Thursday, November 30, 2006


Reader is Skeptical of Printers Getting into New Media, and with Good Reason

In the most recent PrintForecast Perspective, there was a discussion titled “More Print Than Not,” and its conclusion suggested that printers would do well to understand where the next wave of creative destruction would hit.

Ray Roth of High Volume Printing magazine sent this note:
“...I can't envision very many commercial printing companies making a profitable leap into video and e-book production. The answers to success and increased profitability for a majority of midsize and large printing companies is much closer than a video editing room. In fact, for the last several years, GRAPH EXPO and PRINT visitors have had an opportunity to see first-hand demonstrations of practices and processes that not only are closely related to what they currently do but also command significantly higher margins than a typical print job. Although PIA/GATF, NAPL and GASC blow their horns about large-format printing and mailing and fulfillment, too many printing companies turn a blind eye to these opportunities. Besides the nice impact these services can provide to a company's bottom line, most printing companies already have customers that [are] buying these services from another source. Until I learn otherwise, printing companies are better off fulfilling more of their customers' needs with additional services more closely aligned to what they presently do.”

Ray is absolutely correct from a printing business perspective. The print business must continually innovate in its core business. Printers are not in control of market prices, but they are in control of their costs, hence the need to emphasize productivity and new ways of approaching the marketplace that changes costs and creates new benefits for clients. In the longer run, however, the print business owner has to deal with the realities of marketplace demand. There is a time when the core business proposition no longer provides what clients desire, and those businesses die and are replaced by others that do.

This is what separates owners from entrepreneurs. Let's assume that the advice given to printing businesses to define themselves as being in the communications business is fully correct and in the spirit of Ted Levitt's classic Marketing Myopia. (It's not, but let's assume that it is). There, Levitt implores business leaders to define their businesses broadly. The famous example is that railroads were not in the railroad business, that they should have defined themselves as being in the transportation business. If one believes that redefining a business requires allocating resources to back that up, then one must insist that these businesses invest in the technologies and capabilities of the innovations that will put them out of business.

The skills and business knowledge of a print business owner are directly tied to what they know best. This is, like all specialized knowledge, a blessing and a curse. The blessing is that the knowledge and experience is what uniquely suits them to run a business well at a certain time and place. The curse is that those skills and competencies exist in a changing environment. Railroads would not have been competent at running airlines, even though a reading of Levitt suggests that railroads should have seen the airline opportunity. Investor Warren Buffet has cited that even airlines can't run airlines, with his famous quip that “any right-minded capitalist who had seen the Wrights' contraption take to the skies in Kitty Hawk might have shot it down and saved investors 100 years of agony.”

All executives have a core technical competency that makes them excel at what they do; and all of them find the need to change and hire people or buy companies with different competencies because of marketplace change. But there is never a guarantee of success in this endeavor. So the skepticism that printers can handle a leap to video is well-founded. In fact, straying into odd businesses can lead to the risk of starving the healthier core business of needed capital investment, and that should not be taken lightly.

So the thrust of the close of the piece was not to encourage abandoning print and making a rush to video embedded in e-books or whatever the future holds. Instead, it was intended to inspire a look at the technologies and dynamics of the communications business as it unfolds. There are many new media products that require a mastery of graphic implementation for which print experience is an excellent foundation. The print business that can offer a communicator the ability to deploy content in various channels will still often be, in its heart, a print business. Over time, those new abilities would open new markets and new customer bases that could be built on top of that foundation, ensuring its long-term survival.

“More Print Than Not”
Marketing Myopia

Tuesday, November 21, 2006


More Print Than Not

Here it is, with 2007 almost upon us, and we're still feeling the effects of the desktop publishing revolution. The Internet tends to get the headlines, but all those web pages would be pretty dull without the breakthroughs of the desktop publishing revolution. Those advances stand on the shoulders of too many computer technology developments to count, but they all seemed to coalesce from 1984 to 1986.

Desktop publishing is more than software, it's a series of connected events that make Moore's Law so interesting. It's the incredible decreases in prices and sharp increases in capabilities of equipment that have made it so. A $1000 scanner is almost considered “high-end” in today's digital photography world, and has features and capabilities when combined with modern software that are far more capable than a $200,000 scanner of 1980. The range of equipment has certainly expanded. A 5-megapixel camera can often be found for less than $200. A 1 megapixel camera in the 1980s was $25,000 and was virtually limited to industrial applications.

These changes are small compared to the destruction of barriers to the costs and time involved in content creation that they caused. Designers just used to design. They'd need a prepress practitioner to translate their work into print, and the costs involved seeded the market conditions that would make desktop publishing explode, and be taken for granted today. Of course, it needed an enabling platform, and that turned out to be the Mac, introduced in 1984 to great fanfare. I remember sitting in on an interview with a big New York ad agency in 1990 that saved $100,000 in typesetting costs their first year after adopting desktop publishing.

