What Are the Top Strategic Issues Facing the Book Value Chain?
As we head into the middle of the year it is time to reflect on the state of our business and what might lie ahead. We have seen some significant changes in the past year as it relates to the Book MFG platform in the U.S.
I will not go through the litany of changes, but the end result is going to be a significantly consolidated platform of book printers with the bulk of the traditional offset capacity, production inkjet capacity, and book finishing solutions for mainstream book publishers being at Quad/LSC, or in one of the many plants that are now part of the CJK Group.
As the various mergers, tuck-ins, and acquisitions are integrated into their new companies, we will see ongoing consolidation of capacity and rationalization of the overall number of available press hours for one and four-color book work. For the first time in decades, book publishers are going to have to think and work on their manufacturing plans for the year, especially as they relate to work on the offset platforms during peak demand seasons.
Supplies of book papers will continue to decline as mills close or redirect capacity to more profitable grades. Again, more planning is now going to be required by publishers and printers.
The health of book publishers is a mixed bag. The trade book folks continue to see stability and some growth of their printed products along with significant ongoing growth of downloaded audio books. K-12 publishers struggle for profitability as they are all focused on moving the revenue model from printed books to a stronger digital curriculum platform that can either supplement or even replace print. In either event, print — which in this segment is primarily four-color text books — continues to decline.
In higher education, the print decline continues in what many are experiencing as a double-digit rate. The issues for this segment are more dire than K-12. Here the publishers are dealing with a complete repudiation of their product model because of pricing issues by a significant number of their primary adopters, the professors and universities. This is a segment whose current business model may be stuck in a doom loop and, again, here we see four-color printing as one of the area's of manufacturing that will feel the decline, which is why you may see some significant capacity rationalization in the four-color area from all the merger and acquisition activity among printers in the past 12 months.
Once you look at the printer and publisher reality, we as an industry need to take a step back from the everyday and recognize the other issues that may have a significant impact on our printed books model.
Here I will offer five areas of strategic impact that both publishers and printers need to look at and plan to work with or change their operational models to accommodate.
- The retail distribution model is already changing in a dramatic fashion. Brick and mortar is in decline, especially in the big box store model. We see this in trade with Barnes and Noble as well as education with the college book store models. Amazon continues to grow its presence in both trade and higher education. Publishers and printers both need to be planning for the possibility that big box book brick and mortar might fail. How will publishers replace those sales and the bandwidth of all that shelf space? How will printers plan for the reduction in print demand when all the books sitting in stores and warehouses come back to the publishers through the return channel?
- Paper continues to be an issue and it is not going to go away. There is no new domestic capacity coming online for uncoated book free sheet or groundwood for the mono books. Coated graphic arts papers of all grades are in short supply for the same reasons. Mills are closing or switching capacity to more profitable and easier to manufacture packaging grades. Publishers can solve part of this problem by reducing waste and number of books they hold in the warehouse, BUT, this would require them to fully embrace and inventory a management model that utilizes what production inkjet can offer.
- As publishers work toward reducing turnaround times with tighter SLA's, the printers will need a distribution system that can move product quickly and effectively. The primary method for moving books is by truck. There is a critical shortage of over-the-road truck drivers in the U.S. and the shortage is growing as baby boomers leave the workforce and trucking companies struggle to attract good candidates into the jobs. How will publishers plan for this emerging problem? The platform is out there for a more fully distributed print solution but this will require some significant innovation on the part of both publishers and printers. Next day delivery of books in specific geographies produced within those geographies is an executable strategy today for markets in the East, Midwest, and parts of the Southeast. It can be done for both mono and color. The logistics of this solution are complex, but if we continue to lose capacity in the over-the-road truck fleets, will this become a reality and a significant issue during peak times of the year, such as what happened in the Q4 timeframe this past year?
- Offset print plants require skilled craftsman to run one and four color offset presses, as well as high speed soft cover and case binding lines. There is a significant amount of labor required in a medium size and large book plant, especially in the bindery. Many of the markets where these book plants exist today have a shortage of the skills and labor required for these plants to run at full capacity. This is an ongoing issue, which was experienced by many mainstream book printers this past year and will continue as the talent pool who used to fill these jobs find better paying and less demanding jobs. This issue has a compounding effect. It creates capacity shortages caused not by lack of equipment, but rather by the inability to utilize all the theoretically available time on that equipment for lack of operators. This then reduces the potential ROI on those expensive investments in web presses and new and more automated binding lines.
- Book manufacturing is in the wrong place. To be a little more direct, the majority of the population growth in the U.S. is in the Southeast, Texas, Nashville area, or in the Northwest. With the exception of Nashville, there are no significant book manufacturing plants in the geographies where populations and jobs are growing. If we know that there is already an issue with over-the-road trucking, printers having to deliver on tighter and tighter SLA's, and publishers needing to embrace inventory management models to deal with the supply chain realities of the book value chain, when are we going to see book plants in geographies where the customers are going? In every instance, Amazon is already there and we know they have been studying the book manufacturing model for a couple of years. Experience by now has taught us that if Amazon has to solve this on their own, the existing value chain is not going to like the outcome.
All 5 of these points are important strategic issues. I have not seen a single webinar or conference agenda focused on any of these issues since the first of the year. In the past few weeks, I have listened to webinars on State of the Book Business that did not address a single strategic issue facing the book business. Looking backwards through a foggy mirror is a tough way to move forward. I also heard a webinar where a 40+ year well-respected veteran was the featured speaker. Here I thought we would get some excellent forward-looking insights. But no, once again tough strategic issues were not brought forward from the moderator. In fact, the moderator spent more time talking and running endless commercials for the webinar sponsor than the featured speaker was allocated to answer the tame questions.
My point here is this. We have some really tough issues facing the book business and the structure of the future book value chain. This is a very conservative industry and the nature and past behavior of the industry as a whole would suggest that movement and change will not take place until crisis is upon us. We should all be learning from what is happening in the higher education business.
If you hang on too long to what you are comfortable with, regardless of the warning signs — in the case of the higher education publishers' revenue model, the lights have been blinking furiously since the 1970s — you are going to become more than irrelevant, you may become obsolete. It is time to aggressively reorganize the book value chain to take advantage of solutions that are in place and the technology that will work to abrogate many of the issues listed above. Waiting till the light stops blinking and just stays red is going to be too late.
John Conley has been working in the Book Business and Graphic Arts since 1976. He spent 28 years with RR Donnelley in their Book Group starting in the Estimating and Contracts department then moved on to Sales, Sales Management, Manufacturing, Strategic Planning/ Marketing and finishing as SVP of the Education Group. Along the way he also began working with Digital Print. In 2005 John moved to Xerox Corporation where he has focused on Marketing and New Business Solutions for the major Publishing Segments. John has recently retired from Xerox and has formed his own LLC, Borderland Advisers, to continue to work within the Publishing Space on new supply chain solutions enabled by the ongoing innovations in Digital Printing.