The web offset worm is finally turning. After almost 15 years of being downtrodden, there is a growing feeling among printers and print buyers, that the consolidation that kicked off in 1998 with the £810m merger of BPC and Watmoughs could be reaching its long-awaited endgame.

It is somewhat ironic that the denouement has been brought about, not by the emergence of a victor in the who-will-blink-first world of volume-chasing, but by the simple fact of rising input prices.

Raw materials and energy costs have risen at an unprecedented rate over the past two years and whereas print’s suppliers have passed these on, printers have struggled due to the overcapacity problem that is the bane of the sector. Rather, printers have been forced to cut costs to try to absorb the increases.

This strategy could only last so long, as Polestar’s brush with insolvency and St Ives decision to exit the web offset sector demonstrate. The inevitable conclusion is the current spate of consolidation we are witnessing, including the closures of Wyndeham Plymouth and Apple and the anticipated announcement of a 25% reduction in Polestar’s web offset capacity (see cover).

Tim Weller, founder and group chief executive of publishing company Incisive Media, has a unique perspective on the consolidation of the print supply base thanks to his spell as chairman of Polestar. "I have no doubt that we will see more capacity come out over the coming months and if there is less capacity around, there will be less choice for publishers to turn to in trying to squeeze down prices," he says.

"And there’s no doubt that contracted publishers have been able to squeeze the pips, year-on-year for the past 15 years."
The danger is that, while publishers clearly have not fared as poorly as printers in the post-Lehman Brothers world, neither are they without their own problems. Many a printed title is marginally profitable at current print prices and at least some of these would be driven to close or move online when print prices go up.

"As a publisher, the concern over price rises is that we’re suddenly getting it in the neck from all quarters. We’ve seen paper prices increase, we’re seeing structural pressures within our own businesses and print runs are declining too," says Weller.

"If print prices start going up by as much as the paper prices, we will get to a point when we’ll have to increase advertising prices, raise the cover price or ask ourselves if a print product is viable anymore."

According to Polestar Group chief executive Barry Hibbert, publishers absolutely need to look at whether the cover prices of their printed products are sustainable. "Some cover prices are ludicrously low and if the market cannot sustain these material cost increases, then they shouldn’t be there anyway because there will not be capacity to produce them."

It’s a view that Weller shares, particularly in regards to Incisive’s biggest consumer computing title. "The price of Computer Active is the price of a bloody cappuccino, but every piece of research we do shows that if we take the cover price up, it impacts on sales," he says. "It is a price-sensitive market so it’s a tough ask."

Tougher stance
Whatever the pressures on publishers, the argument for raising print prices is now irrefutable. As Wyndeham chief executive Paul Utting says (see comment) there is no benefit to be had from chasing volume at current prices, as this will only lead to greater losses. As such, older capacity will be closed down and prices will be pushed up. "Our plan in acquiring Southernprint and St Ives Web was always about the consolidation of the UK web offset sector, about aiming for a market-leading position and achieving a balance of supply and demand," he adds.

With that position now in sight, the three biggest printers can begin to pick and choose the work that they are prepared to print, at a price that is sustainable for them to print it. This process has already begun. "There is a widely shared view that production prices must harden due to both lack of profitability in the sector and the increase in costs," says BGP chief executive David Holland.

"In the case of contractual deals, BGP has already resigned some work that is not felt to be economic and Walstead have been clear in statements made around their recent closure announcements."

Printers and publishers both agree that there is still enough choice in the marketplace to prevent the kind of price rises that have become commonplace in the paper sector. However, there is a growing realisation from the publishing community that longer-term contracts incorporating inflation-linked price increases – as favoured by printers – could  now be in their best interests too. "Larger publishers are listening as there is a high degree of understanding of market dynamics," explains Utting. "They realise that demand and supply are finely balanced and that there is a risk of not being able to publish if too much capacity is forced out of the market."

"Publishers need certainty," adds Weller. "We need to be able to plan, particularly when you’ve got structural threats hitting most of our businesses." That certainty is likely to come at a price – one that will guarantee security of supply for the benefit of both sides of the relationship.

30-SECOND BRIEFING
• Input costs have risen exponentially since 2009, with 20%-30% hikes in raw material prices being the norm and coming with greater frequency. This volatility has hit the web offset sector hard as overcapacity has prevented printers from passing these rises on
• Energy, ink and consumables pricing have all been affected, with no sign of respite. Energy prices have been affected by global events, such as the earthquake and tsunami in Japan and civil war in Libya, which have kept costs up over the summer when prices would usually decline
• Consolidation in the web offset sector has accelerated as a result, with Walstead playing a leading role in acquiring St Ives Web and closing its Plymouth and Apple sites. Polestar is expected to follow suit with a 25% reduction in its web capacity
• These changes are expected to lead to longer term contracts at a sustainable price as printers and publishers work together to ensure security of supply

MORE...

Comment: Publishers must accept price rises to ensure supply base

Reader Reaction: Will an end to commodity print pricing affect publishers?