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The New York Times Narrows Its Page Width to Save $10 million Annually, The Orange County Register Reduces Its News Hole, US Newsprint Consumption is Down 11.1% This Year And Newsprint Producers Continue To Report Losses – The Right Scenario For A Price Increase?

Just this week alone the New York Times has started producing a narrower newspaper and the total news hole is down, The Orange County Register in California is laying off people and has announced it’s reducing the news hole, and similar announcements seem to come with great regularity so is this the right time for the newsprint industry to try to impose rate increases?

newsprintThe current price for 30-lb newsprint in the US is around $570 - $575 a tonne – that’s about $145 a tonne less than in Europe – and compares with last year’s US list price of  around $668/tonne  although canny buyers were purchasing for closer to $600. It’s in this environment that privately held Kruger Inc is trying on a $25 a tonne US hike in September.

Manufacturers are not having an easy time these days -- Kruger announced in March it was going to indefinitely idle four sawmills and one planer, shedding 1,027 Canadian jobs – but with US newspapers continually finding ways to reduce their consumption as part of their overall cost cutting exercises and with demand continuing on the decline it’s doubtful that Kruger will succeed with its increase.

The real question is whether manufacturers can hold onto current prices. The word from Fitch Ratings is not hopeful. This month it downgraded Abitibi Consolidated and Bowater debt with the outlook for both companies remaining negative. Shareholders of both companies have approved a merger between the two creating the third largest forest products company in North America and they expect the combined business to save some $250 million (€182 million). One would think that would please Fitch, but even with those savings it sees a gloomy future.

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Newsprint Savings Were The One Joy Among All Those Bleak Q1 Newspaper Earnings Reports As Lower Consumption Bites Into Cost Along With Softer Pricing
Narrowing pages, restricting circulation areas, reducing bulk sales, banning pages of financial tables and TV listings to the Internet, and generally falling circulations have bit strongly into US newsprint consumption, with those savings about the only bright spot in newspaper Q1 earnings reports.

Less Circulation, Less News Hole, Less Page Width And All The Other Newsprint Savings That Publishers Have Dreamed Up Are Working – Newsprint Usage And Prices Are Down. But For How Long?
The one cheer in the newspaper corporate boardroom these days is that the sometimes bitter cost control battle with newsprint suppliers is moving in print’s favor. There’s probably another 10 months for prices to continue falling, but come 2008 it will be another story.

With China Expected To Deliver 75,000 Tons of Newsprint to the US in 2007, and With Economies Having Already Cut US Newsprint Usage By 6.6% This Year, The Laws Of Supply And Demand Are Finally Favoring Publishers
The relationship between newspapers and their newsprint suppliers has never been a love affair. No matter what publishers did in the past to cut back on their newsprint usage to save costs the producers would go and close down a newsprint paper mill or two to reduce supply and the laws of supply and demand put publishers right back where they were. But this year is different.

If You’re Looking for Online Convergence Between Print and the Web Then Check Out the Financial Sections Where Integration Is Furthest Along. And Also Note How Print Is Dumping Stock Tables – Something That Makes the “Bean Counters” Happy, But Gives One Less Reason To Buy A Newspaper
One reason that the Financial Times has seen its UK circulation drop below 100,000 is that the competitor general newspapers – particularly The Times and The Daily Telegraph -- have improved their coverage to the extent that one doesn’t really have to buy a financial daily any more to know what is going on in the financial world.

As the Price of Newsprint Increases the Size of a Newspaper’s Page Narrows Or Its Paper Thickness is Reduced; The Next Step Is To Take The Paper Out of Newspaper
Seldom does a day pass that some major newspaper like The New York Times or The Wall Street Journal doesn’t announce that it is narrowing the width of its pages, or reducing its paper weight thickness, to save on newsprint costs. It’s a similar scenario to 10 years ago when newsprint reached its price peak.

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“The downgrades and negative outlook addresses the adverse conditions in the newsprint and lumber markets which are likely to continue and are compounded by the depreciation in the value of the US dollar and costly softwood lumber duties,” the ratings agency announced. “Abitibi and Bowater both reported losses from newsprint operations before special items in the second quarter, reflections of an added weakness in pricing since the first quarter.

