IN3: Where's the Money for Printers in New Media?

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Research

Where's the Money for Printers in New Media?

Published: December 10, 1994
(Originally published in the December 1994 issue of American Printer Links. Figures cited for technologies and services have changed.)

For prepress firms, printers and graphic services shops, new media offers some lucrative new business opportunities, but their orientation must evolve from a manufacturing to a software and service perspective.

The New Media Landscape
Paper-based business opportunities
- On-Demand Printing
- Fax Publishing
Disk-based business opportunities
Telecom-based business opportunities
The Age of Custom Service

In a tough graphic arts economy, some prepress and printing firms are looking to escape the increasing competition and narrowing margins of their traditional businesses by expanding into emerging interactive publishing technologies like multimedia, CD-ROMs, on-line services and demand printing. These new forms of graphic communications have captured the imagination of the market, holding out the promise of higher profit margins, stronger customer partnerships, and unique new product and service opportunities for graphic arts firms that have mastered the digital information environment. In the drive to add more value to graphic communications, new media products put the emphasis on design, creativity and solution-selling rather than price, technology and manufacturing efficiency.

But how do you make a business in new media? What are the killer applications? Who are the best customers? And how can a traditional graphic arts firm develop a new media strategy that capitalizes on its assets and delivers the best returns on investment?

The New Media Landscape

The difference between new media and old media is the difference between the Industrial Age and the Information Age. The archetype of the Industrial Revolution, Henry Ford's assembly line stamped out Model T's fast and cheap, and you could have any color you wanted as long as it was black. In much the same way, a modern printing plant stamps out standardized pages fast and cheap, and every customer gets the same information as every other customer.

The Information Age is putting an end to this batch manufacturing approach. Instead of every customer getting the same product, technology is used to personalize the products so that they fit each buyer's needs more closely. In cars, this means that the state-of-the-art General Motors Saturn car factory produces more than 8,000 variations on the standard automobile. In print, it means that last November's issue of Time-Life's Money magazine used selective binding techniques to produce more than 9,200 different editions on a press run of 2 million copies. The general graphic arts trend towards shorter and more targeted press runs illustrates the market's need for more customized and more responsive printed products.

New media formats apply the recent advances in computing, communications and imaging technologies to a new generation of publications that tune themselves more accurately to the needs of each reader. They are usually faster and cheaper than print, and they offer new advantages in comprehensiveness, searchability and transaction processing to compete with ink-on-paper. New media is delivered in three forms: paper-based, disk-based and telecom-based publications. Paper-based formats include selective binding, ink jet customization, on-demand printing and fax publishing. Disk-based formats include floppy disk data files, interactive multimedia, CD-ROMs, smart cards and electronic document products like Adobe Acrobat, Folio VIEWs and SGML readers. Telecom-based formats range from simple ASCIItext bulletin boards to graphic on-line systems and include wide area networking, electronic mail, the Internet, Lotus Notes and interactive TV.

All of these new media are competitors to print, but most have their origins in print. While there are some new companies formed to develop strictly electronic products, most publishers who are expanding into these new communications forms built their businesses with ink-on-paper, and they need electronic publishing services just as they need paper publishing services to help them get their products to market.

Paper-based business opportunities

The general trend toward shorter runs of more targeted printing has already focused the industry on more sophisticated and more powerful prepress techniques. If a customer who used to produce a single press run of 100,000 impressions now prints ten more tightly targeted editions of 10,000 each, the printing bill goes up a little but the prepress bill goes up a lot. For prep shops and for printers who make money on prepress, this is a positive trend. Printers and binders can also sell the overall management of the more complex shipping and mailing requirements of targeted printing, and new systems like ink jet customization and selective binding can streamline the production of more targeted offset printing.

