2005 Book Market Outlook -- El-hi Fuels Some Optimism

By Erik Cagle

Senior Editor

The book printing industry in America cannot live on Harry Potter's whimsy and Oprah Winfrey's blessings to survive in an environment that's losing share to overseas competition.

Hit titles such as the J.K. Rowling line of Potter tomes, and the popularity heft that the afternoon talk show queen can put behind a new or backlisted work, can create a stir in both the publishing and printing industries. What the leading book manufacturers from our Printing Impressions 400 are looking for is consistency from the educational market.

Given President Bush's reaffirmation of his "No Child Left Behind" act and good news in terms of high rollout adoption cycles, 2005 and beyond bodes extremely well in the elementary-high school (el-hi) sector.

For Robert Mathews, president and CEO of St. Louis-based Von Hoffmann Corp., 2004 represented a swing year as the overall market transitions from the weakness that was evident in late 2001, 2002 and 2003 to a campaign that showed momentum and stabilization.

In specific markets, four-color non-education products enjoyed strong growth in 2004 for Von Hoffmann. And while Mathews believes that the educational book market tends to lag an economic recovery by 12 to 18 months, his company is seeing demand building for educational products in its design and premedia businesses as publishers embark on new title development. The best could well be yet to come, from an educational standpoint.

"We expect an upturn in demand for educational books starting in 2005," Mathews predicts. "State funding has stabilized, and a strong adoption calendar bodes very well for the elementary and high school textbook markets."

The consumer trade book business posted an average year, lacking a lot of the star power generated by a Harry Potter title that tends to drive that niche, reveals Ed Lane, book division president for RR Donnelley in Chicago. But the Windy City printer more than held its own on the one-color end, capitalizing on the few marquee titles that bowed, such as Bill Clinton's memoirs and the 9/11 commission report.

One pleasant surprise for Donnelley was the fact that the four-color consumer market enjoyed a successful year. It helped offset the weak reprint demand from publishers who are managing their inventories more aggressively, Lane reports.

Speaking of mild surprises, 2004 turned out better for Donnelley than anticipated on the education front. Customers initially thought adoption cycles would be weak, but a strong stretch run and the promise of major adoption rollouts have Lane excited about the market for not just the coming year, but 2006 and 2007, as well.

"We're preparing ourselves for the adoptions," he remarks. "We have press equipment coming online next year that will help us improve service to our clients and put us in a position to be able to meet the increased demand."

Donnelley's specialty segments—juvenile, professional, reference and religious—saw mixed results. What helped was the ability to send product that is less time-sensitive to Donnelley's China facility for production. It's part of an overall global sourcing strategy that also includes Mexico and Latin America.

Courier Corp. enjoyed the fruits of a successful education campaign, but the North Chelmsford, MA-based printer also aided its own cause by winning additional share from publishers, notes Peter Tobin, executive vice president. Specialty trade did not fare as well, with publishers being cautious not only about their backlist, but frontlist titles, as well.

Courier treats religious as a market separate from specialty, and Tobin characterizes its growth as steady. While the bible market has been flat, there has been an uptick in post-9/11 titles that deal with spirituality and counseling, especially in light of the ongoing strife in the Middle East.

"Many people are feeling the pressure related to this war, which drives them to seek counsel and words of comfort," Tobin states. "In response, publishers have responded by publishing a lot of support-based titles."

Variable market growth and a consistently weak price environment have made for a challenging year in the book market, notes Kevin Clarke, president of book and directory publishing services at Quebecor World, Montreal. The printer has responded with restructuring activities and productivity initiatives designed to give its manufacturing facilities increased focus and efficiencies.

Strong best-seller activity has bolstered Quebecor World's consumer share, while the continuity book business has been weakened somewhat by the national Do Not Call registry. What helped the printer's education market endeavors was the growth in ancillary products, while the college sector was buoyed by increased enrollments.

Quebecor World did enjoy a strong religious campaign, with fiction and non-fiction title output on the rise, Clarke notes.

