Productive Streamlining

Folio: The Magazine for Magazine Management, July 1, 1999 by Dzintars Dzilna

Post-acquisition, the potential for savings in paper, printing and people is enormous--if you have a solid plan for consolidating resources.

PUBLISHERS TODAY ARE TAKING ADVANTAGE OF their acquisitions not just to develop platforms to target specific marketing niches, but also to streamline workflows, cut overall costs and realize efficiencies of scale. But a corporate platform for growth is only as good as the staff and technology that produce the company's products. Thus, as publishers acquire titles, they must have a clear vision of how to consolidate manufacturing contracts, employ new production staffs and implement new technologies that afford better workflows.

"Because production costs are such a significant component of a publisher's income statement, economies of scale that acquiring companies bring could change the profitability profile of a company overnight," says Douglas I. Manoni, president and CEO of Stamford, Connecticut-based Media Network International. "Companies like Primedia and Cahners can buy businesses that in some cases are marginally profitable--and in some instances losing money--and have a striking impact on an area like production, in particular."

Contract consolidation

The first production area that acquiring publishers seek to integrate is supply and services contracts for printing, paper and prepress. "Because of our economies of scale, we can immediately bring some savings," says Andrew Mickus, senior vice president of operations, Miller Freeman Inc. "We use a formula based on size and number of copies. We almost assume we can reduce their costs."

Major acquiring publishing companies like Miller Freeman negotiate their own vendor contracts volume-discount clauses, which decrease the price of new business the publisher brings to the vendor through its acquisitions--as well as for its existing supply contracts. "Companies that anticipate growth are actually negotiating terms for volumes that may be six months, a year or two years out," says Manoni, whose own start-up company plans to spend up to $100 million for amassing business-to-business titles. "They are negotiating those terms in advance."

Mickus would not disclose any amounts of Miller Freeman's contractual volume-discount savings clauses, which are on a sliding scale. But he says that percentage-wise, those total reductions have represented anywhere from 4 percent to up to 20 percent--and on average about 10 percent--of the acquired companies' production expenditures.

Vendor contracts needn't necessarily have volume discount clauses in them for a growing company to reap economies of scale. Deals can be struck with suppliers as the acquiring company goes through its due diligence process, for example. That's what Lincolnshire, Illinois-based Vance Publishing did when it bought Little Publications, based in Memphis, three years ago. As Vance considered the buy, its printer offered--because of the increase in volume--to print the four titles at Vance's lower cost of printing and waive Vance's scheduled, contractual price increase for its titles that year. "It probably saved us around 2 percent in overall manufacturing costs," says Ron Brockman, production director for Vance. "Printing, binding, distribution--everything except consumables like paper and ink."

Printing pressed

Moving an account to another company is not always easy, however, especially when the acquired company has built up strong relationships with its suppliers. "Unless they've had a bad experience, I've never walked into an acquisition where they said, 'Get me out of that printer,' "says Jack Morris, vice president of production for Intertec Publishing in Overland Park, Kansas. "The first thing out of their mouth is, 'Well, we really like our printer and don't do anything to disrupt us.

Typically, the acquiring company will seek to renegotiate the company's new contracts with its respective service providers, using the existing contracts as leverage to get a better price. Unless a service provider is negligent, rarely is a contract broken outright to get a better deal with another provider. If the acquiring company and provider can't reach acceptable terms, the acquiring company will let the contract run out and look for price cuts later. "This is a relatively small industry, and you don't want to establish a reputation of not honoring agreements," says an executive at one major publisher.

"That's just going to hurt you in the long run. There really aren't a whole lot of printing options out there, and if you establish your reputation as 'slash and burn' with every vendor, you're not going to get the best possible deal."

Printers have been consolidating their own businesses over the past few years, tightening up supply of ink-on-paper services. Publishers--especially those with long-run titles--have reported squeezes in supply in the last two years or so. "The printing industry is so filled right now, if we looked at moving all three of our magazines to one printer, could they even take us?" asks Ryan Jones, group production director for Miller Publishing Group's Vibe, Spin and Blaze. "There aren't very many printers who could take us at the size that we are and fit the titles into their schedules. They're relatively booked-- there's not a whole lot of empty time out there." Vibe, Spin and Blaze have print-runs of 1.2 million, 775,000 and 600,000, respectively.