Ask about this year's business so far, and most of the answers come in many shades of gray, all the way from "tough" and "so-so" to "could have been better," edging up to "pretty good." "People went into the year with conservative expectations, and they were met," says Bruce Smith, the new executive v-p at BMI, the Book Manufacturing Institute. "No one's having an easy time," says Charles W. Nason, president and CEO of Worzalla. "The educational people are doing fine. The juvvie people are beating each other up. The trade people are praying for another Harry Potter," says John Edwards of Edwards Brothers, adding, "Sometimes it seems like we're all fighting for every order. There are a lot of hungry printers out there."
Different market segments have had different trends. In the trade area, a lot of the business has been driven by a small number of big books, while backlist was down. "There have been a number of bright spots—five or 10 books that have been huge—but generally we're seeing a lot of run lengths continue to go down as publishers look to control returns," says Kevin J. Clarke, president of book and directory publishing services, Quebecor World.Louis LaSorsa, chairman, CEO and presidentof Phoenix Color, sees this as part of a larger problem with the consumer economy: "It is our belief that not until the outcome of the presidential election is determined that retail sales will really take off. The possibility of a changed administration while the war in Iraq slogs on, the pressure caused by increased oil prices are having a dampening effect on customer confidence. November election results, absent the debacle in Florida, will tell a lot about all our futures."
The four-color children's business and, to some extent, the low-end and high-end Bible business continue to be affected by the ongoing exodus to Asia. On the positive side, the lopsided dollar to pound/euro ratio gave a few U.S. printers like Quebecor World and Maple-Vail some unexpected business from the U.K. and Europe this year. Many printers have seen a welcome, unexpected increase in new small publishers.
Elhi and college business was better than expected for printers like Banta, Courier and Lehigh, perhaps in reaction to tighter inventories last year or in anticipation of next year. With major elhi textbook adoptions coming up in California, Texas and Florida, James Lacy, president of Inland Press, predicts that 2005 "is going to be a barn burner. I think we'll see the capacity for elhi will be stretched." In this sector, the big trend continues to be versioning—that is state-specific (and in some cases, city-specific or district-specific textbooks), an outgrowth of the No Child Left Behind legislation. It's a challenge for printers and publishers alike, since more state-specific textbooks means smaller print runs. It's an inventory challenge, too; any overage of Louisiana math textbooks won't go over in Tennessee.
Printers are thinking ahead, adding technology to meet the anticipated demand and taking a hard look at their processes. Ed Lane, president, book solutions, for R. R. Donnelley, stresses, "A flexible manufacturing plan is key. Areas of inventory management will be key. All this versioning adds many layers of complexity, working on systems to deal with it. It could take more time to do 17 different versions, that's why you need to grow capacity." Says Peter Tobin, executive v-p at Courier Corp., "We are working with publishers to help them lower transaction costs and get to market more quickly." Donnelley, Banta, Courier, Lehigh, Malloy and Quebecor have all added capacity to meet anticipated demand.
Much of the year's sales have come at the cost of reduced margins. While pricing pressures have been significant in the past few years, this year's pressures were tighter as little sales growth in publishing plus overcapacity in the manufacturing sector made for a very tough equation. "The marketplace is as competitive as I have ever seen it," said Bill Long, v-p sales and marketing at Maple-Vail Book Manufacturing. Bill Upton, president and CEO of Malloy, offers a very concrete example, starting from the industry's last peak of October 2000. "From November 2000 to April 2002, our revenues dropped 18% and press hours, about the same. From May 2002 to August 2004, press hours have rebounded 13%, but revenues are up only 3%." John Edwards of Edwards Brothers has kept a key statistic—price per million pages—for 15 years; looking back at the last few years, he concludes, "Our customers are getting a good deal."
Still, the publishers' good fortune with pricing may not last forever, particularly if the elhi dream comes true, since a strong adoption market in '05 will continue into '06 and '07. "There's been lots of capacity in the industry, but it's tightening up," Bob Kreider, president of the Banta Book Group, observes.
