The economics of digital printing

In an industry bedevilled by over capacity and under utilisation of printing presses, the experience of David Minnett of Momentum Digital in North Sydney is worth considering. Over the years as a prepress studio proprietor he has persevered with the development curve of HP Indigo machines, taking on his first Indigo 1000 long before HP even thought of getting into high-end print. He is now on his third machine, a productive HP Indigo 3000, capable of outputting 3000 A3 single-sided colour sheets per hour - personalised, versionalised and filled with all the marketing advantages of digital printing.

He professes himself to be well satisfied, fulfilling a wide range of printing requirements from short-run colour to not-so short-run colour, producing marketing and sales brochures and presentations in anything from two copies to the hundreds. The press gives him all the quality required - the debate whether digital can match it with offset is largely redundant with the latest generation of digital presses - while providing the levels of production he needs to fulfil quickly on-demand printing jobs.

But it is when you come to look at his usage rates that the difference between his operation and a traditional offset press company is most striking. Momentum Digital operates at about 25 percent capacity of the press over a five-day week - and it is still making good money. "If I was operating the press at 50 percent capacity I'd be spending my time sailing," laughs Minnett.

Of course he wants more, everyone does in this business, but the capacity gap illustrates the profound effect digital printing is having on the creeping commoditisation of printing. Very few pieces of Momentum Digital's print, in fact very few pieces of any high-end digital print, go out the door on a simple reproduction cost per page charge. Almost all of it is surcharged because of breakneck deadlines, ultra short runs, personalisation or versionalisation. This is the digital printing difference.

A watershed for digital printing
Despite the history of hype that has cloaked, obscured and to a great extent impeded the progress of digital printing, the present conjunction of technology and business realism may realistically be described as a watershed. The maturity of the technology, the spread of entry points and the impending arrival of new players on both sides of the production equation, signals the beginning of a new era in which everyone who produces printing is having to make a decision on digital printing.

Last month saw the arrival in Australia of the long-awaited NexPress from Heidelberg, an event that confirms the shift in the world of printing for many traditional commercial printers - "If it's good enough for Heidelberg, then there must be something in it." Fuji Xerox, in a competitive move, launched its 6060 machine, the faster, more powerful model of its best-selling 2060.

The first two NexPress machines are going into Pongrass Digital in Sydney and Impact in Melbourne; there are over 120 of the 2060 machines in the Australian marketplace but so far no 6060s are installed. At the same time HP Indigo announced its 56th press install, this time at Imatec in Sydney, as well as another web press WS3000 at Pemara in Melbourne - the third digital label press in Australia.

In broad terms the parameters of the digital colour printing market can be realised from the positioning of the big three with their flagship machines. The NexPress is directed towards large-scale commercial production printing.

Its main point of differentiation is that it is the first and only digital press geared to produce up to a million copies a month. This is in line with Heidelberg's vision of the printing industry as a high-turnover sector. The quality, as with all the high-end machines, is remarkably close to fine offset.

Fuji Xerox points to the market acceptance and penetration of the 2060 as proof that is a mainstream colour press. Its price point is perhaps $200,000 cheaper than the NexPress (prices per machine are notoriously difficult to get a handle on in digital printing - does anyone pay full price?) and it promotes the 'green button' style of printing where little operator input is required for basic operation. It claims the lowest price per page. The 6060 lifts the production rate to 60 pages per minute with a production cycle of half a million per month.

HP Indigo, on the other hand, promotes its claim of superior quality and real printing as the point of difference, nominating its 'toner ink' as the deciding factor. Its technology, although still toner-based as with the 2060 and the NexPress, consists of minute particles of toner, smaller than dry toner and suspended in liquid -- the heart of the 'fortress of patents' its inventor Benny Landa, is fond of quoting.

Competing machines from Canon and Oce are less focused on the 'print for pay' market and more directed towards the corporate and office market - although Canon especially has long had a presence in the quick printing, shopfront world.

Andrew Tribute, during his inaugural Blue Print forum tour last month, identified anther colour digital printing sector, which he termed 'Colour Lite'. This is a group of mainly Japanese-made machines, 'colour copiers on steroids' as one wag named them - 20 to 35 page-per-minute A3 machines from such names as Minolta, Konica, Sharp, Fuji Xerox and Canon.

They are rated to produce 60,000 to 80,000 sheets per month and they are relatively cheap while providing a marketable product. According to Tribute they provide a new entry point into digital colour printing for printers who are still unsure of what their relationship with the technology should be.

Still unsure after all this time

The fact that so many commercial printers are still unsure of the economics and dynamics of colour digital printing 10 years after its introduction is significant in itself. (The monochrome sector long ago proved its worth in a pure manufacturing industry sense - the Docutech being the most successful of all digital machines. In that business it is merely a question of not selling too far below the cost of production.) But in the digital colour sector debate still rages.

We are emerging from the period where adopters of digital printing could legitimately be regarded as pioneers. As the smoke clears the number of digital printers still standing is growing and their survival is looking less like pure chance than the result of shrewd operation.

That there are still legacy issues to be resolved can be seen in the current court case between Seven Sydney and Fuji Xerox on the suitability of the DocuColor 70 and 100 to produce personalised printing in the period 1998 to 2000. It is impossible to see anyone raising the same capability issues with any of the current crop of digital presses.

If the technology is mature and dependable now, the dynamics of the market for digital colour remain obscure. Many printers are unable to see where digital printing can fit into their business. When they do the figures on cost per page, ownership and infrastructure, run length and invoice costs, it does not add up to a compelling case. Yet, there is little doubt that digital colour is the sector of the market that is growing at a time when other print processes are losing share.

