The New Printing Economy

Printing Press Heidelberg Speedmaster 106With the economic downturn looming, paper prices soaring, an emissions trading scheme on the way and the threat of parallel importation, the print industry is going through some big changes. Drew Turney asked Australia’s biggest operators how they were faring.

You might have heard the economy’s not doing so well.

The phrase ‘economic downturn’ is everywhere, every industry and economic sector endlessly self-analysing what it means for them. Book printing’s no different, and in fact in some ways the situation’s more urgent as non-essential entertainment items like books, DVDs and Playstation games are the first to go from strapped household budgets.

These are the times where we’re reminded that the axiom about everything in publishing taking a year only applies to editorial trends. When corporate parent companies are haemorrhaging stock value left and right, orders to pull belts in come down the line much faster.

“There’s been a significant amount of volatility,” agrees Greg Brown, national sales manager of McPherson’s Printing Group. “Our peaks and troughs are bigger. The ongoing impact to volume is anyone’s guess.”

Griffin Press national sales manager Warren Griffin reports instead things are steady, perhaps confirming economic figures that claim Australia’s mostly managed to avoid the financial carnage. “Our customers’ spending patterns have changed but there hasn’t been an overall effect on total volume,” he says, “so at the moment we haven’t been affected.”

But the product that most affects book printers is paper, and the state of the Australian dollar plunged paper provision from global providers into turmoil during 2008. It got so bad in October that for a time mills overseas wouldn’t process or even quote on orders for Australian buyers — the prices would have fluctuated too much between order and supply.

Coupled with price increases of up to 10 percent at a time, such uncertainty has prompted Griffin Press to take action. “We’ll be changing our paper supply source,” Warren Griffin explains. “It’s been sourced mostly from Europe but we’ll be purchasing mainly Australian and New Zealand papers. There’s still a [price] increase but it’s less than if we’d stayed with our European suppliers.”

With most four-colour book printing for the Australian market already done in Asia, stable prices over there might be more bad news for us. Lionel Marz, Australia and New Zealand sales director for China-based printer Everbest reports just that, prompting more publishers to look offshore. “Paper prices have stabilised in Asia in the last few months of 2008 after the increases Asian printers saw before the financial crisis,” Marz says. “In some instances they’ve dropped marginally even from current levels.”

Market forces

Energy is one of the biggest costs to printers, and while there are savings in some areas — Griffin’s Warren Griffin reporting that diesel fuel is back down to what it cost about a year ago — they’re often small areas of the total energy bill of a book printer. “Energy costs continue to rise,” says McPherson’s Greg Brown, “not fall.

But fuel won’t only cost us in cash when we pay for the carbon footprint of a product. Widely criticised as giving too much leeway to the polluting industries, the Rudd government’s emissions trading scheme (ETS) is nevertheless going to impose costs on plant or factory-based business like printers.

Griffin claims to have beaten the ETS to the punch with changes Warren Griffin thinks will buy the Press some carbon kudos. “We’ve already spent considerable time and money understanding our impact on the environment,” he says. “It’s nice to build on what we’ve already been doing with our recycling and waste programs instead of being pushed to implement them.

But once again a threat might appear over the northern horizon if Australian business gets it too cushy in the carbon market. It seems obvious that building in carbon costs will raise prices, but some economists have argued that greening the economy from the ground up will mean no net increase and could even bring costs down.

If that’s true, companies (and countries) that reach carbon reduction maturity first will clean up in both senses of the word. And despite its dirty reputation, a nation like China with a comparatively young manufacturing sector might be most open to sweeping reform.

Lionel Marz from Everbest reports that the rules to clean up industry in China are already tough. “All manufacturing processes have to conform with the Chinese environmental regulations, and Chinese printing companies are being scrutinised more rigourously by International organisations,” he says. “I think many Asian printing companies will have much higher environmental safeguards than Australian ones.”

Parallel Lines

In case you’ve been living under a rock, changes to the proposed parallel importation laws have the publishing and printing industries up in arms. The current laws ensure that an Australian publisher must produce a local (Australian territory) copy of a book or periodical within 30 days of its publication in its country of origin.

If they do, no Australian bookseller is allowed to import a cheaper foreign copy for sale. If the bookseller runs out of stock the Australian publisher must supply it in 90 days or lose such protection, and booksellers can freely import cheaper overseas versions to sell locally.

Parallel importation wasn’t such a hot button issue in the days when buying a book from overseas wasn’t a mouse click away. But booksellers these days claim they suffer huge losses competing with Amazon and its ilk. The mutually exclusive positions seem to be that letting cheaper imports flood the country might help bolster booksellers but local producers will lose out, and we can’t afford to give up what little protection it has left.

Perhaps unsurprisingly, booksellers are the biggest advocates for abandoning or changing the 30/90-day rule because buying cheaper and selling at the same rate will improve profit. Just as predictably, publishers and printers are opposed, wary of the number of books they won’t get orders to produce when overseas markets can do so cheaper because of unit cost factors like volume. Their worry is that Australian publishing will become a mere branch office of the mighty US or UK markets.

