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Paper Prices Add to Newspapers Problems

July 11, 2005

By Paul Thomasch

NEW YORK (Reuters) – As if falling circulation, depressed
advertising and competition from the Internet aren’t enough,
newspaper publishers face newsprint prices that are lurching
toward four-year highs.

Prices of the paper used to make inexpensive reading
material ranging from newspapers to flyers are running at about
$605 a tonne, up roughly 10 percent from a year ago.

As one of the major costs in publishing — about 15 percent
of cash expenses — newsprint is causing financial headaches
for companies whose shares are already underperforming the
broader stock market by an average of 11 percent.

The rise in newsprint prices comes as producers faced with
high energy and raw material costs have cut back output. Prices
are now nearing the peaks of about $625 a tonthey reached in
2001.

Consequently, some publishers are using lighter — and
cheaper — newsprint. Others have cut back on running mutual
fund performance listings and other tables, while still others
have reduced the size of their pages.

“Modest changes can have a big impact on expenses,” said
Patrick Talamantes, chief financial officer of McClatchy Co.,
whose newspapers include the Minneapolis Star Tribune and The
Sacramento Bee.

But a key ally in publishers’ battle against rising costs
is also one of the industry’s biggest foes: circulation
declines.

As more readers get their news from digital media,
including online editions of newspapers, traditional
circulation has falling steadily.

SILVER LINING

According to the Newspaper Association of America, U.S.
circulation dropped more steeply in the six months ended March
31 than it did in nearly a decade.

Still, there is a silver lining. Newspapers’ Web sites are
drawing bigger audiences than ever, and the industry has been
able to sidestep at least some of the impact of higher
newsprint costs.

“Certainly the circulation declines that we’ve been seeing
in the industry this year has helped reduce the demand for
newsprint,” said McClatchy’s Talamantes. “But certainly it’s
also true that we would rather have the readers.”

Gannett Co. Inc., the largest U.S. newspaper publisher, has
used 4 percent less newsprint this year, which should help
soften the effects of an anticipated 10 percent price increase,
Chief Financial Officer Gracia Martore said at a recent
conference.

Falling circulation isn’t the only force behind reduced
newsprint consumption, however. Whole sections of mutual funds
and stock listings have disappeared from some publications.

In the late 1990s, many publishers narrowed the width of
their papers from 54 inches to as little as 50 inches, and
further cuts are now under consideration. Lengths can also be
trimmed.

One extreme example of changing size is The Wall Street
Journal’s Asian and European editions. Starting on Oct. 17,
publisher Dow Jones & Co. is packaging the business daily as a
tabloid, rather than a broadsheet.

The company expects the change to bring savings of about $5
million in 2005, before $6 million to $8 million in
restructuring and other one-time implementation costs.

But beginning in 2006, Dow Jones sees about $17 million in
annual savings. For 2004, the company reported revenue of
$948.8 million from its entire print publishing business.

Other publishers, including The New York Times Co. and
Knight Ridder Inc., have started moving to lighter newsprint.
But while this paper can lead to cost savings of about 1
percent, experts also caution it can compromise quality and
turn off consumers.




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