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Book Market -- Mixed Bag May Continue

December 2003

7Transcontinental Inc.

8Phoenix Color
Hagerstown, MD

9Taylor Publishing

10Walsworth Publishing
Marceline, MO

Sales figures are based on above printers' self-reported total and market segment breakdowns.
Most would also agree that an economic rebound will put smiles on many faces. And, most agree, there are bona fide signs that improvement is around the corner.

Will it be enough to make 2004 more successful than its predecessor? Read on.

The commercial book group at Walsworth Publishing grew by 101⁄2 percent, according to Kim Hawley, sales manager. A majority of the rise came via partnering with a handful of key accounts and margins felt a significant impact. Hawley sees an unsettled market on the publishing and vendor fronts, a trait he sees remaining unchanged in the coming year.

"We had significant growth in the niche children's market due to our willingness to add specialized equipment to fit a particular partner's needs," Hawley says. "The medical market was up for us, in spite of the industry's move to push more of this work overseas. We were able to come out ahead because some of the publishers recognized the value of our service, tech support and quick turnarounds. This helps them keep inventory down and allows them to focus on the publishing aspects of their business, rather than be distracted with communication, distribution and production related issues.

"The professional reference market continued to grow for us in 2003, but price pressures in the marketplace are making it tough for any vendor to make a profit here. General trade was down for the small- to medium-size companies that we serve. The education market, which we had hoped would be a significant growth area for us, was flat for the year."

Staffing Cuts

With some customers making cuts to their respective training and technical support, Hawley feels it is imperative to continuously invest in prepress technology and support staff. "(Customers) need to rely on our expertise to make sure it all comes together and that the books get out the door."

Another area of investment for Walsworth Publishing is in plastic coil binding capabilities, which it undertook by partnering with a niche publisher. The company has the ability to produce more than 70,000 units per day.

Hawley believes the market is in its third or fourth year of what he terms "desperation pricing." He feels additional market consolidation on the printer side—two to three key printing plant closings—would help remedy the situation.

"There are too many weak players that are just holding on by the grace of low interest rates and creative financing," he says. "Competitive pricing levels have dropped to the point where companies are trying to recoup marginal overhead with minimal volume; these companies will not be able to upgrade their equipment or prepress capabilities. Even if the market turned around tomorrow, these printers would need two to five years of bumper sales and profitability just to dig themselves out of debt and be in a position to upgrade or expand their operations.

"The falling dollar has helped stem the tide of work going to Europe and we are beginning to see some European companies looking to manufacture books in the U.S., where the majority of them will be distributed," Hawley adds. "An upward adjustment in some of the Asian currencies is long overdue; even an adjustment of 15 percent would bring their product pricing within striking distance of the U.S. manufacturers."

Shifting demographics in America will be key in the coming years, according to Hawley. "As the baby boomers retire, they will have more leisure time for reading, but this group is also more active than their parents and may not be ready to retire to their rocking chairs with a book in their lap."

Industry overcapacity and continued pressure from Far Eastern markets have made for a highly competitive environment, according to Jerry Allee, executive vice president, book services, and president of international sales for Quebecor World.

"Our strategy is to align our platform and services to accommodate the demands of our customers and offer competitive book manufacturing alternatives in Europe and Latin America," Allee says.

By segment, Quebecor World has noted solid sales in the consumer trade sector, buoyed by its roster of customers. Religious and specialty sales have been somewhat flat, with reductions in children's books, reference and higher education. That trio's softness is due to lower demand and publishers' focus on inventory management, according to Allee.

Plant Keeps Growing

Quebecor World has begun Phase II of its Dubuque, IA, facility expansion, which will add significant printing and binding capacity, along with casing-in equipment. The overall initiative, which carries a price tag of $19 million, will make Dubuque a state-of-the-art facility with an emphasis on educational printing.

"This investment shows our commitment to serve the needs of all publishers by creating manufacturing solutions that reduce risk and maximize efficiencies," Allee contends. "Faced with more complex requirements and reduced cycle times, publishers are looking for manufacturing partners that understand their business and can help them consistently achieve their objectives. This expansion will be completely operational by the second quarter of 2004 and will also position us for the 2005-2006 textbook adoption cycle.

Allee says that Quebecor World continues to make investments in its digital platform. "With key marketplace trends for speed-to-market and inventory management—and with digital technology rapidly advancing—this is an important area for our company. We've added a new HP Indigo 3000 press to our Eusey Press, MA, facility, and our digital book module in Martinsburg, WV, continues to receive favorable responses."

Allee is mindful of the economy, textbook funding and consumer demand in 2004. "By providing integrated manufacturing systems and a flexible, global platform that can accommodate customers' compressed business cycles, Quebecor World will be well positioned for whatever 2004 sends our way."

Enrollment Increasing

It was a strong year for higher education printing, with solid enrollment levels, but a weak adoption year in 2003 left the el-hi market looking flat at best, says Peter Tobin, executive vice president for Courier Corp. While 2004 isn't holding out much hope for growth in el-hi, the book manufacturer expects another good college year and is poised for strong adoptions in 2005. To that end, a $12 million, four-color, MAN Roland Lithoman IV web press is being installed at the company's Kendallville, IN, facility.

"The new press gives us additional capacity for four-color textbooks and trade titles," Tobin says. "Some bindery technology investments have also been made and ergonomics equipment such as lifting devices will help improve throughput and enhance safety."

While adult fiction sales are down across the publishing industry, a majority of Courier's trade business is in non-fiction, business and computer games—all of which have fared much better in comparison. Religious titles saw meager growth, but Tobin sees that sector growing with spirituality-based fiction in the coming year.

The key for a successful 2004 will entail being a service leader: solving problems and simplifying solutions, according to Tobin. "Our goal is to satisfy customers' needs, and allow them to do more in less time. By solving their problems and simplifying things, it will enable us to win more business."

The economy is a huge variable, he adds. "We're certainly seeing signs of economic growth. When that will translate into more consumer purchasing of books and publishers ordering more titles in print or reprinting more frequently...the economy is the one unknown with which we're all working."

It was a successful education year for RR Donnelley, with many high-profile, high-volume jobs, according to Ed Lane, book division president. In doing so, the printer leveraged its platform approach of utilizing all its assets to help meet customer requirements.

"We had a very strong peak season and, by leveraging our assets across the entire platform, we were able to provide the schedule flexibility and schedule reliability that our educational publishers demand," Lane says. "There were some delays regarding (adoption) decisions in Texas this year, and that made for some challenging response requirements.

"The trade side had a busy period. We did a fair amount of the Potter product before we rolled into the traditional busy season for the consumer trade business. We ended up with a good peak period for that business, as well."

Donnelley repositioned some underused presses in 2003, moving a pair of single-colors to its Harrisonburg, VA, one-color trade plant, as well as installing an additional press there. It also embarked on its inventory management solution in the second quarter, which enables publishers to reduce the total cost of management and production of backlist titles.

To meet the continued demands of RR Donnelley's textbook publishers, a new incremental four-color press will be installed in early 2005. Like Courier's Tobin, he expects 2005 to be a better adoption year for the el-hi market.

Donnelley's export book printing service offering, called InternationalNavigator, includes a China-based solution that provides publishers with lower production costs with the same standard of customer service experienced at their domestic plants.

Lane is keeping an eye on the economy, since consumer confidence affects spending in the trade business and state budgets affect how much money schools can spend on textbooks.

With modest signs of improvement, albeit in select markets, for book manufacturers this year, they all hope the book's plot line for 2004 will have a happy ending.


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