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PUBLICATION PRINTING OUTLOOK --Challenging Issues

December 2002
BY MARK SMITH


There may not be a one-for-one correlation between the business outlook for publishers and the fortunes of publication printers, but the link is obvious. Also, the tough business environment has marketing gurus and industry executives evangelizing the need for printers of all types to "really get to know their customers" in order to succeed.

On the whole, it has been a mixed year for the magazine publishing segment. According to Publishers Information Bureau (PIB) data through September, advertising revenues in 2002 have been running 1.5 percent above 2001 totals. Unfortunately, especially for publication printers, the year-to-date ad pages total was down 6.6 percent from the same period last year. By comparison, advertising revenues for all of 2001 decreased 4.9 percent and ad pages dropped a whopping 11.7 percent.

































Top 10 -- Publication Printers
 CompanySegment
Sales
(millions)
Total
Sales
(millions)
1Quebecor World
Montreal
$1,638$6,300
2R.R. Donnelley
Chicago
$1,112$5,298
3Quad/Graphics
Pewaukee, WI
$648$1,800
4Brown Printing
Waseca, MN
$307$380
5Cadmus Communications
Richmond, VA
$295$447
6Perry Judd's
Waterloo, WI
$202$321
7Banta Corp.
Menasha, WI
$189$1,457
8Vertis Inc.
Baltimore
$185$1,851
9Publishers Printing/ Publishers Press
Shepherdsville, KY
$172$172
10The Sheridan Group
Hunt Valley, MD
$138$212
Sales figures are based on above printers'
self-reported total and market segment breakdowns.


Both advertising revenues and page totals vary significantly for the 12 publication categories tracked by PIB. The one constant is a significant disparity between revenues and page total performance. While seven of the 12 categories posted ad revenue increases through September of this year, only two showed an increase in ad page count—Drugs & Remedies (9.4 percent) and Food & Food Products (5.8 percent). The titles hardest hit in terms of lost pages have been those covering Technology (-25.0 percent); Financial, Insurance & Real Estate (-13.8 percent); Apparel & Accessories (-13.3 percent); Public Transportation, Hotels & Resorts (-10.8 percent); and Retail (-9.6 percent).

PIB is administered by the Magazine Publishers of America (MPA) in New York City. The association also conducted a membership survey in preparation for its yearly American Magazine Conference that was held in late October.

A survey question about the outlook for industry growth in 2003 used very broad ranges, but at least gives some sense of the mood among magazine publishers. The majority by far, 63 percent, picked the growth range of one to 10 percent. However, 20 percent said they expected revenues to be flat in 2003 and 11 percent pessimistically opted for a decline in the range of one to 10 percent. The remainder are looking for growth of greater than 10 percent.

Line Extensions

There also was some good news for publication printers in the responses to a question about anticipated line extensions of current titles. More than 48 percent of the publishing execs sampled reportedly indicated they expect to increase the number of line extensions they publish over the next few years. The remainder were equally split between making the same number of (26 percent) and fewer (26 percent) line extensions.

Printers will have to do a little work in order to find business opportunities in the list of biggest challenges facing the magazine industry, as reported by MPA survey respondents. The top five most cited challenges were ad revenues (54 percent), generating subscriptions (38 percent), lack of postal reform (30 percent), too many media options (30 percent) and flight of young readers (20 percent).

Publication printers may be at the mercy of many of the trends impacting the publishing/media industry, but that doesn't mean they can't be proactive in their client relationships. That point is illustrated in the following first-hand accounts of how some segment leaders see the market and are responding to the challenges and opportunities. Of course, all of the top executives noted the obvious decline in publication pages due to cuts in advertising spending.

There's more to it than that, however, points out Dan Knotts, president of the magazine industry for R.R. Donnelley Print Solutions in Chicago. He says publishers also have been tightening the belt on editorial pages to achieve profits by adjusting ad/edit ratios. Run lengths are also being squeezed, Knotts adds, as publishers reduce their single-copy volumes in order to boost overall sell-through efficiency and purge their subscription lists of low-return subscribers.

