Printing & Publishing Industry

INTELLIGENCE REPORT2011

PRINTING & PUBLISHING INDUSTRYMARKET FORECAST AND ANALYSISNAICS 3231

© 2011

Strategic View:

• Mature Industry * • Business Cycle Reaction – Cyclical Industry * • Opportunity – publications in developing countries (rising average income and literacy) • Mature domestic market (low margins) – opportunity for niche products

Financial Trends:

• U.S. Revenues in 2010: $67 Billion a 0% increase from 2009 and (-4.7%) decline from 2008 • Forecast Revenue Growth • 2011 69.5 Billion a 2.7% growth from 2010 • 2012 68.4 Billion a -1.6% decline from 2011 • Operating Expenses • 2011 a 2.3% increase from 2010 • 2012 a 1.5% decline from 2011 • Average Hourly Earnings will increase slightly by 0.4% in 2011 followed by 1.3% increase in 2012 to $17.2/h • Capital Spending will increase in 2011 by 4.1% and dip again in 2012 by (-0.8%) • Net Profit Margin: 4.8% increase in 2011 followed by a 5.1% gain in 2012

Macro Drivers:

• Consumer spending is growing in comparison to 2008 and 2009; Personal Consumption Expenditures in 2011 and 2012 are projected to rise 5.1% and 5.7%, respectively. • Demographers point to an increase in the 45+ population segment. • Aging baby boomers (growing at twice the rate of general population) favor print material over electronic versions. • Digital printing platforms enable a number of game-changing market shifts: smaller, more cost-effective print runs, improved speed-to-market, simplified prototyping, less-expensive sales samples. • Growing popularity of the iPad and digital eBook readers drives electronic-book sales at the expense of printed-book sales. • Printed-material retail sales—worth $4.45 billion in 2010—are expected to increase by 6.3% in 2011 and 6.2% in 2012. • Cloud computing will have a direct impact on printing; mobile devices (iPhone, Blackberry, iPad, etc.) will incorporate ability to send print jobs to the cloud and have the output sent directly to a locally available printer—anytime, anywhere. • Green demand will drive the markets for environmentally friendly/recycled paper, packaging, and inks, along with new requirements for fiber certification and source reduction. • As average incomes and literacy rates rise, there is increasing demand for printed materials in the developing world.

PRINTING & PUBLISHING INDUSTRY

1. Mature Industry - In-line with macroeconomy. Profit margins generally weaker in this industry. Intense competition for market-share.2. Business Cycle Reaction – industries are those whose profitability tracks the business cycle. The cyclical swings for the industry are often of greater amplitude than economic cycles.

© 2011

Industry Drivers:

• Material cost price fluctuations: The printing industry is marked by constant fluctuations among its primary materials, including paper, inks, films, printing plates and cleaning solvents. • In-house printing: Large corporations and small businesses alike frequently use in-house laser- and color printers to produce jobs that formerly went to commercial printers. • U.S. corporate profits, an indicator of corporate demand for printing services, showed a 37% year-over-year jump in the second quarter of 2010. • Proposed postal rate increases: The U.S. Postal Service has requested an average increase of 5.6%, which could impact the commercial printing business. • Insert media advertising expenditures continue to grow by 10% in 2013 • Despite predictions that the Internet will replace print media, Traditional print journalism will continue to be important. Most news articles found online originate as content from traditional sources—like newspapers—and add commentary, but few new facts. • The rate of decline in newspaper circulation is easing. Although newspaper circulation fell 5% for the six months ended September 30, 2010, that drop was an improvement over the 8.7% decline registered uring the six months ended March 31, 2010.

Pricing: • For Newspapers, Magazines and Recreational Books: market analysts project a 1.6% price increase in 2011 and 2012. • Prices for digital color pages are falling below offset-printing prices. Moreover, digital printing offers the benefit of added labor productivity.

INTELLIGENCE REPORT

© 2011

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Source: Bureau of Labor Statistics; Moody’s Economy.com; Lexus Nexus; Integra; Deloitte; Department of Commerce, Global Insight, Inc.; Harvard Business Review; Hoovers; McKinsey Quarterly; ING Foreign Exchange Wholesale Banking; Economist Intelligence Unit; Edgar; Federal Reserve Bank; PricewatherhouseCoopers; Wall Street Journal; Consumer Confidence Board; Bruegel Brussels Belgium; Brookins Institute; World Bank; Standard & Poors; Security Price Index; EcoTrends 2010; Modern Materials Handling, 2010; BISG Making Information Pay 2010 survey; Press: 2011 and Beyond; Print Week; Bureau of Economic Analysis; Zacks Equity Research; Scarborough Research; The Financial Times.

Disclaimer: The information published and opinions expressed in this document are subject to change without notice. NEPIRC makes no representation (either express or implied) that the information and opinions expressed on this Document are timely, accurate, complete or up to date at any time after their initial December 2010 publication. NEPIRC shall not be obliged to remove any outdated information from this report or to expressly mark it as being outdated. Neither NEPIRC nor its affiliates, nor any of their respective agents, employees, information providers or content providers shall be liable to any user or anyone else for any inaccuracy, error, omission, alteration of, or use of any content herein, regardless of cause, or for any damages resulting therefrom.

This project was financed in part by the Commonwealth of Pennsylvania Department of Community and Economic Development and the U.S. Department of Commerce.

Market Trends:

• Competing on speed: Customers are demanding faster and shorter runs, often along with expectations of higher quality. • Demand is growing for ethnic (particularly Asian and Hispanic) and age-sensitive periodicals – (AARP). • Home Depot and Best Buy still remain the biggest print advertising spenders. • The market is trending toward shorter press runs to produce demographic editions of large-circulation magazines. Similar trends exist among catalog publishers to produce smaller, specialty catalogs. • POD (Print On Demand) and short-run color printing bypass film intermediaries, creating printed images directly from data; this segment is growing at twice the rate of conventional printing. • POD—and its flat per-unit costs—is unlikely to take over the world: With strong economies of scale, traditional printing will almost certainly remain on top for generating conventional bestsellers with hundreds of thousands of copies. • Short-run printing: Integrated Book Technology (IBT Global) installed and integrated an on-demand digital production line, the first of its kind in the United States. The technology allowed the company to print an on-demand order of a single book. • On Demand Machinery (ODM), Oce, and TAP Custom formed a partnership to develop new solutions for producing “library quality” hardcover books on demand. • Transition to service business: Traditionally considered manufacturers, printers are seeing smaller runs, increased customer involvement, and faster deadlines transforming the business. • Flexographic printing is projected to gain ground against other printing methods, such as silkscreen, letterpress, gravure, and others. • Many presses are integrating “hybrid printing,” combining various reproduction methods to meet the needs of complex jobs with specialized coating or printing requirements.