Facing Today’s Manufacturing Woes

(By Alex Brown of Publishing Executive)

Publishers are being buffeted by cost increases on all fronts, and while there are no magic wands to wave, we can gather round to share our sorrows and consider a few basic cost-control tactics.

The latest blow is a 10-percent to 12-percent increase in ink prices announced by ink suppliers. Printers will differ in their implementation of this, but if yours is delivering bad news in the form of higher prices, you can accept it as a true reflection of the market. The costs of raw materials and freight have indeed affected the selling price of ink.

Your printer may spare you this increase, or you may hear of another publisher that has gone unscathed. There are good reasons for printers to differ in applying ink escalations.

First, some printers have an ownership interest in an ink supplier. They can let overall business strategy rule their decision on a price hike, and they can do it customer by customer.

Second, printers that are not tangentially in the ink business vary in the markup they initially impose on the ink they sell to you. Once again, a critical customer relationship may be important enough for a printer to absorb some or all of the escalation blow, particularly if he has a comfortable markup to cushion it.

Third, printers sometimes delay imposing an escalation. Your vendor may not be sending out the bad news quite yet, but it doesn’t mean you’re off scot-free.

Finally, ink costs generally represent 5 percent to 8 percent of a manufacturing invoice, not including paper. With today’s tight margins, that’s a significant amount, but printers may still have some negotiating room.

With all this in mind, the smart print buyer will look at a change in ink prices as an opportunity for negotiation. But tread carefully: The printer’s costs really are going up. What you’re negotiating is how much it will affect you. Keep your guns in their holsters and start out with sympathy for the printer’s situation. Then look for a fair way to absorb the rising price together.

The greater the printer’s ink markup, the more leeway it has for giving the publisher a break. You can look for a compromise on a lower percentage increase or a delay in its effective date.

The Bigger Problem: Paper
The ink increase, however it finally hits you, is small potatoes compared to the rise in paper prices. Mills are generally announcing a $50/ton increase for the third quarter, but with demand so weak, there’s reason to hope this will work its way down to the $30/ton zone.

The overall message, however, is clear: The mills want to keep hiking prices to compensate for the increases in their own costs, and they are not letting low demand dictate price policy. What they don’t get in July, they may well try for in October.

The wise paper buyer needs to understand that the mills are driven by two loud voices in their ears. First, the rising costs of energy and transportation are affecting mills, and price increases are necessary just to tread water. Second, strict profit goals are in place at all mills today, with the sternest tests at those held by private equity investors. The days of waiting out a market downturn or sharing a customer’s burden are over. If you can’t make money selling paper today, you shut down the mill and take your capital elsewhere. The lost jobs and lost customers don’t have a place in the equation.

The classic cost-control move when paper prices go up is to downgrade specifications. Cutting basis weight, trim size or paper grade are still useful moves, but not every square on the chess board is open.

Mills have gotten pesky about making basis weights they consider less profitable, and the spectrum of paper types is shrinking as mills consolidate. The nastiest news is the closure of Katahdin Paper’s supercalendared (SC) machine, announced for July. The loss of 180,000 annual tons of SC will mean that buyers trying to downgrade from grade 5 won’t find SCA easily. In turn, SCA shoppers may have to upgrade, making the price increase that much more likely to stick.

Meanwhile, our favorite price safety valve—importing paper—doesn’t work anymore. Mill consolidations have put a distinctly global face on the paper market, so there’s no more exploiting small pockets of unbalanced supply and demand. Globalization levels such anomalies. The weak dollar undercuts our buying power, so we can’t pit imports against domestics. And even if we could, shipping costs would gobble up all the savings.

The rising cost of fuel sits at the center of all the price increases swirling around us. You see it in fuel surcharges for overnight mail, the petroleum components in ink, postal increases, and freight allocations for paper shipments. And it’s buried only a little deeper in the power used to make paper and run presses. In short, the cost of a barrel of oil ripples through every manufacturing move we make.