Paper, a buyer's market for many years, has just shifted over to the seller side this year, in part prompted by the pickup in the catalogue business. "It is now a tight market in offset paper and, to an extent, in coated paper," says Dominic (Doc) Maiorino, v-p, sales, for Domtar publication papers.
Overseas Manufacturing: Problem or Opportunity
The flight of business to the Far East continues to be a big topic among American manufacturers. The four-color children's business has been severely impacted for several years now, but this year, PW heard more about the exodus of a noticeable portion of the Bible business — not just low-end Bibles but fancy, decorative Bibles that require a lot of handwork. Some manufacturers like Phoenix Color have set up their own offshore partnerships to offer customers the option of printing through Phoenix in China or domestically. R.R. Donnelley says its Shenzhen and Shanghai plants continue to get more business. "Our customers are bullish on offshore manufacturing," says Donnelley's Ed Lane. Quebecor World is usingsome of its book plants in Latin America to help with four-color children's business and deflect competition from the Pacific Rim, according to Kevin Clarke. Even the component printer, Coral Graphic Services, has wanderlust: Dave Liess, president and CEO, says the company is actively interested in acquiring a facility in China.
But with time to market the first priority on many jobs, Asia is not always the answer for four-color work. Inland's James Lacy says it is now doing quick reprints on books that have first printings in Asia. John R. DePaul, president of Lehigh Lithographers, says, "Some globally owned publishers feel pressure to look offshore, but when it comes to printing 2,000 copies of a state textbook in a week, there's no contest." Then there are some philosophical questions that printers like Worzalla's Charles Nason raise about why American printers can't compete on price, such as lax enviornmental and labor laws and low wages in China. "And then there's the widespread problem of piracy," Nason adds.
Until capacity evens out, shifts in the printing and manufacturing segment will continue. In the last 12 months, Donnelley expanded its presence with the acquisition of Moore Wallace; Lehigh Press became a subsidiary of Von Hoffmann Corp., which in turn became part of a specialty printing and marketing services enterprise co-owned by Kohlberg Kravis Roberts & Co. and DLJ Merchant Banking Partners this past summer; and Boise Cascade exited the publishing business altogether last spring.
Will it even out? Wait until next year.
ARVATO
"Both Offset and Berryville had good years, but not banner years," says Randy Xenakis, executive v-p sales and marketing for Offset Paperback Manufacturing and Berryville Graphics. Offset prints mass market paperbacks, and Berryville does hardcovers, softcovers and children's titles; both are part of Bertelsmann's Arvato group. Revenues are about the same as last year, according to Xenakis, about $85 million each.
Within each business, major publishing trends have left their mark. "We have seen a slowdown in the four-color children's business due to overseas pricing, but that business is still okay for us," says Xenakis. In mass market paperbacks, the turnaround time for paperback reprints just keeps on getting shorter. "Everyone wants a two-day turnaround on a reprint that once used to take 10 days, then five, then three," notes Joe Makarewicz, executive v-p at Offset. In May, Offset opened a new digital print center; Makarewicz is bullish on digital printing and customization as a way to bring back business from overseas.
BANTA BOOK GROUP
The Banta Book Group generates about $400 million in sales, with segments split almost evenly between educational, trade and catalogue; a smaller segment, about 10%—12% comes from the tech business. In 2004, says Bob Kreider, president of the book group, education has " improved somewhat," with much more purchasing activity. Banta is expecting "good years" in 2005, 2006, 2007. "We're all reading the same statistics."
Asked about publishing trends, Kreider notes shorter run lengths, much tighter cycle times and, in the education and catalogue business, more versions of everything. As the business picks up, Banta is ready: in the past year or so it built two new facilities, expanded its warehouse in Harrisonburg, Va., and added capacity in distribution and fulfillment. It is also installing a zero make-ready press in its Harrisonburg plant, which will come online in the fourth quarter.