Let's check some statistics. According to a recent Pira International industry report, digital printing is predicted to rise from a current market share of nine percent to 12 percent in 2007. (It is important to realise that digital's share is divided almost equally between office and commercial printing - five percent and seven percent respectively in 2007.)

Digital's increased market share can be compared to a fall over the same period of two percent for litho (from 57 percent to 55 percent), gravure from 19 percent to 18 percent and an increase for flexo from 12 percent to 12.5 percent.

Equally significant is that commercial digital is the only print process that commands a higher value percentage than its volume share of the market. While litho's current volume of 57 percent generates 57 percent of the value of all printing, commercial digital's much smaller 4.5 percent of volume yields 6.5 percent of overall value and its projected seven percent volumes in 2007 will be worth 9.5 percent. (Office digital is regarded as having a volume/value ratio of one for one, equal to that of offset; gravure is slightly less, as is flexo i.e. the value of their market share is less than their volume of the market).

It is this value-added bonus that distinguishes digital printing and makes it so attractive to entrepreneurial printers. It is significant that apart from the two first NexPress buyers, practically no major printing firm has made a commitment to colour digital printing. This is unlike the UK and US experience where many large firms have digital printing engines operating alongside their offset equipment.

A notable exception is IPMG, which has an HP Indigo 3000 in its Sydney prepress company, Sinnott Brothers.

So why don't they?

Print salespeople deal with print buyers (increasingly print brokers, but that's another story). These are the people within companies who are focused on the bottom line cost of print per page. They are not the individuals the sales people of digital printers want to talk to.

The window of opportunity for commercial digital printing is fairly small - after all it only accounts for nine percent of total print - so salespeople in this area are at a distinct disadvantage when quoting against offset to traditional print buyers.

The window for digital printing is located within the marketing and managerial stratum of companies and consists of innovative initiatives to the communication challenges facing these personnel. Digital printing's benefits are easy to enumerate:

• 
  very short print runs, anything from one copy to a few hundred;


• 
  on-demand, send a digital file to your online provider and it can almost go straight to the printer; and


• 
  versionalised (i.e. segmented print runs) and personalised (i.e. a market of one as part of a larger print run).

Nowhere is digital printing sold as being cheaper than small offset, or more economical than large offset on a long run. And in an industry that is engaged in a cannibalistic print price war, the mindset it takes to sell printing for anything other than the lowest cost per page seems like heresy. For most struggling printers it is almost too late to make the switch to digital, or even to attempt to incorporate digital into their offerings. The water in the swamp is rising, despite their best efforts.

What's gone is gone forever.

The impact of digital printing on the commercial printing industry is most significant in the amount of work that is being taken in-house by corporations large and small. The new 'Colour Lite' machines will only speed up this process and there is no point in commercial printing trying to win it back. The entire portfolio of a company's internal printing, from sales reports to conference agendas, monthly newsletters to customer fliers, is rapidly disappearing behind closed doors.

The only question remaining is at what stage will these companies with digital colour printers on every floor look to hire an individual to manage the document output? After all, sheafs of nicely designed, full-colour, perfected printed pages are still just collections of pages; they are not finished, bound and presented documents. What company wants highly paid executives, or executives' secretaries, wasting their time binding pages into a document, no matter how clever the collation trays?

There is a level of digital printing within corporations where the commercial industry can return to the fray and usefully supply professional expertise and delivery. But identifying where that is will not be easy, and assistance is unlikely to come from the professional print buyer. One individual looking after a 'Colour Lite' machine is the kernel of an in-house printery, and we've been there before.

Corporations are not going to return en masse to in-house printing simply because they have cheap, colourful output machines. It will become a question of horses for courses, but we are likely to see a period where the lines of demarcation are increasingly blurred before it gets sorted

The digital print salesperson is the only print professional who can usefully contribute to how to manage a corporation's communications problems effectively. Offset sales people only know price per page along with occasional high-end embellishment. That type of print sales is usually specified by the agency, which is another face of the professional print buyer.

Agencies are accustomed to dealing with large printing firms; the stakes are higher, the contracts are bigger, it is to everyone's benefit for print runs to be large and expansive. Large printing companies and their salespeople don't want to know about the problems of non-professional print buyers. It's not their market.

Getting into the nine percent.

To function within the nine percent window of commercial digital colour printing it is vital to get the marketing, sales and HR managers within the corporations involved. It means running the gauntlet, or better yet avoiding the professional print buyer or the agency, and dealing with those people who are concerned about results, not price. For a marketing manager to have a responsive, customised, digitally printed database is gold. The runs are on the board - full-colour, personalised, marketing communications generate up to five times the response rate of mass marketing. This is not a question of how much the print costs per page.

In talking with digital printing professionals in the industry, of which there is a growing number, the key ingredient of success within a digital printing enterprise is at least one, committed, evangelist to take responsibility for realising the potential. It cannot be a salesperson who is also selling offset - on many levels the two mindsets are incompatible. A digital printing salesperson wants to sell as few pages as necessary at the highest possible rates; the offset salesperson wants to sell as many pages as possible at any rate at all.

Digital printers are able to match small offset in pure price per page up to around 1000 to 1500 copies and under the impetus of development this figure is likely to climb. But that is only the tip of the iceberg and its knowledge can prove to be a diversion from the main game if you are thinking of exploring colour digital printing. Digital printing is about surcharge. Its provision is about service. Anything else is commodity.

On some level it is about inventing a new market, not competing in the existing one. It is not a task for the fainthearted, but it is one for those who see a future for themselves as printers in the communications age.