Volume Declines In The Paper Industry Will Continue, May Accelerate, But Opportunities For Growth In Higher-Value Papers

Norman McLeod
Feb 11, 2011

In the late 1970’s I read an article by a well-known strategic-planning guru (whose name I have now forgotten) that, among other good points, contained the observation that changes driven by technology often take longer than expected — sometimes MUCH longer — to develop, but once they start, they tend to accelerate rapidly. Another observation in the same article was that “technology giveth, and technology taketh away”. Both statements are apt right now for the paper industries in the advanced economies. After more than thirty years of availability of computing power at all levels (I attended the first “paperless office” demonstration in 1977), and 20 years of widespread Internet availability, it is only in the past decade, and more especially in the past five years, that all this technology has started really biting into demand for printing and writing papers. The fruition of these technology trends has made the current recession one in which, for the advanced-economy paper industries, the end of the recession will only staunch the bleeding, not heal the wounds.

The biggest initial hits have occurred in bastions of analog printing. Newspaper subscription and readership is plummeting. News and general-interest magazines and periodicals are also at high risk .In the course of moving to a web-only model, Newsweek was sold in August, 2010 for a reported $1. U.S. News and World Report has followed a similar path, reducing its publication frequency (originally weekly) three times since June, 2008 and finally announcing in November, 2010 that it, too, would morph to a web-only format augmented by several special-subject printed reports (e.g. college and hospital ratings, and a personal-finance issue). Although special-interest magazines have held up much better, they have been able to do so only by raising subscription rates and reducing their reliance on ad revenues — in short, by changing their fundamental business model. That trend illustrates another point: most hard-copy publications that contain ads are experiencing dramatic declines in page counts as the ads shift toward digital delivery.

The book industry is widely expected to be the next major print category to be driven into decline by technology trends. In June, 2010, Amazon announced that its Kindle downloads were exceeding in both volume and value its sales of printed hardcover books; mass-market paperbacks are likely to be next. How long can the textbook business remain a hard-copy bastion?

Another important analog print category that is already under siege is directory printing. On the one hand, it is reportedly still profitable. Also, much of it (the telcom portion, by far the largest volume segment) is heavily regulated and most if not all state commissions still require at least the option of a hard-copy alternative. On the other hand, there is substantial evidence that most of the directories currently printed and distributed are today thrown away completely unused. Each year, more businesses decide to reduce full-page ads to box ads, eliminate box ads, or stop their Yellow Pages listings(which unlike residential listings are optional and must be paid for) altogether. The business model will become unviable within the next three to five years.

In terms of analog bastions, inserts, coupons and promotional mail and printing are the key remaining bright spots, and the term “bright spot” is relative.

I noted at the beginning of this blog that technology giveth and technology taketh away. A key paper trend for 2011 is that digital printing can no longer be looked upon as the potential salvation of either the paper industry or professional print-for-pay providers. The original digital print application was business forms, an application that peaked in volume at nearly three million short tons for the U.S. market. This market has been in decline for nearly twenty years and continues to fall; while we are bullish about the prospects for additional color and personalized promo messages on transaction print documents, like the expected economic recovery, these transpromo trends will only stem the tide, not reverse the flow.

In developed economies, the office and home print environments are now fully saturated in terms of the equipment installed base.  Total office print volumes are now flat and likely heading into decline while home print volumes are stable at best — in both cases, by the way, signifying that the actual share of information that is printed is declining dramatically every year. In the arena of production digital printing, growth in color applications is the key bright spot for both the paper and marking-supplies businesses, but declines in demand for mono or B&W production digital are expected to result in net declines in total production digital print volumes over the next five years.

In fact, one might ask what has happened to the promised digital print revolution, and the only answer can be that digital print will continue to gain share from analog print, but the gains in share will be increasingly overcome by declines in total print volume. It was noted that digital color production printing is the key remaining opportunity. For the marking-supplies businesses, of course a color page, even at the production level, has the revenue potential of multiple B&W pages. This differential will be less pronounced for the rising generation of continuous-feed high speed inkjet printers, but will still be a positive influence. For the paper industry, more color printing presents the opportunity for increased sales of heavier, thicker, brighter and possibly smoother sheets that have a higher value and better margins than commodity uncoated. Battle is already being joined in the category known as color copy, and manufacturers have readied themselves for the expected growth in roll sales to users of continuous-feed high speed inkjet printers. Both categories will be bright spots during 2011 and beyond.

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