Hard Work Pays Off

For Walsworth Publishing, based in Marceline, MO, 2004 was a year in which all of the planets aligned nicely. "We have been pounding the pavement hard for a number of years, and it all came together this year," states Kim Hawley, sales manager. "Our sales team's efforts were rewarded with 38 percent growth for our fiscal year (ending Oct. 2, 2004)."

The juvenile market was good to Walsworth in 2004, though soft retail sales projections caused it to tail off in the fall. The medical niche did not perform as well, with some publishers opting to outsource their production overseas.

The printer made strides in its web printing business, and growth in the sector justified the purchase of a new facility in Omaha, NE, to satisfy capacity needs. The purchase gives Walsworth a pair of four-color web presses, additional binding and mailing capabilities.

Other major book players are also embarked on revenue-enhancing initiatives. Courier Corp. plunked down $12 million for the April startup of its new four-color MAN Roland Lithoman IV large-format book press, which doubled its capacity. An identical model was ordered in November, with a startup target of next fall. Additionally, Courier Corp. is now offering customers online preflighting and soft proofing capabilities to enhance service and remove some time from the production process, according to Tobin.

RR Donnelley is touting the benefits of International Navigator, its global sourcing platform, particularly in the specialty sector. But the Moore-Wallace acquisition, which closed in March, provided the greatest influx of capacity and capabilities. For example, Donnelley is now able to tap into the extensive sheetfed complement Moore-Wallace added to the equation for those applications that call for it.

Quebecor World made waves a few months ago with the announced purchase of up to 22 new web presses for the company's U.S. book, magazine, catalog and retail platforms.

Von Hoffmann has taken an active role in its quest for growth. It launched a new design and premedia services business called Anthology, which boasts a new server with 16 Terabytes of online storage.

In another move, Von Hoffmann acquired The Lehigh Press, a leader in book components and direct response printed materials. In the process, Von Hoffmann invested to increase printing, embossing and foil stamping capabilities at Lehigh and integrated its printing on plastics platform. Last summer, Von Hoffmann was bought by Kohlberg Kravis Roberts & Co. (KKR) and DLJ Merchant Banking Partners.

Waiting on the Economy

Going forward, Mathews sees the U.S. economy as playing the greatest role in the fortunes of the book segment. "We need continued strengthening in the economy to provide both consumers and schools with the necessary funds to fuel growth for both consumer, as well as educational, book products."

While Lane has faith in the education segment for the next three years, the Donnelley exec feels the trade segment will ride the wave of best-seller hits, as they are critical to the health of the overall market.

"From a Donnelley perspective, we continue to develop the complementary capabilities within our global sourcing strategy so we can meet customer needs," Lane says. "If they need rapid replenishment of product, we can use our domestic platform. And if they have sufficient lead time, we can leverage one of our international book operations to meet their requirements."

Like Lane, Courier's Tobin is looking forward to a banner 2005 campaign for the education sector. In terms of specialty trade, he's taking a wait-and-see approach. "Consumer confidence seems to be a little bit better," Tobin says. "It's an end-user game, and we're hoping for a good holiday season that could give us a good bounce into 2005."

Hawley expects 15 to 20 percent growth for Walsworth in the coming year, but he feels that profitability will be a critical factor in light of "eroding domestic markets." Hawley believes there is excess capacity in the one-color markets and feels some of it needs to go away for the health of the market overall.

"The sheetfed market for books is a slowly dying beast," Hawley says. "Overseas competition has ravaged the four-color book market for coffee table, art and juvenile products, and will very quickly work its way through the medical and school markets."

The aforementioned rise in enrollments will translate into increased textbook sales, but Quebecor World's Clarke points out that it will be somewhat offset by the utilization of non-print and Internet-based instructional materials. On the consumer end, a bolstered economy will fuel the success of adult trade and juvenile book sales, while an increased marketing emphasis by the publishers of religious titles bodes well for that sector in 2005.

"An improving market environment, coupled with our internal initiatives to reduce costs, minimize manufacturing cycle time and improve service and quality, will translate into a strong 2005," Clarke predicts.