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Print Margins Ripe for Taking at RRD, Merrill

Seal of the U.S. Securities and Exchange Commi...

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.

English: WebFilings company logo

English: WebFilings company logo (Photo credit: Wikipedia)

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

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.

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6 replies »

  1. Bob, I have to say I’m shocked by this article which is very biased. You were a damn good typesetter at Merrill, but how does that qualify you to speak about billing practices since you are not behind the scenes ? Your article sounds like you were paid to purposely put down Merrill and RRD. Obviously you have very little regard for your friends at Merrill and the financial printing industry since this is where we make our living. Your article makes you sound bitter. Perhaps your readers should know that you were not privvy to the inner workings at Merrill and that you made your living in the financial printing industry for many years before turning your back on your friends who are still in the industry. Obviously you didn’t have the stones to write this while being employed by Merrill. By the way good luck on your new job. I hope you find the happiness that you never seemed to find in financial printing.

    Anthony L.

    Palo Alto California

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    • Thanks for the typesetting compliment. I’d like to address your comments first off by suggesting you were reading the article with bias–the bias of someone who works for a financial printer and assumes everyone else you work with feels the same way you do. Instead of making personal accusations as to my being bitter and turning my back on friends in the industry, you might have attempted disputing any or all of the piece’s content. Since your criticism was directed on only a personal level, I will assume you feel the facts presented are accurate. To further assume that my combined 15+ years in the business amounts to nothing more than typesetting knowledge is just well, not very kind, nor considerate of the many contacts and yes, friends, that I have made over the years–both in and out of the business. I can assure you I accepted no compensation for writing the piece, too. Also, please do a keyword search for “financial printer” in hittingthesweetspot by Bob Skelley archives to view the many articles I have written on the financial reporting industry (while being both in and out of the employ of financial printers). To close, please understand I have no regrets on my financial printing career; to the contrary, I left it “all on the field” and moved on under good terms. There is no personal agenda with my writing. My friends know this, are supportive and would tell you as much. Thanks for stopping by, Anthony.

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  2. Great article Bob. Where do you think IBM’s Clarity/FSR software ranks in comparison to WebFilings? I’ve also noticed that WebFilings doesn’t seem to be able to link directly to clients’ GL systems. I’m surprised that this issue is not a big deal for many of the large accelerated filers joining WebFilings as clients. Thoughts?

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    • Hi Jives,

      Appreciate your kind words. I have not demoed the IBM Clarity FSR solution, and cannot comment from personal experience with the software. That said, the problem with software acquisitions (IBM purchased Clarity in late 2010) becomes one of marketing to new and existing customers–what features will continue to be supported, will it be developed enough going forward that customers will feel confident using it into the future, etc. Sometimes the best software never gets off the ground in terms of garnering market share. WebFilings’ timing and product could not have been better. It took the better part of half a century for anyone like WebFilings to creep up on traditional financial printers like RRD, Merrill and Bowne (pre RRD merger); they can ill afford any further threats to their remaining market shares. If WebFilings can make inroads into heavier volumes of registration work, they will force further contraction among financial printers left to try and stop remaining market share bleeding–not exactly the position of strength doing business they enjoyed during better times.

      As to GL system linking, I’m not sure this is a problem for WebFilings. I believe their software has good scalability provisioning and should their customers create a demand for this or any other capability it currently lacks, they will consider adding it to the product’s feature set. One of the biggest reasons for WebFilings’ success to date is they are a software company who entered a market (financial printing), where one did not exist previously–RRD, Merrill and Bowne for that matter, were/are not software companies. The ease of use and ability for clients to control their own filings helped WebFilings seize the day. There are still niches to be had for XBRL reporting service providers; I just don’t see anyone toppling WebFilings’ perch at the No. 1 spot any time soon.

      Thanks for your comments, Jives, and for reading hittingthesweetspot.

      Regards,
      Bob

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  3. “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”.

    Everyone who opposed this article will now realize Bob was correct about Merrill’s future in his past.

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