The TV show “The Office” was set in a paper company because it’s an industry in decline. With shrinking, real-world demand for paper, the show’s characters could be under constant threat of losing their jobs — providing for plenty of drama. It’s spelled out directly in one episode when an MBA student asks a flummoxed branch manager Michael Scott, “As a company that primarily distributes paper, how have you adapted your business model to function in an increasingly paperless world?”
Michael absent-mindedly answers that people will always need paper — which the entire MBA class then types on their computers.
And this was on a show started in 2005, years before everyone was walking around with smart phones in their pockets. As the show progressed, staff got laid off, branches closed, the company went bankrupt, and eventually they had to merge with a company that sold printers. So Michael finally had an answer about adapting his business model: he had to consolidate.
Demonstrating the show writers’ prescience, the same thing is happening in the real-world printing industry right now.
Last fall, Quad Graphics announced it was acquiring LSC Communications in an all-stock transaction valued at $1.4 billion. As two of the three biggest domestic printing companies, the merger is “the largest and most significant deal in a publication-printing industry that’s seen relentless consolidation for more than a decade,” according to Forbes. The consolidations are part of an effort by printers to stay competitive by cutting costs. Their customers, also hard pressed to preserve print in many cases, benefit from more efficiency in the print world and new arrangements that are shifting how large print runs are done.
Most people would look at this and say it’s necessary for survival. Most, but alas, not all.
Advocacy groups are urging the Department of Justice to evaluate this merger for potential anti-trust violation. They insist that this much consolidation of the printing industry under one roof constitutes a monopoly, particularly with regards to book and magazine publishing. “The concentration of printers reduces competition, which drives up printing prices and can stifle innovation,” one critic wrote.
All things being equal, this criticism would be valid. But where paper and printing are concerned, things are not equal.
The industry is in a fight for survival. Print runs have often become shorter and more customized. Local newspapers are literally shrinking, with smaller print editions, fewer original news stories, and sagging subscriptions. Many regional papers exist only online. Newspaper, periodical, book, and directory publishers are sectors among those most likely to see the most dramatic declines over the next several years, according to the Bureau of Labor Statistics, as well as related industries like the Postal Service and printing support services.
Fewer magazines, fewer newspapers, less direct mail, less advertising. Quad’s chairman Joel Quadracci predicted revenue drops of around $750 million at each company over the next two years, underscoring the need to combine operations.
This is all basic situational awareness that everyone understands. But beyond that, the printing sector isn’t really one industry but rather a collection of sub-sectors — from the neighborhood shop that prints business cards or wedding invitations printer to large companies with multiple facilities that handle bulk commercial printing and mailing. The top 400 printing companies together account of for less than half of the total U.S. print industry, while neither Quad nor LSC account for more than 5 percent of print industry revenue.
We could run the numbers for the merger’s Herfindahl-Hirschman index, but that math hardly adds up to a monopoly. If anything, competition is thriving in the print sector because companies are under such pressure to find savings and be as innovative as possible.
Opposition to the Quad/LSC merger is similar to that of the Sirius/XM merger many years ago. Yes, Sirius and XM constituted the entirety of satellite radio, but there were plenty of alternatives in the form of terrestrial radio station. From a Porter’s Five Forces standpoint, there are more than enough substitutes that the consumer is not threatened. If an author strenuously objects to the Quad-LSC supply chain, for example, they could simply release the book on audio alone.
Printers have been battling decline for years as books, newspapers, magazines, and advertising have gone digital — and that’s where the DOJ should be focusing its relevant anti-trust situations: not on paper printers, but Silicon Valley’s tech tyrants who control virtually every aspect of our lives now.
The writers on The “Office” saw this kind of merger as a necessity 10 years ago. Why can’t everyone else?
Jared Whitley has no financial interest in Quad Graphics, LSC Communications, or the paper/printing industry at large.
Jared Whitley is a long-time politico who has worked in the U.S. Congress, White House, and defense industry. He is an award-winning writer, having won best blogger in the state from the Utah Society of Professional Journalists (2018) and best columnist from Best of the West (2016). He earned his MBA from Hult International Business School in Dubai. To read more of his reports — Click Here Now.
© 2021 Newsmax. All rights reserved.