BRADY PALMER
According to president John Morris, business is up slightly this year compared to last. Since its entry into the book business about seven years ago, Brady Palmer Printingnow derives most of its business from printing covers, jackets and inserts for book publishers. Like many other manufacturers, Morris says he notices the continued trends of tightened cycle times, shorter turnaround time and increased pressure on price, reductions and rebates. Morris also observes that customers are asking for extra touches on covers like in-house spot liquid coating over film lamination, which provides a good contrast between gloss and matte finish where the design requires it.
CORAL GRAPHIC SERVICES
Even though it's a down market, Coral Graphic Services is up about 15% and Dynamic Graphic Finishing up 20% for the year, according to Dave Liess, president and CEO for both companies. Among its recent bestselling covers: The South Beach Diet, The Da Vinci Code, The Purpose-Driven Life and My Life.
The most pressing trend Liess sees is ever-tightening cycle time, "which forces us to constantly re-engineer to receive product today and ship tomorrow. Publishers don't want obsolescence, so they try to get the numbers as tight as possible." New equipment helps keep the pace. Coral has added a 40-inch six-color press and a Bobst foil stamper in its Erlanger, Ky., plant; a Steineman UV coater and Sakurai spot coater in its Winchester, Va., plant and a new six-color press in its Hicksville, N.Y., plant. Dynamic has added a new film laminator and a Bobst foil stamper.
Looking ahead, Coral is hoping for more educational business in its Kentucky plant. It is also actively looking at two acquisitions: a commercial print facility and a facility in China.
COURIER CORP.
At Courier, executive v-p Peter Tobin says that business picked up in late February and March, and the fall looks to be busy, too. Both the elhi and college sectors have done well this year, which Tobin suspects may be due in part to anticipation of a strong '05; publishers who worry about capacity for next year are looking to give Courier some business now. The religious sector has had a fine year also, particularly in the religious trade sector.
In trade and in general, "We're finding publishers very cautious about reprints, though it's been a very strong year with first printings. In the last three months, reprint activity has definitely picked up," says Tobin. This year Courier, which owns Dover Publications, acquired the specialty publisher REA. Tobin finds the acquisitions valuable: "We are learning firsthand the importance of deadlines of time to market, of managing your inventory."
The MAN Roland, Lithoman II press installed this past April, in its Kendallville, Ind., plant for four-color text has been " fantastic, a godsend," says Tobin. "It's added a lot of four-color book capacity. We've invested over $50 million in equipment for book printing over the last four years. We'll be ready for the solid growth we anticipate in '05."
DOMTAR
For the first time in a number of years, it's no longer a buyer's market in the paper business, and Domtar, like its competitors, is enjoying the change. According to Doc Maiorino, v-p, sales, for Domtar publication papers, "We have all seen some improvement in the market. We have seen a welcome change in the two price increases [one June 1, the other September 1], and the increases have been seen in the industry as well."
Maiorino attributes the increase to "changes on the demand side certainly. One, the currency has somewhat curbed imports from Europe. Two, consumer confidence is up, especially in the catalogue side of the business, which has rebounded nicely. The magazine business is still lagging a bit, but ad pages are picking up. Book has had a reasonable year, but we are down a little. It is now a tight market in offset paper, and to an extent in coated paper."
Domtar is the third largest producer of uncoated free-sheet paper in North America and a leading manufacturer of business papers, commercial printing and publication papers, and technical and specialty papers. New products this year include environmentally friendly papers such as EarthChoice, a coated lightweight sheet for magazine and catalogues, and Domtar Schooner, a coated lightweight paper, available in matte and gloss finishes, for magazine, catalogue and book publishers. "We've been aggressive about offering environmental papers," says Maiorino. "The response has started in the catalogue business, but is now starting to migrate to book."
