December 6, 2002 -- Marriott Metro Center, Washington D.C. -- (by Chuck Surprise) -- SEE CLARIFICATION BELOW - The printing industry no longer tracks the overall economy. - A rising tide does NOT lift all boats. Especially not leaky boats. - Conventional Ink-On-Paper sales volume appears to be in decline. - There is huge overcapacity, even with 10,000 shops gone since 1990. The Guru Team: William Lamparter, Conference Chairman, President, PrintCom Consulting Group Charles Pesko, CEO, CAP Ventures Frank Romano, Rochester Institute of Technology School of Print Media Vincent Naselli, Director, TrendWatch Graphic Arts Andrew Paparozzi, Chief Economist, National Association for Printing Leadership Guru after guru hammered home the point that “It’s NOT just the economy, Mr. Printer. Don’t think that streamlining operations by reducing employees, adding more press capacity and building up your sales staff will put you in position to profit from the resumption of normal print growth when the economy bounces back." Print has been hit hard by the onslaught of new technology, competing media, and technological change. Literally billions of pages that were once printed have either gone away forever, been replaced by electronic documents, or have moved to in-house or in-plant digital production centers. While the general economy does appear to be returning to some semblance of normalcy, printing, for most companies in the business today, will not rise with this tide. Bill Lamparter, opening the morning sessions, which he termed the "Outlook of the Gurus," noted that print is being deluged by "a witch’s brew of disruptive change." Like almost all businesses, print is seeing analog processes replaced by their digital equivalents. Printing quality today, in the ink-on-paper world especially, is better than ever. But despite receiving high marks for quality, print pricing is under tremendous pressure and print volume is declining. Charlie Pesko of CAP Ventures, leading off for the Gurus, pointed to trends in the industry toward consolidation and alliances, and said part of that drive is to gain the ability to provide "integrated communication services" - not just printing - to a broader range of customers. Many printers, he noted, are operating very profitably by converting the threats facing the industry into opportunities to increase their sales and profits. But the majority of printers, those still in operation, are operating with narrow or negative margins. Pesko added that his company’s research shows no "back to business as usual" on the horizon, and no sustainable growth in sight for the nation’s printers. Many large print buyers are reducing the number of plants they deal with to streamline their own operations, and are asking for a broader range of services from those printers who remain on their list. This trend drives the move toward strategic alliances and consolidation by printers. "One-stop shops appear to be gaining favor with some buyers.” For many printers, the key to recovery may lie in diversifying products and services and adding value to work coming in. Digital Asset Management (DAM), Variable Data Printing, mailing and fulfillment services, digital printing, wide format digital printing, and design are some of the avenues being taken by shops to add value to the printed page. Process improvement is another avenue printers are following to retain sales and profit. Computer-to-Plate is a major step for many shops in streamlining workflow, lowering costs and reducing turnaround times. In addition, the Pesko noted, printers should make much better use of the Internet to communicate with their customers and offer on line quoting and tracking of appropriate work. Frank Romano, in his usual humorous style, noted that RIT is running at overflow capacity in its graphic design school - to the point where he’s convinced that many of the grads should be taking classes in food service since that’s where they’re likely to end up being employed. Or perhaps they’ll find careers at some of the thousands of small service bureaus in the market, like Kinko’s, and new entries from Staples and OfficeMax, who are adding to the competitive clutter at the lower end of the digital printing food chain. Smaller printers, Romano added, are the hardest hit by the difficulties besetting the industry. According to his numbers, there were 42,115 shops in operation in 1998. In the year 2000 the total was 38,000. He predicts that tally will drop to 33,000 in 2004. And the dollar volume from actually putting ink on paper will be well down from today’s (probably inaccurate) sales totals. Revenue figures available today usually don’t accurately break out the source of the volume. The Professor estimates that as much as 40-45% of reported print sales dollars come from finishing, fulfillment and other non-printing operations. Based on this estimate, the $117 Billion in sales credited to print is reduced significantly. So comparisons to numbers recorded five or ten years ago may be irrelevant in measuring industry growth - again based on dollars turned for actually placing ink on paper. Another strong point of Romano’s talk was that a major barrier to print growth is the cost of delivery - generally postage. Displaying a chart that showed average per-piece print costs now almost equal to postage costs, thanks to increased efficiencies in printing, he pointed out that all postal deliveries are printed (or