Introduction
Today is quite an auspicious day of the year to be sharing reflections on the printing industry. It was, after all, on this very date, September 30, way back in 1452, that our industry was born: the first copy of Johann Gutenberg’s Bible, the first book printed using movable type, was printed in Germany. This fact reminds us of the importance of print as a medium for communication, and by extension, of the importance of all of you here in this room.

I think it also puts this conference into perspective: it’s been 553 years since the industry began, and we’re still holding meetings to learn about and figure out the changes in this industry.

But of course that’s normal. Nothing in this world stays still – we need to adapt. In fact, adapting is the key idea not only of my speech today, but I’d say for our entire industry these days.

Your presence here is an acknowledgement not only of your interest in the industry you’ve chosen to work in – and the one I’ve worked in for the past 15 years – but also of the challenges in which this industry currently finds itself.

At a lecture at Harvard University almost two centuries ago, American philosopher Ralph Waldo Emerson characterized periods of revolution as the most interesting times to live in, when, as he said, “the old and the new stand side by side…when the historic glories of the old can be compensated by the rich possibilities of the new.”

By Emerson’s logic, the profound transformations we are a part of make this a very interesting time to be involved in the printing industry. Well, that’s a philosopher for you. Personally, as a businessman, I’d prefer to have 10% annual growth and a 62-cent dollar! The point is that the coming years will be turbulent times, and all printers will have to face new and major challenges.

More recently, business guru Michael Porter of Harvard Business School wrote back in 2000 that although industry structures normally change slowly, during periods of transformation many related elements of an industry’s structure change rapidly and at the same time. That’s where we find ourselves today, when the future is unfolding at unprecedented speed.

Outline

• Many macroeconomic and market factors are having an effect on print, and in this speech I will summarize them. I will not, unfortunately, be able to solve them, but I will share some thoughts.
  
• After that, I will discuss the growing impact technology, especially digital technology, is having on us, and how we can use it to our advantage.
  
• Finally, I’ll discuss the new business model features I think we will need to develop in order to survive and thrive in the printing industry of today and tomorrow.

I. Market Factors
Let me start off with two important statistics about consolidation I found in a very interesting presentation that Charles Pesko, the managing director of InfoTrends, gave just a few months ago at the ON DEMAND Printing and Publishing Conference:

• Since 1990, there has been a 20% reduction in North American printing plants.
  
• Since 2000, an average of 1000 plants have left this market every year.

The question is, WHY? First, a few macroeconomic factors.

As you know, globalization has meant we’re facing increased competition from all sides, especially Asia in our case. The rise of China as a new economic power doesn’t affect us in timely niches such as printing daily newspapers or even magazines, but it’s certainly having a considerable impact on the book printing market and some commercial work around the globe.

Another more recent factor not necessarily reflected in the statistics I just cited is of course the impact of the US-Canadian exchange rate. Over the past few years, a more North-South supplier-customer axis had been developing, replacing some of the older print trade routes across and within Canada. The rising US debt and energy costs are of course helping the Canadian dollar gain strength, weakening the Canadian manufacturing sector. Many politicians, especially those currently in power, would have us believe a strong dollar is a sign of a strong economy. And for many people it is. But it seems to me that too many people are downplaying the future impact of the dollar on Canadian industry, especially in regions like Ontario and Quebec.

Globalization, the foreign exchange rate, rising energy costs and of course the Internet’s impact are the macroeconomic factors that are adding to the changes we are all facing.

Ever expanding customers continue to merge and acquire, and are in turn looking to consolidate their supplier base. They want trustworthy suppliers who can simplify their work and follow them wherever they are located.

What will that mean for us? It means that fewer suppliers will be competing for the spending coming from fewer, larger customers. But how do we ensure we’re one of the members of the printing species who stays in the race and wins?

I think many of us would consider our industry to comprise three types of printers: small, large, and mid-sized. A Research and Markets report last week shows that despite continuing consolidation, the North American printing industry is still highly fragmented. The largest 50 companies hold only about 30 percent of the market. Most North American printers that are considered “large” have annual revenues under one billion dollars, and the majority of companies operate one plant, employ fewer than 20 people, and have annual revenue under $5 million.

Increasingly in the future, the pie will be split between small niche players and large consolidators like Donnelley, whose sheer size allows them to follow their customers everywhere around the globe.

Some printers, who cannot compete with large players on geographical reach, economies of scale and reinvestments, and cannot beat small players on price or local service relationships, will therefore have their challenges. We can expect to see more streamlining and grouping together of operations, something we at Transcontinental, like you, have been facing over the past five years.

But this is by no means inevitable or true in every case. Remember, it’s not the size of the company in the fight, it’s the size of the fight in the company.

