Monday, May 13, 2019

Study Refutes Trump's Claim That USPS Loses Money on Amazon

An independent government watchdog today seemingly refuted President Trump’s claims that the U.S. Postal Service loses “a fortune” on a sweetheart deal with Amazon.

The USPS Office of Inspector General released a study indicating that the Postal Service’s growing practice of entering into customized contracts with package shippers is paying off.

“The number of these 'Negotiated Service Agreements' (NSAs) has increased from 66 in fiscal year (FY) 2012 to more than 1,000 in FY 2018,” the report says. “In FY 2017, only five contracts lost money, down from 14 the previous year.”

“The Postal Service’s largest NSAs contribute the most financially.” The few money-losing contracts have been “mostly low-volume NSAs,” the report says, and the USPS and Postal Regulatory Commission typically take action to fix or terminate those deals.

NSAs are “solidly profitable” and “perform strongly for the Postal Service,” the Inspector General’s report states. The watchdog agency has often criticized the Postal Service severely on other matters.

The report was heavily redacted – enough to put even Attorney General William Barr to shame – to avoid any public mention of specific customers or any revelations that would help the USPS’s private-sector competitors.

But it clearly suggests that the Postal Service is making a profit on such major “Parcel Select” customers as Amazon, FedEx, and UPS.

Though there are only 24 Parcel Select NSAs, the report indicates that they have as much volume and generate more revenue and profit than any of the other four types of domestic-shipping NSAs.

“Parcel Select is generally used by consolidators and large shippers who can presort packages and drop them off by the truckload at postal facilities that are close to the final destination, paying a lower rate based on how close they get the packages to their delivery point. The Postal Service takes the packages the ‘last mile’ and delivers them to their ultimate destination,” the report explains.

In other words, because these shippers handle everything except for the last mile, they are profitable for the Postal Service even though they pay less than does someone who drops off packages at her local post office for delivery in another state.

Parts of the report were heavily redacted.
“NSAs are a tool to better meet customer needs when some aspect of the Postal Service’s off-the-shelf offerings does not,” the report says. Private-sector competitors have similar practices:

“Most carriers offer discounts to certain classes of clients, such as new customers or high-volume shippers. As a result, carriers can charge very different prices for delivering the same package to the same destination.”

“Many NSAs bring in new customers that were previously shipping with another carrier,” the report says. “So long as those deals cover their costs, any product-level profits they generate would improve the Postal Service’s bottom line because the profit is based on new volume.”

But when a customer already does most of its shipping with the Postal Service, an NSA may reduce prices in a way that makes the customer less profitable, the report notes.

The report doesn't address whether the Postal Service's cost-accounting practices are keeping pace with the rapid growth in package delivery or are accurately measuring the cost of such deliveries.

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Tuesday, May 7, 2019

Justice Department Seems "Open-Minded" on Quad-LSC Deal

A printing-industry expert believes the federal officials who questioned him about the proposed merger of printing giants Quad and LSC Communications are unlikely to “rubberstamp” the deal.

“They were pretty open-minded,” said the expert, who was recently interviewed by a team from the U.S. Justice’s antitrust division. Although they kept their cards close to the vest, he says, they seemed genuinely interested in understanding claims that the two companies would have several monopolies or near-monopolies in what at first blush looks like a highly fragmented industry.

The printing expert, whom I know to be a reliable and knowledgeable source, spoke to Dead Tree Edition on condition of anonymity.

Silent publishers
Justice’s apparent open-mindedness comes despite no public opposition from publishers or other printing customers.

A publishing company executive tells me that a paper company contacted him in March as part of an effort to get publishers to object to the deal. It found that publishers were reluctant to speak up for fear of angering two key suppliers, he was told. (Also, it’s hard to get senior executives at magazine-media companies these days to even think about printing or anything else that’s not new and shiny.)

The printing expert mentioned to the Justice team the case of Verso and NewPage, two paper giants that Justice allowed to merge in 2015 on condition that NewPage first divest two mills.

At least one member of the Justice team was familiar with that case and indicated the same tactic had not been ruled out in the Quad-LSC case, the expert said.

The expert’s observations are in contrast to recent speculation from Peter Schaefer, a veteran of printing-industry mergers and acquisitions.