R.R. DONNELLEY
After a slow start at the beginning of the year, "the one-color consumer business started to strengthen and accelerate," says Ed Lane, president, book solutions group, for R. R. Donnelley. "We were blessed by having My Life and The 9/11 Commission Report, published by Norton, as well as the many printings for The Purpose-Driven Life." In education, 2004 turned out better than expected, both in elhi and college. But the Bible business continues to be a challenge, as much of it has moved offshore. Still, not all of it has left Donnelley. Lane says the company has seen double-digit growth in its two China plants.The company is expecting big things from the education sector in '05 and has added a large press in its Willard, Ohio, plant and some sheet-fed presses in China to meet expected demand.
Customer solutions continue to be a focus for Donnelley. Inventory Management Service (IMS), a program to provide shorter run solutions for slow-selling paperback titles, has expanded into the ARC and bound galley business. Another program, Print Ahead, has grown nicely, from 2.5 million units in 2003 to a predicted six million to seven million units in 2004. The program enables publishers to print as much as a year's worth of a backlist title during offpeak periods at lower costs, while Donnelley stores the books. The company hopes to replicate this program for education in '05. It has also beefed up its Web portal, Book Track, which becomes all the more important with worldwide production.
EDWARDS BROTHERS
President and CEO John Edwards characterizes the year's business as "average," with elhi the most upbeat, driven by the prospect of a big adoption year in '05. College business is still affected by used books; trade is doing okay, but very focused on the big sellers, he says. The Digital Book Center is the company's fastest growing area, according to Edwards, and it gets a lot of attention both for its present models and future promise.
Currently, the Digital Book Center is running three models for ultra-short-run publishing: print to order; print to a minimum; and print to order and ship directly to the consumer. Last month, under a new three-year contract, Edwards Brothers took over all book printing operations for the scholarly and trade publisher National Academies Press. It has installed and is overseeing a small digital book center in NAP's Landover, Md., warehouse to handle ultra-short runs; short-run offset printing will be handled by Edwards's facilities in Michigan and North Carolina. By year's end Edwards Brothers will be installing a print shop for Rowman and Littlefield in the U.K.
"The portability of titles has changed everything," notes Edwards. "We want to help the publisher print the right title at the right time." The company's web presses print runs of 2,000 copies and up; the offset presses print 300 to 2,000 copies, and digital presses handle 300 copies and below. Regardless of print run size, Edwards Brothers is equipped to run the job. In fact, Edwards is so convinced of the importance of flexibility to the company's future that he has registered the phrase "life of title."
HCI PRINTING
This publisher, best known for its Chicken Soup franchise, has manufactured its own books for years in a 120,000-square-foot production facility in Deerfield Beach, Fla., where the company is headquartered. In recent years, it generated $1.2 million by printing and binding books for others; this year, it has boosted outside printing revenues to $3 million. "We have more than doubled our sales from last year, and we're ready to double again," says Mike Briggs, production manager for HCI Printing. "We have a lot of capacity." The company has just spent $2.5 million in new pre-press and press equipment to meet the demands of extra business, which is coming mainly from small to medium-size publishers in the Southeast as well as commercial work. Typically, says Briggs, "People come for softcovers in a hurry."
INLAND PRESS
Inland Press prides itself on fast turnaround for four-color trade books and high-end coffee-table books; annual revenues are around $18 million. This year, president James Lacy sees a slight improvement in business. "The pickup is coming partly from the multicolor trade business, from publishers who have realized the cost of waiting three or four months to get books back from Asia," says Lacy. "Time is becoming more of an issue to them, and publishers are now looking at the total cost, rather than the unit cost. " Lacy has been preaching this gospel for a few years now, but often to deaf ears.
Another part of the increase comes from the rebound in the travel industry. One of Inland's biggest customers is Guest Informant, a travel guide distributed to 500,000 hotel rooms in 32 different cities and resorts. Inland also sees signs of life in the elhi textbook market; it participates in that business indirectly, by printing some customized text product, and by doing custom binding for some major printers. "It's a good nickel," he says.
JAGUAR ADVANCED GRAPHICS
Ronald LaVerde, cofounder of the component printer Jaguar Advanced Graphics, says it's been a "tremendous year," with 15% growth in revenue, an additional 10 people on staff (now up to 145), and the presses running on weekends all summer. Among Jaguar's big books for the year: Big Russ and Me, The Wedding and Five People You Meet in Heaven.
