(2) A Breakdown by Segment
1) Publications
Negative growth for five consecutive years in the book and magazine market
The unit sales for 2001 in the book market were down 3.2% year on year indicating a decline for five years in a row, while the magazine market was down 3.5% marking its sixth negative year. Book sales dropped by 166.57 million copies (18.2%) since the peak sales of 943.78 million in 1998, while magazine unit sales plunged as much as 695.05 million (16.0%) from the peak of 3,910.60 million unit sales in 1995.
Despite the discouraging results, the number of new publications rose 2.2% from the previous year to a record 69,003. As a result, the rate of returned copies in value stood high, 39.1% for books and 29.4% for magazines. Japanese publishers are running business more precariously than they have ever done.
The publishing market is established based on population. The population of Japan, which is predicted to peak in 2006 before starting to fall, continued to grow at least until 2001, if only at an increasingly slower pace. Nevertheless, the publishing market has been shrinking because the number of books and magazines read per capita is diminishing.
The number of books and magazines read per capita peaked out in 1995 at 38.2 and fell to 31.8 by 2001, down 16.8% from the peak.
Diversified media as the primary factor of the shrinking publishing market (Figure 3)
The primary factor behind the shrinking publishing market is the diversification of the media that people can access; people began to allocate time and money they used to spend for books and magazines to other types of media.
Figure 3 shows changes in how much time individuals spend at home using each of the various types of media. Most remarkable is how diversified the media ordinary people use on a daily basis have become over the past 25 years. In 1975, all they had were TV, radio, newspapers, books and magazines. By the late 1980s, as videotapes and computer game software became more common, people began spending more time on them. However, the spread of the five-day work week system and addition of national holidays resulted in longer free time and thus increased people's exposure to media at home, including books and magazines.
In the latter half of the 1990s, new media such as personal computers, the Internet and mobile telephones emerged and quickly gained popularity. By then, the amount of free time had stopped increasing as five-day work weeks became standard and the further addition of national holidays was unlikely, so that people reduced their time for reading books and magazines to spare extra time for playing with PCs and the Internet. Consequently, the time spent for reading books and magazines fell as much as 36% during the eight-year period from 1993 to 2001.
A similar trend is seen in household expenditures. In 2000, expenditure items that experienced a year-on-year increase were all products of digital content such as telephone charges (mobile phones) (+\7,697), PCs (+\2,564), subscription fees for broadcasting services (+\929), audio/video disks (+\836) and TV games (+\399). On the other hand, newspapers (−\491) and books (−\364) were among the top five items that were subjected to a cut in expenditure.
The diversification of media thus widely scattered the time and money people spent and made people less likely to read books, leading the publishing industry into the current doldrums. The same phenomenon is highly likely in any country where a variety of media are burgeoning.
Undoubtedly, new media will continue to arise and diffuse in Japan whose population is expected to turn into negative growth in 2007. Japanese publishers should be prepared to face harsher situations.
2) Advertisements
Advertisement expenditures and GDP (Figure 4)
Japan's economy for the past decade has been far from favorable for the advertising market. However, the market has been on the steady rise. Figure 4 shows the advertisement expenditure as percentages of GDP. Except for unusual figures around 1990 during the bubble economy period, the plot forms an almost-straight ascending line since 1980. As per capita advertisement expenditure in Japan is equivalent to only a quarter of that in the U.S., there should be greater leeway for the market to expand.
In practice, growing advertisement media are clearly distinguished from non-growing ones at each stage of change in economic structure, rather than every advertising medium always grows evenly, depending on the maturity of the consumer market in Japan. Today, while the TV advertisement market is swelling, newspaper and radio advertisements are on the path from maturity to decline. Also, in sales promotion (SP), the boundary between those on the rise and those on a slowdown is considerably recognizable.
Direct mail and inserts growing under the economic slump (Figure 5)
Figure 5 is the plot of each SP medium's annual advertisement expenditure (vertical axis) and their annual shares in value of the entire advertisement market including the four major mass media (horizontal axis). If the medium is growing in both value and share (showing an upward trend), its market is considered expanding. Those leveling off or rising in value but declining in share (moving toward the upper left or the left) are matured, while those declining in both value and share (moving toward the lower left) are declining media.
