The Printers' Evolution
As is true of so many sectors of the economy in this volatile time, much is changing in the world of book printing, but not necessarily in sync. Different publishers are adopting different multichannel strategies in response to the demands of their particular markets, and at various speeds—leaving their book manufacturers with the task of both adapting to an environment where flexibility is essential, and needing to play a consultative role in helping their publishing clients, even as they themselves try to navigate the new landscape.
While unsettling, opportunities abound. Print manufacturing is coalescing around a new reality of customized digital and offset solutions. E-publishing, emerging as an essential component of most publishers' multichannel strategies, also offers opportunities for manufacturers able to understand the role of different publishing platforms in markets they have long served.
Book Business asked several printers for their take on where the market stands and where it is heading as we move into the second decade of the 21st century.
Bruce Jensen, Group Vice President of Sales, Magazine, Book & Catalog Group, Transcontinental Printing
Transcontinental's strategy hinges on strengthening core assets and investing in new services, especially in mobile and multichannel marketing. The strategy yielded growth of 16.3 percent in adjusted operating income in fiscal 2010, which the company characterized as its best operating performance ever.
BB: What does being a multichannel printing services company mean? How has the definition changed from what it was even a couple of years ago?
Jensen: Being a multichannel service provider to book publishers means helping your clients extend the value of their content and maximize their revenue streams through print and digital channels, as well as social media. It means being strategic, channel-neutral and delivering a full range of services to support integrated multichannel programs in your market niche.
The big change over the past few years among the major providers is the depth and breadth of services offered. If you want to partner with publishers beyond print—and you'd better–—then you increasingly have to understand market trends and be able to think and act strategically. The need to communicate the same message across all mediums is essential, and the methods of doing this are now that much more sophisticated. So the right partnerships continue to be key.
BB: What new services are you offering book publishers that are most indicative of this change?
Jensen: We recently developed a business partnership with an e-book company and are now offering a very unique solution that creates a new e-book business model. It is platform-neutral and gives publishers—especially small- to medium-size publishing houses—some distinct advantages in the growing digital market. We also have a mobile marketing division that we expect to provide further synergies within our integrated book offering.
BB: What changes in the book publishing market are driving these changes?
Jensen: Consumers are driving the changes. They have preferences in how they want to access book content, and they want it on their terms. And while some consumers want to use only one channel, most want multiple methods of access. So, not having the ability and flexibility to deliver on a custom strategy can make you less competitive. Publishers are also realizing the potential to grow markets and revenues by maximizing the availability of their content.
BB: What is your outlook for print publishing in the coming year?
Jensen: We're cautiously optimistic about print publishing based on a gradually improving economy. While the significant growth will be in digital formats, we expect print to continue to hold its own. On-demand printing will continue its steady growth pattern because of its ability to be combined with offset solutions to replenish out-of-stock current titles as well as to keep backlist titles in print. In short, digital printing will continue to flourish because of the market flexibility and cost-savings it provides.
Transcontinental is continuing to invest in all of its print platforms as well as in fulfillment. As the market demands greater speed and efficiency, we continue to invest in the entire print supply chain from order entry through printing, fulfillment and distribution.
BB: How do you understand your role as a legacy printer in the new environment?
Jensen: We view Transcontinental as a proven partner that has consistently demonstrated an ability to adapt and grow with our customers. The introduction of digital is just one more step for an industry that has evolved for centuries. Granted, the pace of change is much faster, but ... our combination of technology, market knowledge and vision can't be easily duplicated by anyone new to the business with a narrower focus.
BB: What segment of the book market has been most affected by a movement to digital devices?
Jensen: Adult trade books have definitely been the most affected, and, within that category, general fiction is the most preferred genre. As far as the age demographic of digital device users, people in the 30- to 44-year-old bracket are the primary buyers.
BB: How have changes to distribution/the book retail market affected your business?
