What’s the largest ink market segment today? What accounts for the lion’s share of offset and gravure printing? And what has become so competitive and dominated by large producers that only a handful dictates the trends of the segment?
The publication ink sector, which includes a cornucopia of products for magazines, books, newspapers and others, generates more dollars than any other sector in the traditional printing ink market, according to the National Association of Printing Ink Manufacturers. NAPIM estimates that publication ink sales make up roughly 40 percent of the $4 billion U.S. ink market, or about $1.6 billion.
It’s also one of the fastest growing. NAPIM’s Quarterly Sales Report, which includes sales from most large U.S. ink producers, showed that pounds of litho heatset ink sold in 1998 rose 9.9 percent, and the year before it grew 9.4 percent. Sales of non-heatset offset jumped 6.1 percent last year after posting a 4.8 percent gain in 1997. Products such as magazines and newspapers are mostly printed using these two methods, although more commercial work today can be found produced on web presses.
The outlook for publication ink sales in 1999 is mixed. According to first-quarter print data published by the Printing Industries of America, its members reported an average sales increase of 6.6 percent, which outpaced Q1 growth in 1997 and 1998. Even stronger were sales in Canada, which saw an increase of 8.4 percent.
Ink makers, however, reported weak demand in the first quarter. Several large manufacturers said publication printers bought less ink in the first three months but do see a rebound for the rest of the year. PIA’s higher sales results may also reflect printers growing their business with offerings other than traditional ink-on-paper services. In fact, PIA said in its report that electronic prepress and trade binding were the hottest segments, along with book printing.
“The first-quarter economy was fairly strong,” said Ron Davis, the chief economist for the PIA. He said that while ”some printers are complaining, and some printers are doing great,” it seemed that the print industry overall continues to enjoy the strong U.S. economy despite troubles overseas.
Mr. Davis said publication printers held their own, despite the threat from the Internet, whose impact on newspaper and magazine readership and catalog circulation seems minimal so far. A trend having a more immediate impact is the shift from long-run, general interest publications to short-run specialty magazines. For example, he said, circulation and ad revenues appeared to be especially strong for medical publications.
The Magazine Publishers of America, which represents publishers of the largest consumer magazines in the country, reported an increase of 2.2 percent increase in ad pages for the first three months of the year.
Consolidation a Key Driver
Even though the publication sector is the largest, it’s certainly not the most lucrative these days. Consolidation among printers and ink manufacturers has led to heavy pricing pressures, increased competition for marketshare and reduced profit margins. Only a few ink manufacturers now account for most of the sales in two of the major sub-categories: news and magazine printing.
Sun Chemical and Flint Ink are the juggernauts of the publication sector, dominating in domestic offset and gravure ink sales. With its purchase of Manders, Flint is now a major player in the global publication ink market as well. Trailing at a distant third is INX International. Other significant players include The Ink Company, Siegwerk, which is partially owned by R.R. Donnelley, and Central Ink, a small producer that specializes in publication ink.
But despite the size of the segment, competition among the market leaders has made this sector almost prohibitive to other ink makers. By nature, publication inks are low-profit products. Despite a plethora of incremental improvements in ink performance over the years, ink makers have been unable to recover its development costs because of customer pressures to reduce ink prices. With companies such as Donnelley, Quebecor and World Color buying huge volumes, they have succeeded in driving down prices, although some ink makers say prices have recently stabilized.
Cost Reduction, Not Price, is Key
Despite their constant effort to lower costs, printers are not necessarily looking for the cheapest ink on the market, said one high-level executive at R.R. Donnelley. Bob Pyzdrowski, president of magazine publishing services at the world’s largest printer, said although ink manufacturers focus their selling efforts on price, he believes a better approach is to help printers reduce the overall production costs. If an ink can help reduce makeready waste, if its mileage is higher than a cheaper substitute, if ink makers working with fountain solution makers can create better dot structure, a customer is more likely to pay a premium.
“They need to get out of the mentality of selling ink on price per pound,” said Mr. Pyzdrowski, who added that innovations such as waterless offset may ultimately be widely adopted for its efficiencies. He noted that this is one area in which ink makers can try to differentiate themselves.
Mr. Pyzdrowski’s advice is difficult to accept for some ink manufacturers, who say that large customers are anything but receptive to a hike of even a few pennies per pound. Moreover, they noted that competition among ink manufacturers is so fierce that any ink maker who tries to increase prices faces the very strong likelihood of losing significant marketshare.
“We’re still in the market where they want to buy as cheaply as they can,” said Richard Breen, the president of Central Ink. He added that none of the key publication ink manufacturers offer a product so unique for which customers are willing to pay a significant premium.
That doesn’t mean there aren’t opportunities for innovations, said Vince Bellini, market manager for heatset at Sun Chemical’s GPI division. “I think the driving force for anybody in the web offset heatset business is to provide products to make the printer much more efficient,” he said. He added that reducing “unscheduled downtime” is a priority for all printers today. Ink suppliers who can successfully contribute to their efforts stand a better chance of gaining business.
So in which areas should ink manufacturers look to improve? In heatset offset, printers demand greater mileage, color consistency and better litho behavior on press. The fewer adjustments pressmen have to make, the less down time will occur. Another key area ink makers are focusing on is meeting the demands of high-speed printing.
Among gravure printers, environmental concerns have dominated industry discussions for years. While toluene-based inks are the most widely used products in gravure houses, many printers want inks with reduced HAP and VOC levels to comply with the Maximum Achievable Control Technology standards set by the U.S. Environmental Protection Agency. Pricing, however, is still the key limiting factor in gravure publication printing, and even the slightest increase affects an ink maker’s sales.
One adverse development for ink manufacturers, Mr. Pyzdrowski noted, is a trend among magazine designers to include more white space on pages. He said some of Donnelley’s customers are cutting back on ink coverage, not for economical reasons but for aesthetics. While it’s not clear what long-term effect this will have on ink consumption, he said it does hurt ink volume in the short run.
Color usage is not a problem on the news ink side. In fact, color news ink sales are skyrocketing while black consumption remains flat, said Norm Harbin, director, news ink products at Flint Ink.
Unlike the magazine sector, newspaper publishers are actually looking for value-added products to regain readership lost in the past decade. “They are upgrading quality to give newspapers that magazine quality,” Mr. Harbin said, pointing out that Flint’s most costly news ink is also one of its fastest selling products.
He said in past years, newspaper publishers expressed little interest in inks that cost more; today, they are more open to evaluating products if they can add value to the newspaper. “It allows us to look at things we weren’t able to look at years ago because of price constraints,” he said.With such a large customer base, the publication ink market is as diverse as it is competitive. While price is the No. 1 criteria many printers look at, there are also segments in which selling value is succeeding. And some ink makers hope that they can succeed in conveying that philosophy across all market segments.