What Are the Top Strategic Issues Facing the Book Value Chain?

From Book Business:

As we head into the middle of the year it is time to reflect on the state of our business and what might lie ahead. We have seen some significant changes in the past year as it relates to the Book MFG platform in the U.S.

I will not go through the litany of changes, but the end result is going to be a significantly consolidated platform of book printers with the bulk of the traditional offset capacity, production inkjet capacity, and book finishing solutions for mainstream book publishers being at Quad/LSC, or in one of the many plants that are now part of the CJK Group.

As the various mergers, tuck-ins, and acquisitions are integrated into their new companies, we will see ongoing consolidation of capacity and rationalization of the overall number of available press hours for one and four-color book work. For the first time in decades, book publishers are going to have to think and work on their manufacturing plans for the year, especially as they relate to work on the offset platforms during peak demand seasons.

. . . .

Supplies of book papers will continue to decline as mills close or redirect capacity to more profitable grades. Again, more planning is now going to be required by publishers and printers.

The health of book publishers is a mixed bag. The trade book folks continue to see stability and some growth of their printed products along with significant ongoing growth of downloaded audio books. K-12 publishers struggle for profitability as they are all focused on moving the revenue model from printed books to a stronger digital curriculum platform that can either supplement or even replace print. In either event, print — which in this segment is primarily four-color text books — continues to decline.

In higher education, the print decline continues in what many are experiencing as a double-digit rate. The issues for this segment are more dire than K-12. Here the publishers are dealing with a complete repudiation of their product model because of pricing issues by a significant number of their primary adopters, the professors and universities. This is a segment whose current business model may be stuck in a doom loop and, again, here we see four-color printing as one of the area’s of manufacturing that will feel the decline, which is why you may see some significant capacity rationalization in the four-color area from all the merger and acquisition activity among printers in the past 12 months.

. . . .

The retail distribution model is already changing in a dramatic fashion. Brick and mortar is in decline, especially in the big box store model. We see this in trade with Barnes and Noble as well as education with the college book store models. Amazon continues to grow its presence in both trade and higher education. Publishers and printers both need to be planning for the possibility that big box book brick and mortar might fail. How will publishers replace those sales and the bandwidth of all that shelf space? How will printers plan for the reduction in print demand when all the books sitting in stores and warehouses come back to the publishers through the return channel?

Paper continues to be an issue and it is not going to go away. There is no new domestic capacity coming online for uncoated book free sheet or groundwood for the mono books. Coated graphic arts papers of all grades are in short supply for the same reasons. Mills are closing or switching capacity to more profitable and easier to manufacture packaging grades.

. . . .

As publishers work toward reducing turnaround times with tighter SLA’s, the printers will need a distribution system that can move product quickly and effectively. The primary method for moving books is by truck. There is a critical shortage of over-the-road truck drivers in the U.S. and the shortage is growing as baby boomers leave the workforce and trucking companies struggle to attract good candidates into the jobs. How will publishers plan for this emerging problem?

Offset print plants require skilled craftsman to run one and four color offset presses, as well as high speed soft cover and case binding lines. There is a significant amount of labor required in a medium size and large book plant, especially in the bindery. Many of the markets where these book plants exist today have a shortage of the skills and labor required for these plants to run at full capacity. This is an ongoing issue, which was experienced by many mainstream book printers this past year and will continue as the talent pool who used to fill these jobs find better paying and less demanding jobs. This issue has a compounding effect. It creates capacity shortages caused not by lack of equipment, but rather by the inability to utilize all the theoretically available time on that equipment for lack of operators. This then reduces the potential ROI on those expensive investments in web presses and new and more automated binding lines.

. . . .

We have some really tough issues facing the book business and the structure of the future book value chain. This is a very conservative industry and the nature and past behavior of the industry as a whole would suggest that movement and change will not take place until crisis is upon us. We should all be learning from what is happening in the higher education business.

Link to the rest at Book Business

PG suspects that most people in the traditional publishing world take printing capacity for granted. He hasn’t seen a potential printing capacity problem discussed in any publication that the managers of traditional publishers are likely to read.

Obviously, POD doesn’t work if there isn’t enough P.

5 thoughts on “What Are the Top Strategic Issues Facing the Book Value Chain?”

  1. PG, I seem to remember reading about the paper shortages late in 2018 and kind of assumed that it was from one of your postings (though I’ve not gone back to check this).

    It was certainly making it to Publisher’s Weekly (https://www.publishersweekly.com/pw/by-topic/industry-news/manufacturing/article/77621-too-many-printers-too-little-paper.html) and the NY Times (https://www.nytimes.com/2018/12/23/books/paper-printers-holiday-sales-books-publishers.html).

    What I don’t understand is the economics – if the excess demand is really there why are prices not rising and encouraging the paper makers to re-open or keep open their mills?

    The shortage of skilled labour at print plants is another matter and I have not noticed any previous discussion of this (though I don’t follow the industry at all closely). I’m always a bit of a sceptic about labour shortages as I suspect that it comes down to plants being neither willing to do their own training nor to pay competitive wages (though I imagine the publishers are not happy at the idea of paying the higher printing prices that would result).

    • “What I don’t understand is the economics – if the excess demand is really there why are prices not rising and encouraging the paper makers to re-open or keep open their mills?”

      One of the strange aspects of our current economy is that the law of supply and demand gets flummoxed. Today, when demand exceeds supply, the a typical reaction is to figure out a digital substitute. Instead of paying more for scarce paper, publishers have reacted by planning their printing more precisely with less waste.

      I’ve observed this in many industries.

      A few years ago, I bought a new farm tractor. It has more horsepower and can do the same work as my dad’s tractor purchased in the 1960s, but it weighs at least a third less. To compensate for lack of weight for traction, it has 4-wheel drive, something almost unheard of 50 years ago in medium size farm tractors, at least in our area. As steel prices rose, instead of paying more for steel, the manufacturer built an equivalent machine with less iron. They could do this because digital modeling and stress analysis allows them to eliminate unnecessary iron from older designs. My tractor doesn’t have any composites, but I expect the amount of expensive metal will go down further in the future, like it already has in airplanes and bicycles. I see this all over. In the 21st century, it’s often more efficient to do more with less than pay more to get the same.

      The laws of supply and demand still work, but the reaction to increased demand and diminished supply is often not limited to price increases.

  2. ‘…current business model may be stuck in a doom loop…’

    Stuck in a doom loop. Now that’s a good phrase.

    ‘…The primary method for moving books is by truck. There is a critical shortage of over-the-road truck drivers in the U.S. and the shortage is growing as baby boomers leave the workforce and trucking companies struggle to attract good candidates into the jobs. How will publishers plan for this emerging problem?…’

    Uh, by going digital?

    PG: ‘Obviously, POD doesn’t work if there isn’t enough P.’

    But the thing is: POD is not what these people are talking about. They want production on big, traditional-ink offset presses. POD uses smaller e-ink or toner-based digital presses. There’s plenty of capacity there and operator-training is minimal (I’m guessing).

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