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December 2006 BY CHRIS BAUER
Managing Editor
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FACING INCREASED competition from electronic alternatives and another possible jump in postal rates, players in the catalog and publication markets may have to fight for a successful future. Industry consolidation should also make tracking these segments interesting for industry watchdogs.

According to “A Study and Analysis of the Future of Catalogs, 2006-2011” by PRIMIR (Print Industries Market Information and Research Organization), the North American catalog industry is in a state of disruptive change. This can be attributed to the Internet becoming more of a vital selling tool for companies that traditionally used printed catalogs to drive sales.

The shift to online shopping by consumers has potential negative impacts for catalog printers and their equipment and consumables suppliers, the report warns. Some key findings of the study include:

• The outlook for the catalog industry from 2006-2011 is for a decline in volume.

• The forecasted decline is the result of a structural change in catalog merchandising companies and the further development of electronic alternatives.

• The catalog’s primary function is shifting from direct response to driving customers to the Web.

George Zengo, president, catalog and retail inserts, at RR Donnelley, notes that catalog industry consolidation continues throughout the entire supply chain as the catalog market’s growth slows. He expects there will be further consolidation ahead.

In the past year, Zengo says RR Donnelley continued to execute on the plan that it began three years ago. This includes: profitable growth; productivity; and targeted mergers and acquisitions.

“From an organic growth perspective, we have a disciplined process in place that we follow each year, where we carefully align customer needs with our capital budgeting process,” he reveals. “This allows us to make strategic capital investments tied directly to specific customer or market needs. This year, we continued to make customer-specific investments in print and binding assets, as well as making targeted acquisitions.”

Additional Services

RR Donnelley has invested significant capital and resources in co-mailing, and there is an associated resultant revenue stream. Co- mailing has not been set up as a separate profit center—it is seen as a natural extension of printing, binding and distribution services.

In 2006, RR Donnelley acquired OfficeTiger, which provides integrated onsite and offshore business process outsourcing (BPO) services. OfficeTiger’s services include financial analysis and reporting, desktop publishing, creative services, word processing, credit analysis, claims processing, litigation support, market research, database services, managing creative services for output and more.

“In addition, internally, RR Donnelley has integrated our direct mail and catalog/retail organizations into the same business unit,” Zengo explains. “This enables RR Donnelley to bring more comprehensive and synergistic capabilities and solutions to our catalog, retail and direct mail customers. It also allows us to better align with our customers’ multi-channel needs.”

Then, in one of the biggest surprises of the year, RR Donnelley announced it will acquire rival Banta Corp. in an all-cash deal valued at approximately $1.3 billion, which is expected to close in the first quarter of 2007.

The combination will enable RR Donnelley to expand the range of products and services it offers customers, while at the same time enhancing its services to the magazine, catalog, book and direct marketing segments. Banta—with operations in the United States, Europe and Asia—will enhance RR Donnelley’s geographic footprint and create opportunities for additional scale in locations where it is already present.

“Our publishing, catalog and direct marketing customers, in particular, will benefit from combined resources that will allow us to craft even more innovative and responsive solutions,” contends John Paloian, RR Donnelley group president, publishing and retail services. “From digital prepress capabilities through sophisticated logistics, our enhanced flexibility will allow us to address our customers’ needs more quickly for cost-effective and compelling communications.”

Jeff Sweetman, CEO at Trend Offset Printing, remains positive when it comes to catalogs, characterizing the segment as “healthy.”

“We have seen tremendous growth in the retail catalog category—from our point of view it is driven by the increased use of the Internet driving more catalog sales and vice versa,” Sweetman assesses. “In addition, the retail sector is picking up some steam and the retailers are becoming more aggressive to gain new buyers. There are more ‘event’ driven catalogs in this category.”

Trend Offset offers format diversity at all of its plants with combination folders capable of giving catalogers digest, delta, slim-jim, quarter fold or tabloid options. It is able to provide fast-to-market service with a national footprint, as it offers catalogers postal drops in California, Texas and Florida.

“We are seeing more demographic- driven catalogs where less pages, less products, and lower paper and printing costs can drive more revenue for the cataloger,” Sweetman says. “With Trend’s Auto-Plate technology and demographic stitchers, we are ideally suited for catalogers that desire multi-zoned catalogs with product changes that are more specific to the buyer.”

