Special Report: What Does Quad's Worldcolor Acquisition Mean to the Marketplace?
INBOX: The merger should eventually result in fewer presses, no? So should publishers expect capacity to tighten and prices to rise?
MAG EXEC: Yes, there will be fewer presses, though Quad and the other big printers will still have to invest in new presses to remain competitive. Print prices might stabilize, but I doubt they will rise, except perhaps during the peak catalog season in the fall. If the printers follow the example of the paper companies, they will tend to respond to overcapacity by hoping the competition shuts down more presses rather than by shutting their own presses.
BROWN: Yes, though consolidating plants is a harder exercise than it looks. The excess capacity that printers bemoan lies more in the schedule than the iron. The newsstand cycle makes peaks and troughs within the month, and Christmas and other seasonal forces do the same thing for the calendar year. The capacity solution isn't just closing plants but distributing work in each plant that draws on the full range of equipment all through the week, the month and the year. The decision to close plants may be getting easier, however, as printers realize that much of the volume lost during the recession simply isn't coming back. If the merger works for Quad, it has to lead to plant closures. One politically adept move might be for Quad to shut or shrink one of its own facilities while also closing down several Worldcolor plants.
The impact on prices, however, is more complex. I am not sure that shrinking the competitive landscape to two mega-printers, plus a number of smaller vendors that happen to have individual plants rivaling the size and capabilities of any one plant owned by the new behemoths, will actually solve the print industry's profitability problem. Print buyers are right to feel concerned that they've lost a reliable source of price cuts in Worldcolor. But as demand dwindles, the only growth lies in taking work away from someone else. Under those conditions, as long as you have at least two printers to call, prices will bend toward a seller's demands. They may no longer bend as far, but buyers will still have an edge. Quad has shown admirable backbone in trying to hold on to healthy margins, but if they're waiting for Donnelley to start agreeing with them, they're waiting in vain—RRD can seize the time the merger is settling in to make price overtures to any publisher worth courting.