ON-DEMAND PRINTING

On-demand printing takes the short run trend one more step. High speed photocopiers and laser printers like the Kodak Lionheart and the Xerox Docutech bring the minimum press run for black and white pages down to the double digits, and new color digital printing presses like the Agfa Chromapress, the Indigo EPrint and the Xeikon DCP-1 are expanding demand printing into four color work. For the customer, demand printing offers two distinct advantages-short runs and customization; the first is mainly an economic benefit, the second is a true new media advantage.

Conventional graphic arts wisdom pegs a short run at less than 500 copies, and on-demand devices produce these short runs very efficiently. Although the cost per impression at more than 2.5 cents for an A4 page is much higher than offset, the savings in set-up and makeready can be significant. Short run work is also important to "just in time" printing jobs: instead of printing 10,000 copies once a month, a just-in-time printer might print 500 copies of constantly updated material every other day.

But the real money is in the power of customization that makes new kinds of publications are possible. The textbook publisher John Wiley &Sons, for example, offers engineering professors a CD-ROMdatabase of 30 engineering books from which they can create an a la carte text, selecting individual chapters for inclusion in a digitally printed custom book. The minimum page count is 200, the minimum press run is 25, and the books sell for 10 cents per page. The printer-who also produces traditional case-bound offset-printed books-charges for developing the electronic page files, managing the database and printing finished books.

In the U.S., the price for a digitally printed black-and-white page produced from a PostScript file ranges from 5 to 25 cents in volume, with higher margins for more complex customization, and the new four-color digital presses now coming to market are pegging the price per color page at $2 to $3.

FAX PUBLISHING

The ultimate on-demand printing technology is fax publishing, sending pages over the phone directly to the office or the desk of the reader. For very time-intensive, very short run publications, a fax can be broadcast to an entire mailing list for 20 to 40 cents per page, depending on transmission time. But again, the real benefits come in customization, and fax-on-demand technology provides a two-way customizing capability.

Hundreds of thousands of pages of technical documentation for companies like Intel, Adobe and IBM, for example, are now available through dial-up fax-on-demand. Documents are loaded onto disk from desktop published page files, converted with standard fax modem software into the digital fax format. A user dials-in to a voice response system that takes touchtone input and sends the required document directly to the reader's fax machine.

Fax-on-demand systems are mainly PC-based and cost as little as $3,000 for a complete three-line system-two voice lines and one fax line. More sophisticated units like the state-of-the-art Intel FaxBack system begin at about $12,000 and can be expanded to handle hundreds of simultaneous phone lines, in and out.

For print customers who need instantaneous reprints, low cost delivery and on-demand access to large databases of black-and-white pages, the fax machine is becoming an important ancillary printing service.

Disk-based business opportunities

With more than 120 million personal computers installed worldwide, publishers have been shipping disks to their customers for a dozen years. The preparation of those disks-from floppies to CD-ROMs-is becoming increasingly complex as the delivery of the disk-based information is moving beyond simple text files toward searchable, typographically rich and multimedia enhanced products.

ELECTRONIC DOCUMENTS

Disk publishing means more than dumping a few megabytes of word processing or spreadsheet files to floppy. "Authoring" software is used to prepare the electronic document for the user. One of the newest, cheapest and easiest-to-use authoring products is Adobe's Acrobat software for Macintosh, Window, DOS and Unix computers. The Acrobat Distiller program takes PostScript files created with any industry-standard desktop publishing or composition program and creates an electronic book for viewing on any Acrobat-equipped computer. A reader calls pages up to the screen that mimic the paper version of the document and can zoom in and out, search for keywords and print out as needed. Hyperlinks can be added for point-and-click navigation: click on the table of contents entry, for example, and automatically jump to the first page of a story.

Because it leverages off all the design work that went into the printed document, Acrobat is an easy path to electronic pages. Prep shops and printers who create the original PostScript pages for print are using Acrobat to expand into disk-based composition, with electronic page prep prices ranging from 25 cents to $1 per page for the master file plus $1 to $3 for each hyperlink connection.

For more sophisticated indexing and searching, high performance text authoring tools like the $4,000 Folio VIEWs program provide stronger hyperlinking and text access, but they require a consistent input structure like Standard Generalized Markup Language (SGML) instead of desktop-produced PostScript code.

