WOA 50th ANNIVERSARY -- Web's Balancing Act

By Mark Smith

As the Web Offset Association turns 50, there is much about the industry it serves worthy of note. To a degree, the process has really only just come into its own in terms of color, quality, ease of operation and turnaround.

Saying the industry has matured isn't necessarily an all-positive development, though, as any person who has celebrated the big 5-0 birthday probably will concede.

Even while we toast web offset's current vitality, there are growing concerns about the competitive potential of digital alternatives producing or replacing print. The recent economic malaise has heightened feelings of uncertainty about the future.

Facing up to challenges is nothing new for members of the web offset printing community, however. The industry's history of perseverance, adaptation and innovation is well documented by other articles in this WOA 50th anniversary tribute.

Today's industry leaders are again stepping up to the plate and preparing to address whatever curves the market may throw at them.

"This is the first time in my 40 years in the industry that I've seen our segment of the market hit by a 'recession' (whether it meets the formal definition or not)," reports Frank Stillo, chairman and CEO of Sandy Alexander in Clifton, NJ. "During previous U.S. recessions, our business improved—with increases in sales and profits. Companies seemed to spend more on advertising to increase market share or move surplus inventory," he explains.

"The commercial printing market has been in a recession since May 2001 and we are not planning for a recovery any time soon," Stillo notes.

Where Are We Headed?

Raymond Frick Jr., CEO an president of The Lehigh Press in Broadview, IL, agrees with Stillo on where the industry has been, but has a slightly different take on where it's headed.

"The years 2000 and 2001 were uniquely challenging, really almost anomaly years. What we are now hopefully coming out of was actually the most severe recession (or downturn) for printing—not since 1990 or '91—but in the 20-year span since 1981-82," he says.

"The emergence is going to be a process, not an event," Frick continues. "I see the recovery following more of a shallow dish, rather than a 'V' or hockey stick shape. We still have historic instability and unpredictability within the traditional printing markets.

"For Lehigh, I'm very bullish about 2002. It is going to be a bumpy ride, but we've had an excellent first quarter and we expect to surpass plan in Q2," he adds. "We will get back to a position of viability and health for the industry. I see material evidence indicating that will happen in the second half of this year and, as an industry, we should see real robustness in 2003. However, I don't think it will be a rising tide that carries all boats."

Printers offering a reasonably distinctive and compelling value proposition will have the opportunity to survive, and perhaps thrive, over the next three to five years and beyond, Frick explains.

"However, undifferentiated, general commercial printers will experience ongoing margin compression and growth difficulties."

Ken Field, president and CEO of Continental Web in Itasca, IL, expects the near term to bring an active period of mergers and consolidations.

"This just has to happen," he says. "In an effort to drive costs from our process, the press manufacturers have designed the most productive and versatile equipment ever. Running speeds have increased and makereadies have been reduced to minutes, not hours.

"These advances have brought quantum leaps in throughput," Field continues. "One new Heidelberg Sunday press can equal three older presses in productivity. The older machines have not been taken out of service, though, thereby creating an abundance of capacity versus demand."

Market Pressures

The competitive picture is further complicated by the fact that new technology is making it impossible for older systems to be financially competitive, the Continental Web exec says. Market pressures will force well-run, established printers that still have older presses to consolidate with other operations to remain viable and profitable, Field asserts.

Printing clearly continues to be a consolidating industry, Frick agrees, but he sees it as part of a broader business trend. Companies are streamlining the way they do business and buying more products and services from fewer providers, he points out.

"We are doing the same thing. We've gone from having more than 20 paper suppliers down to six," the Lehigh exec reveals. "We are seeking partnerships. That is one of the most overused terms in the business lexicon, but it is a real concept and is critical to success. It means identifying the irreducible number of core providers in a given category—equipment, supplies, etc.—and building stronger relationships with a commitment to sharing information," he says.

"The commercial printing industry in general, and web offset in particular, remains a sunrise and not a sunset industry," Frick adds. "The success drivers for printers in the future will be customization, specialization and differentiation."

Sandy Alexander's Stillo see navigating the new market realities as the biggest challenge for industry members going forward. The current business conditions include a poor economy, rapidly changing technology, unskilled workers and overcapacity, he says.

"In response, we need to assess every segment of our businesses and make sure we operate with minimum or no waste and implement the changes necessary to run a tight ship," Stillo advocates.

"The web printers that survive will have more opportunities in the future," he continues. "This recession has forced us to learn how to manage our business better. I also hope it has taught a lesson to the equipment manufacturers that act negligently by giving equipment away—with creative financing—to companies that are 'very high risk,' thereby disrupting the competitive equilibrium in local markets."

Keeping Focused

To keep Sandy Alexander competitive, Stillo says management will continue to focus on ways to reduce labor costs and will invest in equipment or technologies that help achieve its goals. "We also are investing in employee training," he adds.

According to Field, a central part of Continental Web's investment strategy will be implementation of digital technologies that enhance the link between its IT department and the prep, press and customer service areas. As a result, he anticipates having job information available 24 hours a day, seven days a week via the Internet.