Jensen: With a large fulfillment and distribution capability, we've been much attuned to market changes. As a result, we have continuously adapted to the need for more flexibility and cost containment while, at the same time, being able to replenish stock rapidly. It's brought about more automated systems and more sophisticated digital printing capabilities that can respond to current market dynamics.
John Edwards, President and CEO, Edwards Brothers Inc.
Edwards Brothers' long experience in short- and ultra-short-run printing is serving it well in the new manufacturing environment. The family owned printer, which serves primarily the trade, educational and professional book markets, has recently pursued innovation in distribution and inventory management.
BB: What does it mean to be a multiplatform printing services company? How has the definition changed from what it was even a couple of years ago?
Edwards: The fact that the world is going to shorter run, quicker replenishment [models is] not a monumental shift for us. However, the advent of digital printing, which is now becoming a significant part of our business, is really changing the dynamics of what we do, how we do it and who we do it for.
I grew up in an environment where you produce books, you put them in a box, they go on a pallet [that] goes to a customer's warehouse, and they do all the breakdown, shipments and distribution. That's a pretty expensive supply chain, especially in an environment where a lot of what's done is speculative—the publishers make a print order and are hoping to sell it. What the advent of ultra-short-run manufacturing has given us and our clients is the ability to make a decision later and later, to only make it when they have an order, and to react quickly to unanticipated demand.
This has changed the whole dialog that we have. I grew up talking about presses and binderies and how fast they can go and how cool they are, but I don't really talk about that much any more. I now mostly talk about supply chain costs, inventory costs, how long a book is expected to be in inventory and why is it that long. With the economic meltdown, our customers had to look at total costs. We've evolved ... by compressing the supply chain, building it [around] when orders happen or keeping very low inventory levels and accurately chasing demand.
BB: What new services are you offering that are most indicative of this change?
Edwards: One of the things we're trying to do is develop more automated ordering, so our customers can enter an order remotely and get the same kind of service and information and feedback that they have now. That's part of a program that we call One Touch Reprint.
... [One Touch Reprint] works if that's what the customer wants, but what we find is they sometimes want to make corrections, or have a special label on the box, or have this one book order go to 10 different places—so this system we're building is, I would say, a work in progress. I have a sense of where it's going, but it's kind of taking on a life of its own. The ultimate objective is to mutually strip out transaction costs and provide the ability to react quickly, because what's happening is our publishers are producing more and more reprints of the same order with the same [number of staff], or maybe less, so we have to make it easier for the publisher to order.
BB: What changes in the book publishing market are driving these changes?
Edwards: The culture up until a couple of years ago was that it's OK to overbuild and throw away a few books, because that way, you touch every possible channel. I think that's changing. The community is embracing shorter print runs and more replenishment—but it's not [happening] everywhere.
... For 70 percent of our customers' lists, these solutions work. The thing for us is we have to get that from 70 to 80 to 85 [percent], so that's where we are seeking stronger ties with the customer and more involvement in the supply chain. Our job is to show our publishing clients what works for other people, so they at least know about it. They may not choose to use that opportunity, but at least we are doing our job by showing them what works.
BB: What about rising paper costs?
Edwards: I worry [that] there is a point when paper prices go up enough that the publisher says, 'I'm not going to print it.' It's like the mail example—for every 10-percent [postal] increase, there's something like a 2-percent reduction [in business]. We need to figure out a model, because what you see is a lot of substitution as paper prices go up, [meaning] we've had to deal with lower grades of paper to run and produce a high-quality product, which makes it tougher for us. But there's not much we can do, because, as a community, [book printers] are not a big paper buyer overall.
BB: In which book segments do you expect to see short-run printing models expanding in the near future?
Edwards: While we're not a player in this space, on the children's book side, with the advent of ink-jet technology, that will definitely be the case [that there will be an increase]. A lot of those books are [currently] being produced in China or the Far East, and they're so cheap that it's OK to overbuild it. But I think the ink-jet world is going to change that game a lot—essentially it's going to bring some of that money back to the States, which is a good thing.
BB: What else are you doing that's driven by changes in the book distribution market?
