PIA forecast for printers: Industry transition in a slow-growth economy

ChartingAPath

On February 15, I received an email from Printing Industries of America President and CEO Michael Makin announcing a special report. Mr. Makin said the report “is designed to help you assess the key trends impacting the economy and print markets over the next 12–24 months.” He added that the special report assists companies “design strategies and tactics to help your firm take advantage of coming opportunities and address potential challenges.”

I downloaded “Charting a Path for 2013-2014: A Special Report”—written by PIA Senior Vice President and Chief Economist Dr. Ron Davis—and read it over carefully. Below is a summary of the report followed by a few of my own thoughts and observations.

Economic environment

In the introduction, Dr. Davis points out that the report had to be delayed pending the outcome of the government’s “fiscal cliff” discussion at the beginning of the year. Davis says the debate resulted in a “question mark” on fiscal policy. Therefore the PIA forecast on the economy as a whole is for “restrained expansion as the economy’s natural bias for growth trumps unresolved fiscal policy choices.”

PercentChangeinGDPThe first section of the report reviews the recent economic past. A chart of “Percent Change in Real GDP” shows a marginally upward trend since the first quarter of 2010, with growth hovering around 2%. Dr. Davis says, “The economy continues to improve, but at a very modest pace … a rate just above stall speed, making the return to recession a distinct possibility.”

Turning to the printing markets, according to the current PIA definition of the industry, it includes “printing and related support activities (Economic Census code 323) plus printing related media (Economic Census code 511).” Based on this, the printing industry represented $158 billion in annual shipments in 2011, there are approximately 48,000 establishments employing over 1 million people. The printing industry is the most geographically dispersed industry in the US with a significant presence in all 50 states. The bad news is that even with this expanded definition of the industry, “establishments and employment have declined for both categories.”

The negative pressures on the printing industry are a combination of a weak economic climate and what PIA calls, “significant challenges from a very competitive environment—both among printers and between print and other media.” At the conclusion of the section on the economy, the report notes a very important transition point, “For the first time ever, marketers spent more on digital advertising than print advertising in 2012.”

Printing firm performance

The second section of the document deals with financial performance during and since the Great Recession of 2007-2009. PIA printing firm data known as the Ratios shows that the industry as a whole exited the recession in 2010 and that trend continued in 2011. The report says, “These results put a hard end to the economic downturn, dispelling fears of the return to recession.”

ProfitTrendsStill, the picture of the past two years is not same for all firms. In 2011, profitability was lowest on average for all small to medium firms (under $10 million in annual sales) and better for larger firms ($10 million and up), but none of the categories were greater than 2.9% profitability. The entire industry has yet to return to pre-recession profitability numbers, even the most successful companies.

Other elements of financial performance focused on changes in major cost items, productivity trends and profitability by product specialty. According to the PIA ratios, industry profit leaders in 2012 “did not experience an increase in productivity … This unexpected result may have occurred due to the Profit Leaders’ slight reduction in the wages paid per employee either dropping slightly or staying the same, which might correlate to more production employees with fewer overtime hours.”

Sales vs. profitability

The third section of the report draws a correlation between sales and profitability. Dr. Davis uses something called a “profile performance quotient” to characterize firms based on demographic and geographic criteria. The quotient is a comparison of the overall industry averages to the particular category average.

SalesandProfitPQbyProcessThis section shows a clear indication of the sales and profit potential of digital printing (both toner and ink jet based) as well as flexographic printing. It also reveals that the sales and profit performance quotients for both sheetfed offset and web offset were particularly low.

An important finding in the PIA analysis is that “sales and profit performance often track in opposite directions—at least for the demographic characteristics examined. As many printers have discovered, chasing sales may have a negative impact on profit if you don’t keep an eye on other factors that provide a competitive advantage.”

Looking ahead

The last three sections of the report are devoted to: a.) What to expect over the next two years (2013-2014), and b.) What printing firms should be doing now to align themselves strategically with these trends.

The report says that over the next two years the PIA’s forecast “calls for a continuation of the slow economic growth that we have experienced over the past year—around 2 percent adjusted for inflation.” Print related media will continue its steady decline but at a slower rate of 2 percent each year instead of the 4 percent more recently.