As Figure 5 indicates, newspaper inserts and direct mail (DM) have been on the rise for the past decade. DM advertisement expenditure showed year-on-year growth even in 1999, when the overall advertisement market recorded a negative sales figure compared with the previous year, and a high 5.4% increase from a year earlier amid a slowdown in 2001. On the other hand, expenditures for newspaper inserts, though fluctuating linked with economy, indicate a tendency to have shorter negative growth periods than those of the entire economy and their positive growth largely exceeds the growth in GDP at an economic upturn. Newspaper inserts are continuing to enhance their presence as an advertising medium year after year.
Shift to service economy contributed to growth in DM and inserts (Figure 6)
In the medium and long terms, the Japanese economy's shift toward a service economy is regarded as the driving force in increasing DM and inserts, and these sectors are expected to continue to expand even under certain influences of economic fluctuations. The shift to a service economy indicates that service industries account for a larger part of the entire industry scale. Service industries include a wide range of business categories, whether targeting enterprises or consumers. Companies in this line of business are most likely to be small in scale, offering service in limited areas or to limited customers. Cost-effective advertisement media that these kinds of service providers would choose are neither TV nor newspaper, but direct mail or newspaper inserts.
This trend is clearly demonstrated in Figure 6, in which newspaper inserts issued by service and entertainment industries have been increasing for the past six years in spite of the economic conditions.
In any country, the expansion of DM printing demand is a likely result when a matured consumer market prompts businesses to emphasize targeted marketing and industries' shift toward a service economy encourages a growing number of industries and companies to use DM as their means of promoting sales.
Although a detailed explanation is not given here, electronic media are unlikely to exert a major negative impact on the DM printing market at least by 2010.
3) Packaging
Expanding paper/paperboard products in the packaging market (Figure 7)
In Japan, landfill site capacity for household and industrial waste is reaching its peak. Some plastics are causing serious environmental problems as they emit toxic dioxin when incinerated. In addition, stricter legislations such as the Container and Packaging Recycling Law and the establishment and spread of systems such as ISO 14000 have made businesses more aware of environmental and resource issues as common challenges across the boundaries of industries. This, as a matter of course, has a direct influence on printing demand.
While the overall scale of the packaging market continued to shrink from 1991, the pace accelerated after 1997. In this downward trend, in which the use of metallic, glass and wooden materials plummeted, shipments of both paper/paperboard and plastics have been showing positive growth. However, with respect to changes since 1996, the growth of paper/paperboard has surpassed that of plastics. During the four years from 1996 to 2000, paper/paperboard increased its share by 2.7 points while plastics rose only 0.6 points.
There was once an argument that the use of paper had to be restricted as it reduced forest resources. However, since the Kyoto conference on environment and resources, paper has been looked at positively from the perspective that it absorbs carbon dioxide and is made from wood as a recyclable material, and the ratio of used paper recycled is rising year after year. On the other hand, plastics are now considered more of a problem as they are made from exhaustible materials, are not recycled as much as paper and emit toxic substances such as dioxin when incinerated during a disposal process. Such changes in public opinion have elected in favor of paper/paperboard as a packaging material and resulted in their increased share of the packaging materials market.
In the future, businesses will be subjected to greater pressure to take measures against environmental and resource problems. Regulations on VOC (Volatile Organic Compounds) are being tightened rapidly. In Saitama, a neighboring prefecture of Tokyo, an ordinance was enacted that forces companies involved in photogravure printing to reduce their production down to half or to establish special treatment facilities, which can cost them hundreds of millions of yen, by 2001. In response to this over-rigorous regulation, the gravure printing industry had discussions with the Saitama prefectural government and persuaded them to delay the effective date by five years. Even with the grace period, the industry is still confronted with an enormous challenge because gravure printing on plastics with water-based inks or uv curing ink is technically difficult. This is another reason to project the enhanced presence of paper as a packaging material even when the total volume of packaging used is on a downward trend.
4) Business forms (Figure 8)
Figure 8 shows changes in the business forms printing market in Japan. Its largest segment for 2000 was continuous form. This segment, although remaining the primary product of the forms printing market, has shrunk as much as 35% over the past four years. Loose form, which were in fourth place in sales for 2000, and stock form, in fifth place, had been ranked second and third respectively, just below the continuous form, four years ago. In 1996, these three segments accounted for 63% of the business forms printing market.
After structural changes in the market caused by the widespread use of PCs and the Internet, however, demand for these items sharply dropped by as much as 19% in share and 32% in value. During the same period, shipments of printing paper for forms declined 9.8%.