Edwards: One of the things we're doing is trying to focus on [a] print-local [strategy]. We have a partnership with printers in the U.K., Australia and Singapore called GPS—Global Print Solution. If we receive a file for a U.S. publisher that needs to be shipped to the U.K., we can transit that file to them, and they'll print it and ship it locally, and we'll handle the transaction on this side.
For example, if you have a box of books going from the U.S. to Australia, the freight bill is seven times the print bill, and it takes a long time to get there, a couple of days at least. ... Now we can produce locally, and get it faster and at a lower 'landed cost'—the cost to get it to your customer. With gas prices high, the freight piece is always going to be important, but if we can produce it closer [to the destination], it's a good hedge against increasing gas prices.
We're doing it today in the U.K., and the Asia-Australia piece will be automated in a couple of months.
BB: What other factors are driving changes in how books are made and distributed?
Edwards: I think what is happening in the publishing community is that publishers are figuring out [that] the CFO becomes a vital part of the [book production] discussion in terms of total transaction cost, because if you look at manufacturing in a vacuum or paper in a vacuum or distribution in a vacuum, you may not come up with the right conclusion in terms of how much it really costs.
... One thing that I talk about a lot is that the unit rate [per book] is not the unit rate of the books produced; it's the cost of the books' bill divided by the [number actually] sold. For example, if you have a 10,000-copy transaction for $2 a copy, and you sold 5,000 of the books, your unit rate is $4, not $2. What we try to help our customers recognize is if you printed 5,000 twice, yes, your unit rate would have been higher, but if you didn't have to print that second 5,000, you would have spent less—you would have had more cash.
So the message to publishers is basically [to] start with 5,000 and chase the demand. If you sell 10,000 units, well, that is great. However, if you sell less, and that happens more often than not, you minimize exposure and ultimately save cash.
That's a difficult thing to understand because you're basically saying pay more [per book] and spend less. But if you're only looking at manufacturing costs, you can make the right decision on print quantity/price for manufacturing, but the wrong decision for the company as a whole. The decision needs to reflect how the book sells and all associated costs to print, store and distribute. Looking at landed cost is key, and a CFO (who is responsible for all costs) is very important in looking at the publishers' total cost of doing business—which can mean print less, pay more per unit and spend less overall.
These are the hard questions we have to be asking ourselves. We do it ourselves, too, in terms of how we buy materials for our finished product. ... I think that applies to anyone in business right now.
Kevin Spall, President, Thomson-Shore Inc.
Thomson-Shore has made a number of strategic moves in recent years to move into digital and multiplatform printing, with an eye to the specific needs of a range of market segments.
BB: What does being a multiplatform printing services company mean?
Spall: Multiplatform to us means having a suite of products and services available for our customers to meet market demand and grow their businesses. We take a market-based view of development and build out our platform to support the needs of specific markets, and, of course, some products and services are leveraged for all markets. As an example, we might develop more digital print capabilities specifically for the university press market, as this set of customers is focused on cash flow and reduced run lengths, whereas in trade, we will develop a [short-run digital] ... to long-run offset solution, as generally in trade, the run counts are longer and require a low-cost unit price for run lengths into the thousands or tens of thousands.
… Being multiplatform also means we need to support the current and future needs of our customers in an increasingly nonprint world. That means leveraging our team to produce e-books from the same files we use to produce our physical books. It also means offering distribution capabilities, as necessary, to meet immediate demand on hot titles.
BB: How has the definition changed from what it was even a couple of years ago?
Spall: I think, today, being multiplatform means that we can support both physical and digital content needs for our customers. A couple of years ago, I think the definition was more about the footprint of print capabilities, and today it is about asking the question, "Do we have all of the products and services our customer needs to be successful in book publishing?" If the answer is "no," then we do the research … to determine what we need to develop, and we do it. I think, going forward, it will be about what we can do to produce content for our publishers and not about how many presses we do or don't have. At the end of the day, it is about helping our customer react quickly to market conditions, [and] having a bunch of heavy hardware may not be the best way to make that happen. It often is more about the variety of products and services you offer in order to get the job done.
