Catalog and Publication Outlook — Making Every Page Count

STRAINS OF “Should old acquaintance be forgot” heard this New Year’s Eve will have added significance in the catalog and magazine printing market sector. The flurry of merger and acquisition activity that carried over into 2007 made several marquee names just a memory in this year’s lists of top printers. Then there are the developments on the paper and postal fronts that catalogers, publishers and printers wish they could forget.

In looking back on 2007 and ahead to 2008, there’s a risk of coming across unduly negative. Most of the noteworthy developments and trends do have a downbeat tone, but it’s more a matter of being realistic than fatalistic.

Publishers and catalogers have, for example, become accustomed to keeping cost control top of mind. On the plus side, the value of their printed products in the Internet age has been reaffirmed.

Even this latest round of big-name consolidations didn’t have such a negative connotation. These properties were sought after, not acquired in fire sales. They were such industry institutions, though, that the absence of their names leaves a void.

While still in the process of assimilating Banta Corp. and Perry Judd’s, this past summer RR Donnelley announced it was unifying all of its printing and related services offerings under that single brand—RR Donnelley. Thwarted in its efforts to acquire Banta, Cenveo Inc. was successful in its bid to acquire Cadmus Communications and assumed its place among the top publication printers.

There was good news on the postage front in that the U.S. Postal Service seems to finally have established a way forward that promises greater predictability in rate setting. For the mailing community at large, efforts to work through the fine points of delivery point validation (DPV) and the OneCode/Intelligent Mail barcode (IMB) will carry over into 2008.

New rates and handling procedures for flats, including deployment of the Flats Sequencing System (FSS) infrastructure, are the critical developments for the catalog and publication sectors.

Mailing Costs Woes

Beyond the question of how their customers will respond to the changes, printers are anxious to have issues about the mailing of flats resolved so they can assess any implications for their investment plans. Just say “no” to commingling? Not yet, it seems.

What’s going on in the U.S. Postal Service will have a huge impact of the future of catalogers, contends Don Landis, vice president of postal affairs at Arandell Corp. Landis says he already has been getting more calls than ever before from customers asking what they can do to cut mailing costs. The company has been doing more consulting with clients on their mailing lists, which requires getting to know more about their operations.

“The equipment is a big unknown right now,” Landis adds. “We’d really like to know what the post office is planning, so we can make our own investment plans.” Implementing IMB and FSS could both require significant capital expenditures and have implications for the plant, he says.

Joe Schick, Quad/Graphics’ director of postal affairs, compiled a series of client communications to address potential issues arising from changes in how flats are processed.

• He sees the requirement that address labels be placed at the top of the front or back cover becoming a consideration for catalogers and publishers because of the impact on brand identification and loss of prime marketing real estate in the case of catalogs.

• The need to accumulate mail at an FSS location until a set time when the day’s processing will take place will make it critical that mail be delivered for processing by that time in order for magazines and catalogs to meet their in-home target dates, Schick notes.

• Converting a catalog to a booklet or digest size to qualify for letter rates isn’t a magic pill, and there are other costs and ramifications that should be carefully analyzed in considering such a move, he adds. Dramatically changing the size of a catalog may affect its branding; reduction in square inches will impact product selection, layout and photography; there are costs associated with redoing creative designs and art; and space for personalized messaging and addressing may be limited, according to Schick.

Since catalog and magazine printers—customers, too—effectively live in a house built of paper, it’s hard not to get jumpy at any signs of a wolf come knocking at the door. Paper companies have encountered fits and starts in their own struggles to regain pricing power, but there’s been rebounding in pricing and tightening of supply in 2007.

The consensus among printers seems to be that the paper situation will remain challenging, but manageable, in 2008. Typically, they have already been advising clients to place orders as soon as possible. RR Donnelley and Quad/Graphics, for two, have taken the current market conditions as an opportunity to promote their close ties with paper suppliers as a client benefit. They assert that the strength of those relationships gives them more leverage with suppliers in comparison to customers buying their own paper or buying it through other printers.

