Publishing Executive Magazine

Symbiosis or 'Death Spiral'?

By Alex Brown

Publishing Executive Magazine
http://www.pubexec.com


Are we really helping or hurting our printing "partners" in today's publishing world?


Printers often demonstrate a genuine interest in the financial well-being of publishers. They prove this every time they hold or cut prices when a postal or paper increase threatens their customers' profitability. Now, this is not entirely a selfless act on their part. Healthy publishers are essential to the print industry, and after all, we are all in this together.

Or are we? It's common to consider the printer-publisher bond as one of mutual dependence and to note the win-win aspects of what can be called a symbiotic relationship. Each party wants the other to grow and prosper. But what happens to a symbiotic relationship when both industries are losing customers? What happens when growing and prospering are no longer the results of what the two parties can do for each other?

We publishers have done a fine job of reminding printers that the price concession they make today is the only way to obtain our business-now and tomorrow. Growth is implicit in business success, so the printer makes the cuts in hopes of increasing volume. Propping up the publisher is smart strategy, the printer reasons.

Price reductions are also the nearly inevitable consequence of competing for a shrinking pie of work. Although consolidations in the printing industry have reduced the competitive landscape, print volume is going down, so printers must keep on cutting no matter how few rivals they must beat. As long as the presses need to run, work needs to be found.

Publishers aren't pleased to see that they're buying less now. The victory of paying less on a per-page basis is counterbalanced by the fact that less revenue is attached to the lower volume. And the leverage of future growth looks shakier and shakier.

IMPACTS OF A CHANGING LANDSCAPE

And so we face two key types of industry shrinkage. First, there are fewer printers and, to a lesser degree, fewer publishers-each of us has fewer competitors. Second, magazine print volume itself is flat to declining. Individual publishing companies and individual titles may boom a bit, but there is no large-scale, industry-wide growth.

The Internet and a legion of new digital-communication techniques are the obvious cause. Printers lose customers who put material online instead of printing it; publishers lose customers who prefer the dynamically up-to-date and generally free information available online to the printed material they'd have to purchase.

I'll leave the great hand-wringing over this development to others, but it's fair to say that both industries are mature. Publisher and printer have reached an age when significant annual growth is the result of acquisitions, not the flourishing of the garden already planted.

THE WORST-CASE SCENARIO

There is a worst-case scenario that could lie ahead. We publishers could continue to lean harder and harder on printers, seeking a steady stream of price concessions in order for them to get our business. We can claim all we like that it's a partnership we're building, but in fact, we're weakening the printer by using his price cuts to inject an artificial increase in our profitability. It works, of course, on a short-term basis. Eventually, however, the technique initiates what could be called a "death spiral," and our so-called partner can't replace or augment his technology. The printer limps before we do, but we both go down together in the end.

The short-term downside for publishers is small-in return for price reductions, we build somewhat more wobbly businesses. When your publishing economics are based on a cost of goods that saps your supplier's health, you haven't really won; you've exploited a weakness. You can take advantage of your printer's sales anxiety for only so long before service, quality and capabilities begin to suffer. Most important, your company's profitability hinges on artificially depressed prices--prices that may be unsustainably low.

This isn't to say that solid, keen negotiation should go out of style. The improvement in equipment yields means that printers' costs have gone down, and so should our prices. But when price cuts are based on the hope of volume growth or the fear of losing work, they can and do backfire. Printer self-interest should curb this last-ditch sales strategy, but it takes courage that, frankly, some printers can't muster. A cynical publisher can take advantage of a hopeful printer every time.

It's all well and good to say we must be nicer to the printers. But publishers will continue to seek the lowest prevailing price to remain competitive. The twist is, we are converting a mutually beneficial relationship into a parasitic one.

The positive aspects of the symbiotic relationship between printers and publishers could, eventually, erode and largely disappear. We'll move closer to a state of cursory service, bankrupt plants, mediocre quality, and a still smaller set of masochistic vendors.

A stable future depends on keeping both printer and publisher profitable. However, it may be difficult or impossible for two mature industries to maintain that type of interaction.

Printers themselves can take the most important first step by selectively pushing back against extreme publisher demands. And publishers could accept the idea that getting printers to compete for their business shouldn't mean a fight to the death. Of all things, the vendor you choose should emerge the healthiest, not the weakest. For now, we have to trust printers to set reasonable limits on the price cuts they'll make. If they don't, both printer and publisher will trade the benefits of symbiosis for the sad end of a death spiral. PE

Alex Brown is a consultant to magazine publishers specializing in manufacturing and magazine management. She founded her consulting company, Printmark, in 1984, and is a frequent speaker at industry events.