“My best estimate is I don’t think there’s going to be an antitrust issue” because the regulators tend to see printing as a single market, he told Printing Impressions last month. “Combined, they [Quad and LSC] are still going to be a small percentage” of the entire U.S. printing industry.

The only formal, public objection to the merger has come from a coalition of two authors’ organizations and an anti-monopoly advocacy group that pointed out how Quad (known until recently as Quad/Graphics) and LSC already dominate the long-run publication market.

The two companies reportedly have 100% share of the U.S. market for the printing of best sellers and certain other types of books. They also own all of the country's rotogravure presses that are typically used to produce catalogs, magazines, and free-standing inserts that have print orders of 1 million or more.

In addition, the two companies dominate the transport of magazines, do the vast majority of co-mailing of magazines and catalogs (to gain hefty postal discounts), and probably own a sizable majority of the large publication presses in the U.S. that are best suited for print orders in the hundreds of thousands.

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Sunday, March 24, 2019

Fitting the Pigeonholes: The Challenge of Selling Print Advertising in the Age of Hypertargeting

The choices are constrained.

That’s the trouble with print advertising these days. Pigeonholes.

Judging from reader feedback, I apparently hit a nerve recently in a Publishing Executive article by stating that many magazine-media advertising reps don’t seem to know how to sell print ads these days.

Younger sales reps were hired for their digital knowledge, but their clients are increasingly asking for multimedia proposals that include print. And some of the print veterans haven’t adjusted to the age of targeted marketing.

(Some commenters noted that the issue arises in selling any kind of print-based marketing.)

Choice A or Choice B

When mass media dominated, brands that wanted to target their print-media ads were forced into a limited number of pigeonholes: To reach men, put the ad in the sports or business section. For women, use the lifestyle section. The choices offered by major magazine publishers often boiled down to buying ad pages in Title A or ad pages in Title B.

That doesn’t cut it any more – not when digital ads can be behaviorally targeted based on what someone has searched for, what stores she has visited, or what side he dresses on.

Now it’s the ad buyers who have the pigeonholes – narrow descriptions of their target prospects. They want to get their message in front of families who are “in market” for a minivan, patients with a specific medical condition, or, in the half-joking words of the The Ad Contrarian, “left-handed women golfers over 35.”

You can't just sell ad pages to such a buyer, no matter how much you discount your rate per page. You have to show how you'll reach those pigeonholed prospects.

The challenge for many magazine publishers is that they split their operations into a print team and a digital team.

Glasgow University Magazine, 1892
That worked when advertisers and agencies likewise bought into the print-versus-digital foolishness and had separate buyers for each medium.

But with so much evidence indicating that multimedia campaigns are more effective than single-medium efforts, the advertising world seems increasingly to be asking publishers for integrated, multimedia plans.

That’s an opportunity for multimedia publishers, but also a challenge: The digital reps know how to present advertising solutions that fit into their clients’ pigeonholes, but are clueless when it’s time to translate that knowledge to a print proposal.

And many of the veteran print reps are still trying just to sell pages rather than finding a way to get the advertiser's message into its desired pigeonholes.

Let's get prigital, prigital . . .

The Publishing Executive article presents eight tools that both kinds of sales reps can use to fit their print offerings to an advertiser’s pigeonholes. (Omitted was a ninth idea: Check your magazine’s editorial calendar to see whether any of the upcoming issue themes or special sections would resonate with the advertiser’s intended audience.)

Another thought: Don’t respond to a multimedia RFP  by having some people work on the print portion and others on the digital part. Coordinate, so that everyone involved is looking for the best media choices to fit each of the advertiser's pigeonholes.

Make sure you consider all possible media – magazines, custom print, web, social media, email, ebooks, live events, and webinars. And stuff that blurs the lines: If you turn excerpts from your magazine into a sponsored, downloadable PDF, is that print or digital? Who cares? Just call it prigital.

Other Dead Tree Edition articles about print advertising include:

Monday, March 4, 2019

There’s No Such Thing as a Printing Industry

How can a marketplace with 28,000 companies have shortages of both capacity and competition?

Book printing at a Walsworth plant
The United States has more than 28,000 printing businesses.

So how did printing backlogs cause many highly acclaimed new books to be unavailable for weeks at a time during the recent Christmas shopping season? Were American printing plants really so busy late last year that none of them had available capacity to cover a small increase in demand for printed books?