One possible way forward is to focus on printing niches. That is, whatever you do, be the best at it, and the volume will follow. You either have to be first, best, or different. At Transcontinental, our approach to growth has been to try to be the best in our niches by using a different approach. Hence our investments in newspaper printing outsourcing, direct marketing, and short-run book printing, to name a few of our niches.

II. Digital Technology
The role of technology in the transformation of our industry is self evident, and in many ways begs the niche-strategy question. We all have to pick and choose which technology upgrades we’ll spend our precious profits on in order to remain competitive in today’s printing market.

Charles Pesko provides another interesting statistic about our industry: despite consolidation, the digital revolution, and the pricing pressure I just mentioned, print industry revenue is still growing. In fact, between 1997 and 2005, businesses calling themselves “digital printers” accounted for most of this industry’s growth.

This point highlights the widening gap being created by digital technology in our industry. And as that gap between digital adopters and hangers on gets even wider, industry consolidation only accelerates.

One of the digital changes proper to the print industry is a suite of online premedia tools, which many of you are developing. In the age of blackberries and GPS, customers are beginning to take it as a given that if they can track a UPS package at every touch point around the world, they should be able to track their print jobs online. Such a tool will also enable us all to do more targeted printing.

Another key digital innovation is integrated workflow tools to standardize and simplify all processes. This is what big customers are doing. If we also do so, it becomes easier for them to do business with us. Make life easier for your client and they’re more likely to keep you on board, as they have less time to deal with too many suppliers.

But there is another side to this whole digital revolution, the side we read and hear about in the media, precisely where the revolution is unfolding. The emerging digital media environment – begun by the internet and now incorporating cell phones, blackberries, IPODs, specialty digital radio and television channels, and more – has already created, even entrenched, new consumption habits. It is responsible for the emergence of new values that affect both readers and our printing activities.

The widening technology gap in the printing industry is a reflection of – and response to – the much-discussed “digital divide.” Tech-savvy consumers, workers and customers are pulling away from luddites, demanding – and getting – information instantaneously. The old saying that the news is out of date as soon as it is printed used to be a funny, smart-alecky epigram. But just last week the venerable New York Times Company announced that it’s cutting 500 jobs, or 4% of its workforce. The same day, Knight Ridder’s Philadelphia Newspapers Inc. announced 100 job cuts.

This is no laughing matter; this is transformation well under way. In fact, The New York Times Internet segment is growing rapidly. It’s our job as printers to understand how we can be on the winning side of this transformation – to learn how to make digital work for us.

For print customers, digital media are popular because they facilitate ROI measurement and consumer targeting, which were already growing trends in all media and advertising before the digital revolution began in the later ’90s. When Rémi Marcoux, Transcontinental’s founder and now Executive Chairman, came up with the Publi-Sac in 1978, adding colour to retail flyers and distributing them door-to-door bundled together rather than inserted in newspapers, which were on strike at the time, it was a fantastic business solution. Today, distribution of the flyers in our Publi-Sac is targeted down to the city block across Quebec, according to consumer demographics.

The system works well, but online advertising has it much easier. An online newspaper or magazine reader’s automatically recorded mouse clicks are the digital equivalent not just of someone watching them pick up their paper subscription copy off their front porch, but then accompanying them everywhere they take that issue and recording their eye movements across every page they open.

Add in the information gathered through online subscriptions and you’re targeting a lot closer to the mark – not the city block, but the individual consumer, wherever he or she accesses a digital portal – computer or Blackberry.

Using this same thinking, advanced database management allows printers to target two or two million individual consumers with direct mail pieces across the continent, then record the demographic information of respondents to the piece one at a time.

The rich ROI data digital media affords is creating two major market trends we can anticipate and prepare for wisely.

Number 1: Increased targeting and specialization naturally creates a multiplication of the number of products being printed, with lower volume for each. More, shorter-run print jobs is where the market is going (e.g. Catalogues: retailers who went Internet are now back printing catalogues).

Number 2: Decreased waste. That means less waste for the customer by printing closer to actual needs, so that they can spend more on the quality of each printed unit within the same budget. For example, typically about 50% of magazines delivered to retail vendors are not purchased, and go to the recycling bin. With better information, we can deliver quantities much closer to a store’s actual needs. The publisher can then put more money into the look of his product rather than wasted volume. This is of course better for the environment, always an important consideration.

Knowing these trends, we can see how the digital revolution can be seen not as a threat to our industry, but as complementary to it, and thus an opportunity.

III. Business Model adjustments
As Charles Darwin put it first, and best: “It is not the strongest of the species that survive, nor the most intelligent, but those most responsive to change.” That’s an important principle that underlies every natural process on this planet, including industry evolution. In our industry, that means it’s not just the big players who will survive. Any printer who is to survive has to respond to change in our marketplace, and many have already glimpsed a way forward. Value-added services offer the promise of higher margins and additional revenue growth. As value-added services will make up an increasingly larger part of printers’ revenues, printers are transforming themselves into business communications service providers. Of course, the transformation is only worthwhile if we do not give away those services for free. Many of us still have a tendency to think “I’m getting a large volume on this job, so I’ll throw in the services.” But we should not be shy to sell services, even if we are not used to it. That’s how IBM makes money today.

