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MIGHTY MORPHS

Sep 1, 1997 12:00 AM


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Over the past several years, those making a living from selling prepress services have been forced to weather a storm of dreary predictions. Yet, intimations of impending death and doom generally end up being premature. One is reminded of Mark Twain's cable from London to the Associated Press in 1897 stating: "The reports of my death are greatly exaggerated."

In the early 1980s, there was talk of the death of film within 10 years. Though the growth of graphic arts film consumption has slowed, and may eventually decline as computer-to technologies gain momentum, film is still among the living.

For years, we also have been hearing about the death of print. Though alternative digital media has taken a bite out of the reference book and directory business, print will be with us for a long time to come. Likewise, the death of the "trade shop" may be farther off than we thought, though the term "trade shop" is fast becoming ananachronism.

As desktop tools democratized the prepress process, many of the services that trade shops traditionally provided have moved into their clients operations. Image composition and retouching have ceased to require "magical" hocus-pocus performed on workstations costing hundreds of thousands of dollars.

Compounding the problem, was a new class of prepress service provider--the service bureau--created by the advent of the desktop "revolution." Though service bureaus may have actually provided less "service" than did the trade shop, they dramatically increased price pressures within the prepress market.

Couple these trends with the printers' wide-scale movement to bring electronic prepress in-house, and the trade shop often finds itself squeezed from all sides.

For some, the pressure was too great. Many trade shops and service bureaus, under the weight of heavy lease payments and declining revenues, have indeed been forced to close their doors. Others have sold out to printing companies that saw acquisition as the most expedient way of getting into digital prepress. Yet there are many others who have continued to run successful businesses, to grow their company, and to develop a clear game plan and chart a course for their enterprise through the end of the century. This article looks at what four different prepress firms are doing strategically: How do they plan to survive despite the doomsayers predictions?

For most, the term "trade shop" is problematic. "I didn't care for the term 10 years ago," says Belinda Butti, president of New York-based DOTS. Butti always had problems selling her services wholesale, allowing printers to mark up the job.

As co-founder of DOTS, a $3.5 million business, Butti also notes that the "feed the metal" mentality of printers didn't fit well with what the trade shop needed in its workflow. DOTS found that trying to get jobs through the shop using third-party information, and no direct contact with the job's originator, increased the cost of doing business.

Yet Butti freely concedes that the prepress business has changed dramatically, regardless of what term you use to describe it. "We have seen our traditional business becoming nothing more than input and output. Edit work, stripping and retouching are no longer a major part of what the big prepress buyers require from us."

Roger Hancuff, president and CEO of NEC, Inc., a 220-employee prepress company in Nashville, also believes the "trade shop" label is out of date. But, he concedes, it is a term that has been in use so long that it may take a couple of generations to go away. NEC does very little work for the trade, with 85 percent of the company's workload generated by its publicationclients.

The term "trade shop" also no longer has much relevance for Applied Graphics Technologies (New York City), one of the country's largest prepress providers. The publicly traded company, which Wall Streethopes will book 1997 sales of $180 million, now describes itself as "the largest provider of outsourced digital image management and prepress services," according to vice chairman and COO Mel Ettinger.

There is one area that the prepress provider may still be able to serve the trade--computer-to-plate (CTP). Tukaiz Communications (Franklin Park, IL) has started to address this possible niche. President and CEO Frank Defino, Sr., views CTP as an area in which his $18 million firm can serve the smaller sheet-fed printer. Defino notes that such operations often don't have an adequate understanding of prepress infrastructure requirements, nor access to the capital needed to take the CTP plunge. Additionally, many printers don't have enough film work to warrant buying a $300,000 copydot scanner. If a traditional trade shop can do copydot scanning for multiple printers, it can pool enough work to justify the sizeable investment.

Backing his beliefs, Tukaiz installed a Creo VLF Trendsetter platesetter along with a Renaissance copydot scanner early in 1997. (Both NEC and AGT also have installed copydot scanning to service their publication clients who have a pressing need to convert film-supplied ads to digital data for CTP imposition and output.)

