McIlroy--Are We in Worse Shape Than Anyone Thinks?

In the June 1999 issue of Printing Impressions, an editorial by Editor-in-Chief Mark Michelson notes that he is "more convinced than ever that print will not only be alive, but will prosper, in the next millennium and beyond."

While he concedes that "printing production will continue to evolve" and that "some product niches will be forever lost to electronic information dissemination," print will remain strong "because no other medium is as portable, flexible and widely accessible."

Editorials like these have been appearing amidst news reports that sales and profit numbers for most printers and publishers continue to be healthy. It's no longer fashionable to utter "print is dead." Instead, the cry has become "print is anything but dead," and "print will be with us for a long, long time."

Prepare for Impact
I've been writing about the impact of the Internet on the printing industry for several years now. I suspect my views were similar to most of yours—"Sure, the Web will have an impact, but the impact will be gradual and easily foreseen."

This past summer, I had lunch with Craig Cline, my colleague at Seybold Seminars, and with Apple Computer's Chris Gulker, who was (at the time) in charge of marketing to the printing and publishing industries (he has since moved on to an Internet startup). We talked about the problems the printing industry is facing in financing new capital equipment purchases and about the challenge of accurately assessing change in this era of rapid technological transformation.

It was then that I thought, "Gosh, what if the change has already started, and what if it's larger and more drastic than any of us had foreseen?"

Next month in Boston, during the Seybold Seminars program, we're going to explore this idea fully.

"The commercial printing industry is mature, fragmented and highly competitive, and is, therefore, characterized by narrow profit margins. In addition, printers face increasing demands from customers for tighter deadlines, better and more consistent color quality, shorter print runs and greater customization of print jobs."—Creo Products IPO Prospectus, May 1999.

Print sales have been strong throughout the '90s, in keeping with a robust economy. While sales have been strong, profitability has remained constant for the last decade and continues to average about 3 percent of sales—not a healthy margin (the 1999 record was only 3.36 percent).

As the printing industry moves into the next decade, printers face overcapacity, but an ongoing need to invest in new capital equipment to improve efficiency and quality is only likely to increase overcapacity along with pricing and profit pressures.

According to NAPL's Printing Manager magazine, only 5 percent of the $80 billion U.S. commercial printing industry is estimated to be consolidated. "When Wall Street analysts consider the consolidation of a fragmented industry," the report states, "they talk about the 'Rule of Three,' a business theory stating that, in most competitive markets, three large companies will continue to evolve to control 70 percent to 90 percent of the market, while all the other companies remain small niche players. If this were to take place in commercial printing, three large firms with annual sales of $20 billion to $25 billion would dominate the industry—a very different industry than we have today."

Commercial printing ranks third of 20 industries on the "Montgomery Securities' List of Selected Consolidating Service Industries." And Montgomery ranks commercial printing No. 1 in degree of market fragmentation: More than 80 percent of commercial printers have sales of less than $2 million.

Despite the apparent under-consolidation of the printing industry, this year the capital markets are not attaching the same value to print consolidation as they were in previous years. The Printing Impressions/Advest index of 30 printing industry stocks has declined by more than 30 percent since June 1998, relative to the S&P 500 Composite Index.

"Because of the quick and pervasive adaptation to the Internet and new technology in the Silicon Valley area, printers here feel the pinch more than the rest of the nation. E-mail and faxes have replaced letters; Websites have supplanted promotional brochures and fliers; even annual reports find their way online," says Dan Nelson, executive director of the Printing Industries of Northern California, during a newspaper interview.

"If there was a trend to replace printing with the Web, it would no doubt happen here first, before any other place in the country," Nelson concludes. "People here are hell-bent on technology and are quicker to use it.'"—San Jose Mercury News, June 1999.

Declining Sales
While the evidence in this article is, at best, anecdotal, it suggests a new scenario for a decline in print sales. Clearly, the adoption of new Internet technologies is most rapid in Silicon Valley, but it's equally certain that the trends developing here will spread, over time, to the rest of the country.

". . . a study released in March by Mediamark Research Inc. (MRI) [claims that] top magazines lost 61 million readers, ages 18 to 49, between fall 1997 and fall 1998 . . . "

MRI's study "blames the savage drop on reader migration to the Internet, and predicts the effects will be real and lasting."—MRI Website, http://www.mediamark.com/.

"According to Mediacen-tral.com, the March study found that readership was down 5.5 percent among adults age 18 and older, and down 5.9 percent among adults age 18 to 49. During that period, 56 titles gained 18 million impressions, but 144 magazines lost 79 million impressions. According to the report, reader declines were more severe in pass-along readership than in primary readers."—NewsInc., March 1999.

Falling Circulations
"Daily newspaper circulation fell 0.5 percent, and Sunday was down 1 percent for the six-month period ending March 31, 1999, compared with the same period a year ago."—"Fas-Fax" report, Audit Bureau of Circulation (Schamburg, IL), April 1999.

"[In 1998] . . . the once unstoppable computer [magazine] category has begun to stumble. A number of the largest titles suffered significant losses…"—Folio, July 1999.

"Of the 100 most-visited Websites, zero were run by newspapers. Zero."—NewsInc., quoting a PC Data report, July 1999.

It's been interesting to see a reversal of fortune in the newspaper and magazine business in the last six months. For many publications, ad revenues are up. The most frequently cited reason is that the dollars are being spent by dot.com companies, trying to buy "mindshare" in a crowded marketplace!

Chris Gulker has said, "If some new development sounds like it's 10 years away, it's probably a year away."

On his Website, Gulker refers to a 1993 paper by Vernor Vinge, a professor in the Department of Mathematical Sciences at San Diego State University. Called "The Coming Technological Singularity: How to Survive in the Post-Human Era," (http://www.gulker.com/ra/ singularity.html), the paper is concerned mainly with the thesis that "within 30 years, we will have the technological means to create superhuman intelligence."

The impact will be: "Developments that before were thought [to] might only happen in 'a million years' (if ever) will likely happen in the next century." Gulker uses the paper to point to the impossibility of accurately predicting trends based on short-term data analysis, and to the broader concept that the pace of change has increased so dramatically that positing a significant decline in printing and publishing is now credible.

"Technology is already moving so fast that we can no longer reliably predict the future even a few years ahead . . . "—Chris Gulker, "The Technological Singularity."

"1999 is the year we'll look back to as the year the Internet began to decrease the demand for print."—Trendwatch's Dr. Joseph W. Webb and James R. Whittington, speaking at Graph Expo 99.

It wasn't surprising to me to see Joe Webb and company starting to look in the same direction as Seybold during his presentation at Graph Expo. I think that you (as readers of this column) will start to see the same evidence, and reach the same conclusions, as you examine the evidence around you.

We all thought there was going to be more time to deal with the impact of the Internet and the Web. Now, the challenge is urgent.

—Thad McIlroy

About the Author
Thad McIlroy is a San Francisco-based electronic publishing consultant and author, and serves as program director of Seybold Seminars. He welcomes comments at thad@arcadiahouse.com.