So we have to change our business models to sell what our customers are now looking to buy. Is it simply print? Or is it confidence in their documents, or improved marketing communications to reach their consumers? We have to take the traditional supplier role of anticipating our customers’ needs one step further – we need to know where consumers, the customers of our customers, are heading. Once we know that, we take on the role of trusted consultant, of partner. We become indispensable, able to accompany our customer at more touch points in their supply chain as we evolve along with them.

At Transcontinental, to better assume our role as a consultant and partner, we’ve developed our market-team approach. We divide our sales representatives by market sector – for example road maps and atlases, or educational books – so that they can become experts in that market, advising clients of industry trends and consumer tendencies. That’s just one example of a value-added service that we hope will strengthen and cement our role as marketing advisor and business partner to our customers, whether they are corporations, publishers, or major financial institutions.

Taken along with the increased competition from around our shrinking, globalizing planet, we can see why it’s so important for Canadian printers to ensure our services are stronger than ever, to remain attractive to customers both at home and abroad.

Now, if we’re going to build our services rather than our size, that growth is going to centre around talent. In the end, all business operations can be reduced to three words, people, product and profits. People come first. A printing company isn’t presses and telephones; it’s pressmen, sales agents, and everyone else who helps you advance the ball.

So if you’re going to spend money on your company, spend some on the people you pay to get the job done. Empower your employees to think for themselves, report on their contact with customers, help you eliminate inefficiencies and see opportunities. Empower your leaders to encourage that input, coach their direct reports for success, and improve your processes. Empower your company to think like its customers and grow organically alongside them.

But those points could apply to almost any company. Turning to print, there are two issues I’ve observed in my 15 years in this industry that are particular to it, and have been my pet projects to overcome.

The first is that up until maybe five years ago, it would be fair to say that the salesperson was the point of contact for the client and determined the pricing of print jobs. That meant that one person, the salesperson, often made more money than the company on a particular job. That’s crazy!

Today, more and more, the customer belongs to the company, not the salesperson. Although they continue to be very important, salespeople do not own the customer. If a company is to grow – and grow profitably – it will need to have multiple points of contact at different levels of the organization with customers, to reinforce the service relationship.

The second observation I’d make about this industry is the mentality I call “build it and they will come.” That is, buy the presses and finishing equipment, then fill it later with print jobs. That has been a major driving force toward the overcapacity and pricing pressure we’re experiencing today. When times get tough, such as they are now, the thinking is “lower prices to keep the presses running – at any cost.” We all know – or if we didn’t already know, we’re learning fast – that nobody wins in a price war.

So how should we try to apply the new business model, the printer-as-partner approach, especially in the current climate of extreme pricing pressure? At this point I’d like to share three thoughts on how we try to apply this model at Transcontinental.

Number 1: We don’t lower prices by adding capacity. That’s skirting the problem and directly making it worse. Instead, we replace presses with more efficient machines – that is, we spend money to save money – without adding capacity. In several recent cases, we’ve replaced two or three older machines with one new, more efficient one. But we’ll wait until we need more capacity before adding it.

Number 2: We help our customers with their workflow, so they can cut their costs internally or, in some instances, outsource part of their work to us. We now do a lot of premedia work for our customers.

And Number 3: We develop, then offer customers more printing and value-added services, so they deal with fewer suppliers and get a lower, aggregated price from us. The more touch points in their supply chain we have, the more indispensable we become.

Conclusion
At Transcontinental, we’ll be unveiling a new business project in November, the continuation and extension of the Horizon 2005 project we launched back in 2001. Because I’ve spoken frankly and honestly today, the new plan will reflect, as much as possible, what I’ve talked about here, with the ultimate goal of adapting to our new business environment in print as well as in our print media operations.

But beginning Phase 2 of Horizon 2005 doesn’t mean we think we have all the answers. In fact, it is an admission that we don’t. I told you at the top of this speech that over 550 years into this industry we’re still learning and adapting. The important thing is not just to recognize the issues, but to find solutions to those issues and then execute, execute, execute. If much of what I’ve said today seems like old news to you, you’re already ahead of the game. Congratulations, and I’m sure we have something to learn from you.

At Transcontinental we hope and believe we’re on the right track, and we’re willing to take the risks involved to execute our ideas, to turn our beliefs into action. I am sure many of you also have great business plans and are doing the same. And as you do so, never forget that every company, no matter how big or small, is a work in progress.