Because this is affecting all publishers, all printers and all consumers, a price increase is easy to justify. But it’s going to be hard to collect. The hard-pressed consumer will resist, and publishers tremble at giving readers any reason to say no to a subscription renewal or a newsstand purchase. And raising ad rates can be equally perilous.

Printers in a Bind
There’s another constituency with nearly the same problem. Printers are hit directly with increases in operating costs, but customer demand is flat or falling, making it tough to impose increases that could drive demand still lower.

The prevailing price for printing is riding on some very gusty winds. Pushing it down is low demand that forces printers to compete hard for every job that can keep the presses turning. Pushing it up is the reduction in competition from a shrinking pool of vendors. With their own costs rising and profit pressures mounting, printers are twitching their escalation trigger fingers. If ever there was a textbook time when print prices should rise, this is it.

Or is it? A healthy publisher can absorb an increase in print prices, but a weakened one will switch to digital delivery. If there’s a large economic message here, it’s that making and moving printed pages is inefficient compared to putting images on screens—so much so that the current wave of increases in every manufacturing cost center should be enough to drive a lot of printing demand away.

Printers can scale down their capacity to compensate, but it’s not going to be an orderly march that publishers and catalogers lead. For now, printers must try to retain customers who can flee not just to another printer, but to another medium. Setting print prices has never been harder. Should prices be high enough to let printers evolve into artisans serving a micro-market? Low enough to prevent the market from shrinking that small? Or some spot in the middle that might, at least, prolong current conditions?

The tough lesson is that doing nothing won’t allow things to stay the same. Oil prices aren’t going to return to 20th-century levels, so this cost gauntlet we’re running through right now is not a drill. New energy sources will rewrite our economic equations, but all the variables in the formula will change, too. Printers will have to evolve even more than publishers.

For now, however, your printer will try to pass along the increases he’s experienced through your contract’s escalation provision. You can respond by negotiating an advance renewal that could lead to a price reduction or, if you’re at the end of the contract term, soliciting competitive bids. There’s no guarantee you’ll find the types of bargains we’ve seen for so many years, but it’s crucial to try. Opportunities still exist in a market with excess capacity, but they don’t drop into your lap.

Today, there’s nothing a publisher purchases that isn’t affected by energy costs. But the still larger wave running through the economy is the uncertainty about what major energy and environmental changes will mean to buying decisions. It’s impossible to forecast trends too vast to detect, but we know they’re at work, and we’ll slowly shift with them. It may be small comfort, but every business and every consumer is similarly affected. We’re all in this together.

Choose Your Own Adventure E-book?

James Bridle of booktwo.org discusses what to me, and to another of his readers, sounds like the Choose Your Own Adventure series via e-book:

Imagine a book that told a different story every time it was opened. The story might change depending on the gender of the reader, or the sex. It might depend on the location of the reader, or the position of the book in time; the time of day, or time in years. Centuries might pass before the book tells the same story again.

The nature of the web makes such a book possible. Immediately, a simple reading of the user-agent to determine the reader’s operating system and browser could be used to present each with a different version, breaking the narrative along several general pathways. Sections could be hidden or revealed by simple manipulation of the layout.

Secondly, parsing the IP address of the reader would reveal their rough geographical location, or the institution they were calling from. In the first instance, sentences could be run through rough online translators, translating passages into - or out of - the reader’s assumed language. Different nations could be offered different political perspectives on the narrative. In the second, those from academic institutions would find appended a wealth of sources, some true, some false, while government agents might find the entire pages reduced to Xs and punctuation marks.

Finally, simple randomisation could alter the meaning of certain words, their tense or number. Names would be changed, emphasis misplaced. But random number generators are no such thing, and each has a pattern. A one time pad.

The final stage attempts to preclude the existence of a master copy.