Electronic documents that take advantage of these more powerful interactive tools often must be keyboarded or edited specially for both print and new media, giving the prep shop a strong competitive edge over firms that are limited to conventional desktop techniques.

MULTIMEDIA PUBLICATIONS

As personal computers have gotten more graphically sophisticated, designers of electronic documents have expanded the media types of data in their electronic layouts beyond text. On Macintosh and Windows PCs, disk-based multimedia publications display typography, art and photography that are designed into pages that mimic printed documents, but they also four important new media types: sound, animation, video and computation. Instead of just reading about a red breasted robin in an electronic encyclopedia, a student can hear the bird's song, view an animated schematic of the motion of the wings, see a short video of actual robins in flight and play a computer quiz that checks the reader's comprehension.
Creating multimedia productions is very much like creating print publications. Multimedia authoring programs in the $500 to $1000 range like MacroMedia's Director and Asymmetrix's Toolbook provide tools for composing text, positioning art and photography, scripting animations and developing point-and-click links. Audio editing programs for less than $200 and video editing packages for under $1,000 handle the preparation of digital sound and video. And most authoring programs and peripherals run well on the same high performance Macintosh computers used for professional desktop publishing.

For most up-to-date prepress shops, multi media authoring fits easily into the overall technology and production environment. Multimedia design, though, requires a new set of art direction skills that take full advantage of the interactive environment, drawing the reader into a media-rich world of sound, motion and interactivity. Like graphic design for print, multimedia design depends on the vision and execution of creative people, the kind of value-added services that are priced by value, not by cost. And while those creative people who are now working in the field have had to teach themselves to use the new communication tools, colleges and universities across the country have been adding new media design courses at a staggering rate, and we should begin to see the pool of multimedia talent expand quickly in the next few years. (Indeed, multimedia education in 1995 is about where desktop publishing education was in 1988.)

While commercial multimedia titles like encyclopedias and children's games get the most press, the largest markets for multimedia services are more mundane: business-to-business presentations, marketing communications, corporate training programs and point-of-sale advertising kiosks-all markets that are now served by print.

Salesmen who once left behind sales brochures and collateral material are now lugging about laptop-based multimedia presentations. Manufacturers who last year mailed thousands of four-color catalogs are now shipping CD-ROMcatalogs that fax completed orders back to the factory. And corporate trainers who used to rely on training manuals and overhead projector presentations are plugging new employees directly into interactive computer-based learning programs.

Print customers exploring these kinds of disk-based alternatives need graphic services firms who can design, develop, write, illustrate, produce, program, debug and duplicate new products, and they ought to look to their conventional graphics suppliers first before they hire some fresh-out-of-college multimedia design graduate who can't even spell "Helvetica" let alone pronounce it.

Billing rates for multimedia services, unfortunately, are still in a state of flux. Prices for multimedia screen layouts, for example, range from $5 to $25 each. Low-res photo scans go for as little as $2 apiece in volume. And programming and production time costs anywhere from $25 to $125 per hour. As a benchmark, conventional wisdom today pegs the typical production cost of a multimedia CD-ROM at about $150,000.

In practice, multimedia publishers complain because there are not the same standardized price lists for new media functions as for old media tasks, and there is an opportunity for experienced graphic production shops to take the mystery out of new media development costs with consistent price quotes, rate cards and billing practices.

Prepress firms have the edge over printing companies in this area, since they are used to open-ended jobs that must re-billed and re-priced once the creative process gets underway. Unlike printers, prep shops are never really sure what any one individual job will cost to produce when it comes in the door-how complex the scans will be, how easily the text files will convert, how long the pages take to output-and they have developed production and billing practices that cope with and compensate for this uncertainty. These practices have developed over years of experience-maybe months of experience in the desktop era-and they can generally be applied to multimedia jobs with little revision: extra charges for work done beyond the quote, careful tracking of AAs and PEs, hourly rates with built-in caps for experimental work and close service desk contact with the customer over the life of the job.