To build this specialized scanning and platemaking business, Defino has had discussions with Creo regarding the idea of being a hub to service smaller printers. The exec also has allowed his vendor to run demos at Tukaiz, some of which have generated platesetting business in the process.

Somewhat surprisingly, Defino also sees the potential to partner with printers who currently have CTP, acting as a backup and handling overflow work during production peaks. Nonetheless, the Tukaiz executive admits that CTP is "not quite paying its way yet," though he still believes the potential exists.

But not all trade shops follow the same survival strategies. There are different approaches. A shop can diversify by moving upstream in the process to the world of design. Or, one might move downstream and put in printing capabilities. The latter might be viewed as an "if you can't beat 'em, join 'em" strategy.

Some trade shops view size as a competitive advantage and have embarked on a strategy of looking for "sensible" acquisitions where "one plus one equals three." Finally, there is the broad approach of providing value-added services that expand on a business' core competencies.

Let's look at DOTS in more detail. Here, there was a conscious decision to reengineer the company to become more creative, offering a comprehensive source for "design through print." A recent example of the kind of work DOTS has evolved into is a job for a major watch company. The shop created an 80-page printed piece, doing all the design, digital photography, comping, etc. The printing was subcontracted out to a business partner, but this was transparent to the client. "The client doesn't think 'We need prepress. We need printing.' They think 'We need to create a brochure.' Prepress has become a part of the design process," asserts DOTS Butti.

Because of its existing infrastructure, DOTS can provide services such as high-res comps, which most design studios can't touch. "We have lots of really cool tools that a designer can't necessarily afford," observes Butti. "And it's sometimes hard for us to realize that we can charge quite a bit of money for this work, without even shipping film as the final product."

However, finding customers for these new services required DOTS to look beyond their traditional markets. "We had to find new customers--large enough to need communications services, but not large enough to do it themselves," states Butti. She adds that many of these customers don't buy enough prepress to be worth pursuing for that alone. However, when you add in everything from design to print, there are a large number of prospects with six-figure budgets.

Coupled with its new design services, DOTS also has gone from being an Internet skeptic to an enthusiastic proponent of this new media. Though the shop'sWeb site is more of a test lab than a business tool, it recently generated a $60,000 piece of business. DOTS was experimenting, using digital photography to create Quicktime VR files that can be rotated on screen and viewed over 360 degrees. A Seattle-based company downloaded some sample files from DOTS' Web site and contacted the New York trade shop about a major project. DOTS also pioneered the use of creative marketing tools to get new business. Recently, the shop hosted an open house called "DOTS Odyssey." The goal was to position the company as "Web savvy, cutting-edge folks." The event already has brought in two Web design and management contracts, one with a major toy retailer. "You used to have to be a hot Web design firm to get this kind of business," states Butti, "but a lot of these firms were young kids with ponytails who didn't know how to treat the customer."

But not everyone wants to move upstream. For example, NEC is taking a very different approach to the future. The firm's game plan is to be the best and most efficient at what they do while growing internally and through acquisition.

Currently, the company is acquiring TSI Graphics as part of its continued aggressive growth plan. In adding three major plants, NEC will be adding approximately $25 million in sales. The purchase brings NEC a major stronghold in the New York metropolitan magazine market, as well as adding two other top-notch facilities, each with a specific market niche, a solid customer base and a strong team of "associates"--the term TSI uses for employees.

"I believe strongly that there is a definite future for non-printing-based prepress services," asserts NEC president Roger Hancuff. "Many printers, even some of the larger ones, are not equipped to do all their own prepress. In some cases, major magazine projects are being outsourced by printers and part of this is driven by quality issues.

"We also have a large opportunity in CTP technology," says the exec. "Our customers rely on our support--consulting with them, educating their people and helping to refine workflows, especially where digital ads are concerned. We call it our 'Workflow One' strategy, an umbrella for all our CTP support services."

Most important to the entire process, according to Hancuff, is the role of his people. "Publishers are fully aware that the technology we have, absent our people, is worthless. You can't take any Mac jockey off the street and have him or her produce a high-quality product. And, in terms of making money, your people have to be in a true manufacturing business--you need to staff and operate your equipment around the clock to make the whole process cost effective."