“The pressure on newsprint prices is not likely to abate soon, the product of too much supply chasing a falling North American demand that cannot be counterbalanced by a budding export market alone. The fall in the consumption of newsprint continues to lead production curtailment at mills, a situation that does not instill confidence in the probability of near-term price stability, let alone improvement.”

And while Fitch believes the long-term gain from the merger will be beneficial and will eventually create “an opportunity to align operating capacity for newsprint with order book demand” it says that is going to take longer than first thought because of the softness in the markets.

The prevailing view in the market earlier this year was that prices would consolidate and even begin to rise by Q4, but that is now looking very unlikely. The relations between publishers and newsprint operators have never been what they should be – it’s more like two warring armies each looking for softness in which to attack the other.

For years the one thing that both sides really needed but never achieved is price stability and with newspapers now firmly entrenched in seeing newsprint costs as a definite area for savings it gets more and more unlikely for there to be a “peace” between the two.

Just look at the pricing over the past 20 years or so. In 1996 newsprint hit a high of $750 with some publishers then said to have paid closer to $900 fearful the price would go higher. This was a wakeup call for publishers who then started the process of reducing the news hole, narrowing column widths and the like – what is being done today is not new, it is a continuation of old tried policies. Publishers at that time then started saying out loud that maybe there should be some sort of price stability pact between newsprint producers and publishers.

But no sooner was that being talked about than the price started softening and in proportional ratio so did publisher talk of price stability. Within six years newsprint prices had hit $425/tonne and it was the producers talking out loud about having some sort of price stability.

So with those prices in mind today’s price of around $570 - $575 is very close to the median. Peter Appert of Goldman Sachs wrote earlier this year on the importance of price stability, “Our sense is that both publishers and newsprint producers would like to see greater stability in newsprint prices, but neither side knows how to achieve this goal. For publishers, the tug-of-war between the greater long-term cost viability through more stable prices versus the short-term earnings benefit of cyclical depressed paper prices always seems to favor short-term earnings.”

But with nothing that publishers have been doing improving their share prices there appears to be a changing mood that now says to work on the long-term since short-term policies aren’t giving the desired results in the financial markets. That just might mean there is a window of opportunity now for both sides to get together to assure pricing stability.

Both sides, meanwhile, are trying to be canny in production and consumption.US publishers are steadily reducing their newsprint inventory – pretty much a sign they expect their consumption to continue decreasing and also that they believe prices will continue to fall, Producers are exporting more outside North America than ever before to make up some of the slack but even in doing that their inventory is still far higher than it was a year ago. All in all, it still looks like a buyer’s market.

Less paper consumption is due to many reasons including reduced circulation, but it also is because less news is being printed. At The New York Times Editor Bill Keller has already called for shorter stories. Many letters to the editor are now consigned to the web. Pictures are smaller. And while the newspaper has added pages to make up for the 1.5 inch page width loss, at the end of the day editorial’s news hole is down about 6%.

As far as The Times is concerned reducing width to 12 inches is just adjusting to the new industry norm. “The Times is moving from a 54 inch web to a 48 inch web,” according to Tom Bodkin, design editor at The Times. “It’s pretty much becoming the standard,” he said, referring to recent changes by The Wall Street Journal, The Washington Post and The Los Angeles Times. In The Journal’s case it lopped a full three inches off its width, reducing the number of columns by one.

The situation in Orange County is sadly now typical of the situation into which newsprint producers must now sell. Editor Ken Brusic announced a 14% revenue drop and a 38% profit decrease and, “as we see revenue continue to fall, especially in print, our company needs to take strong action to regain some balance.”  That means, he said, the paper would cut space, eliminate open positions, reduce the freelance budget and drop some wire services.

“Our entire industry is in a state of transition,” he said. “We are seeing fundamental shifts in the way people acquire and use news and information. If we can focus on the light at the other side of this small tunnel rather than the darkness, we will prosper.”

The same could be said for newsprint producers, too.


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