which is very stable and allows you to customize your computer experience easily. For the most predictable Linux experience, grab an old PC and load Ubuntu; for an experience that is similar to the Windows desktop, Kubuntu is the choice. But my advice is to stick with the 8.04 long term support releases of both. Linux can provide a reliable, steady, and enjoyable experience, and the software is essentially free. The Ubuntu releases are a great way of checking Linux out.

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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