In addition, the past year was marked by an increase in the number of titles that ceased publication. "We believe this trend will continue over the next 12 months as the prolonged effect of an economic downturn continues to force publishers to take a very close look at the financial health of all of their titles," Knotts says. The business climate also means publishers are launching fewer new titles than in prior years, he notes.

"We do not expect to see any significant growth in 2003," Knotts continues. "Our current projections are for a relatively flat market for the first half of 2003 with a more prominent recovery beginning in the second half of the year. Given that performance of the magazine industry is closely correlated to GDP and corporate profits, the timing of a sustained recovery of the overall business economy and the rise and fall of consumer confidence levels will ultimately determine the performance of the magazine industry."

In order to cope with the current market realities, publishers are looking to extract the most value possible from all of their business partners, including the printer community, the Donnelley exec says. "We believe that it is in the best interest of the industry to continue to find ways to drive down costs through standardization, process improvement, supply chain integration and new business solutions," the magazine exec says. "This belief is the fundamental driver of our magazine industry strategy at R.R. Donnelley."

The major business opportunities are in the key constituents of the magazine industry (publishers, printers, paper suppliers, wholesalers, USPS, etc.) jointly developing solutions that drive the overall effectiveness of the medium as it relates to other forms of media.

"We all know that significant challenges exist for the magazine industry and we need to work together to find solutions to those challenges," Knotts asserts. Specific areas ripe for improvements include single-copy distribution, input standardization, supply chain integration and postal reform, he adds.

Cost Reductions

Craig Hutchison, president and CEO of Perry Judd's Inc. in Waterloo, WI, has a similar take on the market. "We have seen an incredibly focused approach to cost reduction on the part of publishers that is being driven by ad sales reductions—more in some content segments than others—and reduced newsstand sell-through percentages," Hutchison says.

The implications for publication printers are being felt in a number of areas, he claims. Examples include tougher contract price negotiations, greater pressure to reduce production waste and cutting distribution costs. These goals potentially can be achieved through the application of technology or by making changes in the printed product itself, such as reducing its size or switching to a lower substrate basis weight and/or quality, Hutchison explains.

"Printers, ourselves included, are taking proactive steps with their own technology and service offerings to benefit publishers," Hutchison says. "Digital prepress and distribution come to mind as two of the more important areas for us, including offering co-mailing and co-palletization capabilities, remote proofing and volume consolidation strategies that reduce cost and cycle times while improving delivery."

Looking at the big picture, Hutchison says the forecast is still a bit cloudy. There are a number of uncertainties lingering out there that may affect the near future for magazines. "For now, we are expecting rather slow, minor improvement in page counts for 2003, especially in the first half of the year. We expect to see an on-going shakeout in the total number of titles produced as publishers continue to shutter under-performing titles. Yet, new magazines will still be launched as niches are discovered and good magazines are developed to serve them."

Mags Thinning Out

From his perspective, John Paloian, COO of Quebecor World North America in Greenwich, CT, says 2002 has been a year of remarkably "thin" magazines, with a few notable exceptions. "Publishers have focused on aggressively managing their (subscriber) lists with a net reduction of five to 10 percent in overall run lengths for many titles," he reports. "However, the continued softness in the paper market has led many publishers to refrain from the traditional cost cutting measures of converting to lighter basis weight stock and making further reductions in trim sizes. In fact, a few titles are considering implementing an increase in size."

Available industry statistics confirm that there has been a decline in new title launches. As one example, Paloian cites data gathered by Samir "Mr. Magazine" Husni, Ph.D., Hederman Lecturer and professor of journalism at the University of Mississippi. Husni is a recognized authority on the magazine publishing sector.

According to the professor's tracking data, 426 titles have been launched in 2002 through the end of August. That's an eight percent reduction from the 463 titles launched through August of 2001, with the total count for that year being 700 new magazines. Those numbers, in turn, represent about a 20 percent decrease from the 2000 totals of 585 launches through August and 874 for the entire year, the printing exec adds.

Additionally, the MPA reports that 39 titles have ceased publication through September of this year, which compares to 119 titles for all of 2001 and a total of 37 closures in 2000, Paloian notes.

