Largest Book Manufacturers -- Best Sellers List

By Noelle Skodzinski

It's not likely a big surprise that Quebecor World held fast to its No. 1 spot among the Top Book Manufacturers—ranked by book manufacturing revenues—in the United States and Canada. With a $36 million lead over RR Donnelley, and a $273 million lead over third-ranked Von Hoffmann Corp., Quebecor World isn't likely to lose its position anytime soon.

Both top seeds, however, saw book sales drop in 2003. In fact, revenues for three of the top five sank by a total of nearly $130 million. Arvato Print USA (a division of Bertelsmann) and Von Hoffmann were the only two in the top five with increases. (See accompanying chart.)

The revenue losses aren't all that surprising either, though. 2003 challenged printers from many directions. For one, "the price of paper was down," says Dave Mead, senior vice president of sales and marketing for Banta Book Group, and president of the Book Manufacturers' Institute. While low prices are good for publishers, "paper costs can represent 40 to 50 percent of the unit cost of a book," says Mead. "If paper prices drop 10 percent, printers lose 5 percent on the gross production revenue."

Paper prices factored less for Quebecor World, since its clients largely furnish their own paper. Quebecor World's major challenge, echoed by several other printers, was price erosion, according to John Faust, director of marketing.

Mead calls it a case of "overcapacity that drove down prices and lowered revenues."

Printers, therefore, have focused on cutting costs to try to maintain their profit margins—and were not always successful.

In recent months, however, printers have seen a sharp escalation in paper prices—good for the goose, but not necessarily the gander. "Paper demand has increased pretty dramatically… and prices are starting to go up," says Mead. But if prices rise too much, he notes, publishers will become increasingly cautious about costs and will cut back on projects.

Robert Mathews, president and CEO of Von Hoffmann, says of Von Hoffmann's rise in book revenues, "We are winning in the marketplace because we are focusing and investing in customer solutions." Von Hoffmann, like some others, is focusing those customer solutions on helping publishers save money, time and effort.

Partnership Driven

RR Donnelley is focusing on customer solutions, as well. "Our client base wants to streamline," reveals Ed Lane, president of RR Donnelley's book publishing service business. "They want fewer, more strategic partners."

These demands set the scene for RR Donnelley's merger with Moore Wallace, which closed in February of this year.

Although the merger will have no direct effect on book revenues for 2004, as Moore Wallace doesn't publish books, hopes are high that it will lure new business. "The merger really led to a greater breadth of print-related services, from enhanced direct mail capabilities for book clubs and other publishers who do direct mail and much larger sheetfed capabilities than before," says Lane. "The combination of RR Donnelley's own logistics business enables Moore Wallace to better leverage customers' distribution needs...and RR Donnelley to leverage Moore Wallace's traditional print assets."

Essentially, the RR Donnelley/ Moore Wallace duo wants to be a one-stop superstore for a publisher's needs—long- and short-run books, magazines, directories, direct mail and so on.

And, it's certainly not alone. In autumn 2003, with its sights set on full service, Von Hoffmann acquired The Lehigh Press, linking Von Hoffmann's educational and commercial printing components with Lehigh's book component manufacturing and direct marketing capabilities.

Then, this past summer, Von Hoffmann was acquired by Kohlberg Kravis Roberts & Co. (KKR), linking the company with two other KKR holdings—Jostens and Arcade Marketing—to create a conglomerate with combined sales in excess of $1.4 billion.

Lane notes that publishers are also looking to printers to help manage inventory. "Most publishers are focusing on shorter press runs and more frequent turns and replenishments," he explains. RR Donnelley's response has been to focus on 'Inventory Management Solutions' (IMS), according to Lane. Digital manufacturing and the focus on low inventory have come into play to the extent, he adds, "where we'll even produce an entire soft-cover product on the digital press."