In contrast to NEC, Tukaiz Communications looked to internal diversification for growth. On top of its improved sales in recent years, the firm is looking for close to another 30 percent in sales growth over the next three years.

The communications firm has organized into a series of divisions to highlight its expertise in specific areas of the digital imaging and graphic arts business. In addition to its core business and its movement into CTP and copydot scanning, Tukaiz has an extensive digital printing operation called DigiPrint; a creative imaging and design group called Grafx; digital photography under the banner of Digital Capture; a Web hosting business known as SparkLink; and a book division.

Earlier this year, Defino's partner of 34 years sold his stake in the company to Matthews International, a company with expertise in flexible packaging and corrugated prepress. As a result, Tukaiz is now creating yet another division to concentrate on the packaging market.

One other interesting piece of the diverse Tukaiz business is Toucan Studios, which is involved in numerous forms of media production, including audio, video, interactive and Web authoring. This group has even branched out to develop a series of educational tapes, videos and CDs for children. In 15 months, 300,000 product units have shipped. What's most unique is that virtually everything is done in-house--from the packaging design, to recording and mixing, even the product prototyping and printing of all the collateral materials using Tukaiz' Indigo digital presses.

However, even with all this diversification, traditional prepress services still account for 60 percent to 70 percent of Tukaiz' revenues. It continues to be the core of the business.

Regardless of how things evolve, the need to move digital data will still be at the heart of what Tukaiz does. Though Defino concedes that revenues from traditional services will likely remain flat, while the rest of the business grows around it, he believes "digital content" will remain the hub for everything else.

A totally different evolutionary path for the trade shop is in the direction of facility management. Though NEC and Tukaiz have been looking at this area, and DOTS has made a deliberate decision not to go in this direction, Applied Graphics Technologies (AGT) believes that, short of acquisition, the management of on-site facilities is going to be its biggest area of growth.

"Our sales pitch is three-pronged," says Ettinger. "We can do the work less expensively. We can provide higher, more consistent quality. And, we can typically shorten deadlines."

The pitch seems to be working. In 1996, AGT added 11 such facilities, mostly in the second half of the year. And these aren't small operations. AGT is now handling on-site operations for companies such as Conde Nast, Nobody Beats the Wiz, Columbia House and Moore Graphic Systems.

In the case of Conde Nast, the publishing giant actually brought some of its prepress in house several years ago. Then, last year, decided to reverse its direction. Could this signal a new trend? Perhaps. "Many of the companies that have digital prepress in-house have discovered that it is not really so easily managed," observes Ettinger.

AGT also looks for growth with its Advanced Digital Imaging Services Business. This specialized group has been working on developing proprietary archiving and retrieval systems and services, even outside the traditional graphic arts. The group has developed targeted products such as a digital photography system that can be used in consumer environments. For example, one is installed at Yankee Stadium that generates novelty photos. Ettinger expects this group's business to double this year.

Broadcast media distribution is another area of interest to the New York City "prepress" giant. Last year, the firm purchased Spotlink. Rather that duping and shipping film, Spotlink is in the business of dubbing and shipping TV ads. How does this fit in with AGT's strategic vision? "We want to become a dominant digital content manager--whether for print or broadcast," states Ettinger. He adds that often the same AGT client is working in both print and broadcast media and would welcome one repository for all its advertising distribution.

Overall, Ettinger is looking for further consolidation of what might have once been called trade shops, and he expects this trend to continue over the next couple of years. "Those that will survive and prosper," he adds, "will be those that diversify into providing services outside of what were considered traditional prepress."

NEC's Hancuff echoes Ettinger's predictions. He estimates that there are currently about 25,000 companies offering prepress services within the U.S., but only 100 have more than 100 employees. Hancuff expects that within five years this group of 100 may shrink to around 25. The surviving firms will be larger and involved in non-traditional services.

Tukaiz' Defino agrees, identifying the need to have numerous irons in the fire. He argues that "integration of the different digital media is very important. Services will be a complement of database management, digital photography, multimedia, etc. That is going to drive your business."

Finally, DOTS' Butti is upbeat and enthusiastic about the future. "We are excited and enjoying the challenge! Though the future is not guaranteed, there is lots of opportunity."