Those seem like reasonable questions – if you don’t understand one of the most basic characteristics about the printing business. People who should know better – including government regulators (I’ll come back to that.) and even some people who work in printing – often don’t grasp the importance of this characteristic.

Ford, Uber, Maersk, and Union Pacific are all in the transportation business, yet no one asks why they didn’t step up over the holidays when the airlines were turning passengers away. Getting paid to help move things from Point A to Point B doesn’t make you a competitor or potential replacement for every other company involved in moving stuff.

Likewise, manufacturers of books, business cards, brochures, bridal invitations, business forms, boxes, and building wraps are all printers, but they’re each in completely different lines of business. From a practical standpoint, there’s no such thing as a printing industry -- just a multitude of individual markets that all involve applying something to a substrate.

Mainstream-media journalists often refer to printing as a dying industry because, to them, “print” means publications. But the same Internet that has cratered daily newspapers has also spawned e-commerce – and with it a dramatic rise in package printing.

Command Companies book printing
Textile printing, which had become nearly extinct in the U.S., is undergoing a renaissance  in this country, thanks to the combination of sewbots and digital printing that are enabling just-in-time clothing manufacturing.

So you can say that print is withering away, holding its own, or booming -- depending upon which printing industry you're referring to.

This concept of calling the printing business a collection of separate industries is not exactly an original insight. Yet it’s apparently news to most of the printing-company sales reps who contact me. I’m a print buyer and they sell printing, so of course I should be happy to have them come by and meet me.

The First Rule of Print Buying
But they don’t know my First Rule of Print Buying: There’s no such thing as a printing company.

For my purposes, there are companies that excel at producing magazines, those that are good at printing special inserts, and those that produce the few other printed product my employer needs. The rest are irrelevant.

Like most “print buyers” in the publishing business, I spend far more time planning print projects and wearing non-print hats than I do actually meeting or negotiating with printers. I can’t talk to, or entertain quotes form, even 1% of the 28,000.

Rule #2 is like unto the first: Avoid any printing company with slogans or sales reps who claim “we can meet all your printing needs.” They’re a waste of time. I’ll end up in an argument with Mr. Let-Me-Quote-Something trying to explain that, no matter how much he discounts his printing prices, he can’t possibly compete to produce a 500,000-circulation magazine with a 16-page web press and no co-mail capability.

Back to that recent book shortage
Command Companies book binding
Think about a print buyer at a book publishing house that suddenly needs 250,000 more hardcover copies of a title that was just released to favorable reviews and lots of buzz.

The vast majority of the nation’s 28,000 printers don’t have web presses, which automatically puts them out of the running for a print order of that size. And many of those with web-offset presses can’t print typical book-format page sizes or don’t keep much book paper in stock.

During the crunch, Quad/Graphics printed some titles on presses that don’t normally produce books. But that tactic only goes so far: Hard-cover books can only be bound on equipment that is dedicated to book binding.

Adding to the challenge is the way digital printing is disrupting book publishing – and not just because it’s taking market share from offset. Publishers are reducing the size of their offset print orders, now that digital has reduced the upfront costs and turnaround time to print additional copies.

They are printing fewer “just-in-case” copies that end up sitting in a warehouse for months or even years before being sold or scrapped. So even though U.S. sales of printed books have been growing by a few percentage points annually, demand and therefore capacity for offset book printing has been shrinking.

The Quad-LSC deal
Now about those government regulators: I don’t think a single merger or acquisition of U.S. printing companies has faced significant hurdles from the federal antitrust folks. The regulators’ view seems to be that with so many printing companies, there’s no lack of competition.

But there are only two U.S. printers with the sort of rotogravure presses that are especially well suited to producing a million-plus copies of a magazine or catalog: Quad/Graphics and LSC Communications. And now those two are trying to merge.

Even at publication print orders of 200,000, the two giants have few competitors. And in book printing, LSC is already the dominant #1, with four times the market share of the #2 book printer – Quad/Graphics.

For many publishers of magazines, catalogs, and books, 28,000 is a meaningless number. Those publishers can count on one hand the number of U.S. printers that can meet their needs.

I hope this time around the regulators will focus not on the printing industry but rather on the multitude of printing markets.

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