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Dr. Joe Webb Responds to Q1 Economic Update Webinar Questions

Thanks again from Dr. Joe Webb and the WhatTheyThink staff to all of you who joined us in the January 19th Quarterly Update Webinar. We had great participation in this event, and lots of questions. We really appreciate the interactivity. Unfortunately, we were not able to address all of the questions live during the Webinar, and, as promised, are answering the rest here! We will look forward to your joining us again for the next Quarterly Update Webinar, and of course, to your frequent visits to WhatTheyThink!

Q: What is the exact source data for slide 8?

A: The data are published monthly, and are from Table 1 of the M3 report on manufacturers orders and shipments. The link is here.

Q: Can you comment on the Canadian printing industry, present status and predictions for 2005? Thanks

A: Most of the same trends apply to Canada as well. But my bigger concern would be that China’s shipments to the U.S. are growing significantly, and are threatening Canada’s position as our number one trading partner for print.

Q: Are there any statistics/summaries on the relationship between media/ad spending and corporate profits?

A: No, but there are for corporate sales. Go to the U.S. Statistical Abstract and look at Table 739. I’ve seen the number in various places, and advertising expenditures usually average between 1.0 and 1.5% of receipts. You can use the same table to do a comparison with profits, but profits can really jump around a lot. The relationship with sales is more steady from a statistical standpoint.

Q: What are the factors related to the high risk of deterioration on the b2b demand?

A: There are just so many other ways to get a b2b message out today. The Internet has really changed everything, especially the speed of communications. It has also removed a cost barrier that print has of communicating more often.

Q: Can you forecast the impact on printing of postage and paper increases as broadband cost decrease?

A: Not good. After all, postage costs are often higher than printing costs, and e-communications look almost free is you assume the same production costs. Broadband costs will drop, but more importantly, broadband users rely on electronic communications and information access more than dial-up users. It really changes their use of information, purchase patterns, and expectations.

Q: We are a digital printer in the Northeast. There appears to be a great deal of variability in pricing for digitally printed output depending on the local market or technology saturation in any particular region. Is there any reason that this situation will change for digital print providers who primarily sell their product regionally (as opposed to through the internet). Do you think that digital printing prices will remain stable, increase, or decrease throughout 2005?

A: No one repealed the laws of economics, and that’s what you’re seeing. Digital printing has to compete with print alternatives, just like traditional print does, and downward pressure on prices will continue. The issue is understanding total cost not cost per sheet, so demonstrating and delivering long-term cost reductions by using digital print may keep price-per-sheet prices up. Again savings have to come from somewhere else. Hopefully your company takes time to really understand customer business needs and can find ways of reducing their costs.

Q: With the somewhat bleak capital investment forecast you present, what should manufacturers be doing to shore up potentially lagging sales?

A: We have to remember that the US is still the biggest individual market in the world for most printing industry capital goods. Other regions may be better in terms of their growth rate, and those need to be investigated, of course. It’s important not to fall into bad credit deals just to meet a forecast for goods that will just come back when there is a default on the financing. This can be one of the unintended consequences of bad sales compensation policies, where any deal is better than no deal.

Q: As printers, is there anything we should be considering relative to VOIP and integrated internet communications? Do you see these technologies further encroaching on print's competitiveness?

A: VoIP isn’t all that important by itself, but the idea of constant communications availability in any format, whether it’s data or voice, any place, or any time, is far more of an issue. I am a VoIP user, and I’m looking forward to buying a WiFi VoIP phone later this year. VoIP is small right now, but 2005 and 2006 should be exceptional years of growth for the technology.

Q: We hear a lot of industry commentators saying printers should be adding value-added services to develop new revenue streams that can replace declining print sales. We think people are following that advice, but still printing shipments are declining. Is this situation as hopeless as it looks?

A: I don’t really know what value added means. It’s a very nebulous, poorly defined concept. In my last column I discussed how many value added services had been removed from the printing industry, such as color separations and handling color correction and other retouching, camera work, phototypesetting, and many other tasks that are now done by anyone who creates documents, at almost no cost. Preparation and prepress services were a very important part of the printing industry, and now they are totally gone from an economic standpoint. There’s only so much that can be done after the press. Therefore printers need to be very creative in developing management, coordination, and many other tasks that can drive nonprint revenues. I’ll be studying this a lot more in 2005.

Q: Any suggestions on how we can make the ROI of print look better?

A: In many ways, the ROI of print is out of the control of the printer. The ROI is determined by the content of the printed piece, not by the fact that it is printed. Bad content will create bad results. There are other costs that are virtually uncontrollable, such as the cost of paper, and distribution, such as postage. Together, these two items often comprise half or more of the total cost of a printed job. That means that printers have to work on reducing the costs of the other items, or find ways to have the uncontrollable items be used more effectively. The larger question is what happens with print media and people’s desire to use print. One strategy that is often overlooked is for printers to get involved in electronic communications and tie those efforts with print to create a synergistically superior offering to clients.

Q: You didn't mention the offshore outsourcing of print, particularly to China. Do you still see that as a threat and how can we best combat it?

A: China is both a threat and an opportunity. It is a growing market yet there are no good mechanisms for US printers to become deeply involved in it. China is not a free economy, though it is significantly freer than it was years ago. As a threat, I don’t think our industry is ready for the time when offshore printing becomes 10 to 15% of print, or 25 to 30% of the sheetfed market, but it can, and this can happen within the next five years. For an industry that is comprised of local and regional businesses, competition from China is quite a shock. The wake-up call should not be one of protecting the business from competition with China, but rather, trying to find a way to invest in printing businesses worldwide. Many of the industry vendors are multinational businesses, and it would be good to see them take the lead in facilitating business contacts worldwide for printers. After all, the Internet and competition from print alternatives knows no borders.

This free event is made possible by Creo.

Creo Inc. is a global company with key strengths in imaging, software, and digital printing plate technology. The leading provider of prepress systems, Creo helps over 25,000 customers worldwide adopt digital production methods which reduce costs, increase print quality and allow them to serve their customers more efficiently. Based on a solid foundation of intellectual property, Creo has an unmatched range of technology solutions that address the needs of commercial, publication, on demand, packaging, and newspaper printers, and creative professionals. Creo product lines include software and hardware for computer-to-plate imaging, systems for digital photography, scanning, and proofing, as well as printing plates and proofing media. Creo also supplies on-press imaging technology, components for digital presses, color servers and high-speed digital printers.

Based in Vancouver, Canada, Creo reported fiscal 2004 revenue of US$636 million. Creo trades on NASDAQ (CREO) and the TSX (CRE).

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