Too Much Steak...Not Enough Sizzle

May 5, 2009

It is interesting to note the lack of interest in the print channel ($100BB in 2008) and its related industries by the Wall Street analysts. We understand that ad pages are off over 20%, newsstand sales off similar amounts, and newspaper circulation is continuing its decline, why are most in the investment community shorting print? Is it their belief this is not cyclical, like 2001 & 2002? Do they believe that print may be on a permanent slippery slope to irrelevance. Analyst may be treating print like the Swine Flu while many in this segment believe print content has long legs, just not as long as before. There will be fewer players in 2010 and yet if they prove prudent risk takers, they should be good investments for any one.

For the past 5 years, I have had the pleasure of either educating novices about this segment or advising long time investors with regards to the changing print landscape for their debt or equity holdings. With more than 80 client companies as a solid barometer, the level of interest has moved from a Buy, to a Hold and seems to be now to moving towards “Who cares"? VistaPrint is the only example of a company that invests in print, marketing and technology that captures the imagination of those analysts that look for steak & sizzle in any investment. Yet this channel is still viable, even at $75-85BB in three years, if those leading simply change their thinking. While the steak of co-mailing and palletization is great, sizzle, imagination, and earnings along with technology innovators are keys to getting these folks interested again.

• When reading a recent summary of comments by four of the largest magazine printers at www:BoSacks.com, it is easy to see how little printing will impress any investor. RRD and Quad Graphics, the two largest magazine printers, did not even respond or maybe they were not asked to comment. If you read through the thoughts of these four leaders, comments were in part like those found the 80’s & 90’s, when print was booming. Nice manufacturing stuff, nothing like one finds in the VistaPrint prospectus! Fortunately in a separate press release, RRD recently introduced Apollo’s fully variable offset retro fit printing along with its 1200 dpi press. This is ample indication that it will keep its platform on the leading edge while offering customers better individualized content (at much lower prices) across a broader spectrum of print offerings. Quad often has new technology they create internally that is outside the normal press to bindery flow to benefit a publisher’s reader. VistaPrint is ahead of the curve with a print model that works wonders for the small business.
• In my work recently with one leading publisher, they understand press time and on-sale dates need to merge. Weekly pools that match press loads 24x7 will yield the necessary pressroom utilization to pass along lower prices to any single magazine or multiple title publishers. A $14MM 64 page Goss Sunday Press cannot exist on 5000 hours of absorption. It must yield close to 7000 billable hours (24x7x52= 8700 hours less MR/downtime) and acceptable maintenance to deliver the quality and price necessary to keep any print channel from magazine to FSI profitable. So publishers, quit fretting over when the magazine hits the newsstands, get a different schedule and both parties may prosper. The sell through rates at $5/copy will not work in the future. Newsstand helps the brand recognition while subscribers must bear the cost of content, not the random shopper at Walgreens.
• None interviewed in the article addressed the fact that consolidation must continue. As the consulting firm BCG drummed into me in the 90’s, becoming the lowest cost provider will yield good returns for the company, publisher, and investor. The post recession print market will not sustain 20,000 commercial printers or even the 8 major magazine printers. Tomorrow’s publishers do not need redundant corporate overhead costs rather than lean manufacturing companies with low SGA. A printer’s corporate structure should be limited to good acquisition teams along with solid R&D budgets or great alliances with niche companies researching e-ink, e-paper, and any other channel provider that competes for content.
• Speaking of consolidation and alliances, who was asleep at the switch when the leadership of FedEx decided to partner with VistaPrint? If you follow that stock and company as I do, when its market cap fell to reasonable levels, nobody thought about adding this great brand to its tired portfolio of divisions. Hence, FedEx gets a leg up on this great story since there was no leader in big print had the vision or the cash to acquire VistaPrint? By the way, its stock fell less than any print stock since the Fall of 2007 (around $32 down to $19) and now trades around $38, well ahead of its 2007 price. RRD went from around $34 down to $9; it now trades for around $13. Print is not dead, it just needs new visions for its next decade.

In summary, $75BB to $100BB of revenue still provides companies with the means to make investors happy. While print is certainly not a growth market, pages will return, catalogs will ship, books will be read, and other content e-tools will emerge. The print market will shrink some and yet the most reliable portal for tracking response (Our Mail Box) will remain viable and the older generation will still buy and enjoy case bound books. VistaPrint gets it, others just need to follow with their own better mousetrap in this changing market! More sizzle….Priceless!