Publication Printing--Not Business As Usual

Publication printers are rising to meet the demands of rapid technological change, competition from the Internet and the changing whims of publishers. Will 2000 carry a darker dawn for this segment? Yes and no.

BY MARIE RANOIA ALONSO

As 1998 came to a close, the outlook for the publications segment was bright, despite the consolidation of titles that impacted the market's major players. Overall, the minds of the publications market called for continued growth for the segment throughout 1999, with particular emphasis on the hearty performance of the special-interest title.

In total, while the projection for the publications market going into 1999 was conservative, rather than bullish, a cautious optimism was clearly evident. The publications market would perform admirably.

One year later, what is the consensus on the publications market? How, in fact, admirable was 1999 for the key players in the publications field, and what projections are in store for the publications segment as the year 2000 comes into view?

Robert S. Pyzdrowski, president of R.R. Donnelley & Sons Magazine Publishing Services, contends the call for 2000 is one of radical change. "Consider the evidence," he asserts. "In the main, magazine printing companies are not recovering their cost of capital. While most publishers are experiencing returns of more than 20 percent, most printers are only seeing roughly half that percentage of returns."

Also, Pyzdrowski states, publishers increasingly view printing as a commodity, and printers must bear the brunt of this perception. This situation is not specific to the printing companies. Throughout the 1990s, the margin pool among suppliers—printers, paper companies and ink providers—has been shrinking.

"At the same time, technology is prompting unprecedented changes in the marketplace, as consumers explore multiple media alternatives to print content," Pyzdrow-ski reports. "The Internet allows marketers to reach the end user directly, rather than through traditional print advertising, which, of course, dramatically affects publishers and printers alike. The landscape has shifted quickly, largely in just the last two years."

Clear as this dark picture may seem, however, is the fact that the 1990s are over—and printers have the opportunity to usher in the new millennium by rewriting the playbook to match the requirements of this new game, so asserts this Donnelley executive.

"In doing so, printers can implement the sort of radical changes that will benefit marketers, publishers and suppliers by focusing on publishers' most profitable segments, and addressing customers' need to reduce cycle times, lower costs and improve quality," Pyzdrowski states.

Capitalizing on the situation is a matter of managing the supply chain. By effectively managing the entire printing process from design through distribution, printers and other suppliers can give magazine publishers, their advertisers and their readers a quality product on time and on budget, Pyzdrowski explains.

"I believe printers recognize the need to take this crucial step, and that publishers will, in the future, hire printing partners that create solutions to improve productivity, spur innovation, enhance distribution, lower materials costs and analyze how to build capabilities to better serve publishers' needs," he states. "In short, as we enter a new era, the situation is hostile, but not hopeless; printing companies have a tremendous opportunity to succeed in the future. The successful ones will create value by better controlling the printing process, and they will be vigilant in finding the best ways to help their publishing customers reach their customers: magazines."

Viewing the publications market from his office at Brown Printing, what exactly is William K. Traub's 2000 outlook for the segment?

"Publications are going to be a strong and viable market throughout 2000, but a changing one," Traub states with reserve, and more than a generous hint of caution. "The year 2000 will not be business as usual for either consumer or business/trade publications."

"Consumer titles are seeking new ways to overcome the decline in sweepstakes volume and the resulting circulation drop. Continued wholesaler consolidation is impacting the smaller publisher. Business and trade publications have been hurt by the shift of ad dollars to Internet sites—where technology and computer titles continue to see their ad pages erode—and this category is the largest in terms of ad pages."

That, Traub states, is the bad news. The good news, he says, is that the publishing industry has always proved its ability to respond to changes and challenges in its environment.

"Consumer publishers, for example, are using more direct mail efforts and field agents for subscriptions. Unfortunately, these sources are more expensive than sweepstakes, so publishers must increase their efforts to improve the renewal rates," says Traub. "Both busi-ness/trade and consumer markets are utilizing the Internet as a very inexpensive subscription source—which may, in fact, be working. As in the past several years, the total number of new launches continues to increase, particularly for special interest titles."

However, Traub cautions that after several years of record growth, ad pages and revenues have fallen for business and trade publishers. "The year should end with pages down 6 percent to 8 percent and revenue down 2 percent to 3 percent," he states.

Why the drops? Traub contends there are several factors at work, particularly: the shift of some medical ad dollars to mass media; redirection of marketing dollars to the Internet; and a migration of dollars in the information/technology segment to more broad-based media.

"The top 10 computer titles are down 17 percent year-to-date, which is about 6,000 pages," he explains.

On the positive, with all signs pointing to a continued strong economy for 2000, experts predict another solid year in advertising for the publications segment. Though 1999 started slow, it improved to the point that pages were up almost 4 percent. For the year 2000, hot categories—with hotter ad dollars on the ready—include telecommunications and the dot.com companies, which are proliferating virtually every segment of human existence, from automotive to home improvement to sports to education to (believe it or not) commercial printing.

The new dot.com advertising category has landed lock, stock and Web browser right into the laps of publications.

"Expect this trend to continue throughout 2000, as more dot.coms present themselves to a limitless audience," Traub states.

For Perry Judd's, 2000 looks promising. "We expect 2000 to be another strong year for magazines. The fundamentals of a strong economy are in place, and magazines are an effective medium, becoming even more effective than broadcast television," contends Craig Hutchison, president and CEO at Perry Judd's. "The fact that the year 2000 is a presidential election year, as well an Olympic year, certainly does not hurt the publications segment catering to the news and entertainment needs of avid readers."

At Cadmus Communications, the outlook is positive—but cautious.

"For 2000, the publications market will continue to be very strong. Clearly, publishers are being pushed to tighter and better defined niches, and this will continue to drive an increasing array of versions and even new start-ups and spin-offs," projects Cadmus President and CEO C. Stephenson Gillispie Jr., noting that certain segments, chiefly the specialty publications market, will grow very nicely throughout 2000 as advertisers seek greater impact for their dollars.

Final thought: The Internet.

As a mini army of e-commerce companies are targeting the production needs of the publication printing market—and a virtual armada of

Internet-based organizations are poised to threaten its very existence—are the most competitive of publication printers preparing to defend their positions? Absolutely. One example: Perry Judd's.

"Fortunately, we, at Perry Judd's, are participants in the complementary, but meteoric, growth of on-line services with Perry Judd's OnLine division, now a major participant with many of our publishers for whom we also print magazines," Hutchison reports. "It is becoming more obvious that printed magazines and on-line publishing will coexist as complementary mediums for reaching the consumer or the business recipient, [since] each has its special applications."

Look for major announcements in 2000 from printing giants the likes of R.R. Donnelley & Sons, as the publishing community and the publication printing community explore new ways to accept, grow, market and (make no mistake) combat the Internet.

Thanks largely to the proliferation of Internet services and resources targeting the same audience as do today's publishing community, the year 2000 will prove to be a turning point for the publications segment. But, rest assured, the movers and shakers of the publications market are already calculating their next moves.