And although the idea is brilliant and has limitless possibilities, what if you happen to live somewhere where your language or political views aren't in sync with your neighborhood? And as another reader asked, what if you're traveling? So although the idea has merit, I think the reader ought to have more input--and choice--rather then having the programming and book choose all of his/her adventures.

After all, isn't that the fun of interactive reading?

Combating Rising Costs: United Business Media’s SVP Manufacturing on Her Company’s Cost-Reduction Strategies

(Book Business, August 22, 2008)

With magazine publishers increasingly feeling the crunch of rising paper, postage and gas prices, Publishing Executive Inbox checked in with Marie Myers, United Business Media’s SVP of manufacturing, about the effects these costs are having on the global media company, and some of the cost-reduction strategies it’s employing going forward.

Inbox: How much of a difference have co-mailing and co-binding made to your postal costs?
Myers: Co-mailing saves 13 percent on our monthly titles. That is after the freight is deducted from the postal savings. Co-binding weeklies [saves] much more. One of the books saves about $500,000 a year; the other is about $300,000.

Inbox: How difficult was it to get together with other publishers? Is having the right printer/distributor to work with the most important element? Is flexibility key when it comes to working with manufacturers to save money?
Myers: The printer brought us together. One of our co-bind partners is a competitive magazine and that took much more to get off the ground.

Inbox: What about drop-shipping? Is this part of your co-mail strategy, and how important an element is it in terms of savings?
Myers: Drop-shipping is part of our co-mail strategy, and it is hard to tell how much the co-bind vs. drop shipping saves us. That is why I gave you an overall savings. Drop-shipping is a very good portion of the savings. On some of our books we do drop-ship only. The savings for that is about $14 per thousand copies. Of course, the larger the print order, the larger the savings will be.

Inbox: The continuing rise in gas prices has changed the game a bit as private carriers are tacking on fuel surcharges, making them in some cases less competitive compared to the USPS (at least for now). How have recent fuel prices forced you to change your cost-saving strategies, if at all?
Myers: At this point in time, we have not changed our freight carriers. We are in the process of seeing if the USPS could be less for the monthlies. Weeklies using the USPS require many trucks and air freight to get the required delivery times.

Inbox: The ABM and MPA have been busy educating members on the need to utilize co-mailing to reduce overall costs incurred by the USPS for the periodicals class. What’s your take on the need for all publishers to work toward new mail strategies, and how do you think this can be done? What do you think will happen if they don’t?
Myers: We have tried this before by using a few different alternate delivery services. That did not do well, and we were paying more than the post office. I am 100 percent [in favor of] publishers getting together and coming up with an innovative way to reduce postage and freight costs. If the ABM or MPA wanted to start something, we would be happy to join the group.

Inbox: Is United Business Media reducing circulations as part of its cost-cutting strategy?
Myers: Yes.

Can a New Startup Profit From Offering Free Textbooks?

Flat World Knowledge Co-founder Eric Frank on his new vision of publishing.
(By Peter Beisser, BookBusiness, August 15, 2008)

Nyack, N.Y.-based Flat World Knowledge, which launched this month, publishes free and open college textbooks online, with the option to purchase alternate formats of its content, including print and audio, and other study aids. While offering university-level course material gratis on the Web is not a newfangled idea in the higher-education realm, there are big differences from previous efforts—there’s no advertising within the text pages, nor is there a trial period with hidden fees. There isn’t even any registration required for users.

Flat World Knowledge is a publishing company, not an aggregator of other publishers’ titles, says Eric Frank, co-founder and chief marketing officer. “[Students and faculty] have been looking for a solution [to expensive textbooks],” Frank says. “They’re excited to see something viable.”

Frank has 11 years of experience in higher-education publishing, holding positions in sales, editorial and marketing at Thomson (now Cengage Learning) and Prentice Hall. His partner, Co-founder and CEO Jeff Shelstad, has a 20-year career in higher-ed publishing and most recently served as editorial director at Prentice Hall Business Publishing.

Frank recently spoke with Book Business Extra about his and Shelstad’s new venture.