Workflow advances will also enable prepress to receive files faster and process them quickly with very little human intervention.

"The entire process will be driven from a central location with everyone seeing and communicating the same information in real time," Field predicts.

Lehigh's Frick believes an aggressive investment approach has always been required to stay competitive.

"To support a compelling value proposition, you must stay current with technology," he explains. "That doesn't mean being on the bleeding edge, but you do need to stay on the leading edge of technology. In our case, that means investing in advanced imaging systems for producing highly personalized products, adding sophisticated on-press controls and staying current with our IT systems. It also involves the timely exiting of legacy systems."

Looking beyond the walls of his own company to the web offset printing industry in general, Stillo expects printed materials to become customized to consumers' needs. Advertisers will reach out directly to the individual consumer, he says. "Within five years, our industry needs to be prepared for this type of targeted delivery."

Field sees the industry becoming more efficient at producing shorter runs, due to advances like the Sunday press' quick plate and blanket changing along with faster running speeds.

"Years ago, web operations needed long runs to compete," he explains. "In the future, we will see even better and faster time-saving advances that will drive costs from the process and help make our industry flexible and viable in the future. People love color and beauty. Printing, as a medium, will continue to deliver that combination."

Trying to make predictions about the state of affairs 50 years out probably is shear folly, but it's hard to resist speculating about the shape of the industry when the WOA's 100th anniversary rolls around. How will things have changed?

Aside from the fact that "none of us are likely to still be around," Stillo notes humorously, he predicts that in another 50 years the biggest change probably will be that "we won't be printing with equipment, paper and ink as we are today. The printed image will survive, but how it is produced will go through a process of evolution, and at a faster pace than the changes of the last 50 years."

In the intervening years, Field expects the reproduction of print to be enhanced through the adoption of stochastic printing coupled with a move beyond process color to six-plus color systems, such as Pantone Hexachrome.

"Also, the process will be used to produce small runs targeted to individuals. It will have a look that exceeds 'high-definition TV' and it will be delivered by our 'Friendly Federal Express Carrier' seven days a week as many times a day as needed," he says.

Frick believes long-range planning is like a chess game. "It's critical to be able to see two or three moves ahead, and if you can see four or five moves ahead, you have an advantage over most competitors," he explains. While that still only means looking three to five years out, he gamely takes a stab at the 50-year horizon.

"Consolidation is going to continue over the next five- to 10-year period," Frick predicts. "Much of the undifferentiated middle market will be gone in 10 to 20 years. Ultimately, there will be a smaller group of giant, publicly held companies at the top and an ongoing group of smaller, boutique, niche players.

"It's worth keeping in mind that the printing press was invented 500 years ago, and the industry is still going strong," he adds. "Our industry has a proud legacy and a bright future."

If one expands the pool to others who have a stake in the future of web offset, there still seems to be a consensus of opinion that print will survive, even as it faces new challenges.

"The world of printed information is under attack by a potpourri of more timely, functional and cost-effective alternative electronic media—most of which have or will have the capability of targeting individuals with personalized messages," asserts William Lamparter, president of PrintCom Consulting Group in Charlotte, NC. "These emerging, powerful information media will not kill print, but they will diminish its superiority and, in many cases, alter where, when and how print is produced. This competitive thrust is one of the drivers that will move mainstream print into the variable imaging arena.

"The 50-year-out profit leaders are likely to be those printers that have morphed into broader businesses handling content so as to 'reproduce it' in any media that a customer desires," Lamparter continues. "By 2050, there will be a few printers that are expert high volume, fixed image commodity producers, and those with different shades of skill and IT capability that produce mass customized or one-off, targeted and personalized variable printed materials."

Print is already supposed to be dead, reminds Richard McKrell, corporate vice president of R&D at Heidelberg Web Systems in Dover, NH.

"There have been significant developments over the last 20 years that many thought would reduce the need for ink-on-paper, but demand continues to increase. This does not appear to be a zero-sum game. The more ways we have to communicate, the more we spend on all methods of communication. The overall pie gets bigger, so the printing piece will continue to be significant," McKrell says.

While the early predictions may have been over blown, the medium will increasingly have to compete with other means of communication, cautions Dick Holliday, industry consultant and founding partner of 3P Inc. in Westerly, RI.

"Internet technology is going to continue to challenge print in application after application," he says. "There will be print market segments that go by the boards as they compete more with Internet technology.

"But I'm not at all pessimistic about the overall volume of print," Holliday continues. "Print is going to survive."

Perhaps just as fancifully, the web printing execs agreed to take a crack at the question: "If you could bring the industry together to address one issue, what would you most like to see accomplished?"

"Postal reform, postal reform, postal reform," Field says emphatically "The U.S. Postal Service is not doing the job efficiently. It needs competition, and we need relief from its ongoing ability to raise prices whenever it feels.

" The answer lies either in privatization or a greater threshold for justifying the cost-to-expense ratio for each and every class of mail, he suggests.

In a word, education, Stillo says. "We need to educate our work force to be the best skilled on the globe."

Stay tuned for the Web Offset Association 100th anniversary supplement for a scorecard on how the industry does on these issues and more.