The company recently added a new eight-unit Goss Sunday 2000 web press at its Carrolton, TX, facility and two new high-speed demographic stitchers. The latter could prove to pay dividends with a USPS rate hike looming.

The proposed postal rate case is designed to reward customers who help the USPS improve productivity and penalize those who do not, according to RR Donnelley’s Zengo.

“The USPS is emphasizing shape over weight, as they look to further drive their automation objectives,” he points out. “The rate increase is steepest for low-page-count catalogs with small circulations, whereas the increase is minimized for page-heavy, larger circulation catalogs. The larger cataloger is better equipped to take advantage of rate-impacting items such as barcoding, destination entry discounts and carrier-route discounts.”

Cleaning Up Mailing Lists

Address hygiene will be even more critical than in the past, as the USPS takes a tougher stance on undeliverable mail. NCOA processing, carrier-route coding, ZIP code correction and the like will become a necessity.

Quebecor World recently announced a transformation plan for its U.S. catalog platform to better position the company for future success in this segment.

The catalog transformation plan includes investments in new press and bindery technology, as well as the relocation of existing assets to Quebecor World’s facilities in Jonesboro, AR, Merced, CA, and Corinth, MS.

Central to the plan is the transformation of the Corinth plant into a dual-process rotogravure and offset catalog facility. Quebecor World will be installing additional gravure, offset and bindery equipment to expand and improve the facility’s capabilities to provide complete print solutions to retailers and branded goods companies that employ catalogs as important sales and marketing tools.

“Catalog customers are demanding shorter cycle times, quality products, timely delivery and the efficient use of raw materials,” notes Brian Freschi, president, catalog, retail insert and Sunday magazines. “This transformation plan will deliver complete print solutions to our customers, as well as provide scale to reduce cycle times and maximize distribution savings by utilizing state-of-the-art equipment to reduce paper waste while producing a high-quality product.”

The restructuring will result in the closing of a printing facility in Elk Grove Village, IL, and a bindery operation in Bensenville, IL. This will affect approximately 400 employee positions.

The closures are expected to be completed during the first quarter of 2007. The company expects to create an additional 75 positions at its other facilities to accommodate additional volume.

Overall, RR Donnelley is approaching the 2007 catalog campaign cautiously, Zengo stresses. He has already witnessed several catalogers successfully brand and sell across various channels, and he expects them to continue seeking the best mix of the Internet, catalogs and retail. Zengo believes the Internet and the printed catalog are complementary entities.

“Successful catalogers in 2007 will continue to focus on their customers with new products and services,” he predicts. “They will execute integrated, cross-channel strategies while leveraging customer data. One channel will not replace the other; rather each channel’s unique strengths will be used to deliver the same brand message. Mailing plans will be based on minimizing the impact of the postal rate increase.”

On the publications side, total magazine rate-card-reported advertising revenues for September 2006 increased 6.6 percent compared to the same month last year, according to Publishers Information Bureau (PIB). Ad pages totaled 26,541.99, up 2.4 percent against September 2005. From January through September, PIB revenue closed at $16,933,933,955, an increase of 4.3 percent over the same period in 2005, with ad pages totaling 173,501.11, a 0.7 percent increase over the previous year.

Also, seven major advertising categories showed gains in PIB revenue and pages. Double-digit increases in pages and revenue were seen in Drugs & Remedies and Food & Food Products. Other categories that tallied dollar and page increases included: Automotive; Home Furnishings & Supplies; Media & Advertising; Direct Response; and Finance, Insurance & Real Estate.

Peter Hanson, COO of the Publishers Service Group at Cadmus Communications, reports seeing modest page gains in the overall magazine segment, with more significant page gains in the city/regional market.

“Our journal plants continued to see gains in pages as the need to publish more content in the STM (scientific, technical and medical) community continues,” Hanson says.

To help generate new revenue streams in 2006, Cadmus added two new Goss Sunday web presses, as well as four new Heidelberg sheetfed presses equipped with CutStar roll-to-sheet technology. In addition, it purchased two new stitchers and one binder. Cadmus also looked overseas for ways to cut costs.