According to the PIA the keys to success in the environment over the next two years is the same as it has been over the past few years:

  • Know the place of print within the economic cycle
  • Know your print segment’s life cycle and competitive environment
  • Keep in tune with changes in prices, sales volumes and costs
  • Check your strategy against the development of print product function
  • Develop your staff and stay focused on “attitude”

The next decade

The concluding section of the PIA forecast goes into a projection for the industry through the year 2021. There are two scenarios presented. Depending on how the industry is defined (either as just “Commercial Printing & Related Support Activities” or this plus “Print-related Media”), the industry is project to either grow in size from $82.8 billion to $89.8 billion or contract from $158.6 billion to $143.6 billion over the next 8 years.

“The reason why adding print-related media into the model causes overall sales to decline is that this sector accounts for 49% of total industry sales and 95% of ‘print-related media’ services the function of print intended to inform and communicate, which is forecasted to decline by 4% per year over the next ten years.”

The bright spots in the decade ahead forecast are in packaging (product logistics print) and print intended to market, promote and sell. In these categories, both economic forecast scenarios show similar growth rates by 2021.

Thinking it through

In my opinion, the PIA’s economic forecast is ambivalent. Perhaps this reflects the contradictory nature of the environment: on the one hand, the recession has reached a “hard end,” but, on the other hand, economic growth will be very slow and uncertain due to the federal budget deficit and the government’s response to these problems. This outlook does not instill a sense of confidence for business owners to take risks when industry profits—even though they are rising—are still below prerecession levels.

Meanwhile, the PIA report shows that opportunities for digital print and media offerings bring promise for printers. Customers are rapidly adding more data driven, mobile and online marketing and communications at the expense of their traditional offset print programs. Printing companies that have found the means to move into these product and service areas and, at the same time, have managed to keep the fixed costs of their offset business under control are well positioned today.

The business environment remains complex: printing firms must continue to navigate the combined impact of slow or stalling overall economic growth and the transition of the industry from traditional to digital systems, products and services. The PIA report provides important insights into this process.

Stanley Morison: 1889 – 1967

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Stanley Morison, May 6, 1889 – October 11, 1967

In 1930 Stanley Morison wrote, “Typography is the efficient means to an essentially utilitarian and only accidentally aesthetic end, for the enjoyment of patterns is rarely the reader’s chief aim. Therefore, any disposition of printing material which, whatever the intention, has the effect of coming between the author and the reader is wrong.”

This is taken from Morison’s essay First Principles of Typography, which became in the decades that followed an industry manual of book typesetting standards, especially in America. By the 1930s, Stanley Morison had acquired a remarkable depth of knowledge and experience in printing. He understood better than most the importance of the “invisible” beauty and subordination of form to function in typography.

First Principles of Typography (small)Morison’s first principle still applies today: when it comes to typographic design and style—especially in books—easing the comprehension of the text is the primary objective. “Dullness and monotony” and “obedience to convention” are preferred over “eccentricity or pleasantry” and “typographical experiment.” A text is useless if it is hard to read because it is “different” or “jolly.”

One might conclude from the above that Stanley Morison was opposed to typographic innovation, but nothing is further from the truth. Within a year of writing his tribute to typographical tradition, Morison would develop and design—in collaboration with the graphic artist Victor Lardent—one of the most widely used typefaces in history: Times New Roman.

Stanley Arthur Morison was born May 6, 1889 in Wanstead in Essex between London and Epping Forest. As a child of seven or eight, the family moved to north London. Stanley lived at this location on Fairfax Road, Harringay until he was 23 years old.

Stanley was largely self-taught. He left school at age 14 to find work after his father—who was a traveling salesman—abandoned the family. His mother was strong-willed and inspired Stanley to serious and independent study. He was influenced by her to take up philosophy and a study of ancient manuscripts (palaeography), spending his spare time at King’s Library at the British Museum.

The Imprint (small)
Stanley Morison was an editorial assistant for the “The Imprint” magazine in 1913.

At age 23, while working unhappily as a bank clerk, Stanley read a supplement published by The Times that carried an ad about the start of a new magazine on printing called The Imprint. After the first issue appeared in January 1913, he applied for and was hired as an editorial assistant. This job would prove to be the beginning of the extraordinary graphic arts career of Stanley Morison.

During World War I, Morison was imprisoned for being a conscientious objector. Following the war, Stanley underwent a conversion to Catholicism and began a study of liturgical writings, hymnals and other early church publications. In 1919, he became design supervisor for Pelican Press and in 1921 published his first typographical study: “The Craft of Printing: Notes on the History of Type Forms.”

In 1922—along with Francis Meynell, Holbrook Jackson, Bernard Newdigate and Oliver Simon—Stanley became a founding member of the type-centric Fleuron Society (a fleuron is a typographer’s floral ornament). Seven volumes of their journal called The Fleuron appeared between 1923 and 1930. Each lavish edition contained papers, illustrations, specimens and essays by contemporary authorities on typography and book design.

