Book Printing Outlook -- El-Hi, Hogwarts Shine

By Erik Cagle

Senior Editor

The book printing industry resembles a high-level chess match. All of the successful players are thinking three and four moves ahead, with increasing market share representing "checkmate."

RR Donnelley (RRD) and Quebecor World are just two of the book heavyweights that have established offshore printing relationships, or have obtained foreign facilities outright, in order to maintain those publishing clients who gush at the opportunity to produce low-priority goods at drastically discounted prices. Although it sometimes seems China is the poster child for international outsourcing, Mexico and Latin America are the alternatives of choice for Quebecor World, promising a quicker turnaround at the same price point.

What it does is spell bad news for the smaller book printer that cannot afford to invest in foreign assets. Fortunately, as 2005 will attest, there was plenty to go around. State adoptions have fueled wondrous growth on the education side, particularly the elementary-high school (el-hi) segment.

For trade and juvenile, well, can you say Harry Potter? The wizard-in-training returned to Hogwarts earlier this year, much to the delight of those fortunate enough to print the massive tomes.

One would be hard pressed to find a segment that disappointed in 2005. Flat growth in the religious sector, for example, was about as negative a term as the print leaders could muster. And 2006, from all indications, is looking like another successful campaign.

A Nice Year

Courier Corp., of North Chelmsford, MA, found that 2005 represented a nice rebound in the trade market segment, particularly in late summer and the fall. Courier's Executive Vice President Peter Tobin notes that all of the feedback he'd received pointed to a year of modest growth, with fear that the latest Potter book would constrict capacity, as it had in the past, causing publishers to hedge on their reprint orders. Once the summer came to an end, the orders began to fly.

"The publishers held off on some orders this summer, thinking that capacity would be really restrained, when in fact it wasn't," Tobin says. "They held up on some orders, then started releasing them in August. There were some titles that really took off, had some demand and kept reprinting. That continues to this day.

"There's a little bit of a trade bubble going on. It's a nice thing—something we really didn't see coming."

Buoyed by the four-color educational book success it enjoyed in selling out capacity on its four-color MAN Roland Lithoman press installed at the Kendallville, IN, plant in the spring of 2004, Courier Corp. ordered another such press for the facility. Binding and sewing equipment were also installed there this year to accommodate educational publishers' needs.

A Soft Touch

In addition to web presses and other heavy iron, Courier invested in software to provide customers with electronic alternatives for invoicing, purchase orders and other administrative functions, as well as for preflighting and proofing in real time. All of which is geared toward taking time out of the process, a major plus for publishers.

"As publishers are working overtime to be able to manage their inventories as closely as possible, they want to wait until the last possible minute to pull the trigger and send an order," Tobin remarks. "They want to know, down to the last detail, what their print runs ought to be. And these various electronic communications are helping them do that."

Education, consumer, juvenile and Asian sourcing operations all provided for a strong growth year at RR Donnelley, according to Ed Lane, book group president. Education remained consistently strong throughout the year, and Harry Potter enabled the consumer trade segment to garner steam in the spring and carry RRD through the year.

"We were a large participant in Potter production," Lane reveals. "The basic trade business continued its strength through the summer. This fall must have been a big season for publishers because we were very busy, and a lot of our competitor friends were as well. There were a lot of big books that stayed long and strong."

Looking Beyond Borders

The juvenile sector spurred continued demand for Donnelley, which obtained Asia Printers Group, based in southern China, to address that demand. The acquisition complements existing RRD positions in Shenzhen, China, and Reynosa, Mexico.

On the investment end, the December 2004 acquisition of Phoenix Color's one-color assets led to the equipment being strategically placed in the RRD network. Demand throughout the year only validated the acquisition, and two additional presslines were installed at the Willard, OH, facility. Binding investments were made there, as well.

Education and juvenile also drove a successful 2005 for Walsworth Publishing, of Marceline, MO, with growth from professional reference products, according to Kim Hawley, sales manager. The trade and medical sectors, though productive, yielded flat growth.

Walsworth reaped 30 percent growth over 2004, which is mind boggling considering that the company ballooned with 38 percent year-over-year growth for the previous fiscal year. While not a player in the Harry Potter space, Walsworth reaped the benefits of its partnership with a specialty bookseller that does business with retail chain mega-giant Wal-Mart.

One of the highlights for Walsworth this year was its acquisition of a four-color web facility in Omaha, NE, that had been shuttered for several months. It not only bolstered the company's four-color web juvenile product, but also aided four-color web catalog production.

Walsworth also incorporated a Kodak Prinergy workflow across its network and purchased a 36-pocket Kolbus perfect binder for high-page-count books and longer runs.