Book Business Extra: What are the problems with traditional forms of textbook publishing?
Eric Frank: … I definitely don’t think there’s greed or malice in this market. I think there’s a business that has had its distribution and model disrupted by a combination of rising prices—beyond what students [are] content to pay—coupled with the distribution of … lower-priced alternatives [via the Internet]. … Their investment is going down. They’re trying to create a high-quality product; they’re trying to preserve revenue. It’s very difficult for them to turn the corner and say, “We have to do something new rather than make short-term fixes,” [such as] raise prices on books … and [publish] new editions. … I understand why you turn to those things. The bigger question is, what models … will publishers turn to to invest and get a fair return?

Extra: How do you turn an idea like Flat World Knowledge into a viable business?
Frank: … An idea, if executed well, will lead to customer satisfaction, for students and for authors. Execution is everything. We started with three fundamental premises. We need to get great authors to write textbooks. There’s a difference between good and great. We have to convince a faculty member to change to a Flat World book from their current textbook, not out of a utopian idea, but because there’s value. … Then, we ultimately have to get a student who’s in that faculty member’s class … to open their wallet to buy the textbook [in print] that is available online for free. We definitely utilized connections to authors that we have had over the years to get conversations going. We’ve had an increase in people reaching out to us. They said, “We’ve been dissatisfied with the model. What you guys are doing seems to have an economic good and a social good. I’m attracted to that.” We have to sell authors on a new vision of publishing.

Extra: What makes Flat World Knowledge’s approach different?
Frank: I think, at the end of the day, that Jeff and I both believe that we are offering something we really believe in. … There’s no sliver bullet …. There’s nothing really magical about it. It’s really hard to execute on. It requires the ability [to sell] a vision to people in an air of uncertainty. But if you believe in your ability to sell, you can convince people to take a risk with you …. Jeff and I came at this with a high level of confidence [in ours] careers [in textbook publishing] … that we can apply our talents in a good way.

Extra: What potential challenges do you face by offering open textbooks?
Frank: … Part of us being open is to have openly licensed content to enable a faculty member to adopt our book for their class and to modify our book for it. It’s not a wiki-style model. We feel this takes into consideration that this is material that is being taught. … We have a vision that great authors … write a book from the beginning to end. We tell the professors that they can modify this for [their] own course to fit [into their] course better.

Extra: What other challenges do you expect to face?
Frank: … We figure there are some slackers who won’t pay for anything. We figure there are [also] the A-types—complete overachievers—who say, “I’m going to buy everything I need to and everything in between.” As we started talking to lots of students in-depth about whether we were right or wrong, we were validated that students—who ran a wide range—said that [they] would pay something for convenience. We did a study using Facebook. We went to 2,000 students to get them to look at this model and asked them, “What would you buy?” It absolutely validated … what we believe. Students will buy and will buy in sufficient dollars for us to be profitable. If they like the idea of a print book, and a majority still do, we can make a black-and-white available for $50 or $60, shipped directly to them. If they want an audiobook, we’ll give them an audiobook. … At the end of the day, if the price is right, they’ll buy. We sell a whole range of digital study aids, podcasts and study guides. We charge for those things. … We’re going to put as much care and thought as we would at McGraw Hill, but we’ll let the model do some heavy lifting.

Mega Printers: Pros and Cons

From the buyer’s perspective, there are pros and cons in working with a mega printer (a printer that represents $500 million or more in sales volume). Print Buyers Online.com’s (www.printbuyersonline.com) major print buyer members, of whom 60% give business to mega printers, recently shared their thoughts on the subject. Here are some of the reasons why buyers consider it an advantage to work with mega printers:

“We work with one of them on a large project where they do the production and printing of a catalog. They have handled it very well and have the resources for that kind of project whereas smaller printers don’t.”

“I use mega printers when a really large project hits because it can be much more economical.”

