Copley Offers to Pay Full Price for Newsprint

By: Jim Rosenberg Why pay less when an extra $15 buys the same ton of paper?

"There is concern on our part about the long-term availability of newsprint," said Diane Jordan, The San Diego Union-Tribune's newsprint manager, as she explained last month's letter from parent company Copley Press Inc. to its several newsprint suppliers.

In the letter, Charles F. Patrick, the company's chief operating officer and executive vice president, offered to pay the last announced price hike's full $50 per metric ton. For most buyers in a position to negotiate, the increase was held to $35.

"It's unheard of," said analyst and former Times Mirror Co. newsprint buyer Bernard Bottomley.

But, to Jordan, "it just makes good business sense" to try to moderate the peaks and valleys of cyclical pricing. While seeking security in long-term supply, "that wasn't our primary focus," she said, also dismissing any intention to lead the industry toward a relationship with newsprint suppliers that would foster more-predictable pricing. "Groups with shareholders aren't as likely to jump on the bandwagon," said Jordan.

Copley is a privately held group of nine dailies and eight weeklies in three states. The dailies' combined newsprint consumption, according to figures that will appear in the forthcoming 2003 Editor & Publisher Year Book, will cost almost $1.8 million more a year at the full $50.

Had the offer sought to ensure uninterrupted and adequate availability in the event that demand should sharply increase after a period of capacity contraction?

"That might give us more credit for intelligence and foresight than we have," said Harold W. Fuson Jr., Copley's vice president and chief legal officer, who did allow that papers should be concerned about a narrowing of the future supply channel and that "predictability of supplies is important to us."

"Not being faced with [shareholder] pressures," he said, "we can look a little farther down the road" than the end of each quarter. "We made an assessment about what, frankly, is in the industry's long-term interest, and we're not constrained ... from acting on that interest," he continued. Others in the industry share Copley's view, he said, but must first consider quarterly earnings.

Loss of capacity resulting from financial stress on papermakers doesn't help Copley or any other publisher, said Fuson, adding that it is better to see incremental price increases over time than one "dramatic" increase. "We would prefer not to have a Draconian increase hit us just as business begins to rebound," he said.

But, like Jordan at Copley's flagship Union-Tribune, Fuson professed little expectation of the company being able to single-handedly influence the industry with respect to commercial behavior that will help make prices predictable and supplies secure.

"All we're doing as a newsprint buyer is expressing our concern," he said, likening the action to casting a vote. "We're not doing this in the hope of setting off some bombshell."

"Our views on this are public," but Copley did not intend the letter to become public, said Fuson. Nevertheless, "we're not at all surprised" that it did, he said. A supplement to analysts Ross Hay-Roe's and Verle Sutton's "The Reel Time Report" newsletter disclosed and summarized the letter.

Sutton wrote that he thinks "publishers have pushed the producers too far, and if they continue to exert as much pressure on price as they are able, it will ultimately result in a producer base unable to meet the supply needs of their customers and pricing will be ... higher."

In Sutton's view, for competitive reasons, individual publishers can't do much about it. "All the majors must accept Copley's lead if real change is to occur," he wrote. "It really only takes one major publisher and a few small newsprint producers [or one large one] to lead the market down or prevent prices from rising."

Los Angeles-based analyst Bottomley agreed: "If this were Gannett or Knight Ridder or Tribune that did this, it would have a whole different impact."

But if -- knowing larger, publicly traded newspaper companies have shorter-term interests -- Copley is "not leading a crusade," in Fuson's words, to flatten price cycles, and if it is not trying to buy assurance of future availability for itself, just what does Copley accomplish by expressing concern or "voting" with its dollars?

Bottomley couldn't even hazard a guess. Copley, he said, has "been known to be a little unique" in past supplier relationships. "They tend to do things that others don't necessarily do," he added, citing some "imaginative" undertakings with Fletcher Challenge (now Norske Canada).

"They did not secure any commitment to a fixed price in exchange for doing this," said Bottomley. "All they've done is express a sentiment -- they haven't put anything in place to capture it." When demand does increase in the face of diminished supply, he said, price will rise abruptly

And while Copley may help ensure its future paper supply, he's not sure it should have "had any great concern," asking: "Who can remember when a publisher ran out of paper?"

Although further mill shutdowns and industrywide insufficiency may have been of concern, said Bottomley, a more "valid concern" in his view would be the pricing of whatever paper is available.

Bottomley is certain "there will be ... tightening of the market down the road," leading to higher prices and lower consumption that eventually drives supply and demand closer to balance.

Copley did not state how long it would pay the full $50. "My guess is that if their lead is not followed, they will soon insist on equal treatment," Sutton wrote.

Noting Copley is big enough to get industry attention but not so big as to change the buyer-seller relationship, Bottomley said his "sense is that this will get lost in a short period of time," influencing neither other publishers nor papermakers.

Copley's position is not simply that of a stand-alone buyer of newsprint. It makes the stuff, through what Fuson called a "relatively minor" investment in Ponderay Newsprint Co., Usk, Wash., which is co-owned also by Bowater Inc., Gannett Co. Inc., Knight Ridder, the McClatchy Co., and MediaNews Group Inc.

Copley also is part of a group, with Cox Newspapers Inc., that buys newsprint. Whether Patrick's December letter will affect that relationship could not be determined. Copley executives could not be reached at deadline for comment on the matter. Mark Mansfield, Cox vice president for newsprint supply, would only confirm the arrangement.