A Game of Monopolies: Two Giants Carve Up the Publication-Printing Business

We won the battle, but it looks as if we’re losing the war. Publishers who want to ensure a competitive marketplace for magazine, book, and catalog printing cheered in June when, against all odds, the U.S. Justice Department opposed the merger of mega-printers Quad/Graphics and LSC Communications. We were especially jubilant when Quad and LSC called off the deal a few weeks later. Now it looks as if the eventual outcome won’t be much different from what we feared. The main difference is that, instead of one giant printer dominating long-run publication printing, we’ll have one near-monopoly for magazines and catalogs and a separate one for books. Quad is in the process of “divesting” (Selling? Spinning off?) its book-printing operations while growing its catalog business and signing additional magazine publishers. (Because of their physical similarities, magazines and catalogs are typically produced in the same printing plants. In fact, with traditional publishers dabbling in e-commerce and retailers launching magazines, the line between magazines and catalogs is becoming increasingly blurred.) In the past few months, meanwhile, LSC has started shutting down five large magazine-catalog printing plants while strengthening its huge lead as the nation’s largest book printer. “We recently gained significant segment share in long-run publications, earning 100% of print volumes from two large national magazine publishers, representing more than $60 million in additional annual revenue,” Quad’s CEO, Joel Quadracci, said last month. “These titles, a mix of weeklies, monthlies and special editions are transitioning to our nationwide manufacturing network right now.” At least one of those gains was apparently LSC’s loss. For its part, LSC revealed last week that it “recently secured a contract with a major book publisher, with work commencing no later than January 2021.” Tom Quinlan, LSC’s CEO, made a cryptic reference to “game theory” a few months ago. Now we see how the game is playing out: Quad is ceding the long-run print business to LSC, while LSC scales back its magazine/catalog operation, leaving Quad in the driver’s seat. So far, however, the “game” isn’t exactly enriching either printer. LSC’s stock price is down nearly 99% from a year ago, hurt by customers that fled in anticipation of a Quad takeover and by a rapid shift of college textbooks to digital formats. It has made some recent moves to stave off bankruptcy, including a consignment arrangement with a broker to supply paper to its customers – an indication of weak cash flow and lack of credit-worthiness. And one dissatisfied shareholder now claims LSC seeks to expedite bankruptcy to safeguard its existing Board of Directors. Quad has fared somewhat better, with its stock price dropping “only” about 70% in the past year. It has diversified away from its publication-printing base into such markets as direct mail and in-store signage – and into non-manufacturing services. For example, instead of just printing direct mail and catalogs for a major retailers, Quad now has employees working on site at the retailers’ offices “to assist with design, production, and integrated agency services, including creative development.” It offers a virtual testing platform that helps direct mailers speed up the process of determining which creative materials work best. Though spun off from R.R. Donnelley as a pure-print company, LSC has also diversified. Early on, it acquired co-mail and logistics operations (including one that Donnelley inexplicably spun off to a different company) that are such a crucial part of magazine and catalog publishing. More recently, LSC has started offering technologies to help publishers fight book piracy and is providing “end-to-end fulfillment of subscription boxes.” The good news for publishers is that Quad and LSC won’t act like fat-cat monopolists who gouge clients and fail to innovate. Like most of us, they have realized they cannot live on print alone and are scrambling to reinvent themselves. Their approach to reinvention can be summarized as “What do many of our clients need that they cannot easily do themselves?” There are already magazine “printers” that have photography studios, build publisher apps, provide consulting services, and perform a widening array of tasks that stray far from putting ink on paper. That’s a big help to digital-native clients that want to create their own magazines or to develop print-based marketing materials. They can outsource everything from photography and design to mailing-list development and retail sales, all to one company that also handles the printing and distribution. But the what-do-our-clients-need mindset is also healthy for traditional publishers, who are trying to do more things than ever, often without the requisite expertise and experience. Subscription-box programs, for example, have worked well for some publishers but require knowledge that’s not exactly core to our industry. Why not outsource to a company that has experience with successful subscription-box programs? Also, highly targeted and even personalized cover wraps show great promise for magazines. But can magazine publishers afford to develop expertise with digital printing when there’s hardly anyone left in the business who even understands how regular magazine printing works?

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A Game of Monopolies: Two Giants Carve Up the Publication-Printing Business

D. Eadward Tree

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