The Government’s Productivity Commission issued a report inviting comment on changing the laws in November 2008, and while it was to invite comment rather than make recommendations, many feel its very existence signals an intention to remove vital protections.

A cynic might suggest the government will go with the industry that employs the most people to make itself look good, but the Printing Industries Association of Australia, Australian Society of Authors and Australian Publishers Association have all gone for the throat, collectively asking for the removal of report author Louise Sylvan, a former Australian Consumer Association CEO and a staunch supporter of removing import restrictions like the 30/90 day rule.

“Any reduction in volumes, which will be the impact of any weakening to the 30 day rule, would result in job losses and higher prices,” says McPherson’s Greg Brown. “The only compromise may be to the length of the 90 day part of the scheme, but the current scheme has no material impact on the price of books in Australia and in fact reduces them.”

The machinery of the book

By all accounts, technology has moved in small but not unexpected directions in 2008, with the high profile installation of a Print On Demand (POD) device in Angus and Robertson’s Burke St Melbourne store.

But POD hasn’t only made waves at the point of sale, As Warren Griffin explains about Griffin’s own foray, “We’d delayed upgrading our digital equipment over the past couple of years until it made enough of an improvement to warrant the investment. We needed to meet the price point the ‘read for pleasure’ demands, prices that are significantly different from markets like educational or professional.”

So in late 2008 Griffin installed Australia’s first inline book factory, where a pre-printed and finished cover connects to the text file and the two components are folded, trimmed and bound, allowing Griffin much more leverage over small quantities like backlist or pre-release marketing proofs.

Digital technologies in general continued to advance, with most printers continuing small investments while still waiting for the cost of production and quality to approach that of traditional printing. An article in McPherson’s in-house periodical Impressions claims the ability to offer short run titles while not holding stock is now ‘real’, adding that on a global basis; ‘print runs of 250-499 have increased by 40 percent while runs of 50,000 and over have declined by 44 percent’.

Australian Publishers Association CEO Maree McCaskill calls the above confluence of factors a potential ‘perfect storm’ for Australia. When B&P suggests the increased costs of paper, printing and warehousing might encourage the onset of digital technologies as the economy sours she reminds us that only one person really controls the industry — the consumer.

“No doubt there will be greater use of POD when a reasonable system is underway but you still need a market demand and that’s been slow in Australia,” she says. “I’m not sure there’ll be an enormous uptake of the technology in what is largely an ageing population.”

The incredible shrinking industry

But the big news of 2008 was in mergers and acquisitions as McPherson’s and Griffin’s proposed merger was blocked by the ACCC last August, who said it was ‘likely to substantially lessen competition for the supply of mono (black and white) offset book printing.’

Neither company’s happy about it, with both Griffin and McPherson’s spokesmen citing a lost opportunity for Australian book printing to be internationally competitive, given the combined capital resources of both companies.

“The issue isn’t that there are too many book printers,” Warren Griffin says to a theory suggested by B&P, “it’s that no single Australian book printer has the scale of volume to further invest in building an internationally competitive, world class facility.”

But doesn’t one company where there used to be two lead to reduced quality and higher prices — especially in a market with so few players? “Definitely not,” says McPherson’s Greg Brown. “It’s the market that determines price and quality. If Australian printers don’t deliver them customers will go elsewhere.”

So with an economic environment the likes of which we haven’t seen for nearly 20 years pressing in one direction, technology seemingly pressing in another and everything from our carbon footprint to protective legal measures orbiting overhead, the APA’s Maree McCaskill seems to offer the most accurate prediction; “2009 will be a watershed year'”

Green paper

The Forest Stewardship Council (FSC) is making waves as concern for the environment moves further into the business mainstream. An ‘international network’ promoting responsible use of forest resources, the FSC mark of approval gives your printing business a big, marketable tick. But is anyone taking any notice?

“There was a flurry of hype in 2007-08 regarding FSC paper,” Everbest’s Lionel Marz says, “but the economic downturn has slowed demand for it due to the higher cost.”

“FSC text stocks have been expensive — even more so considering the increases from European mills,” Griffin’s Warren Griffin adds, “so the uptake hasn’t been as wide as we anticipated. But from February 2009 we’ll only be using an FSC book grade for about half the books we produce versus the current half a percent we do now.”

Unfortunately, bad economic times and caring for the Earth don’t often go hand in hand. The UK’s Times Online reported as far back as August 2008 on the ‘the chilly economic climate that has frozen the shoots of environmentalism’, where ‘the green life’ is increasingly being seen as a luxury,’ adding that the number asked in a poll to rate the environment as their prime concern had dropped.

It’s bad news for the earth, but economies tend to shed such ‘indulgences’ when backs are against the wall. Remember what the phrase ‘triple bottom line’ referred to? Nor do we…