“We continue to expand our content operations in India, which allows us to offer low-cost solutions for both magazine and journal publishers as they outsource traditional publishing activities,” Hanson discloses. “In addition, we now have partnerships with printers in China, Singapore and Malaysia to help those customers that publish pieces that can benefit from low-cost offshore production.”

RR Donnelley has also made significant investments in its Publishing and Retail Services platform. For example, earlier this year, RR Donnelley announced the expansion of the North American print logistics operations with the opening of a new mail consolidation facility— featuring complete distribution management services—in suburban Dallas. As a result of this investment, customers in this region can realize enhanced postal drop ship cost savings and access to an extensive consolidation network.

“At the same time, we have accelerated cross-selling efforts, bringing to our magazine customers an effectively integrated breadth and depth of print and print-related services,” says Rick Marcoux, president, magazines, RR Donnelley.

Commenting on the proposed postal rate increase, Marcoux feels the USPS is looking to “discourage” mailing behaviors counter to their focus on expanded automation. He anticipates that magazine publishers will concentrate on:

• Getting out of mail sacks and focusing on co-mailing and co- palletization.

• Assessing the size of their publications in addition to the traditional focus on weight.

• Working on address hygiene will be even more critical than in the past as the USPS takes a tougher stance on undeliverable mail.

“As always, any increase in distribution costs has a negative effect on print volume because publishers have finite budgets,” adds Cadmus’ Hanson. “We are actively researching and implementing new ways of combining mailings to offset a portion of the proposed increase.”

Printers also report that their publishing customers are embracing digital media as complementary avenues for their brand extensions.

“Our publishers create content and then we help distribute it in many forms—one of them being print,” Hanson advises. “Our job is to help customers most efficiently distribute their content to end users in whatever form that takes—including print.”

Brand extension launches through electronic channels, in addition to Websites, may include Podcasts, satellite radio, text messaging and alternative portals, such as MySpace pages.

“Key to many of the magazine publisher strategies has been to make their Web page a destination and to ensure a complementary nature across the (printed) magazine and the Website,” RR Donnelley’s Marcoux says. “Publishers are finding that they can enhance subscribers’ experience and loyalty by enhancing the magazine and Web content experience. For the reader, the magazine is a portable reference, while the Website hosts added or complementary content beyond that found in the publication.”

Digital resources do not necessarily need to be seen as competition to printed publications, advises Fred Raimondo, director of marketing, magazine, direct and premedia, at Quebecor World.

“We believe that digital resources are going to continue to be a growing focus for publishers as they recognize that the value in their businesses is the content they develop,” Raimondo says. “However, we continue to be confident that publications are a vibrant, viable medium. It’s the mix of Internet, broadcast and print that potentially brings advertisers the most effective brand extension.”

For Quebecor World, 2006 was the second year of a print network upgrade. More than $300 million is being invested in new press, bindery and related technologies, and its magazine platform is getting a major share of this investment. Quebecor has also installed advanced bindery, digital workflow and co-mailing technology.

“Our investment in new technology has us well-positioned to enable our customers to react to changing market dynamics,” Raimondo lauds. “Quebecor World is driving more solutions and value before the printing process by providing marketing campaign services, creative for ads, data optimization, content management and complete premedia solutions. We are also driving more solutions and value after the printing process in terms of providing comprehensive mail list optimization, co-mailing and complete logistics services.” PI




The graphic communications industry is facing some very serious challenges, but that doesn't mean there isn't still a lot of life and opportunity in our future. 

Competing for Print's Thriving Future focuses on how printers can create their own positive future by understanding and taking advantage of the emerging changes — the changes that are shaping the printing industry of today and tomorrow. 

Use the research, analysis, and forecasts in this book to: 
• Assess the changes taking place
• Understand the changes
• Design a plan to deal with the changes

Topics include: 
• Economic forces, life cycle, and competitive position
• Place in the national and global economies
• Industry structure, cost structure, and profitability trends
• Emerging market spaces--ancillary and print management services
• Competitive strategies, tactics, and business models
• Key practices of SuperPrinters
• Combating foreign competition
• Social network usage
• A ten-step process to survive and thrive Competing for Print’s Thriving Future

The graphic communications industry is facing some very serious challenges, but that doesn't mean there isn't still a lot of life and opportunity in our future. “Competing for Print's Thriving Future” focuses on how printers can create their own positive future by understanding and taking advantage of the  changes that...







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