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PUBLICATION PRINTING -- Getting the Numbers To "Ad" Up

December 2003

Technology Editor

Looking back, 2003 has shaped up much the same as 2002 for magazine publishers and publication printers. Both are still holding out hope for a rebound in advertising spending but, at the same time, are wary of to what extent the competitive standing of magazines has permanently changed.

Consider one measure of industry activity: the Publishers Information Bureau (PIB) index of consumer magazine ad pages. Through October, advertising revenue was up 8.7 percent, but ad pages were down 0.2 percent compared to the same period in 2002. The comprehensive numbers only tell part of the story, since the category breakdown painted an even bleaker picture.

Top 10 Publication Printers
1Quebecor World
2RR Donnelley
Sussex, WI
4Cadmus Communications
Richmond, VA
5Brown Printing
Waseca, MN
6Perry Judd's
Waterloo, WI
7Banta Corp.
Menasha, WI
8Vertis Inc.
9Publishers Printing/
Publishers Press
Shepherdsville, KY

10The Sheridan Group
Hunt Valley, MD

Sales figures are based on above printers' self-reported total and market segment breakdowns.
Nine of the 12 major advertising categories tracked by PIB registered dollar gains for the year-to-date comparison, but only two—Drugs & Remedies (up 8.8 percent) and Home Furnishings & Supplies (6.9 percent)—showed any significant growth in ad pages. The categories hit the hardest in terms of lost pages were Direct Response Companies (-13.9 percent), Media & Advertising (-9.5 percent), Food & Food Products (-9.6 percent), Financial, Insurance & Real Estate (-9.2 percent), Public Transportation, Hotels & Resorts (-7.9 percent) and Technology (-5.3 percent).

At Banta Publications Group, management tracks the performance of the two distinct markets that it serves—consumer special interest and business-to-business (B2B) magazines, reports Peter Hanson, group president. "In 2003, advertising in consumer special interest magazines recovered from the recession of 2001 and 2002. That recovery was small, but fairly steady in the second half of the year. For that market, we see growth in ad pages of 2 to 4 percent next year," Hanson says.

"Business-to-business magazines continued to suffer in 2003. We believe that the fourth quarter of 2003 will be down from last year, continuing a trend that goes back to January 2001," the Banta exec continues.

Some Strong Signs

"We do, however, see a little light at the end of the tunnel. With capital spending finally starting to show increases, spending in the B2B marketplace will once again pick up. We don't see that starting to happen until the second quarter of 2004, as ad spending lags capital spending. Overall, we expect just slight growth in pages for 2004 in the business magazine category," Hanson reveals.

Dan Knotts, president of Magazine, Catalog and Retail Industries at RR Donnelley, says his company is seeing recovery in each of the segments—consumer, trade and specialty publications—it serves. "However, there is a lot of variability, with some publishers recovering quickly and others still declining," Knotts points out.

"During the past several years, major publishers have done more pruning of their portfolios than expansion," the Donnelley exec continues. "New title launches are primarily being driven by entrepreneurial companies targeting new consumer or business interests. We expect to see an acceleration of title launches in 2004 relative to 2003, primarily in the special interest and trade segments."

New title launches already have been a bright spot for Banta in 2003, reports Hanson, and he expects that trend to continue next year. "Through September 2003, we'd already been printing more startup magazines than in all of 2002 or 2001. These startups come from both spin-offs of existing magazines and completely new launches. This tells me that the publishing community still believes that ink-on-paper magazines are the best way to communicate with readers," he says.

The outlook is not so promising on other fronts, notes RR Donnelley's Knotts. For example, he expects publishers to pare back on quantities of magazines they deliver to the newsstand.

"While we are seeing an up tick in pages as the economy rebounds, we do not expect the ad page environment to fully recover for several years," the exec continues. "Following the last recession, in 1990 and 1991, it took until 1996 for pages to return to pre-recession levels."

Knotts believes that industry groups, such as Magazine Publishers of America, must continue to strive toward developing a measurable return for print advertising. It will be difficult for publishers to get an appropriate share of advertising dollars without a way to prove the value of print advertising in economic terms, he says.

