Print Margins Ripe for Taking at RRD, Merrill

Seal of the U.S. Securities and Exchange Commission. (Photo credit: Wikipedia)
“The Big Three”–RR Donnelley & Sons Company (RRD), Merrill Corporation and Bowne, Inc. before them, were the undisputed kings of the financial printing countryside before WebFilings came along.
The last two years has seen the shift of power from the former Holy Triumvirate (Bowne is no more having merged under the RRD umbrella) of financial printers to the relative upstart and current, undisputed EDGAR and XBRL leader from Ames, IA.
WebFilings’ rise to the top of the XBRL service provider mountain was only eclipsed by the Big Three’s rapid fall from grace as power brokers in an industry long dominated by a handful of companies before EDGAR, and more recently the XBRL mandate, came into existence.  While panic set in at Merrill and RRD during WebFilings’ massively impressive pilfering of their client rosters, executive team members at both remaining traditional financial printers secretly hoped WebFilings would try their hand at the print side of the industry.
This form of thinking was a consensus of desperation. Both RRD and Merrill had no way of competing with the WebFilings’ self-provisioning filer juggernaut. Both set out to partner and/or develop their own facsimiles of WebFilings’ successful business model of “do-it-yourself” XBRL tagging. The problem with the copycat business that is Financial Printing is by the time someone realizes their lunch is being eaten by a competitor, it is often too late to react, too late to come up with a rival to a superior, new product—especially if it does not relate to the way the industry has always operated.

Financial printers for decades relied upon the public companies who were their clients to just fall in line and roll over. That is, as the only game in town, printers dictated what the cost of doing business would be. Companies paid financial printers to help get them public and keep them there, but all too often felt as if they entered a money pit of which there was no escape: the joy of becoming a publicly traded company soured once they received mysteriously expensive initial invoices from their respective financial printers.
Time and time again invoices were paid as the cost of doing business. That is, until WebFilings brought the economical and sensible model of self-filing with the Securities and Exchange Commission (SEC) into vogue. By eliminating unnecessary middle people—the customer service and even sales people who were involved more than customers preferred, WebFilings enabled the first cost-effective method for companies to take control of their electronic filings.
WebFilings’ way of doing business revolutionized an industry that had a static way of both conducting itself and its customers. Suddenly, customers had choice in how they wanted to operate when it came to their compliance disclosure for shareholders.
Both RRD and Merrill have managed to remain in business, but it’s mostly a testimony to the fact several companies are not yet comfortable enough to do their own filings. Merrill continues to hold on to the traditional mindset that experience is the way to effective XBRL tagging—even as WebFilings’ software has all but rendered their arguments for doing business their way irrelevant, not to mention ineffective.
XBRL International (Photo credit: Wikipedia)
RRD suffered the unfortunate hardship that was Google’s premature earnings release last October and is still reeling from that costly error. It has bled untold numbers of clients to WebFilings and even some to Merrill. Merrill was able to pick up the aforementioned clients that are still not ready to assume the full control that is doing one’s own compliance filings. Even though Merrill made this relative coup, industry pundits agree it is only a temporary gain.
Merrill has held steady in regards to its client base, but is by no means out of the woods in terms of future problems. Merrill remains in a perilous capitalization state, carrying extreme levels of debt that make its future operations uncertain and the possibility of defaults more probable than it would like. Its long range operations are contingent on their negotiations with lenders to restructure its debt.
Some industry analysts paint a bleak picture for RRD’s long term viability as well. Unless they can reverse the trend of losing clients to WebFilings and Merrill, it will be difficult for this printing behemoth to avoid imploding or taking serious restructuring charges.
Where both RRD and Merrill still think they have an edge is on the print side of their business. This decimated but still lucrative part of financial printing is not in danger of WebFilings’ competition. WebFilings has not given any indication they are interested in these profit margins. RRD has their own print capacity while Merrill contracts out much of this work to printing partners. Both companies do not offer much choice, if any, when it comes to printed books. Expensive shipping costs are often tacked on and included in printing costs.
The next area of change for financial printers potentially lies in the actual print side of the business. RRD and Merrill saw WebFilings swoop down upon them with a self-service filing offering. They have not considered (to this point) the possibility that someone could offer self-provisioning print capacity. Why would they? They are still the only game in town, right? Or are they?
If you have read this far, the truth in all this self-provisioning printer services talk is that although in their infancy, they are coming into play and RRD and Merrill should be at least a little anxious once more. They will have a new challenge. Customers want to save money even if they are wealthy. Many and most, will do their own compliance filings with the SEC. Although getting necessary printed books isn’t something most will ever consider doing themselves, the fact there will soon be choices out there for this kind of print capacity should make traditional financial printers nervous.
These companies will act as print brokers and will be able to deliver total printing management solutions and service levels the two remaining traditional financial printers will not at first want to compete with. If they learned anything from their quickly lost battle with WebFilings for compliance filing supremacy, it should be that no remaining area of their business is secure going forward.