In multimedia productions unlike print jobs, the prep functions are the biggest part of the bill. Once a multimedia publication is ready for distribution, it is simply copied to floppies or CD-ROMS; there is no high priced press run to hide the loss in prepress and little value to be added in craftsmanship or quality control in duplication. The money is made in design, software development and project management, not pressmanship, waste reduction, paper purchasing or TQM.

NEW FORMATS: SOUND, VIDEO AND COMPUTATION

The newest data types in multimedia need some new creation and production functions that are not part of the regular desktop publishing skill sets. Recording, scoring and editing sound, for example, require musical and audio engineering talents, acoustically correct recording studios and even musical composers with electronic MIDI keyboards, drum sets and synthesizers. Most of these functions can be bought from outside vendors-stock music libraries, public recording studio and electronic audio freelances-and brought in-house as the work and the profit margins grow. Desktop video production houses-similar to design shops with desktop publishing capabilities-are springing up around the country as TV goes digital. And freelance multimedia programmers with experience with Windows, Visual Basic, QuickTime video and other software are available in most major markets or accessible through the Internet and commercial on-line services.
Managing these outside resources and deciding when it's time to bring them in-house requires a growing level of technical understanding, much of which goes beyond conventional print production training, so graphic arts companies moving into multimedia should budget for continual re-training and re-education as the definition of graphic services expands.

DISK MASTERING AND DUPLICATION

In the multimedia world, the "press run" is a digital process of duplicating the electronic publication on disk. Most business-to-business multimedia is floppy disk-based, and a wide variety of disk duplications systems created for the software industry are available to service firms developing a floppy disk press room. Like printing presses, disk duplication machines are available in a wide range of sizes, from $2,000 standalone devices that copy 120 disks per hour to $40,000 multi-bin autofeed systems that duplicate 12,000 disks per hour with automatic verification, set collation and label printing.

For CD-ROMs, the introduction of CD-R (Compact Disk, Recordable) products for desktop CD-ROM creation have simplified the disk mastering and duplication process. Complete CD-R systems from companies like Kodak, JVC and Sony start at about $12,000 and use $20 to $30 write-once CDs for very short runs and for CD-ROM "approval proofs" that can then be sent out to a CD pressing house for duplication at less than $1.50 per disk in volume. (Some prep shops have already installed the Kodak CD writer in order to produce Photo CD disks for their customers.)

With the number of CD-ROMs in print at 100 million and growing, the high speed duplication machines used by the CD pressing facilities who also produce music disks may one day find their way to the back rooms of printing plants. But the greatest business potential in publishing services probably does not lie in a high volume, low margin, environ mentally problematic manufacturing process, whether it produces paper (which at least needs some added craft value) or disks. A book printer who now charges $150 to print a 26 volume paper encyclopedia should not try to replace that business with CD-ROM press run that yields $1.50 per disk.

Telecom-based business opportunities

For all the overheated press hype about the coming information Superhighway, telecom-delivered publications have been with us for over 15 years and are the most successful new media category. More than 5,000 commercial on-line databases are now up and running; over 8 million subscribers paid more than $10 billion last year to access information on a computer screen via modem. More than 45,000 bulletin board systems are operating in North America, and commercial on-line services like CompuServe, America On-Line and Prodigy boast over two million subscribers each.

Primarily, telecom publishing is a business-to-business market with industrial, financial and legal information served up by companies like Dialog, Dow Jones, Reuters, Nexis and Westlaw. But more than 3,000 general-market newspapers and magazines are now available on-line, and smart companies like Apple, AT&T, Kodak, MCI, Microsoft and Ziff Davis are launching upscale consumer and general business services.

Two technology trends are driving the expansion of telecom publishing: faster, cheaper modems and more graphically sophisticated personal computers. The old style ASCII text services with nasty code-driven user interfaces are being replaced by point-and-click multimedia services that deliver typography, artwork and photography to the on-line reader.