BB: What new services are you offering book publishers that are most indicative of this change?
Spall: We have added a lot of new products and services just in the last couple of years as we develop our platform strategy. Some are easy extensions of our core print offering, such as four-color books across many genres such as children's books, cookbooks, travel guides and coffee-table books. We also introduced light-weight product support for the production of bibles and product manuals … [and] what I believe to be the highest quality digital print in the market.
… When it makes sense to partner rather than build our own, we do just that. As an example, we have a print partnership in China. If a publisher has a uniquely long-run title, we can manage a small initial printing domestically while the long-run portion is being produced in a low-cost environment. …
Again, I would also point to our digital print capabilities, which we brought to the market early last year. Digital printing is clearly more and more important to our customers, but what we can do is support digital print needs at early stages of a title, and then also very quickly turn to the offset side of our platform for cost-effective long-count runs when a title is released to the market and takes off. …
On the services side of the business, we have launched a variety of offerings to help both small and large publishers, from book-creation services for self-publishers … [to] working with publishers as they make final decisions as to how to produce their books. We talk to them about material selection, format-trim options, environmental-paper options and much more.
BB: What changes in the book publishing market are driving these changes?
Spall: … Publishers are looking for faster, better, cheaper ways to make their content available to the readers of the world. Some changes are obvious, like the incredible ramp up of e-books. Other changes, like the pinch on cash flow that some publishers are experiencing, make us reinvent our offerings and introduce new capabilities, like ultra-short-run digital print.
... A subtle change in the industry is the gradual decline in the quality of many books being produced, driven in some respect by digital print and short-run bind capabilities. In many cases, halftones lack depth and contrast, binding is weak, and glue squirts are commonplace; paper is too often where pennies are pinched and, in the end, this type of product creates a less enjoyable experience for the reader. To address this concern, we continue to invest in development of the highest quality books such as new, deep black inks, 300 linescreen offset printing, environmental papers and improved binding spine strength, both on our offset and digital book lines. We do this while maintaining a market competitive price. …
BB: How are market forces impacting your printing strategies and the suite of services you offer?
Spall: … Currently, we are spending a lot of time and R&D cost (both capital and expense) to improve our workflow and content-related services. This year, we will release a Web-based workflow that will create a tremendous amount of benefit to our customers and reduce our overall cost to produce.
… [Our] recent acquisition of The Bessenberg Bindery ... allows us to make gorgeous, one-off, casebound books for author editions, short-run sewn books with unsurpassed quality. We made this purchase with one motivation: to protect the art of high-quality book-making for publishers while giving them the opportunity to elevate their printed books above [those] of their competition.
BB: What segment(s) of the book market are currently most impacted by short- and ultra-short-run printing models?
Spall: All of our segments are using digital print in short- and ultra-short-run manners with slight variations. Within the trade segment, we commonly see publishers using ultra-short-run (one to 50 books) for [advanced reader copies (ARCs)] and for managing the end-of-life reprints. In the university press segment, we are seeing a lot of initial print runs using a short-run model (50 to 250), and our religious segment is using digital to produce reprints in varying run counts. Other segments such as graphic novels, [science, technical, medical (STM)] and journals use digital for short, ultra-short and, in some cases, over 500 count in order to expedite book delivery. …
BB: What's your near-term outlook for offset printing?
Spall: Clearly, at a macro, the number of printed units will contract, but I do not correlate that to a troubled outlook. The market is massive, and for a nimble manufacturer the future is bright. We see digital print as just another tool to get the job done and totally complementary to our offset platform. When it is best to use offset, we will use offset, and when it makes more sense to go digital, we will use digital. Our customers care about the quality and value of their printing, not how it is printed. Most pundits say that the tipping point for digital versus offset book printing is around the year 2020, and that may be close [to correct]. Clearly, ink-jet holds promise for higher quality at a lower cost, and we are watching that closely, but the offset press manufacturers are still outproducing digital presses when it comes to run counts above 500 units, and the quality is still better in the offset world. I think this will remain the case for a number of years to come, but the scale is beginning to balance out between the two technologies.