There were other transitional aspects that proved interesting. Designers who used desktop publishing found that their clients were getting confused. Desktop publishing output of job mock-ups created to test ideas or layouts looked like they were almost final. In the past, clients were given drawings and sketches, often colored using markers, so it was obvious that they were getting ideas-in-process. Now they were getting output that looked final, and would start nit-picking fine design issues or complaining about text kerning, when it was too early in the process to even consider those items as the final concept had not even been settled yet. Designers had to be careful. Other designers found that their ability to create near-final mock-ups quickly was actually landing them jobs. As clients were auditioning a parade of designers to work on a new campaign, the ones that showed up with near-final looking mock-ups rather than rough drawings and sketches appeared to be more skillful, thoughtful, and time-efficient. Because pitching a new client was risky, the amount of time and effort to allocate to prepare for a meeting had to be carefully weighed. Clients felt that because the designer took the time and the effort to make the mock-ups was a sign of their potential commitment to the project. The fact that the desktop published images looked “more final” was a competitive advantage against “traditional” designers. In fact, those desktop-produced mock-ups were produced in far less time. Some designers used the “extra” time to produced mock-ups of yet more alternative approaches for the prospect client.

Printers and typographers had similar experiences. A typesetter found a simple solution: output work in process on blue paper just to remind clients that what they just received was not final. Clients were used to getting bluelines as proofs in the past, and this was a subtle message that the desktop publishing output at that stage was similar. Just think, however, that a job had to go all the way to film to even have a blueline. Jobs took time, and time was money, and things took twice as long and cost twice as much as expected, too often.

By the time the project got to the blueline stage, the supposedly last round of changes and revisions were identified and approved. Then the final proofs would come in, with yet another reminder of how much further changes would cost in time and dollars, and those would be substantial. Author's alterations could become contentious as to who's fault it was, client or printer, but good printers prided themselves on how they always had signed-off proofs at each stage of the process. They could charge appropriate rates to go back and restart the work or augment what had already been done. Some older typographers would claim, privately, that author alterations were half of their billings, and the most profitable part of their business.

These topics are brought up now, because it is often assumed that non-print activities comprise more of the print shipments dollar than ever. This is now part of the industry's common wisdom. It is clearly not true to anyone who can remember all of the time and monies clients would have to spend just to enter the print process at all. All of the camera work, paste-ups, mechanicals, proofs, scans, more proofs were not billings for ink-on-paper, even though that was usually the job of printers. Because desktop publishing has extracted the equivalent tasks from the printing industry and put them in the hands of designers and non-printers, it is actually more likely that ink-on-paper actually comprises a greater part of the value of commercial print shipments than ever before. None of the “value-added” services that are frequently discussed in the business come close to the costs of design, production, and other prepress that were naturally embedded in all print billings of the time.

When one studies the productivity of the industry, there is a curious crossover period in the 1990 area. Prior to that time, our industry's productivity exceeded that of other manufacturing businesses. After that, it has been consistently lower. It is not a coincidence that significantly improved versions of Adobe PhotoShop and Illustrator hit the market at that time. The loss of high-margin prepress tasks is something that the industry still seeks to economically replace. Most of the “non-print” or “value-added” billings that are regularly referenced in today's industry literature and publications do not have the same economic impact, nor the reliable flow of daily revenue.

So here it is more than 20 years later, and we're still feeling the effects of Aldus PageMaker, even though the product has long ago been replaced by QuarkXpress and Adobe InDesign. Desktop publishing is now such a natural part of the printing business one wonders what we would do without it. There would be no digital printing without desktop publishing, and neither would there be computer to plate systems, except in the most extreme circumstances.

But what's next? It's clear from Adobe's recent acquisitions that video, especially mobile video is at the top of their to-do list. We may not think that holds any future for us, but e-books with embedded video have to be created, produced, and managed by some business entity. The management of images and design elements that work in media of all types have to be coordinated as well. These were all at the heart of that old prepress business, but we didn't know it at the time. That workflow that we had, and the trade practices that were built around it, was a barrier to the creation of print jobs. Desktop publishing smashed that barrier down, reducing production costs and creating a more flexible and richer creative environment, despite the obvious and notable problems with standards and consistency it had, and essentially solved, along the way.

Economists sometimes refer to what happened as “creative destruction.” That's a strange phrase, in light of our industry, as desktop publishing's creative destruction elevated the capabilities of creatives to the point where once sophisticated and costly prepress tasks are now almost thoughtless mouse clicks. It actually created more creatives. There are more creative businesses, workers, and freelancers than before. More is expected of designers, in terms of their skills and creativity, and their access to imaging technologies, than ever. It's our task today, as entrepreneurs and an industry, to find where the next opportunities of creative destruction will be, and lead their charge.

Desktop publishing revolution background
Moore's Law's_law
1984: Apple's Super Bowl commercial announcing the Mac
Aldus PageMaker
background on “creative destruction”

Thursday, November 09, 2006


What a Difference a Point Makes

Last week, we reported about September printing industry shipments, and noted that the September to November period is the busiest of the year, starting that they were 26% of the year's annual shipments. We received some notes that were along the lines of “So what? If three months is 25% of the year, what difference does that little percentage point really make?”

