The Misguided Criticism Of Printing Industry Merger
The Misguided Criticism Of Printing Industry Merger
Authored by Derek F. Dahlgren for Law360June 11, 2019PDF
The past two decades have seen an unprecedented migration from print to digital. This migration, hastened by the online giants such as Amazon.com Inc., has had a pervasive effect on a wide swath of the economy. New York Times executive editor Dean Baquet recently predicted that within five years most local newspapers will be out of business. But it is not just newspapers. Magazines, catalogues, and mail flyers and other print media are all declining and at risk. And yet, the print industry, if given the room it needs, appears determined to weather the storm.
Quad/Graphics Inc., a major marketing solutions provider and leader in the printing industry, has announced that it is acquiring LSC Communications Inc., a global print and media solutions business. Joel Quadracci, chairman, president and CEO of Quad, has indicated that the acquisition is essential as the companies face a shrinking print market and intense competition from digital offerings. Projections in Quad's securities filings show the companies face significant challenges, with a predicted 20% decrease in revenue for both companies by 2022. The acquisition is meant to counter this decline and allow the combined company to remain competitive in an increasingly digital world.
One critic has gone so far as to say the merger could kill your favorite magazine and that the combined company would create a monopoly. The U.S. Department of Justice's Antitrust Division is reviewing the merger. But antitrust concerns appear to be both misplaced and ironic.
Misplaced, because it would make no sense for printing companies to set prices arbitrarily high knowing that the very customers they would supposedly have over a barrel demonstrate almost daily how easily they can pivot to digital. Ironic, because the tech behemoths that are killing print are likely the more appropriate targets for possible antitrust law violations. As exemplified by Baquet's comments, the gradual decline of print is overwhelmingly a byproduct of the migration to online digital content.
Aside from hyperbole, the timing of the purported antitrust criticisms is quite interesting. As recently announced, the tech behemoths — Apple Inc., Google Inc., Facebook Inc. and Amazon — are now in the sights of the federal government, with the House Judiciary’s antitrust subcommittee launching an investigation. Remarkably, the very tech companies responsible for the contraction of the print industry are actually expanding into the traditional print industry to directly compete with companies such as Quad and LSC. Amazon, for example, has digital presses used to fulfill customized orders and is already printing books and expanding its capacity for printing and logistics. The government's investigation of these online giants’ vast power and reach should shed light on anti-competitive risks for an array of industries beyond print.
But the investigations will take time. The investigation of Microsoft Corp. took over 10 years to conclude. It seems unrealistic to expect companies in the affected industries to stand by as the government conducts its investigation, the outcome of which is far from certain. Quad and LSC combined have over 40,000 employees. Who would be comfortable asking that many people to sit by and cross their fingers? Probably not many. For this reason, printing companies faced with a growing threat from digital and online competitors should be encouraged to take actions to stay viable in today's brutally competitive market. Here, Quad's contemplated acquisition of LSC is one example of actions that are being taken to stay alive and compete in today's economy.
Aside from these policy-focused concerns, the acquisition also appears to present few, if any, antitrust concerns. Combined, the top 400 printers constitute less than half of the $75 billion U.S. print industry according to Printing Impressions and IBISWorld 2018. A multitude of independent print shops, in addition to fierce competition from digital, appears to keep the industry highly competitive and void of any entity commanding enough market to categorize it as an industry leader. Even companies that serve the larger, long-run requirements for books and magazines, such as Quad and LSC, are subject to this competition and the greater bargaining power of publishers and catalogue companies that are acutely aware of the excess printing capacity resulting from the migration to digital outlets.
The high level of competition in the print industry and the numerous competitors suggest that the proposed acquisition will not negatively affect competition in the industry. In the context of antitrust considerations and concerns, customers are likely to be better served if printers can consolidate and adapt.
In sum, we are at a fascinating crossroads between print and digital. Right now, it seems printed media is destined to be displaced by digital and online formats. And yet, the print sector is proving itself to be resilient in making it economically feasible to preserve printed publication of newspapers, books and magazines. The question is what will happen in the future.
Quad's acquisition of LSC, and the resulting efficiencies, appear to be designed to keep print as a viable outlet going forward. The acquisition is also occurring against the highly competitive backdrop of today's print industry. Allowing print to remain competitive would appear to only foster competition among the various outlets for sharing information, including both traditional print and online channels. Consequently, regulators may be better utilized in investigating the tech giants' dominance over multiple industries, including print, rather than impeding Quad's acquisition of LSC. That merger, within an ailing but still competitive print sector, may be the real key to saving your favorite magazine.
To read the article on Law360's site, please visit: https://www.law360.com/articles/1167844.