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By Kevin Keane, IAPHC CEO The Return of the Prodigal, or Offline no More! Way back on 6 July 1999, the last issue of TMN went out upon the ether. Apparently you've missed us, gentle reader, we have been fairly deluged with inquiries from around the world. Here's the deal: We lost a longtime staff member, needed to re-engineer our staffing in a metropolitan area that has the lowest unemployment in the top 51 metro areas in the United States; then we had our annual financial audit, then we had preparation and execution of the very enjoyable 80th Annual IAPHC Convention in St. Louis, Missouri; then we took a week off (well almost) Hired new staff, cranked out 25th Annual International Gallery of Superb Printing award winners, and so on. Anyway, we are back in the saddle again. Happy to write for you, and even more pleased that you missed hearing from us. We would be remiss if we didn't thank several folks who were instrumental in presenting to this writer at the closing banquet of the St. Louis Convention, a gorgeous book commemorating the first 100 issues of TMN. Sincere thanks to Dale Beane, Jeanann Georgianna and Lesley Addy for taking the time to prepare this very touching gift. New TMN There are lots of readers of this TMN who have never received it prior to this issue. What is it, they may ask? TMN is an online newsletter ".... dedicated to individuals in the printing and graphic arts industry for the purpose of their self development, their companies' success, and the enhancement of the printing and graphic arts industry in society. It does this through education, information and research....." That quote is from the Mission Statement of the IAPHC. TMN is a signature piece in our delivering on the promise and the mandate of the IAPHC's Mission. TMN, to quote one of our avid readers, "cascades and synthesizes a great deal of information." TMN is now read on every continent, with the likely exclusion of Antarctica! Because of the global reach of TMN, we will be tweaking the format a bit in coming issues, focusing on Industry News and Y'KNOW requests while moving most IAPHC and Club news to the pages of the IAPHC Communicator. If you aren't yet an IAPHC member, we would certainly encourage you to support us in our continued delivery of TMN. If you would like information on how to join, simply contact the writer at the above e-mail address. Clearly, we said Myopically - From the 16 August issue of The New Yorker magazine in an article by Ken Auletta about Microsoft founder Bill Gates: "Among the development projects that Gates is now most excited about is a product called ClearType, which seeks to improve the resolution on P.C. screens. Bill Hill, who was born in Scotland fifty years ago and joined Microsoft in 1995, comes to work each day wearing Bermuda shorts and with his hair in a ponytail. His mission has been to increase the resolution on an L.C.D. computer screen from eighty-eight pixel dots to three hundred per inch. Words on the screen will therefore look the way words do on paper, spurring advances in electronic books and maybe in on-line reading. 'Trying to portray type with a pixel is like trying to paint the 'Mona Lisa' with a paint roller, ' Hill told me. 'We've changed the size of the paint roller.' Microsoft plans to make ClearType available later this year." Later this year turns out to be last week at Seybold. On Monday 30 August, Microsoft announced Microsoft Reader a new software application designed to deliver an onscreen reading experience that for the first time approaches the convenience and quality of paper. At Seybold San Francisco '99, Dick Brass who is VP of Technology Development at Microsoft offered only slightly tongue-in-cheek prognostications for the rather close by future: 2000 - Microsoft's Reader software for PC's and laptops ships. Customers buy more than one million eBook titles the first year it is available. 2002 - PC's and eBook devices offer screens that are as sharp as paper, with 200 dpi physical resolution, and an effective resolution of about 500 dpi with ClearType. Constrained by Consolidation? There was big news of course during our hiatus involving the huge acquisition of World Color by Quebecor Printing, which, once the stock tender was finalized in late August, meant the world's largest printer was no longer R.R. Donnelley & Sons. Perhaps the most remarked trend of the past several years has been the rapid development and then the voracious appetites of the firms seeking to consolidate the historically fragmented, ma and pa printing industry. Cunningham Graphics International, Inc., kept up its frequent buyer activity in mid-July when it bought MVP Graphics, Inc., of Santa Fe Springs, California, the seventh acquisition for Cunningham in 1999; and then last week Cunningham announced its eighth deal, this time a printer in Cunningham's own backyard of New Jersey, when it closed on the purchase of D & L Graphics in Hawthorne, New Jersey. And the other well known firms such as Mail-Well, Consolidated Graphics, and Master Graphics, albeit pacing or even slowing the rate of their buying sprees, still have time left in the millennial dawn to widen the chasm between the big dogs and the rest of the small shops. On 1 September Consolidated announced it was buying Piccari Press in Philadelphia. A few weeks previously, Mail-Well said it had finished up its purchase of Enterprise Press in New York City and Direct Graphics in Sidney, Ohio. These consolidation moments are by no means confined to the high profile public companies. For example, in early July we heard about the acquisition of Tenet Print Center in Modesto, California (part of the Tenet Healthcare Corporation in Santa Barbara, CA) by Advance Business Graphics based in Mira Loma, CA. And the Springfield Group located at Hull in Britain, was recently acquired by The Fort Dearborn Company, one of the largest label printers in the United States with plants in Chicago, Nevada, Texas and Mexico. The IAPHC reserved a special smile for Fort Dearborn