Print 2010

As the September print shipments failed to reach $8 Billion for the first time in over 20 years, it seemed appropriate to view the industry and ponder what will become of printers over the next decade. For an industry that had shipments of over $135 Billion in 1995, the slippery slope of relevance continues to point downward as social media and a host of other channels continue to eat away at prints profitable viability except for the very best managed companies in this segment. While I to embrace the wonders of the Internet, smart phones, WIFI, social media and the of course THE KINDLE, at times I do miss the peace and quiet of simpler times when places like a Facebook and 24 x 7 connectivity were really only found in science fiction novels.

As for the big seven in printing (RRD and the six dwarfs…Quad, World Color, Cenveo, Vertis, Consolidated Graphics & Brown), this post recession will not match the bounce back we saw in 1993-1999 or the most recent 2003-2007. Unlike the solid recovery in magazine ad pages, newspaper inserts, books, financial printing and direct mail that followed the 1991 and 2001 recessions, print will continue to lose share as part of any media mix to alternative channels. We all understood that the Kindle, loss of newsstand sales, magazine ad pages at record lows, newspapers continued free fall, postal increases, the carbon foot print and the “real time” nature of the electronic channel would continue to siphon media spend away from print. However, when one views the $40 Billion free fall since 1995 it really hits home. From the "high life" of $135 Billion in 1995, printing shipments may stay just above $90 Billion in 2010 and that is only if we have a good advertising year and some help in year over year growth in sales throughout the economy. We do need a good Christmas as well. Earnings from continued cost reductions by publishers and others does not contribute to print volume increases.

Is there any good news? Of course, there are the well managed companies who will make their EBITDA numbers (Cenveo, CGX, RRD, VistaPrint) and good suppliers who will continue to bring new technology and productivity go the print platform. Prices will continue to come down as technology makes print cheaper. The digital press and “customer of one’ campaigns will be the one bright spot throughout the industry. Kodak and its new Stream technology will compliment HP’s sheet and web fed Indigo presses while Xerox and others will continue to make some inroads into commercial print. Digital presses now can say it "Looks like Offset" and it does! Canon's recent purchase of Oce may just be the first of other roll-ups here as well.

While macro trends are ominous, the size and shape of the industry still enables those well-managed and well-capitalized printers to gain share of weak sisters and return solid returns to the various stakeholders. My bet remains on the superior performance of VistaPrint and its wonderful business model and I would expect RRDonnelley to continue to take share from any of the other players in the big six. Donnelley’s post Bill Davis management has been solid, free cash flow reflects past good use of capital, continued CapEx spend will keep them as a low cost producer, and long-term contracts load the press room best. Over time, leading publishers, advertisers and investors in the print channel will recognize that Quad, Brown and Vertis really have no viable earnings strategy except to somehow merge with RR Donnelley. World Color could potentially be a good fit for the other little “5” but unfortunately World has no extensive free cash flow for a deal. Can the new team at World convince the PE market that a bigger roll-up makes sense? I would bet that they can and if they do, major league equity and debt haircuts will rival those already taken at Vertis and others. Too much indirect cost and tired iron capacity does not bode well for any investor, company or industry. CGX proved the short run commercial market "roll-up" can be profitable and how they continue to invest and manage the 70 portfolio companies plus necessary additions will dictate its success or failure in 2010.

What maybe be more troubling for print? The fastest growth in social media at Facebook has been people in the 55-65-age bracket. These are the people who still really like books, newspapers, and magazines! Twitter that!