“As part of our hurricane preparedness plan, we require relationships with print suppliers well out of Florida and even away from neighboring states. Having a relationship with a mega printer not only gives us that emergency option, but in these times of high fuel costs, we are able to print large jobs close to their delivery cities and save charges as well as time on dated materials.”

“The mega printers certainly offer a lot more options.”

On the other hand, some print buyers find it is not advantageous to work with mega printers because they do not offer the personal relationships smaller print shops foster:

“The customer service level (with a mega printer) is far less than a print buyer experiences with a smaller print vendor.”

“In the past, I used one when one of the small operations was bought out and it merged into a mega printer. The errors in billing became such an issue that we decided to move our work to a smaller company.”

“They are continually trying to quote us the ‘whole package’ of our printing needs, but we do better on our own. We give them the limited few jobs that they can compete for on a job-by-job basis.”

“With the larger printers, the buyer is forced to adhere to the constraints within the mega print structure for invoicing, inventory reporting, etc. The buyer definitely does not have control in the communications from the mega printer.”

When more and more of the industry is looking to outsource everything from project management to composition to printing, have you chosen to go to the "big guns" or stay with the smaller ones? And which has saved you both time and money?

Free Textbooks?

Sunday, 03 August 2008

Free textbooks coming near you

Brittani Lusk - Daily Herald

Textbook options: fork out the cash and buy the shiny new book, forget the book altogether and rely on class notes, or read it online for free. Fall semester begins at Brigham Young University and at Utah Valley University in a little more than a month. Students will be looking for the cheapest way to get their hands on class materials, and they may have a new option. Textbooks with open licenses are complete, scholarly college texts written by the same type of people writing traditional books, but these books have a twist. They've been placed online with the author's permission under an open license that allows students and instructors to read, print and even customize the text for free or a small fee. Students, professors and other advocates nationwide, including students and professors in Utah County, are pleading with authors to participate in the open textbook movement. One UVU professor is even writing an open textbook simply on principle. Fighting the system "I'm so upset about the whole textbook issue that it's actually motivating for me on the basis of just my values," said UVU professor Ron Hammond. He said his book "will be an act of community service to the whole country." The UVU sociology professor, who last year stopped using traditional textbooks, has written six chapters of a sociology textbook that will be available online when he and his students finish it at the end of the year. "I just finally got fed up," Hammond said. He periodically publishes scholarly work in academic journals and isn't worried about losing royalties on the new book. Some book publishers have contended that the work he is doing isn't real scholarship and his online manuscript won't be a real book. Hammond disagrees with the textbook company representative that criticized his work. "This book is going to be better than the book that's on the market in terms of currency, because it's got links," Hammond said. In his book, Hammond plans to link to current data from the Census Bureau and other government agencies. That gives him a real-time edge because most traditional books, he said, are usually one to two years behind when it comes to numbers. Having the book online allows Hammond to update the research whenever it changes. Behind the cause Hammond is one of more than 1,200 college professors across the nation, including at least three from Utah County, who have signed a statement of intent pledging to use open textbooks when available. The Campaign to Make Textbooks Available posted the Faculty Statement of Intent on its Web site, maketextbooksaffordable.org, earlier this year. "It really shows that textbooks don't have to be expensive," said Nicole Allen, director of the campaign. She said the key to decreasing costs that have been rising at double the rate of inflation for at least the last two decades is changing the market by adding more competition. That's where open textbooks come in. "Students have to buy whatever textbook they're assigned," Allen said. "So publishers can choose whatever price they want." She said finding a textbook online and printing it themselves gives students the choices they need to fight back. "You can get it on pink paper," Allen said. "The idea is that students have more options." Students in Utah have been lobbying their professors to use more open-source, free material. Kelly Stowell, executive director of the Utah Student Association, called the effort a grass-roots movement aimed at recognizing professors willing to use free materials. "We'd like to recognize and reward professors," Stowell said. At UVU, student leaders have been meeting with their professors and school administrators pitching the idea. Student