“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.)
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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I was also interviewed at great length (the conversation lasted over an hour) with a trio of Justice Department and SEC attorneys. I'm not an "industry expert" though. I'm a printer twho competes daily with Quad and LSC. And I have a very different take on the interview and their areas of interest and focus.
ReplyDeleteFrankly, much of the conversation was highly technical, and they delved not only into areas where the combined Quad/LSC might have a dominant position, but also into whether that dominance (primarily in rotogravure) was meaningful and likely to stay that way for long. They were already well aware that products requiring runs of a million or more are in steep decline for a number of reasons. And that's not merely the decline in bestsellers and newsweeklies. The trio was aware that versioning of both magazines and catalogs has pulled down individual print runs. The interviewers already had a nuanced understanding of these trends and were seeking confirmation as well as my description of the practical marketplace effects of these changes.
I disagree that the divestiture required of Verso and NewPage is likely to apply in the case of Quad and LSC. It would be impossible to find a company in North America willing to accept rotogravure operations even if those were gifted by a combined Quad / LSC. Demand is steadily declining and the operations can offer no versatility whatever. Publication distribution might be a different animal, but there is viable competition in that space denying Quad/LSC a practical monopoly.
So, while the SEC and DOJ have taken the due diligence responsibility seriously, there's no sufficient case to be made that the effect on a small handful of publishers and catalogers is likely to affect most publishers, most catalogers in any meaningful way. Nor is there a complete absence of competition in any of the markets Quad and LSC serve, especially not in the market segments that are growing.
So, despite the wishful thinking of a handful of large publishers, I disagree with the "industry expert." Like Peter Shafer,, I believe that no substantive concern will emerge from the DOJ / SEC review, and the merger will be routinely approved in a matter of weeks "not with a bang, but with a whimper."
All I can say to the response above is “wow”. Sine the response identities are anonymous it’s easy to question who the person really is and their affiliation. This is absoluty the worst deal in the history of the printing industry. And yes, Dead Tree, I’m aware if the article that says there is no such thing. I agree with that as far as the way it is presented to the anti-trust guys. The big talk at the National Postal Forum was what would become of the logistics side. There is much consternation over the new company, in which LSC has taken over DLS and Fairrington will be merged into Quad’s system, and then the rest of the industry is shut out with no obviously viable alternatives. The only ones this deal is good for is the Quadracci family.
ReplyDeleteAfter years in the publishing industry, I’ve observed some consolidations that affected print pricing and capacity. I watched the RR Donnelley acquisition of Meredith Burda and the steady consolidation of gravure facilities as Quebecor, World Color, and Brown plants were all acquired by Quad after a stint as Quebecor-World. These changes were incremental, and the DOJ approved the few they had to rule on, primarily because they looked at the aggregate printing marketplace—a large and decentralized market if you consider local sheetfed printers, newspaper plants and commercial printing as one big pool.
ReplyDeleteI was heartened by the anonymous comment that demonstrated the DOJ’s grasp of the sub-markets in which monopolies will arise after a Quad-LSC combination. (The judge in the Meredith Burda-RRD case pointedly refused to consider gravure as distinct from offset, let alone web from sheetfed.)
But now we hear that the three main monopolies that will result—in gravure, book printing, and postal consolidation, not to mention the fundamental control of all printing in quantities over, say, 350,000 copies—will not matter to the DOJ. They won’t matter because there isn’t enough demand there.
Well, this merger is likely to assure that. Who would print a gravure catalog two years after this combination? Who will send out bids for a book? Who will mail a magazine? The price, technology, and schedule for such endeavors will be determined by one company. We aren’t talking about a small competitive pricing issue. This is all or nothing. The only way publishers can survive in print will be by hoping Quad won’t raise prices too quickly and will want to get some years of use out of their monopoly capacity.
Price isn’t the only thing this monopoly will harm. Technological innovation in printing, binding, inks, and paper is also likely to lag. In fairness, this has been true for nearly two decades as print demand steadily fell. A combined LSC-Quad won’t kick it off, but it will be the final nail in that coffin in the US.
Schedule will also be affected, as publishers will watch the new Quad-LSC close plants, decommission equipment, and solve the age-old profitability problem by trimming capacity to meet median demand, not peak demand. No more idle presses, but a much harder matter to launch a large new magazine.
So this consolidation will do one thing printers have long wanted to see, though only one of them will be standing to enjoy it: Quad’s profitability will improve. But it will also end price competition, reduce the third party vendors’ motivation to create new technology, and stifle growth in print publishing.
The final proof that this will be fine is the silence from medium-run web printers. May I assume they’re terrified of angering the new behemoth? I’m frightened enough myself to make this comment anonymous.
I’m frightened, and very sad. I’ll have to watch the long-run print marketplace disappear, and I may soon see the profound and simple glory of CMYK, double-former folders, and a perfectly tuned binding line vanish.
Most of this stuff is, admittedly over my head. I am just a ‘stupid’ factory worker for LSC (formerly with RRD, and Banta before them-so 18 years), but LSC is not telling us, the employees ANYTHING about what is going on, hence why I’m trolling through random articles I can find. Simply put, when can we expect to know something? I mean, is there a trial? A hearing? Someone just randomly deciding? How long will the DoJ be debating this?
ReplyDeleteSorry to not be able to converse on your all’s level, but all of my coworkers and I just want to know if we will still have a job at the end of the month.