That's a very good question. Facetiously, the answer is about $900 million dollars for a year. We didn't explain why it's important, or how these months, and others, have changed over time. This September-November represented 26.56% of industry shipments from 1992 to 2000, but this dropped to 26.17% in the period of 2001 to 2005. In 2005, it was 26.02%. The historic seasonal variations between months and quarters is lessening considerably to create a flatter shipments pattern.

Over time, even the calendar quarters have changed. The fourth calendar quarter (October-December) used to be 26.7% of the year's shipments. In 2005, it was 25.4%. The first calendar quarter (January-March) used to be the weakest, at 24.1%; last year, it was 24.9%. The weakest three months of the year were traditionally May through July, at 23.89%; last year they represented 24.28% of shipments.

January was typically the least active month of the year, at about 7.7% of the year's shipments. Last year, January was 8.1%, and July became the slowest month, with 7.8% of the shipments. The strongest month has always been October, but even that has slackened. From 1992-2000, it represented 9.15% of shipments. Last year, it was 8.88%. March is growing in importance.

Each month of the calendar is about 1/12 of a year, or 8.25%. The best way to show the difference between the months is to calculate how each month differs from 8.25%. The average variation was + or -0.27 percentage points in 2005, or from 7.98% to 8.52%. That's very small. From 1992-2000, the average variation was + or -0.41 percentage points, or from 7.84% to 8.66%. That's not even half of a percentage point, but the change shows that the months are becoming more alike.

What is the reason for this change in seasonality of printing shipments? It's quite simple, or at least the hypothesis is simple. Print's product mix is changing, and it's primarily the change in printing purchased by retailers that has affected the seasonal pattern. Just this past week or so, there have been many reports about the decline in newspaper circulation. These declines are even in Sunday circulation, which had been steadier circulation than the other days of the week. Declining Sunday circulation means that there are declines in the number of newspaper inserts needed. The rise in direct mail, though a boon to some, is a sign of the rise of e-commerce, resulting in many catalogers have reducing frequency and page counts of their editions, in favor of direct mail promotions. The result is less printing of one type, more of another, and it nets out to an overall loss in volume.

The real change is not a surge of volume in any month, it's a reduced volume of end-of-year printing related to retailing that has given other months a greater piece of the shrinking pie of printing shipments. Retailers have also be spreading many of their dollars throughout the year because consumer spending is changing. Note how Halloween has become the second biggest “holiday” for spending on decorations and the like. Also, as the population has gotten older, Christmas gifts are more likely than ever to be “experiences” and not hard goods. Gifts of vacations, travel, and event attendance are consumed year-round. Generally rising affluence, and smaller families, also means that Christmas is less of a focus for spending. The rise in self-employment and changes in corporate pay policies mean that Christmas and holiday bonuses have become less important to many households as part of their total income and plays less of a role in the timing of their spending. The rise of the credit card business also means that Santa can work his special magic at any time of the year.

What's the new print year look like? March is gradually becoming our new October. That is, as end-of-year printing recedes, other months are becoming arithmetically more significant. But it's just numbers. What they indicate is that the print business continues to change and that old rules of thumb and common wisdom about strong or weak parts of the year are out the window. That's what caught many people by surprise in 2005, as they kept saying “but the year always finishes strong,” and then, unfortunately, it didn't. Now the pattern is gradually becoming “one month or quarter is just like another.” Anyone who complained about how difficult it was to cope with seasonal swings in their volume should now be happy. Those seasonal swings helped define our industry. It's like having the hiccups... once they're gone, we miss them.

Regarding the recent increase in print volume and its possible attribution to political spending, we have this to add. A client brought this question up as they looked at charted data as saw some rises in even-numbered years. There aren't that many years to analyze, since the data series that we use start in 1992. What we can say is that up until 1998, there were no significant monthly changes in shipments compared to odd-numbered years that could be solely attributed to political printing. From 2000 to 2005, however, there appears to be upward bumps in the share that election months have in the year; but it's not that easy. In even numbered years, the entire period from July through December is stronger than in odd-numbered years, including a robust December. This is where the statisticians say “that's interesting,” and then go onto the next topic.

Right now it's just a statistical curiosity. The political season explanation is plausible, because the decline in retail printing may make political spending more pronounced and easier to detect, and therefore it may be an important factor to consider in prognostication, when in the past it was not. It's like the analogy of a river: when the water level decreases, you can see rocks and formations that were previously hidden from view.

To be certain of the validity of this new pattern requires more data than we have. That statistical disclaimer is, of course, absolutely no help to executives who have to make decisions today. This is definitely one of those “sounds good, let's run with it until we learn otherwise” situations that experienced executives, and good consultants, know quite well. The honest ones are always on the lookout for “otherwise” and those things that go against common wisdom. Among other factors that play into a short-term rise in print are the shortage of experienced new media personnel, the shortage of good Internet properties on which to advertise, and the price increases that many new media properties have demanded for ad placement for their best viewing. The lack of local new media properties that could address political needs may have sent more money to print in some extremely contentious races; national races may benefit most from online advertising. The dollars end up going to the payback of least resistance, and temporarily, that may be print. It could very well be the case that both trends are creating the recent print increase.

Online media and political advertising

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