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Book Printing--Passing Grade

December 1998

School's in session and book printers large and small couldn't be happier.

The year 1998 will be remembered for a number of things in the book printing industry, such as the consolidation in both the publishing and manufacturing realms. Despite this M&A activity, the elementary/high school market, along with college level and juvenile books, propelled the industry. Even the trade market, with best sellers and Oprah Winfrey touting its virtues, couldn't steal the el-hi/college thunder.

Top 10 Book Printers
Total Sales
1R.R. Donnelley & Sons
2Quebecor Printing
3Banta Corp.
Menasha, WI
4World Color Press
Greenwich, CT
5Bertelsmann Industries U.S.
Berryville, VA
6Golden Books Publishing
Sturtevant, WI
7Courier Corp.
North Chelmsford, MA
8Phoenix Color
Hagerstown, MD
9Taylor Publishing
10Maple-Vail Book Mfg.
York, PA

Despite the inconsistency of the overall market brought on by the consolidations, a reduction in overall press runs, as well as the growth of electronic-driven modes of reaching certain markets, 1998 will be seen as a productive year, according to Stephen Snyder, executive vice president of the Book Manufacturers Institute. The el-hi market must be watched, though, as the calendar turns to 1999.

"Across the spectrum of the industry, the trade, juvenile, school and college levels all enjoyed a very busy and good year," Snyder notes. "There's been peaks and valleys but, on balance, it's been a very good year for the manufacturers, albeit with a great deal of pricing pressures from their customers.

"The uncertainty in the el-hi marketplace, in terms of numbers of publishers—how the whole Simon & Schuster/Pearson Group shakes out—is a very real question to many folks, as are other consolidations in the el-hi market. We believe that gross sales will increase, primarily because of the continuation of federal monies into the school programs.

"Where those sales will go and what plants they'll go to, from our members' point of view, is uncertain because the industry isn't clear as to how purchasing will be done by fewer and fewer publishers," Snyder says.

John Boylan, president of the Quebecor Books group at Quebecor Printing (USA), feels 1998 will be viewed as successful in his company's targeted markets. Quebecor, he reveals, used the year as a chance to focus on its strength segments, thus concentrating resources in areas where it could provide customers quality and service while still maintaining profitability.

Heading into 1999, an excess in industry capacity is one of Boylan's primary concerns.

"The new presses being added to the existing capital stock provide substantially higher output than the equipment being replaced," he remarks. "The net impact is that capacity is increasing faster than the corresponding demand. The inevitable result is intense price competition among printers. Adding to this situation is the fact that very little of the old equipment is scrapped; it either continues on the floor or gets a new life at another company. This only magnifies the over-capacity situation."

Boylan laments that unless the issue of the supply/demand imbalance is addressed, margins will only continue to decline, hurting printers and, inevitably, the level or service and quality provided to customers.

Still, he sees 1999 as a year of opportunities for book manufacturers positioned to take advantage of them.

"We are improving our focus, lowering our cost structure and rationalizing our position with respect to the market environment facing us," Boylan says.

Terry French, marketing manager of Courier Corp., North Chelmsford, MA, describes 1998 as a tremendous year for his company. Not surprisingly, the education market spearheaded the charge, along with a solid influx of business from the religious segment.

Even with a reduction in the software documentation market, where the number of printed manuals is dwindling considerably, the education market has been lucrative.

"Enrollments have increased within all levels of education and funding is up," French notes. "More and more educational books are now four-color; we've expanded our four-color capabilities significantly in the last few years and it's paid off for us.

"Our other focus is on service—education publishers these days are valuing service. Education outpaced trade to become our biggest market."

Courier reported record fourth quarter earnings for fiscal 1998, the highest revenues and earnings in the company's 175-year history. Earnings in Courier's book manufacturing operations increased 50 percent over last year's fourth quarter and 62 percent for fiscal 1998 compared to the previous year. Its sales of more than $150 million represented a 15 percent increase over the previous year.

Much of Courier's success, notes Courier Chairman and CEO James F. Conway III, can be attributed to the growth in religious and educational publishing.

"Sales of religious trade books, Bibles and Scriptures, are up," Conway notes. "Courier is benefitting from both trends. The growth in educational markets is being fueled by higher enrollment from grade school through college, increased educational funding in many states, more demand for customization and shorter revision cycles.

"Demand for four-color textbooks has been particularly brisk. In the last three years, Courier has built its four-color business to $12 million in annual sales. In response to rising demand, we invested in a third four-color press this year and in the latest computer-to-plate prepress technology."

Courier has also explored new markets in the area of customized education with two specialized business ventures—Copyright Management Services (CMS) and The Home School. CMS is a provider of coursepacks for the college market; The Home School is a direct marketer of books and educational products to home schoolers. Courier acquired the latter, a mostly-regional business, in September of 1997 and took it national in 1998.

Catalogs were mailed to more than 500,000 home-schooling families. Courier also launched the market's first subscription-based telephone consultation service.

"The key to growth for Courier is paying attention to the fundamentals while being innovative in the delivery of services," Conway notes. "The combination of strong core operations and new businesses under development bodes well for Courier's future."

Phoenix Color, of Hagerstown, MD, enjoyed its strongest third quarter ever this year, despite softness in trade publishing for the industry at large, according to Dion von der Lieth, senior vice president of sales and marketing.

"For the most part, our growth has been by capturing market share," von der Lieth notes. "In hard cover, the market's kind of flat, but soft cover is up slightly. There are fewer titles published today by the major publishers. You never know what's going to happen—it's difficult to project."

A specialist in book components, Phoenix Color recently opened its first book plant in New Jersey, where it prints juvenile books. An issue the company faces is competition from its Asian counterparts.

"One area we're most concerned with is (getting customers) to understand the real cost of doing business in Asia," von der Lieth says. "If the publishing community looks at the entire cost—freight, inventory cost and time it takes to get product back from Asia—it looks better to do work domestically."

Even so, with the considerable expansion his company is enjoying, von der Lieth anticipates significant growth in book components at Phoenix Color in the coming year.

Snyder notes that 1999 will depend greatly on the status of the economy—both nationally and abroad—since many publishers are global in nature. He expects 1999 to mirror 1998.

"It's a changing marketplace, both for the manufacturer and the publisher," he says. "The plants and publishers that are sharp enough, with the most capable employees, will survive that kind of consolidation."


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