Many prepress service bureaus have already developed on-line services in the bulletin board systems they use to receive PostScript files. The software for a text-based PC- or Mac-based bulletin board costs less than $500, and new graphic bulletin board products like Telefinder and First Class start at less than $1,000. Putting a $10,000 Unix-based server on the worldwide Internet costs less than $2,000 per month, and on the corporate networking side, groupware products like Lotus Notes tie thousands of corporate users together in electronic enterprises for about $150 per user.

The best systems offer electronic mail, teleconferencing, chat functions, fax-on-demand, database access, Adobe Acrobat document delivery and Internet gateways, and they can be expanded in modules as the applications grow.

For most publishers, developing and running an on-line system is beyond in-house capabilities. It means hacking electronic text files, scanning low res artwork, adding hyperlinks and fax pages and keeping the system up 24 hours a day. Especially if the text and graphics content is already residing on disk at the prep shop, serving the pages up on-line can be thought of as an expansion of the printing and distribution functions.

The hardware and software for a typical 8-line graphic bulletin board system costs about $10,000. Add the salary of a systems operator with three-shift availability and the cost can easily run to $30,000 to $50,000 in the first year. The next eight lines, though, cost less than $3,000, and the bigger the system the greater the operating margins.

Some publishers and advertisers run on-line services as a free service, but most charge either a subscription fee and hourly access rate. On-line charges range from $3.00 per hour to $50 per hour, depending on the content, and most service try to get a $10 to $35 per month minimum charge. (The ideal on-line subscriber, of course, is the one who pays a $35 monthly minimum and never dials-in.)

The ratio of subscribers to lines varies widely with the application, but 10:1 is low and 100:1 is high in business-to-business applications. Taking a 30:1 ratio, a 16 line system could handle 480 subscribers, grossing $16,800 per month at the $35 minimum monthly rate. If every user dialed in for 2 hours each month, a total of 960 on-line access hours would be charged.

Beyond the set-up fees for the data, the service house could either charge a percentage of overall billing or a flat hourly rate. At 40% of billing, the systems operator grosses $6,720 per month. (At a flat hourly rate of $4, the operator grosses $3,840.) Actual billing rates vary by customer, content and negotiation and can include credit card handling, customer support, monthly maintenance charges, programming and design.

The Age of Custom Service

Old media companies could get by selling standardized products to a wide universe of customers; every prep shop makes film, every printer puts ink or toner) on paper, and outside of broad specialties like magazine work or book manufacturing the product is the same.

In the new media environment, the idea of the general commercial job shop gives way to industry-specific or application-specific service companies that tune their products uniquely to the needs of each customer, that anticipate the graphic communications needs of their clients and then develop interactive solutions to those needs. Hanging out a shingle that says "Good print cheap" is replaced by a consultative selling process that uses technology to help customers inform, entertain or persuade more effectively.

Building the technology base that can support these new media services is simple compared to the management challenges of recruiting and training the right kind of employees, developing profitable production and billing standards, and evolving from a manufacturing to a design culture. Even tougher is finding the right customers who can understand the benefits and take advantage of the new tools.

Graphic arts companies are often handicapped by too close a relationship with the professional print buyer. The symbiotic relationship between the print buyer and the print seller often camouflages the real goals of a graphic communications customer. A buyer whose job is to buy ink-on-paper sometimes can't even conceive of a new media publication that makes paper obsolete, even when an interactive format could help reach more people, communicate more effectively, or sell more products. New media developers must look beyond the print buyer/print seller relationship and talk to the people at the customer firm that can benefit from the advantages of customization, timeliness, comprehensiveness, economy or transaction. They need to know as much or more about a customer's business as the buyer and then visualize new applications that deliver the appropriate solutions. In the process, they will take the graphic arts business into a new era that shifts the emphasis away from batch manufacturing towards creativity, customization, timeliness and more effective graphic communications.\\