Banta, too, has seen publishers drawn to its printing extensions—such as fulfillment and distribution. "We've seen an increase in trade business because of combined resources like print and distribution from the same site," notes Mead. In fact, he says, Banta has expanded a number of its 11 fulfillment and distribution facilities this year, and is currently almost doubling the size of its Virginia facility, which is attached to its Harrisonburg book manufacturing plant.

Another trend that Lane says RR Donnelley is responding to is the role of Asia in the book publishing market. "We continue to see migration to China for manufacturing those book products with sufficient lead time to leverage certain benefits China has to offer." RR Donnelley's footholds in Mexico, China and Brazil aim to help the company serve as an international navigator for its clients. "They want us to identify the best sourcing solution for their products," he suggests, whether in the United States or overseas.

Phoenix Color, of Hagerstown, MD, whose revenues are 100 percent book manufacturing generated, also has noticed some global trends. "We've seen an increase in the demand for global sourcing, specifically in the heavily illustrated, multicolor book market, as our customers search for means to better manage inventory levels," informs Kelly Hartman, marketing manager. "As a result, Phoenix Color has developed a unique global manufacturing division, Rockaway/Phoenix Asia."

Moving Into New Markets

Publishers themselves also have been becoming more worldly. In 2003, Random House, the world's largest trade book publisher, set a precedent by being the first Western trade book publisher to enter the Asian book market, through a partnership with Japanese book publisher Kodansha. And, in December, it entered a collaboration in Korea, forming Random House JoongAng.

Fallen revenues among some book manufacturers in 2003, however, weren't reflected in retail sales. Net U.S. book sales rose nearly 5 percent in 2003, topping $23 billion, according to the Association of American Publishers (AAP).

Overall trade sales were up 1.2 percent, with sales of $5.1 billion, the AAP reports. And, as many predicted, e-books have been enjoying increased sales, reveals Kathryn Blough, a representative for AAP. "E-books are definitely growing, but I don't think that will cut into the print side."

Even so, religious books were the industry's star performer: The religious book genre (including self-help books) posted a gain of 50 percent to $1.6 billion.

Lane comments that political books and graphic novels seem to have gained popularity, as well.

Elementary/high school book sales gained, too, 2.5 percent, coming in at $4.3 billion, and higher education sales rose 3.6 percent to $3.4 billion. The biggest rise in the education sector, though, came in standardized test sales, which jumped 12.4 percent to $591.9 million.

But another issue regarding this sector of the education market, besides revenue, is on the minds of at least a few. "We are seeing a lot of increased versioning requirements as publishers serve the needs of states and school districts," says Lane. "The days of having a national textbook are over. The implication of this is more unique el-hi textbook requirements that build complexity into printing."

Banta's Mead agrees. "State-specific is a very strong trend. A lot of states want specific content for books they've adopted," he says. This move toward textbook versioning means higher costs for publishers, and more work, but also more revenue for printers.

Future Looks Brighter

While 2003 saw a lag in overall adoption of books on statewide levels, due to unusually large budget deficits that caused education funding cutbacks even in some states where education is usually untouchable, Mead says 2004 is looking up. "We've seen a fairly significant resurgence. Overall, revenues for the Book Group were up 8 percent (in the first quarter)," he says. While this figure represents both trade and education, Mead says that the increase is largely in the education sector.

And, he says, because three of the largest "adoption states" (California, Texas and Florida), which select books for all districts, have several adoptions scheduled for their core curriculums, "barring any major economic downturn, 2005 looks like a really good year for educational book manufacturers."

Shorter print runs, state-specific educational books, streamlined production, one-stop print shopping…a lot is changing. As publishers streamline and look to their printers for well-rounded solutions, it's likely more unions such as the landmark RR Donnelley/Moore Wallace merger and Von Hoffmann's acquisition of The Lehigh Press will take place in the near future.

Will a new merger form a conglomerate that will oust Quebecor World from its roost as the No. 1 book manufacturer in the United States? Who knows, Quebecor World may even do a little acquiring of its own.

About the Author

Noelle Skodzinski is editor-and-chief of BookTech Magazine, a publication with a target audience of book and multimedia publishers and their suppliers.