No longer having to hear and read about the death of print at every turn is welcomed evidence of a renewed belief in the value of printed catalogs and magazines as communications vehicles. Results of recent studies have confirmed that print is complementing, not being replaced by, other communication channels. “Multichannel”—whether marketing or publishing—still has that highfalutin air of consultant speak, but it is being practiced.

Websites and E-Catalogs

This fall, the Direct Marketing Association released its latest “Multichannel Marketing in the Catalog Industry” report that noted 59 percent of survey respondents indicated they had increased catalog circulation in the past year.

However, 45 percent said their “Website/e-catalog” was now the primary marketing channel, compared to 33 percent who cited their paper catalog and 22 percent who answered retail stores.

Shop.org, the online arm of the National Retail Federation, released a study conducted by Forrester Research titled “The State of Retailing Online 2007.” According to the report, more than 40 percent of retailers with an online business component said they were placing increased importance on printed catalogs. Also, they credited catalog mailings with bringing in 13 percent of their new online customers.

The outlook for printed catalogs in terms of demand from the end customer is a little murkier. In 2008, George Zengo, president of Global Print Solutions at RR Donnelley, expects to see continued, and even increasing, effort around legislative initiatives such as “Do Not Mail.” He notes that 15 states currently have legislation on their dockets that proposes the creation of a state registry, which is a significant increase from previous years.

“RR Donnelley will be continuing to work directly with the various advocacy groups, as well as our customers, in efforts that ensure every catalog is received by consumers who want to receive it,” Zengo says. “Obviously key in this effort is for catalogers to keep house and mail lists clean and up to date.” He also sees the customized messaging capabilities offered by RR Donnelley as helping catalogers to ensure recipients find value in the catalogs that they receive.

Heading into the holiday season, mass media news outlets and the blogosphere jumped on a new effort—the Catalog Choice initiative (www.catalogchoice.org)—as a hot story. This free mailing list opt-out service was launched by the Ecology Center and, for now, is seeking the voluntary cooperation of catalog marketers in honoring opt-outs.

Overall, RR Donnelley is approaching the catalog sector in 2008 with cautious optimism. There are several factors clouding the outlook, Zengo notes, including analysts projecting slower retail sales in the fourth quarter of 2007, housing sales declines, and a tighter credit environment cutting into spending and jittery consumer confidence.

“Slightly optimistic” is how Tom Murray, vice president of strategies, characterizes Arandell’s outlook for the sector in 2008. Controlling costs is the number one concern facing catalogers, he says, given the circumstances in the paper industry, postage, transportation costs, etc.

The printer’s catalog customers are focusing on research and buying patterns to do more targeted marketing, Murray continues. This has led to a reduction in pages, but an increase in the number of mailings in some cases.

Magazines Still Mighty

On the magazine front, good news for printing’s long-term outlook can be found in “The State of the Media Democracy” report produced by Deloitte & Touche’s Technology, Media and Telecommunications group in New York. Regarding the Millennials generation, among its findings were that: 72 percent prefer reading printed magazines over finding the same information online; 64 percent said they tend to pay greater attention to print ads in magazines or newspapers than advertising on the Internet; and 58 percent agreed with the statement that magazines help them learn about what’s “in.”

Based on its analysis of 32 actual cross-media campaigns, Dynamic Logic, a New York research company, found that magazine advertising had a significantly greater impact on brand awareness and specific ad awareness than the Internet and was a close second to television. Magazine ads actually came out on top in terms of influencing purchase intent, far outpacing the Internet.

In 2008, RR Donnelley expects its magazine customers to benefit from advertising and marketing opportunities enabled by three major events—the presidential election in the United States, the Olympic games in China and the soccer championship in Europe, says Rick Marcoux, president, Magazines. “Historically, these (events) separately and collectively bode well for printing,” he reports.

Legislation on direct-to-consumer pharmaceutical advertising should also have a positive impact, but overall Marcoux still anticipates ad pages will be relatively flat across the aggregate of RR Donnelley’s magazine business in 2008. “We have seen a continued effort by publishers to right-size circulation…and divest themselves of non-strategic or low-performance titles.”

Underlying all of these assessments, of course, is the uncertainty about the outlook for the economy. If the United States doesn’t avoid a recession as predicted, everyone will start singing the blues. PI