BB: How have changes to distribution/the book retail market affected your business?
Spall: I think this is a tremendous development for our industry. What we see is that there is growing demand for direct-to-consumer distribution. Print-on-demand or print-to-order distribution will continue to grow as a percentage of sales, and this means that those who can cost-effectively produce and ship a single copy of a book will be well-positioned to meet the demand. There is a tremendous amount of technology involved to make this happen quickly and without error. The cost to enter is not to be taken lightly, but once a workflow is established it is a wonderful process for publishers to use. As Amazon, Google and B&N.com grow as a percentage of distribution for books, this will only increase the amount of effort put into creating a streamlined flow from order to distribution of a single book. As manufacturers, I think this will ultimately be a preferred method of producing, and it will create tremendous value for publishers in the form of speed to market and reducing cost to inventory—both very important in a lean and competitive economy.
Skip Prichard, President and CEO, Ingram Content Group
Ingram has expanded beyond its traditional book distribution role in recent years, becoming a provider of short-run digital printing. Its well-established distribution infrastructure has facilitated a distinctive approach to integrating digital print services.
BB: What does it mean to be a multiplatform printing services company today?
Prichard: … As publishers make decisions about how to invest in digital publishing and distribution, they are now having to make choices about digital content development versus physical distribution improvements. With print-on-demand, publishers are realizing cost savings and efficiencies through the elimination of warehousing, shipping, printing massive quantities of books and pulping. Ingram's Lightning Source offers not just a print solution, but a total inventory management solution to handle the print side of a publisher's business. Similar benefits can be realized for digital distribution for publishers' content through our CoreSource digital products suite.
BB: What new services are you offering book publishers?
Prichard: By offering complementary services that cover traditional book distribution, digital distribution and a full range of printing services, Ingram is delivering unique solutions for the publishing industry. By strategically combining traditional print publishing with digital workflows, print-on-demand and digital content delivery, publishers can focus on the creation of high-quality content versus infrastructure investment. As a distribution services company, we are … making it easy for publishers to focus on content while we take care of digital and print distribution.
Publishing innovators Springer and Macmillan have already created real-time, on-demand, inventory programs with Ingram. Our goal is to make every book always available, always relevant and never out of stock.
BB: How are market forces impacting your printing strategies and the suite of services you offer?
Prichard: Consumer-driven market forces are driving publishers to reduce capital invested in inventory and infrastructure and focus on content development. They need to squeeze every drop of revenue out of their print titles while expanding the formats that are available for those titles. In addition, the emergence and maturing of digital book distribution (e-books) is reducing traditional print runs. An integrated print-on-demand program that allows for digital and physical distribution will allow publishers to more aggressively transform their business models to suit the current and future book business environment.
BB: What segment(s) of the book market are currently most impacted by short- and ultra-short-run printing models?
Prichard: In the publishing space, print-on-demand is being used as a strategic tool by publishers in all segments—no one is immune from the changes that are happening in the marketplace. The strongest and most adventurous segments in terms of print-on-demand utilization are both academic and professional, technical and reference publishers, although we see all segments, like larger trade publishers, catching up quickly.
BB: In which book segments do you expect to see such models expanding in the near future?
Prichard: Some trade publishers have lagged behind in the full adoption of print-on-demand and total inventory management, but overall trade adoption continues to climb at a steady pace, and we expect that to continue. E-book content in some segments is driving print runs down, and a print-on-demand solution is very well-suited to the changing nature of the physical side of publishing.
BB: How have changes to distribution/the book retail market affected your business?
Prichard: We saw the changes in distribution coming, and our investments in print-on-demand, digital distribution and enhancing our physical distribution capabilities were in response to anticipating these market shifts. Over this period, we have made huge investments in developing a services company that fits the future of publishing distribution, whether print-on-demand or digital and physical distribution. BB