2009 will be worse than 2000-2002 for printers

While the 2008 numbers simply verify what most in print already understood, this slowdown will be steep and should match the 2000-2002 results. While ad pages will continue to drop, direct mail shipments fall for the first time in years, and newspapers will continue to lose share and print readers to the Web, this decline will more closely parallel the huge drop in revenue from the $135BB in the mid 90's to the $100BB by 2001.

As one may recall, the double-digit annual declines early in the decade were a product of the Perfect Storm digital revolution coupled the with normal GDP cycle. As publishers and other buyers reduced print to manage the slowdown, print was in the final stages of the digital workflow revolution (Adobe’s PDF, digital photography, remote proofing) that all but killed $10 Billion pre-press industry. In addition, print was completing the shift of computer to plate in the press-room and printers were forced to keep tired iron purchased in the 90’s. These older presses were no longer competitive in meeting print buyer’s continued pressure on price reductions.

This time around, we have three major shifts...the magazine/newspaper model is broken, newsstand sales unsettled and a major revolutionary shift from the sheet fed short run market to digital presses. Here, the quality and price performance of the digital press will continue to bottom feed on the short run markets so long dominated by the small printer with one or two Heidelberg presses in their plant. While eating into the very short run 4/C offset market, the growth of customer-of-one digital offerings has more than made up for the sheet fed printers. Those smart enough to add digital presses in combination with traditional offset have seen growth even in these troubled times. The cannibalization of offset is already visible as Heidelberg, KBA, manroland and others report significant softness in their back orders while HP, Xerox and others continue to ship digital presses.

For the national publicly traded printers RR Donnelley, Consolidated Graphics, Cenveo, Transcontinental, Quebecor World, VistaPrint, Innerworkings and three large private companies, Quad Graphics, Brown and the newly merged Vertis-American Color, each company’s plant loading, their customers and their stock continue to take a severe beating. In addition to the beating they are taking in ad page reductions, postal data is even more revealing. While ad pages are down 15% YTD compared to a solid 2007, shipment of magazines and direct mail pieces/catalog has slipped each quarter in 2008.

Third Class +2.6% (-5.8%) (-9.5%)
Periodicals +. 9 % (-7.0%) (-8.8%)

Simply put, for each page of ads lost, a comparable page or two of edit is cut. Two pages of ads, 2 pages of edit, a 1,000,000-circulation magazine, that reduces press time for that one press by 6 hours on the 16 page cover Goss press. Compound that with a reduced copies in the mail and to the newsstand by just 5%, the new circulation is now 950,000 for the balance of the year. 50,000 copies of a 96-page magazine are approximately another 2 hours of press-work on the new 48-page Sunday Goss press. In other words, this plant lost on shift of work and a crew of 4-5 on this one small change. The Goss cover press costs $8MM and the 48 page press over $12MM and must be utilized 24x7 during the back half of the year will now be underutilized and costs under-absorbed. 2008 will be a very difficult year over year comparison.

For excellent data on postal shipments, the quarterly and annual reports by the US Post Office are excellent. For magazine ad page, the Magazine Publisher’s of America provides quarterly data on categories and pages to gain a better understanding of this important segments impact on the printer. Trends in catalogs and direct mail may be found at the Direct Marketing Associated web site.