The Fleuron (small)
The first issue of “The Fleuron,” journal of the Fleuron Society of which Stanley Morison was a founding member.

The scholarly works contained in The Fleuron remain relevant today as the material spans all publishing forms (print and electronic) and technologies (conventional and digital). It was in this publication that Morison’s “First Principles of Typography” originally appeared.

In 1923 Stanley Morison became a typographic consultant for the Monotype Corporation. Monotype was a manufacturer of hot metal casting machines that industrialized and revolutionized in the 1880s—along with Linotype Corporation—the process of making type for print. While the Linotype machine cast complete lines of type primarily for newspaper publishing, the Monotype machine cast individual characters and was often used in book and other “fine” printing.

During the remainder of the 1920s, Morison became involved in Monotype’s program of old style type revival. Sparked by technological innovation, the first few decades of the twentieth century witnessed a typographic renaissance. At Monotype fonts such as Bodoni, Baskerville, Bembo, Centaur, Perpetua and others were reinterpreted and recut under Morison’s direction.

In 1929 Stanley Morison publicly criticized The Times for being poorly printed and typographically antiquated. Following discussions with the publisher, Morison was hired as a consultant and commissioned in 1931 to develop a new, easy-to-read typeface for the newspaper. His task was to design a font that was economical—capable of fitting more copy in a column than previous typefaces—as well as technically compatible with the printing machinery of the time.

Morison began his work with an authoritative historical survey called The typography of The Times that showed the evolution of its type. Morison presented to the publisher a folio with 42 full-size reproductions from the earliest days in the eighteenth century into the 1920s to make the case for his solution.

Tally of Types (small)
Morison’s description of the development of Times New Roman in “A Tally of Types.”

In “A Tally of Types” in 1953, Morison wrote that he “penciled the original set of drawings, and handed them to Victor Lardent, a draughtsman in the publicity department of Printing House Square,” who Stanley “considered capable of producing an unusually firm and lean line.” The drawings were then used by Monotype to cut the punches for the first set of Times New Roman types. The first issue of The Times to use the new typeface appeared on October 3, 1932.

As a historian, Morison was appreciative of the accomplishments of others before him that made his work possible. In summing up the experience with the typography of The Times, Morison explained, “Above 14,750 punches, including those corrected (a large number), were cut by Monotype Corporation for the installation at Printing House Square. … Their cutting was a triumph for the mechanism invented by Linn Boyd Benton of Milwaukee. In 1885 he adapted the pantograph principle to the mechanical cutting of the punches used for striking the matrices from which the type is cast. This invention lies at the basis of all mechanical composition, which requires at some stage the pouring of metal into a single matrix or line of matrices.”

Following the achievement of Times New Roman, Stanley Morison continued his design consulting work with Monotype and The Times for three decades. He became editor of the History of the Times from 1935 to 1952 and he was also editor of The Times Literary Supplement between 1945 and 1948. He spent his later years on typographical research. Although he was offered a knighthood in 1953 and the CBE in 1962, he declined both. He was elected a Royal Designer for Industry in 1960. He died on October 11, 1967 at the age of 78.

It is difficult to appropriately summarize the work of a figure such as Stanley Morison in this small space. Although his writings have never been brought together into a single collection or set of volumes, Morison was a prolific scholar and practitioner of the graphic arts. He was perhaps the most important theoretician, designer and historian of print in the twentieth century.

Postscript

In 1994, printing historian Mike Parker published findings that showed Times New Roman was based upon a design originally made by William Starling Burgess in 1904. A complete review of Parker’s story can be found in an article titled “The history of the Times New Roman typeface” on the FT Magazine web site (http://on.ft.com/M7kYD3). Although still controversial, The Times began in 2007 accepting the possibility of an alternative history to the one provided by Morison about the origin of the famous font. According The Times web site, Times New Roman was designed by Morison, Lardent “and possibly Starling Burgess.” In 2009, Mike Parker worked with The Font Bureau, Inc. and published a font series called Starling based upon Burgess’s original conception.

PE and “The Internet of Things”

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In our modern world of wireless mobile connectivity, print can be viewed as a uniquely analog and peculiarly offline media; as compared to digital, print is distinctly unconnected, static and isolated. As a form of visual communications, print is the penultimate monomedia. It is dependent upon typography and its linear consumption, i.e. left to right (in the West), top to bottom. Print is the antithesis of hypermedia.

