Newsprint Prices: Rising Again?  | American Journalism Review
 AJR  Columns :    THE NEWSPAPER BUSINESS    
From AJR,   March 1998

Newsprint Prices: Rising Again?   

If they do, it will mean slower profit growth for newspapers.

By John Morton
John Morton (mortoninc@msn.com), a former newspaper reporter, is president of a consulting firm that analyzes newspapers and other media properties.     


Profits soared for newspapers last year, thanks to a happy combination of strong advertising and relatively cheap newsprint. But as it has so many times in the past, newsprint is likely to raise its ugly head again this year and spoil at least part of the party.

Since the ups and downs in newsprint prices have such dramatic impact on profitability – newsprint accounts for 15 percent to 25 percent of newspaper operating costs – it is useful to recap what has happened in recent years.

In 1994, newsprint cost about $425 per ton, essentially the same price newspapers paid in 1980. This happy fact (for newspapers, not newsprint producers) stemmed from a major imbalance between supply and demand caused by several new newsprint plants starting up in Canada at the same time that advertising in North America became sluggish. With circulation generally on the wane, only advertising creates demand for newsprint.

That imbalance quickly evaporated, though, when advertising started to surge in the U.S in 1994. There was similarly strong demand in Asia, which buys a portion of its newsprint from North America. The U.S. newsprint price reached about $525 per ton by the end of 1994, then kept soaring until it reached $750 by the end of 1995.

Readers may recall that it was during this period of escalating newsprint prices that newspapers downsized with a vengeance in employment, news holes, special sections and other initiatives that had been designed to improve readership (see The Business of Journalism, November 1995). Several afternoon dailies disappeared during this period as well.

Then just as suddenly, the price slope changed downward, driven this time by new newsprint capacity coming on stream in Asia, weakening advertising volume in the U.S. and by publishers working down large inventories of newsprint bought at the earlier high prices. The price hit bottom at the end of 1996 at a little under $500 a ton.

When 1997 brought strong advertising growth (and with circulation ticking up a bit), prices started to edge up again, with one price increase in the spring and another announced for the fall. The fall increase really did not take hold until toward the end of the year, meaning that the average price for 1997 was about $560 per ton. This still meant that for most of the year, newspapers were paying less than in 1996.

This year, though, newsprint will cost more than it did last year. Already at least one producer has announced a $50 per ton increase for the spring. Unless there is an unexpected collapse in the economy, which would drive down advertising demand, there is likely to be at least some kind of additional increase. The newspaper companies offering their expectations for 1998 at the Paine Webber Media Conference last December estimated 10 percent to 15 percent increases in newsprint costs for the year.

The big unknown at this point is the impact of the financial turmoil in Asia on that region's newsprint consumption. If newsprint consumption there were to decline, some supply might be freed up for the North American market, from reductions in North American exports to Asia and increases in imports from Asia.

Another unknown is whether U.S. publishers will start rebuilding newsprint inventories, which are now at about a 35-day supply (inventories have been as high as 55 days in recent years). Buying newsprint in excess of what is being consumed would of course increase demand and help support price increases.

However the international pressures work out, it is probably significant that newsprint producers expect to raise prices this year and U.S. companies are budgeting for increases. If the expected increases come, newspaper profits will not soar at the 30 percent to 40 percent rate they did in 1997. Indeed, most of the companies at the Paine Webber Conference predicted significantly slower profit growth this year.

Several of the companies at the conference mentioned the challenges this year will bring because of costlier newsprint. I hope this does not presage another round of cost-cutting, since the industry still has problems, notably weak circulation, that scream out for higher levels of investment.

In fact, not much emphasis was placed on cost reductions at the conference. Rather, most executives talked about improving editorial quality and promoting circulation harder than in the past. Gannett said it would add an entire page to its key papers in l circulation building effort. Maybe, we can hope, the last newsprint-driven downsizing won't be repeated. l

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