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R.R. Donnelley & Sons (RRD - Analyst Report) recently announced that it has entered into an extended agreement with Harlequin, a subsidiary of Toronto-based media company Torstar Corporation to provide eBook and digital content fulfillment services.

Under the terms of the agreement, Donnelley will use its LibreDigital platform to convert content into digital eBooks and will deliver them to Harlequin’s business partners and retailers. However financial details of the transaction were not available.

Donnelley will also use its upcoming Harvest eBook distribution platform to deliver Harlequin’s content to retailers. The new digital platform will allow publishers instant access to hundreds of retailers in 75 different marketplaces, which will help them to make their titles available immediately after release.

Over the past 12 months, important contract wins have ensured significant growth for Donnelley.  It has won a number of multi-year multi-million dollar contracts from the likes of Williams-Sonoma (WSM - Snapshot Report) and Office Depot (ODP - Analyst Report).

Currently, Donnelley is facing significant threat from digital technologies that enable much easier transfer, designing, resetting and reproduction of data. This affects big projects, such as books and journals, where the number of printed pages are much higher.

Additionally, the increasing popularity of digital versions of books and sophisticated e-book readers from the likes of Inc. (AMZN - Analyst Report) and Barnes & Noble has been held responsible for the waning interest in commercially printed paperbacks and hard covers.

Donnelley needs to expand its scope beyond the traditional business, which can be achieved through acquisitions and new contract wins. In this regard, we believe that the Harlequin contract will boost Donnelley’s presence in the eBook conversion and distribution market going forward.  

However, we expect Donnelley to remain under pressure in the near term due to continuing pricing pressure, volatility in raw material prices, and increasing competition.

Currently, Donnelley carries a Zacks Rank #4 (Sell).

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