The R.R. Donnelley-Consolidated Graphics merger, announced in October 2013, is a big move. With more than $10 billion in annual sales, R.R. Donnelley is the largest printer in North America; Consolidated Graphics’ 2012 sales were $1,048.2 million. R.R. Donnelley will acquire Consolidated Graphics for approximately $620 million, plus the assumption of Consolidated Graphics’ net debt.
Since its beginnings in 1985, Consolidated Graphics had acquired approximately 70 commercial printing companies over the years, and it is also one of the largest digital printing operations, with more than 250 digital presses. Digital printing is 19% of the company’s sales.
There have been a lot of mergers and acquisitions throughout the publication printing industry, as the publication industry has suffered in recent years, due to a variety of factors - the global recession and the growth of the internet being two key ones. This decline has not changed. Mike Dodd, president, US Ink (A Division of Sun Chemical), noted that the publication market continues to decline year over year.
“The metric tons of newsprint declined at a much greater rate in the first half of 2013 than anticipated,” Mr. Dodd said. “In the first quarter, we saw declines on a monthly rate as high as 11+ percent. In recent months, it has been a decline in the 9% range. Overall, this is much higher than the projected 7% that the industry had planned on.”
While newspapers have faced the strongest decreases in terms of circulation and revenue, magazine and catalog businesses in North America haven’t shown the same declines.
“According to the Alliance for Audited Media, in the first half of 2013, magazine circulation was down almost 1%,showing the continued struggles that the industry is facing,” Mr. Dodd said. “Paid subscriptions were down 0.1% and newsstands were down 10% versus the same time period last year. The print exit of major titles such as Newsweek highlights these challenges; however, the up side for the industry is that digital subscriptions have continued their slow yet significant increase with a rise of 3.3%.
“However, nearly 91% of Americans read a magazine and this remains reasonably constant across generations,” Mr. Dodd added. “Also, the Association of Magazine Media notes that many larger fashion magazines have shown an increase in ad purchases from high end fashion lines that are working to identify new target markets. It is important to remember these figures while the industry is working diligently to right itself and return to more profitable levels of circulation.”
The situation for publication printing is similar around the world.
“Globally, we are witnessing declines that seem to be finally catching up to what the U.S. market has been going through over the last six years,” Mr. Dodd said for newspapers. “South and Central America, which seemed to miss the initial decline, are now going through similar aggressive downsizing that the U.S. publications have already implemented.”
“The commercial publishing market growth was sluggish while offset ink demand stagnated in China,” said Yu Adachi, corporate communication department, Toyo Ink SC Holdings Co., Ltd. “Compared to the previous fiscal year, demand for commercial and newspaper printing recovered in Japan.”
To add to the challenges facing publication ink manufacturers, raw material costs continue to be a concern.
“Price increases for titanium dioxide and rosins has impacted our bottom line,” Mr. Adachi reported. “To offset higher raw material prices, the Toyo Ink Group continues to implement cost reductions, locating alternative raw materials, adopting locally available resources as we move forward with the localization of production operations, and issuing selling price adjustments.”
The Newspaper Market
The newspaper market is facing the most challenges, and the high-profile acquisitions of the Boston Globe and Washington Post tell a fairly clear story.
According to the Pew Research Center, U.S. daily newspaper circulation has fallen from 62.3 million in 1990 to 46.2 million in 2010. The number of newspapers in the U.S. has also declined, from 1,611 in 1990 to 1,387 in 2009.
In August 2013, John Henry, the billionaire owner of the Boston Red Sox, acquired the Boston Globe for $70 million. By contrast, in 1993, the New York Times Company acquired Affiliated Publications, the owners of the Boston Globe, for $1 billion.Considering that $1 in 1993 has the buying power of $1.62 today, that means that the Times received $70 million for something they spent the equivalent of $1.6 billion on.
The Boston Globe’s circulation is down, with daily circulation currently 215,712 and Sunday circulation of 362,849, and ad revenue, print and digital, is reportedly declining with it. In 1993, the Boston Globe had circulation of more than 500,000 daily readers.
Bezos acquired the Washington Post from the Graham family for $250 million.The Washington Post has had average weekday circulation of 474,767 during the first half of 2013. By comparison, its peak circulation was 832,232 in 1993.
Interestingly, Warren Buffet’s Berkshire Hathaway acquired 28 daily newspapers, including his hometown Omaha World-Herald, for $344 million in 2011 and 2012, with plans to purchase more papers. Berkshire Hathaway now owns more than 60 newspapers, primarily located in smaller cities.
“The small and medium newspapers anticipate low single digit declines in 2013 and 2014,” Mr. Dodd said. “The larger metropolitan dailies are expecting as much as a 14% decline in some cases. We see many acquisitions continuing in the smaller dailies, and investors like Berkshire Hathaway remain bullish on this segment. We also see the development of regional print sites as many newspapers continue to shut pressrooms and contract with partners that geographically make sense.”