Body President Joseph Watkins said the reception has been good. "Everybody that we've spoken to is more than happy to help out," Watkins said. Watkins said the students might gather the information and put professors using open-source materials into some sort of database so students can pick and choose which professors to take knowing who uses books and who doesn't. In addition to Hammond, UVU information systems and technology professor Jeff Cold signed the statement of intent, as did BYU professor David Wiley. "If I have an opportunity to get them a textbook for free, I will do so," Cold said. Wiley has been using open source material in his classes for years. "I made a commitment to myself a number of years ago that I wold only use free or openly licensed materials in my courses, and have stuck to that commitment since," Wiley wrote in an e-mail. He's even written an open book and makes all his course materials public. A new way of thinking Cold said he'll use open textbooks when they're available, but he doesn't have a vendetta against book publishers. "I think that at times, textbooks can be expensive. I don't think the publishers are gouging students," Cold said. His interest in open textbooks is their timeliness. In information systems, technology changes before the books can be updated. Cold doesn't like teaching students to use operating systems from a book that is sometimes two versions old. Hammond said the Internet model will help solve the lag that paper books face as well as serve his Google-generation students better. "They want to know what they have to know and then they go find it," Hammond said. He said the textbook learning model that worked in the past is fading. "The point is that we can't say to them, 'Do it the way we did.' " Hammond said he was once worried that material found on the Internet wasn't the same caliber as written material and that perhaps students wouldn't gain the skills they needed if they only surfed the net. "I used to [think that], but I don't anymore because our society is computers-based and Internet-enriched," Hammond said. He said students need the computer skills and should develop them. "We don't know, but it looks like the paper version of knowledge is on its way out," Hammond said. "The Internet version of knowledge seems to be much more powerful, much more efficient." Wiley said an open license doesn't automatically make a book better, but open texts have more potential because they can be added to and customized. "You have made it possible, now, for others to make the changes they need to make in order for the text to really speak to their students. So open textbooks aren't automatically of higher quality than traditional texts, but they have the opportunity to become better over time," Wiley wrote. Making it work One pair of former publishing company employees is attempting to make open textbooks into a business model that serves the students and the book authors better than the publishing companies. Eric Frank and Jeff Shelstad both left publishing companies to start Flat World Knowledge, an open textbook publishing company. "Basically we're, as far as I know, the first commercial open textbook publisher," Frank said. Frank is the chief marketing officer for the company he founded and plans to offer open textbooks in the spring of 2009. Right now the company is testing and researching its products. Wiley has been working with Flat World Knowledge as its chief openness officer, helping them with licensing issues and developing strategy. Frank said when the system is up and running, students will be able to view books online, print them for about $30 or download an audio book for about $25. Students could also purchase PDF versions to print themselves. "Our model here is, you decide," Frank said. Flat World also plans to offer a smattering of study aids in an a-la-carte format similar to iTunes. Students can purchase one study aid such as a podcast or set of flash cards for 99 cents each. Instructors will also be able to customize a textbook by rearranging chapters or only giving students certain pieces of the text. Frank said book authors will be as compensated or more compensated than they are by publishing companies because authors will continue to receive royalties on their book several semesters after it is released. Frank said the traditional model, where students buy a new version of the book and then re-sell it, causing used books and pirated works to circulate, only allows authors to receive royalties on new books sold. That results in a steep drop-off in royalties after the first semester. Frank said that drop shouldn't happen in the Flat World model.

The publishing industry is coming to realize that content is king and that the consumer is the power behind the throne, a power that is demanding to choose a platform for their content. And although textbook publishers may be dealing with a unique situation here, given the high price of textbooks and how soon they are out of date, other segments of the industry will be dealing with variations of this theme in the coming years.

The print product is no longer the main draw, but almost an "ancillary" product in itself. Given that the cost of paper keeps increasing, how is focusing on the content, making it available across cheaper platforms, and only printing "on demand" a bad thing for the publisher or the industry?