OUTLOOK 2001: NEWSPRINT PRICE HIKE LOOMS

By: Lucia Moses

Newspapers Adopt Cost-Saving Measures


At this time last year, rising newsprint prices were partly
offset by strong ad revenue growth at newspapers. This year,
publishers get no such break. The outlook for ad revenue growth
is grim, especially compared with the strong results in the first
half of last year, and paper prices may rise for the second year
in a row. Producers are expected to hike prices by $50 per metric
ton in March, and depending on how much the increases hold,
prices could hit their highest level in five years.

As newsprint analysts tell it, the price increase is likely to
hold because consolidation in the newsprint industry has helped
producers better adjust to swings in demand and shifted pricing
power from buyers to sellers. With that in mind, Credit Suisse
First Boston predicts that the average list price for newsprint
will reach $646 per metric ton this year, an increase of 15.1%
over last year, as producers reduce capacity by 7%.

As Andrew Battista, senior economist with Resource Information
Systems Inc., a forest-products forecasting firm, sees it, demand
will stay tight this year as producers mothball old newsprint
mills and shift production away from newsprint to more lucrative
paper grades.

But a number of publishers and newspaper analysts counter that
the slowing growth in advertising, coupled with the ongoing
adoption of narrower page widths, will dampen demand for paper
and hold down price increases. “Generally speaking, it doesn’t
look as though there’s going to be a price increase this year,”
predicts John Morton, the veteran newspaper analyst based in
Silver Spring, Md., “simply because advertising volume is weak.”

Newsprint, which generally accounts for about 20% of a
newspaper’s expenses, is its biggest cost outside of payroll
– and a profit killer. Publicly, publishers are downplaying
the possibility of a successful price hike this year. But, being
a conservative bunch, publishers are budgeting for increases as
big as 20% this year while hastening to switch to narrower page
widths.

Knight Ridder Chairman and CEO Tony Ridder, for example, has said
he believes prices could fall later in the year. Nevertheless,
his company is planning for a 20% cost increase this year. By the
year’s end, the majority of Knight Ridder’s 32 dailies should be
printed on skinnier pages for an anticipated savings of 3% to 4%
on newsprint, Ridder says.

A Newspaper Association of America survey of 554 newspapers last
July revealed that 26% had converted to narrower web widths,
while another 26% were committed to doing so. Going from the
standard 54-inch web width to the 50-inch width theoretically can
save 7.4% on newsprint consumption, but, in practice, the savings
are somewhat less because papers often add pages to make up for
the loss in the news hole.

Recognizing the trend’s momentum, the McClatchy Co. also will
make the switch this year, for an expected cost savings of 4% to
5%, President and CEO Gary Pruitt told analysts at a conference
in December. Said Pruitt, “Narrower web width has become the
industry standard, and it makes sense for us [to follow suit] to
make national sales more convenient.”



Lucia Moses (lmoses@editorandpublisher.com) is an associate editor covering business for E&P.



Copyright 2001, Editor & Publisher.

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