"We still see a lot of room for growth. I think printers who don't invest in new equipment will be lost," says LaVerde. Jaguar has recently added another stamper/embosser and die-making capabilities, and will add another press by year's end. What's new in covers? LaVerde says that customers are responding to Jagmotion, a micro-embossing technique that gives the illusion of movement without sparkle; pseudo-embossing is also popular.
LEHIGH PRESS
From the perspective of John R. DePaul, president of Lehigh Lithographers and senior v-p, educational sales, for Von Hoffmann, it's been a good year. "Educational business, both in school and college, was stronger than anticipated or forecast by most of us in terms of print purchases," he says. With a number of significant new adoptions called for in '05 and '06, DePaul is expecting strong business ahead, and the company "is making significant capital plans to support what we think are pretty good growth opportunities."
The biggest trend in elhi educational publishing—state-specific curriculum—continues to grow, explains DePaul. Not only are publishers called on to produce versions for 16 or 17 different states, but there are also district versions, for Philadelphia or Detroit, for example. Responding to this demand is tricky for both publisher and printer. Publishers are adding a dramatic number of SKUs even as they try to reduce inventory. Accordingly, they want to wait until the last moment to pick a print run that will be most accurate, but this means the printer has less time to print, and some states even specify fines if delivery dates are not met. "This calls for continued emphasis on the ability to accelerate the graphic flow between printer and publishers," says DePaul. In the college market, increased coordination is also necessary, as publishers integrate textbooks into an overall educational plan that includes CDs, book, Internet and more.
LIGHTNING SOURCE
"Spectacular" is how Kirby Best, president and CEO of Lightning Source, sums up the past year. Lightning Source is still the largest of the print-on-demand printers; it has printed more than 14 million books since its launch, with an average print run of one to eight copies. The morning PW spoke to Best, Lightning Source had just shipped out 41,000 copies—a record. "But we're printing a lot of books every day," says Best, "up to 25,000 a day usually."
There is still the title that sells hundreds of copies, one or two at a time, without much fanfare. One example is The Rest of the Iceberg: An Insider's View on the World of Sport and Celebrity by Minnesota Viking football player Robert Smith. Lightning also does print-on-demand editions in hardcover after a bestseller has moved on to paperback formats—for example, Anita Shreve's The Pilot's Wife, now offered in a case laminate hardcover.
Lightning Source offers three different business models to its customers. In the distribution model, all orders are routed to Lightning, which prints and ships directly to the customer. Lightning then sends the publishers a check. In the drop-ship model, Lightning prints and ships according to the publisher's instructions. The third is a short-run model, in which Lightning prints and ships the books to the publisher's warehouse. The distribution business is still the most popular; Best sends out more than 1,000 checks a month, totaling $1.5 million. In terms of production, Best says the company has improved the quality of the hardcovers with stronger endsheets; the paperbacks have nicer covers, too. Lightning is still in test mode with full-color books.
While it has an office in the U.K., opened three years ago, Best says Lightning is considering opening up other sites abroad and throws out a few possibilities: Canada, Australia, Germany, China and Japan.
MALLOY
"We've had some busy periods with elhi, but it's not been sustained," says Bill Upton, president and CEO of Malloy Lithograph. "Trade and college are improving, but also at a slow rate." Malloy is a major niche printer in elhi, college, university press and trade books, with annual revenue of about $40 million.
"Run lengths have been declining, but not as dramatically as you'd expect," says Upton. "New titles have actually dropped more than reprints." For Malloy, the average run for new titles was 5,500 in early 2001; now it is 4,500. The average reprint in 2001 was 5,000; now it is 4,500. In 2001 Malloy installed a Timson T48A press and is now upgrading to a Timson ZMR, which will come on line in March and will have two-color capability.
