More evidence of the slumbering book market was reflected in first-quarter 2003 results from three of the nation's largest printers—all reported a sales decline in their book units in the period. Revenue at Banta Corp. fell 12%, sales at R.R. Donnelley dropped 1% and Quebecor World's North American division "underperformed" in the period. A silver lining of sorts is that there is adequate capacity to handle the mammoth print run of Harry Potter and the Order of the Phoenix without disrupting other books' schedules.
Quebecor said the operating margins at its North American book group fell because of publishers' decisions to reduce print runs and sizes. Jerry Allee, head of the book unit, said the trends that had a negative impact on first-quarter results began in last year's fourth quarter. "You could see it coming," Allee said. The move that's had the most significant effect on results is shorter printings. "The move toward shorter print runs has been incredible," Allee told PW. During the quarter, he estimated, Quebecor handled 10% more jobs than in the comparable period in 2002—yet shipped 5% fewer units. He explained that whereas in the past a midlist title might have a first printing of 5,000 copies, that run is now as low as 1,500.
The book group's results were also affected "by the erosion of high-end reference work and manuals," Allee said. Many reference books, such as dictionaries and encyclopedias, as well as manuals that feature four-color interiors, "have moved online," Allee said. To cope with the changing demands of customers, Allee said Quebecor is "looking to more digital solutions."
The 12% decline in book group revenue at Banta was due mainly to lower sales of textbooks. Chief financial officer Gerald Hensler said that in the quarter, educational publishing "did not perform to normal patterns," and added that it's possible that sales in the education sector could remain below 2002 for the entire year. Banta CEO Stephanie Streeter said that even though a number of publishers delayed orders in the first quarter because of concerns about state budgets, she doesn't expect sales in this year's second quarter, which is usually the education group's strongest, to match last year's.
Donnelley appears to have had the best quarter, with its 1% decline dropping net revenue to $153.1 million. Book group head Ed Lane said Donnelley's education business held up well, and that the company "managed our consumer business pretty well." On the consumer side, one-color business was "okay, while demand for four-color books was strong," Lane said. The weakest segment was the specialty unit, which Lane said suffered from soft sales of Bibles and religious trade books, as well as from weakness in computer books.
The slow period will, however, have some benefits: unlike the disruptions caused by the printing of Harry Potter and the Goblet of Fire in the summer of 2000, the new Potter will slide easily into printers' schedules. Donnelley is one of two printers handling most of the work on Phoenix. Lane said he "felt comfortable" about Donnelley's ability to handle the Phoenix run while still accommodating its other orders. Donnelley has recently added two new book presses and a third is on the way.
Quebecor is doing the bulk of the Phoenix printing and will be using five plants for the job. Despite the large run, which is expected to go on press May 25—26, Quebecor's Allee said, "There is no capacity problem." In addition to slow overall demand, Allee said, Scholastic has timed the run to hit before the heaviest demand for textbooks and fall trade titles.