Bestseller titles and instant books made for a significant improvement in trade volume experienced by Montreal-based Quebecor World. Like some of his colleagues, Kevin Clarke, president of Quebecor World's book and directory services, found it somewhat surprising to see the strong wave continue through the balance of 2005.

Education has been stout for Quebecor World, to which Clarke gives some credit to the printing giant's sales force. Mass market has been flat, with the biggest wrinkle being publishers' migration to 71⁄2˝ books with heavy page counts. Clarke estimates the company loses 25 percent of press productivity because of the additional length, since they're produced on three-quarter webs. Future investments will remedy that situation, he notes.

The four-color side of the business has seen challenges from Asia and the Pacific Rim. Positions in Latin America, however, will enable Quebecor World to respond with a viable alternative (see sidebar).

Quebecor World added finishing assets for its trade printing facilities in 2005. A 9˝, two-color press is ticketed for Taunton, MA, and an 11˝, 64-page unit will be installed in Versailles, KY, for four-color education work. Three more presses are due to touch down in the Buffalo mass-market facility.

As for what 2006 holds, Clarke envisions a price-competitive market. The winners will be those who not only provide quick, but also cost-effective, turnarounds.

"We're reinvesting so we can provide a good manufacturing solution for our publishers, both for long-run, heavy page count products and for quick makeready, small-run books," he says. "We've introduced a variety of specific supply chain solutions for our publishers that are now being widely adopted to support both ends of the market. If you can't supply that, you're going to be in trouble."

Getting Educated

RR Donnelley's Lane envisions the educational segment to be fruitful through about 2009. Next fall, RRD will make more investments in the one-color segment, both for the pressroom and the bindery. Digital press capabilities will be enhanced at its Harrisonburg, VA, plant, which speaks to the need of reprinting deep backlist titles in quantities ranging from 500 to 1,200 copies.

"That helps publishers manage inventories, reduce cost and obsolescence risks by using digital printing," Lane says. "That model has been well received and, basically, the pressline we have is sold out, so we're adding another."

According to Hawley, Walsworth Publishing will benefit from the overload of education work that some of its larger printing brethren will be unable to accommodate during 2006.

"We'll see a bigger bang from the fallout when primary vendors fill up, overflow and have scheduling issues," he says. "We'll be there to help those printers and publishers."

Courier will reap the benefits of its late 2005 acquisition of book components manufacturer Moore Langen, which will provide even more capabilities. As for the prospects of 2006, Tobin is optimistic that the bestseller market—which had some aging titles prior to the Potter touchdown—will get off to a stronger start with new titles.

"I'm hoping that with a stronger economy and no further natural disasters—which can have a terrible impact on the retail environment—traffic in retail book stores will increase," he says.

But whether it's Oprah Winfrey or the bridge club, there's nothing like a hot new title to get people talking about books. And buying them.

Dare to Outsource?

In the competitive publishing world, book printers have not turned a blind eye toward the realities, and benefits, of establishing print operations/partnerships in foreign countries. Our panel offers their thoughts on the current threats and opportunities that loom in Europe, Asia and South America.

Ed Lane, RR Donnelley: "Our book export business continues to grow strongly. It has a role; it's not for every segment. Primarily, it's resonating with publishers who may want to do an initial printing in Asia, where they have the cycle time ability to leverage the advantages of a long lead time. But if they need a rapid replenishment of a book that is really selling well, we offer our domestic capabilities to support them in that regard. So they get the best of both worlds.

"That offer seems to be resonating not only with the juvenile publishers, but with four-color consumer publishers and certain elements of the college business. Deep back list printing in China is becoming more of a viable option."

Peter Tobin, Courier Corp.: "China continues to be a frontier that everyone is looking at. Some of our customers are sending occasional titles there; others aren't because they cannot afford the time it takes to do it. Some publishers have tried it and have not been satisfied. Is it a threat or opportunity? We want to learn more about it."

Kim Hawley, Walsworth Publishing: "We are in the process of finalizing a partnership arrangement based out of Hong Kong. We're just working out the final details—how to handle the flow of product and what types of product are going to fit.

"We've been getting pressure from existing clients, who either wanted that option or were looking overseas and didn't want to hassle with the logistics themselves. If publishers can find a good go-between, they're willing to pay a premium for it."

Kevin Clarke, Quebecor World: "We've looked at several different possibilities, like the Pacific Rim. We're expanding our Latin American operations with new assets to bolster their horsepower. We'll consider alternatives where we can guarantee our customers good supply chain, good prices, and a combination of security and protection of their copyrighted products.

"We have two facilities in Mexico, as well as one in Colombia and one in Peru that are focused on the U.S. market. We're able to provide a much better time alternative and a comparable price."