"Our expectations are that many publishers, particularly in the business-to-business sector, will continue to experience a soft year for most, if not all, of 2003," he reveals. "Competition for advertising dollars remains very competitive among all media, as well as within the magazine segment. Many of the bigger publishers continue to find some success in the custom publishing arena, as single-source "loyalty" magazines gain some momentum. Cross-marketing of multiple titles, as well as a publisher's entire media portfolio, also remains a point of positive differentiation for those who can effectively develop and execute an attractive advertising package.

"Looking further ahead, while magazines are indeed a relatively mature market segment, they still represent a cost-effective means of delivering value to both readers and advertisers," Paloian continues. "If the national and global economies experience a return to higher levels of prosperity, and the world political situation remains relatively stable, then magazines will likely maintain their historical year-over-year two to three percent growth."

As always, there continues to be a significant range of performance within any given sector, such as women's services, men's lifestyle, home decor, etc., Paloian points out. "Consumer magazines in general seem to be faring better than many of their business-to-business counterparts," he adds.

Effective and efficient supply chain management—from image creation to final distribution of the printed product—continues to gain heightened focus by both printers and publishers.

"In response, Quebecor World continues to develop premedia and logistics solutions that help create additional value for our customers. Our ability to offer publishers "one-stop-shopping" solutions that allow them to leverage their own volume across their entire operation for a wide range of products and services is a significant growth opportunity.

"The fact that we are the market leader in so many market segments also positions us to introduce clients to nontraditional technologies that may help drive new advertising and subscriber revenue," asserts Paloian. "Our innovative and personalized direct mail capabilities, along with our extensive experience in developing printed interactive games, are gaining increased attention from magazine publishers."

Plants See Changes

Cadmus Communications, Richmond, VA, closed out the year by announcing several actions it says were intended to rationalize capacity and improve utilization in its special-interest magazine operation. The plan called for closing the organization's publication printing operation in East Stroudsburg, PA, with the work relocated to its facilities in Easton, PA, and Richmond, VA; as well as closing its reprint operation in Easton, PA, with this business being transferred to existing reprint centers in Easton, MD, and Lancaster, PA.

"These actions have been taken in response to the prolonged downturn in advertising spending, which has driven lower page counts and created excess capacity at Cadmus and throughout the industry," says Bruce V. Thomas, president and CEO. "We decided that we cannot wait for conditions to improve and we chose not to chase less attractive volume with even lower prices. We believe that, in this market, the responsible decision is to rationalize capacity and to redeploy assets and resources into the STM (scientific, technical and medical) journal and other markets where we see growth."

On the positive side, the company is still investing in the market. It recently announced the completion of a multi-year project to consolidate the organization's periodical back-copy storage and fulfillment operations into a single 200,000-square-foot site in Hurlock, MD.

This secure, climate-controlled facility is said to currently serve approximately 160 publishers representing 1,200 titles with more than 12 million copies in inventory. A Web-based order entry and inventory access system is also in development.

"We are seeing a strong trend on the part of publishers to outsource back-copy storage and fulfillment services to reduce their capital investment and administrative overhead while, at the same time, responding more quickly to their subscribers, members and customers," Thomas says.

While the top executives of these leading publication printers may have similarly meager expectations for the market outlook in 2003, each of their companies is finding opportunities by getting to know the needs of its customers.


Tailor Made for Growth

Publication printers looking for a growth opportunity might want to explore the market for custom magazine production services. Consider these market statistics provided by the Custom Publishing Council (CPC) in New York City:

* Last year, 13.2 percent of the average corporate marketing budget was spent on custom publishing, up from 11.1 percent the prior year. Forty percent of companies plan to spend more on custom publishing next year.

* The average company in the U.S. produces 2.4 unique custom publication titles with an average frequency of 9.3 times per year. (The physical form of a custom publishing effort can vary widely, but by far and away the most common end products are print-based magazines and newsletters that are 100 percent funded by the sponsoring company. Other applications of custom content include e-newsletters, Websites, books and a host of other mediums.)

* Corporate America produces more than 50,000 unique custom publications annually and spends $15 to $20 billion each year doing so.

* The average custom publication has a circulation of 18,587 copies.
 

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