when the firm won the Kodak Polychrome Graphics Best Use of Emerging Technologies Award for its Virtual Color Brochure in the recently completed 25th Anniversary International Gallery of Superb Printing. Meanwhile, the quick print chain Kall Kwik with 184 locations in Britain and 4 more in Italy, all operated under license from Kwik Kopy based in Houston, Texas, has been purchased by Adare Printing Group, an Irish firm which itself has been active on the consolidation front. And other firms in other printing segments are being acquired also. Here in Minnesota, folks noticed earlier this summer when financial printer Merrill Corporation was sold for almost $500 million; or when the quietly successful firm known as Bankers Systems, a supplier of printed forms and other consumables to the banking industry was purchased. This trend is real and possibly ought to fill one's dreams with foreboding. When will the Elephants Stomp? We have speculated on this point before. As the big get bigger, and the hoped for economies of scale begin to materialize, when will the newly consolidated godzillas decide to use their muscle to force out the little shops whether based on price, or based on other deliverables which are so important to clients in a global economy? The numbers tell the story. On 10 August 1999 the Printing Industries of America released its Ratio Study information for 1998. The following percentages are profit rates before taxes: 3.36 percent is the Industry average 3.19 percent for commercial and advertising printers 3.00 percent for digital printers Consolidated Graphics has identified an operating income margin ratio target of Ten (10) percent. On 10 August Master Graphics said it had achieved an operating income ratio for the previous quarter of 6.2 percent. While operating income is not exactly the same as profit before taxes, it's close enough to make one wince at the differential between the industry average and the consolidators target numbers. Could the Consolidators use their leverage to drive out smaller competitors? Why not? Listen to Andrew D. Paparozzi, chief economist for the National Association for Printing Leadership (NAPL) commenting on 15 July upon the Merrill Corporation sale: "There is extensive over capacity in the industry. The industry is cyclical, it is very dependent on the economy. The weakness we've seen in paper prices, outright declines reflecting an abundant supply, reflect a weakness in the international market." Which is not to say the consolidators are finding it easy to use their leverage in an over capacity situation. But times do change and so do customers. Now listen to John Miller CEO of Master Graphics commenting on 10 August: "Our industry has been surprised by the rapid pace that corporate America is now pursuing a reduction in the number of its print providers. We believe that we are one of a very few companies that can be seriously considered for such contracts. We are striving to ultimately, and successfully, manage the key challenges of quality, capacity and capability as a result of our strategies. We have never been more convinced that our vision is sound and our strategy is correct. We are now seeing the results of these efforts as we signed three sole source contracts during the past quarter that will generate an additional $9 to 12 million in annual revenues over the next three years." Battle of the Bands (width) Baby One of the challenges faced by the mega-consolidators is transferring files across multiple computer platforms and to multiple plants. On 25 June Master Graphics pre-announced an expected shortfall in earnings, and attributed some of the shortfall to the costs associated with the development of its Internet strategy. Several of the big players who seek to assist the graphic arts industry in managing the complexities of file transfer have been making news lately. WAM!NET recently introduced its WAM!NET Internet Gateway Service. WAM!NET points out that FTP is not free! It takes lots of people resources, not to mention patience, to manage digital files on disks, unusable e-mail attachments etc. WAM!NET's Gateway envisions a hassle free future where a printer could standardize her digital file delivery by migrating her current customers to the WAM!NET Gateway. Then on 30 August, Applied Graphics Technologies and Vio Worldwide, which claims to operate the only global managed digital network dedicated to the graphic arts industry (WAM!NET serves other industries including medicine and entertainment,) said they had joined together to create a digital media asset management service called M-Cast. The news release said that M-Cast would have pilot installations with a United States based print-on-demand service franchise with 300 locations. Now it happens that this writer knows the printing franchisors pretty well, so who could it be??? American Speedy (Allegra); AlphaGraphics; Insty-Prints? The news sounded quite exciting: "Using the M-Cast service, a client in St. Louis or San Francisco, for example, could work with an ad agency in New York and a design firm in London to create and print an annual report in Japan." Well Alphagraphics has quite an International presence we know. Must be them. Wrong. At the very end of the news release we found out the name of our mystery print-on-demand chain with 300 franchised locations, it's called Signs Now. Still more proof that competition in the next decade will come from non-traditional printers. News You can Use Mayhaps? Paper Prices Strengthen. On 1 September, analyst Mark Wilde of BT Alex Brown was quoted by Reuters with these assessments of the global paper marketplace. ".... the paper business is steadily getting better. At the end of the day, it all boils down to supply and demand, and it's better on both sides. We clearly see demand in Europe picking up, and while spotty in Asia, there are signs of improvement in Japan and South Korea, so global demand is getting better. On the supply side most companies are not building any paper machines, so these are some of the lowest growth rates in new supply in the last 50 years." Also, last week the Irish conglomerate Jefferson Smurfit boldly predicted that the packaging industry is on the brink of a sustained recovery. Supplyside. 