Malloy continues to work on cutting time out of the printing cycle. As reported last year, Malloy and many of its customers are working toward a workflow where proofs are not needed; now about 25% or more of the new titles are going through without proofs. An early adopter of computer-to-plate technology, Malloy now runs 100% of its new titles CTP, while about 75% to 85% of reprints are done CTP.
The company is also still keenly interested in the 200—500-copy print run. Its goal is to be able to print those short runs profitably on existing equipment, a long-term project that requires reworking a lot of transactions. Upton says the company hopes to be beta testing a program in 2005. In the meantime, it is also working on a new POD program, which will be beta tested in December.
MAPLE-VAIL BOOK MANUFACTURING
A full-service book manufacturing company with revenues around $90 million, Maple-Vail is seeing "some growth this year, but still not as much as we'd like," says Bill Long, v-p sales and marketing. "Business was strong in August and September, but now seems to be lightening up," he adds, noting, "Business cycles are much less predictable than in the past." Maple-Vail's business is balanced between trade and book club, university press and scientific/technical medical books. It is also one of the few U.S. printers getting some U.K. business in the wake of the soft dollar, some new and some from European-based branches of regular customers.
Long continues to see shorter runs and more frequent printings. "Publishers are looking at the life cycle of titles, with a focus on inventories. Our sheetfeed and web presses provide a lot of flexibility," he says. This spring, Maple-Vail added new hard-binding equipment, which greatly reduces make-ready times, and a robotic palletizer, which it developed with a local systems integrator. "We also continue to invest in the front end of the business to support PDFs and CTP workflow," he says.
PHOENIX COLOR
Phoenix Color, one of the largest component printers, finds trade business the best, juvenile the most challenging. "Overall, Phoenix Color business units are showing significant increases in units of production," says Louis LaSorsa, chairman, CEO and president of Phoenix Color, noting that book orders are ahead of last year as well. The company's Phoenix Asia program, launched last year, has met with good success, up 100% over last year. The program, which teams Phoenix Color with an Asian printer, offers customers the option of manufacturing a book through Phoenix either overseas or domestically, on a printing-by-printing basis.
In the component sector, a new eight-color Heidelberg UV press is up and running in its Hagerstown, Md., plant; so is a new 40-inch Bobst for stamping and embossing. Just last month, Phoenix Color released a new upgraded job status site for customers and renamed the site Eservices.
QUEBECOR WORLD
At Quebecor World, some of the bright spots of the year have been from the printing of such bestsellers as The South Beach Diet Cookbook, Plan of Attack and Big Russ and Me, according to Kevin J. Clarke, president, book and directory publishing services. Religion has been a strong sector, according to John Faust, director of marketing and sales administration for the division, though the company acknowledges some competition from China.
Its new Dubuque, Iowa, facility, geared for educational textbooks, came online last March and will be at full capacity this fall, ready for '05. The company is recapitalizing a lot of the business and much of it will go to the book business, according to Sean Twomey, v-p, business and process investment for the book division. It will be investing $150 million on the book side over the next three years, Twomey said; "that should allow us to be very successful immediately."
WORZALLA
At Worzalla, a major printer of four-color children's books, business is the "same as last year or maybe even worse," says Charles W. Nason, president and CEO of the employee-owned company. "We see a continued erosion of the four-color business. We have replaced some of it with single-color business. I think we are experiencing the culmination of five years worth of mergers and the effect of consolidation. Also, we have lost a significant portion of work to the Far East."
With sales relatively flat and margins eroded from pricing pressures, Worzalla is taking a hard look at other opportunities. Last year, it bought the building across the street and turned it into a warehouse, so it could stop renting two warehouses. "Now we have a terrific fulfillment center," says Nason. Since Worzalla's current presses can take a thicker style board, like the kind used in point-of-purchase items, Nason is also studying how to get more into the packaging business. Other opportunities are also coming from new publishers, "not just from California, but all over," says Nason, "and that's encouraging." Worzalla continues to focus on electronic pre-press improvements "so we can interface with anyone."