Meanwhile, the segment of DPS (Data Print Service)/information processing and others (including commercial printing and on-demand printing) jumped to compose no less than 30% of the market. An example of the DPS/information processing business is providing comprehensive outsourced services regarding the printing of mailing form, ranging from processing the data received from the customer up to printing and mailing output.
What is behind the increased sales of forms printing? (Figure 9)
Figure 9 shows the sales performance by segment of TOPPAN FORMS CO., LTD., the largest player in the forms printing industry and the third largest in terms of sales in the Japanese printing industry. As seen in the figure, while sales of traditional business forms are leveling off, data print services (DPS) are soaring at a high annual growth rate of 15.2%, as the leading contributor to the company's expansion. DPS, which had accounted for 14.4% of the company's sales in 1997, swelled to over one-fifth, or 20.3%, in 2000. By contrast, sales of conventional business forms fell to a level barely above 60%. Similar changes are seen among midsize businesses engaging in form printing. What is behind the growth of the DPS market are payment methods to eliminate cash payment at the point of sales, which are now used more often as a result of an increase in credit card shopping and mobile phone users. According to a survey on postal service usage conducted by the former Ministry of Posts and Telecommunications, the number of letters regarding financial transactions has surged as much as 2.4 billion (a 7.4% average annual growth) over the past five years to account for 39.2% (about 8.6 billion) of a total 22 billion pieces of regular mail handled in 2000.
Such changes in the forms printing industry can be observed in the U.S. as well. 'Vision 21', an outlook of the printing industry issued in the U.S. in 2000, predicted that the printing industry would have to be redefined as it moved from being the manufacturer of printed products to an information industry. The report cited the forms printing industry as a model case, because it has successfully changed the main business from conventional forms printing as mentioned above to DPS.
(3) Interesting findings about printing business management (Figure 10)
Profitability (the ratio of profit to sales) in the Japanese printing industry, which stood at 5-6% throughout the 1980s, dropped to the order of 3% in the 1990s. The ratio has not declined further thanks to companies' efforts in compensating for a slowdown in sales and increasingly fierce competition to receive orders with reduced outsourcing costs and staff cuts. Differentials in performance between winners and losers are widening every year.
Web offset presses have come to exert greater influence on the competitive environment (pricing, delivery) of Japanese printers. For instance, the unit price for printing 4-color/4-color newspaper inserts on a B2 size web offset press is nearing \1.0. Moreover, the possession of web offset presses is closely related to a company's competitiveness.
Currently, there are some 1,800 publishing/commercial offset presses in operation in Japan (with 77.2% of them capable of more than 4C/4C print jobs), offering a production capacity to meet 80% of the domestic process color printing market demand. More obviously, companies which stay competitive in price and delivery supported by superior marketing ability and high productivity enabled by web offset presses are becoming dominant in the market.
Figure 10 shows the results of a survey covering JAGAT member companies. The companies that responded were divided into two groups depending on whether they possessed web offset presses or not. Each group was then categorized by performance of sales growth and profitability so that the managerial indexes of each category group could be compared with those of others.
The high performance group either with or without web offset presses in Figure 10 was defined as the top 20% of companies in performance (consolidated evaluation by two indexes of the sales growth rate and the ordinary profits per employee) and the low performance group as the bottom 20%. The remaining 60% was regarded as the average performance group.
What is noteworthy is how high the sales growth rates of the high performance groups were. Among the businesses, which have web offset presses, the year-on-year sales growth rate for the high performance group was 12.2%, while the figure for the average performance group was no more than 1.5%. The disparity between the two groups tends to widen as the economy deteriorates.
A large gap in sales per employee was seen among the groups with web offset presses. There was as much as 80% disparity between the high performance group and the low. Sales per sales person showed a significant gap as well. With an overwhelming amount of sales, high performance companies, which own web offset presses, were allowed to keep low the ratio of production costs, including labor, depreciation, lease payments and miscellaneous expenses, to sales and successfully achieved high profitability. Another point to note about the high performance group with web offset presses in terms of management indexes is that the equipment cost per employee is much higher than the other two groups.
Among the firms, which do not own web offset presses, there is a considerable disparity in sales growth rates among the three performance category groups. With respect to profitability, the ratio of ordinary profit to sales for the low performance group has been deteriorating, recording a negative figure twice in the surveys for the past three years.
The results indicate that the companies with web offset presses and a powerful marketing force are dominating and expanding in the printing market based on their superiority in equipment, whereas those without either such machines or management potential are weakening.
◆【Part 2】
2003/02/26 00:00:00