inserted), and that costs for delivery must be reduced to allow more promotional dollars to be devoted to printing. Targeted marketing using variable data is one way to do this. But electronic delivery is an available and now widely used option. Billions of transactional documents - utility bills, credit card statements, etc. - are now delivered electronically in PDF files that can be printed by the recipients for their records. Handling and mailing costs are eliminated for the biller, the printing cost is transferred to the customer, and the printer is out of the picture. Romano, agreeing that print sales volume no longer parallels Gross Domestic Product growth, said the key indicator to watch is now advertising revenues - in particular print advertising. His studies show a close correlation between print ad revenue and print sales volume. And, ad sales have ticked upward recently - perhaps a harbinger of better days? Vince Naselli of TrendWatch, followed Romano to the microphone. Vince shared results of recent "bottom up" industry snapshots of printing, quick printing, design & production, publishing and Internet design & development. The Fall survey shows incremental improvement in printing. The survey found that 10% of printers reported business was "very bad," but 17% percent replied “excellent” and 42% "OK." Like the other panelists, the TrendWatch Director found that most survey respondents didn’t recognize the fundamental changes taking place in the industry. 54% indicated that the slow economy is their biggest business challenge, followed by competition and pricing pressures. Only 3-4% viewed electronic documents as a challenge. The survey respondents saw as their major opportunities an improving general economy and adding more salespeople. Only 12% mentioned digital color printing in their top 10 lists - indicating, Naselli said, that many don’t recognize the "destructive change" engulfing the print industry. Interestingly, 40% of the respondents said they were unconcerned about threats from new technology, while 19% saw the Internet as a competitor for promotional dollars. Heading the list of opportunities was implementing PDF production workflows, with 34%, while 25% turned a blind eye to all possible technology opportunities. Many printers, unfortunately, are depending solely upon a rising economy to lift their boats. Cleanup man in the Guru’s lineup was NAPL Economist Andy Paparozzi. Andy came armed with a bundle of statistical information which largely bore out the research and observations of his predecessors on the program. He was a bit more optimistic about the coming year, however, projecting industry growth of 4.7-5.2% -- assuming no setbacks in the war on terrorism. He had originally posted some even more optimistic numbers, but recently revised them downward. But even this growth, Paparozzi noted, is not going to get the industry’s sales back to pre-recession levels. The basis for the NAPL’s good cheer was a two-month streak of rising sales reported by the organization’s Printing Business Panel. October sales rose 3.1% and November did even better at 4.0%. The gains followed 15 consecutive monthly declines. 43.4% of the respondents in the NAPL survey reported that prices were lower in October than they were a year ago for an identical order. Pre-tax profitability was also down in the month for 41.2% of the large survey group. The organization’s Printing Business Index?, a "basket of indicators," dropped slightly in November, after three positive months. So, the signals are mixed for the September-November period. NAPL’s stats also bear out other panelists’ observations about print growth lagging the GDP. The fall off for print began in 1996, and has fallen steeply away from the GDP curve since 1998, the most recent "golden year" for the printing industry. We’ll delve more deeply into the NAPL data and deal in greater detail with other presenters in subsequent installments. But Day One of Print Outlook 2003 - the Day of The Gurus, was both interesting and enlightening. Erratum: TrendWatch Data for PRINT OUTLOOK 03 by Chuck Surprise The TrendWatch survey quoted in our Thursday, December 5 article titled "PRINT OUTLOOK 03: Consensus of the Gurus" came from a very large group of respondents; not, as the article stated, "from a relatively small sampling of the industry." The TWGA Fall results from the Printing, Publishing and Design and Production surveys alone present data from over 1500 responses from 750 mail surveys. Added to this are data from the TWGA Benchmark study results of over 10,000 mail surveys with over 1,000 responses. All totaled TWGA mailed over 50,000 surveys with approximately 8,000 responses in 2002. The TrendWatch market surveys are the only standing research that goes to this degree in the industry as far as we are aware. The paragraph in question, otherwise accurate, read: Vince Naselli of TrendWatch, followed Romano to the microphone. Vince shared results of recent "bottom up" industry snapshots of printing, quick printing, design & production, publishing and Internet design & development. The Fall survey shows incremental improvement in printing, but from a relatively small sampling of the industry. The survey did find that more printers (10%) reported business was "very bad," but 17% percent replied "excellent" and 42% "OK." *** This article was provided to WhatTheyThink.com via special arrangement with Chuck Surprise of PrintOnDemand.com.