1) Day International (whose management recently orchestrated a buy-out of the firm started in Dayton, Ohio in 1938) is buying Varn Products. Consolidation is occurring on the supply side of the business as well. 2) Kodak Polychrome Graphics, one of our wonderful repeat sponsors of the International Gallery of Superb Printing which set all time records in 1999, reports from Europe that KPG's thermal CTP plates are selling very well in no small part due to the joint venture between Heidelberg and Creo, The Electra plate requires no prebake while the 830 is said to be really cooking for long runs. 3) Anyone been noticing that Imation is coming back to life in the graphic arts industry? Not only has Xerox contracted with Imation to try to develop commercial applications for the Xerox PARC invention of Electronic Paper; an unremarked development occurred on 7 July that bears watching. Imation said it had entered into an alliance with Hewlett-Packard to develop and market printing and proofing products for the graphic arts industry. Why is it significant? Because, when the managing director of sales and marketing operations for Xerox in Britain was interviewed recently by British Printer magazine, he identified the top two threats to Xerox market share in the United Kingdom printing industry as being Heidelberg and Hewlett-Packard. Sure enough, one of the announcements coming out of Seybold last week was that Imation's Matchprint digital proofing technology had been teamed with the new HP DesignJet ColorPro GA inkjet printer. John Wadie of Imation notes: "Digital proofing is in a state of transition, the introduction of lower cost inkjet printers with advanced color control and color management features is changing how designers, separators and printers view the proof. The trend is toward more proofing by content creators, with creative professionals gaining more hands-on control over specified colors and images." A corollary to Mr. Wadie's point is that printers are potentially losing control of some aspects of the proofing process, which would mean that all printers should review again their adherence to the Trade Customs of the Graphic Arts. Market Segment Report. 1) Business Forms: KBA recently published a forecast of growth rates for a variety of printed products. The biggest loser is forecast to be printing of business forms and manuals. This view was confirmed by Ed Tyler, president and CEO of Moore Corporation who reported on 22 July that the forms business worldwide decreased by 2 percent in the second quarter of 199 compared to the year earlier. 2) Direct Mail: Our good friends at Trendwatch (info@trendwatch.com) reported in their Fast Fact for 8/23/99 that the Internet is beginning to eat Direct Mail's lunch. Only two out of five of all creative professionals see direct mail projects as an opportunity for their shops. By way counterpoint the US Postal Service in its Memo to Mailers newsletter for September 1999 reports that direct mail spending will grow by nearly 4 percent this year, according to Robert Coen, director of forecasting for McCann-Erickson Worldwide. Figures show that in the first quarter of 1999, direct mail rose by 3.5 percent. Advertisers are projected to spend $41.2 billion on direct mail in 1999. Prepress Report: Last week's flurry of Seybold announcements related to the graphic arts industry was extraordinary. Apple's blindingly fast new G4 computer, or the long awaited launch of the so called "Quark Killer" software app. from Adobe Systems called InDesign were exciting to be sure; but we suspect it was a more mundane release that will have quick application in your plant or shop. Xerox and Adobe inked a pact to protect electronic documents sent via Adobe's portable document formats (PDF). Xerox has a new software called ContentGuard which secures PDF documents from unauthorized duplication and the attendant copyright infringement of sensitive documents. This type of protection will be valuable for the mega consolidators and the franchised quick print chains who ship jobs from point A to point B via the Internet, but it will also be of benefit to the small shop which has seen the steadily rising influx of PDF files from new and existing clients Pressroom Report: Heidelberg reported sales up by 11% in its first quarter, which is a bit of a surprise given that Drupa is not that far away and one might have assumed folks would delay purchases until the big shew. Speaking of trade shows, Heidelberg will install the world's first Speedmaster 74 DI at Japanese printer, Royal Kikuku, after the IGAS trade show later this month. Man Roland's "Competence in Printing" publication measures the world market for the sale of presses as 350,000 printers, of which 55,000 are located in North America. Man Roland says that 60% of current press sales are sheetfed, and 40% are web offset. Only 3% are digital presses. Careful readers will recall that the PIA ratios suggest that digital printers had a tougher time in 1998. PIA Chief Economist Ronnie Davis said: "The profit squeeze on digital printers compared to others is reflective of the increasing competition of this sector." Indigo is still seeking to build its market penetration, announcing at the PrintImage 99 tradeshow in Chicago in mid-July, a slimmed down e-Print Pro+ digital color press priced at $149,000. AB Dick signed an OEM agreement with Indigo enabling AB Dick to sell its own branded digital color press based on Indigo technology. Finishing Room: If you are in the packaging business you might want to take a peek at http://interpack.net which is developing a search engine targeted to the packaging industry. Also, as a reminder, any member can receive a free subscription to Binding, Finishing and Distribution magazine simply by contacting the publisher, John Favat, Jr. at john@ggnetwork.com
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