Publishers face an uphill battle on that front, says Rick Marcoux, president of Magazine Services at Quebecor World North America. "Even in the face of remote controls, increasing numbers of cable stations and TiVo, television continues to capture more advertising revenue at the expense of magazine ad growth. The immediacy of broadcast, particularly when compared to the long lead times associated with magazines, continues to be a factor in advertisers' media buying decisions. Additionally, agencies still seem to generally view television as the more effective means of delivering client messages since it's viewed as a much more exciting and compelling medium," he explains.

"In response to this attitude, many publishers continue to narrow the focus of their titles, in order to deliver more fully committed audiences that are captivated by the specialized content," Marcoux continues. "Alternatively, some take the approach of capitalizing on strong existing brands through product line extensions of successful magazines, like Vogue launching Teen Vogue or Elle spawning Elle Girl, or Maxim leading to Maxim Goes to the Movies."

In addition, some media companies are pursuing brand extensions by attempting to translate their television success into a magazine audience, says Marcoux. Examples of such multi-channel growth include the ESPN, Oprah and This Old House brands, he notes. "Expectations are that both approaches (to line extensions) will continue to flourish, especially among the more financially secure publishers who remain focused on long-term growth," the printing exec adds.

With their existing titles, publishers generally have responded to the challenges of depressed pricing and reduced demand in today's marketplace by focusing on aggressive cost control, both internally and throughout their respective supply chains. Printers have responded in a similar fashion to these same pressures, Marcoux says.

According to Marcoux, the motivation for aggressive subscriber list management remains twofold—minimizing wasted costs and a heightened demand among advertisers for magazines to confirm the "strength" of their subscribers' commitment to the title via a reduction in the number of "casual" readers. "From a printer's perspective, this will all translate into a reduction of run lengths for both subscriber and newsstand copies, coupled with increased use of versioning for enhanced targeting of both ads and editorial content," he says.

Outsourcing Opportunities

Publishers are looking to gain efficiencies throughout their organizations, agrees RR Donnelley's Knotts. "We are opening a record number of facilities management sites at our customers' locations because outsourcing their pre-media needs usually drives cost and time savings. We are also seeing a return to publishers buying paper through their printers, as printers can often drive significant savings and ensure consistent quality from paper mills. Publishers are also rapidly adopting new distribution solutions that drive out costs, such as co-palletization and mail optimization programs," he says.

The interest in, and implementation of, co-palletization has been extremely strong, Knotts asserts. "At RR Donnelley, we have reduced mail sacks by more than 98 percent. This ensures that magazines arrive in better condition and saves money," he says. "We have co-palletization running in two facilities now and anticipate expanding it to our remaining facilities by mid next year."

Hanson says Banta also has worked very hard to take advantage of new postal rate changes. "In 2002, we saved our customers $2 million in postage. Through October 2003, we've saved them $2.6 million in postage," he reports.

"The new experimental co-palletization rate has yet to yield much of any return for our marketplace," Hanson continues. "Both the structure of the rate and the large capital investment just haven't driven much savings to our customers. We continue to explore this and other ways to save money on postage."

Faced with the depressed market conditions of the last three years, publishers have had to aggressively look to reduce costs and drive alternate revenue streams, the Banta exec says. "As their print partner, we've looked at ways to change the workflow to help them offset the drop in ad sales, plus develop revenue generating services. One example is the new prepress workflow we call Emerge. This PDF-based workflow has enabled our customers to significantly reduce prepress costs, as well as reduce cycle time," he explains.

Marcoux believes publication printers need to pursue developments on several production fronts in order to support their magazine clients. "Cycle time to market needs to be minimized, maximum flexibility with respect to schedules and formats must be provided, and innovative means to increase the excitement and interaction of print need to be developed further," he asserts.

"At Quebecor World, we are finding that the techniques and technologies originally designed for direct mail are now migrating to the covers and inserts of magazines to further engage the readers," the company exec continues. "Looking ahead to 2004, printers will need to balance the need for ongoing productivity investments while faced with depressed market prices and relatively soft demand. Some smaller companies will not be able to survive these pressures, so the number of consolidations and plant closures will continue to increase."

RR Donnelley also continues to focus on cycle time, Knotts reports. "We know that a last minute advertisement can make a huge difference in a publisher's economics. We also believe that this focus helps make print more competitive with other media options," he says.

Knotts agrees with Marcoux that financial pressures are becoming a bigger issue for some publication printers. "Publishers are becoming increasingly concerned about the financial health of their printer. Publishers in all segments are looking more intently for a printer that they believe will make a good long-term partner," he says.


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