Look at your bookshelf; each book is a veritable communications island “entire of itself.” Even with tables of contents and indices (indexes), our printed books are hyperlink deprived; and, though they sit next to and touch each other, they cannot “connect.”

Taking a longer view, ink-on-paper media is the legacy of industrial era communications technology in the digital age. In the future, as Benny Landa explained at DRUPA2012, mankind will no longer communicate by “smearing pigment onto crushed trees.”

What’s that? This is a very one-sided viewpoint. What about the unique properties of paper and print that no digital and mobile media can replicate? What about the dimensional and tactile elements of the print media experience? What about the environmental benefits of paper-based products? Yes, these are valid arguments against the supremacy of digital over analog media.

Alongside these great features of print, there is another aspect that is either misunderstood or unknown. Conventionally speaking, print is not a form of electronics; but, in a very profound sense, electronics is actually a form of print. From the earliest days of the electronics revolution, printing methods were used to design and manufacture transistors, integrated circuits and microprocessors. From the beginning of the digital age, photolithography and photoengraving techniques were used to make semiconductors.

MooreNoyceGroveatIntel
Gordon Moore, Robert Noyce and Andy Grove at Intel with a microprocessor mask in 1978.

In fact, the pioneers of electronic devices—including Robert Noyce and his team of physicists and chemists at Fairchild Semiconductor, who invented the microchip, and later at Intel, who invented the microprocessor—used the same techniques that printers used to prepare plates for press. Light tables, ruby masks, cameras and film were the standard tools of the electronics industry in Silicon Valley throughout the 1950s, 60s and 70s. And photolithography methods still remain critical steps in sectors of the electronics industry to this day.

While many of the most modern and sophisticated electronics components such as CPUs have moved beyond their photoengraving roots—mainly due to limitations of scale—the relationship between these technologies has continued to evolve. Over the past decade, printed electronics (PE) has become a new and promising merger of these two seemingly opposed disciplines.

PE is the production of electronic components—displays, memory, batteries and sensors—by applying layers of conductive and nonconductive inks onto plastic, cloth or paper. PE uses many of the same methods that are familiar in commercial printing: screen printing, flexography, gravure, offset lithography and inkjet.

Although it is still in the early stages of development, PE is being driven by the promise of significant cost savings. Electronics manufacturing requires precision placement of layers of conductive material in intricate patterns. With previous photoengraving methods, which are subtractive, multiple steps are required to create each layer and much of the material is etched away and unused during the process. With PE, an additive process, each layer is created in as few as two steps—printing and curing—and all of the applied conductive material gets used.

PEProducedRFIDTag
RFID tag produced with PE

One practical example of PE is printed radio frequency identification (RFID) tags. RFID is a wireless system that uses radio-frequency fields to transfer data from a tag on an object to a reading device for automatic identification and tracking. RFID tags made with conventional silicon manufacturing methods can cost as much as $25 each. These devices are being currently used widely in the logistics and retail industries at the container level.

The expectation is that PE will bring the cost of RFID tags down to one cent or a fraction of one cent. Once this is accomplished, nearly every object produced can have its 2D barcode replaced with an RFID tag. Imagine being able to go to the market, load up your shopping cart and—without stopping at the checkout—have your account billed for your purchases and wheel that buggy right out to your car. What a time saver!

There are many other applications of PE in research and development. The advancements in conductive ink technologies, along with the microscopic precision in their application to substrates with PE, raises the possibility that every object in the world can be made into a “smart” object that is capable of interactivity and data collection.

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Kevin Ashton with an RFID tag: “The Internet of Things has the potential to change the world.”

The proliferation of smart sensors such as RFID tags and other wireless electronic devices is connecting objects to one another and to the Internet in the tens of billions. Kevin Ashton, the technology pioneer who came up with the phrase “The Internet of Things,” wrote the following about this phenomenon in 2009, “We need to empower computers with their own means of gathering information, so they can see, hear and smell the world for themselves, in all its random glory. RFID and sensor technology enable computers to observe, identify and understand the world—without the limitations of human-entered data. … The Internet of Things has the potential to change the world, just as the Internet did. Maybe even more so.”

So, in our brave new world of wirelessly connected objects, printed electronics has a very important role to play, especially in package and label production. As it turns out, print is actually becoming a most electronic and connected media. Perhaps, with the application of printed electronics to replace ISBN barcodes and the Dewey Decimal System labels, even the books in our analog libraries will be able to interact with each other after all.