Orange County newspapers and other publishers, already stinging from softening advertising revenue, are bracing for a second year of rising newsprint prices.
Big newsprint producers, which include Montreal-based Abitibi-Consolidated Inc. and Greenville, S.C.-based Bowater Inc., are expected to increase prices by $50 per metric ton in March. If that sticks, publishers would see their biggest cost after labor go up for the third time in 12 months,and to the highest level since late 1995.
But that’s a big if. As publications look for ways to trim newsprint use, many are betting that softening demand will stave off a price increase or force cuts later in the year.
“I pray every night that it will not (last),” said N. Christian Anderson, chief executive and publisher of the Orange County Register. “The price of newsprint is subject to demand. There’s possibly a case to be made that the demand won’t be as strong.”
Gary Weitman, vice president of corporate communications for Chicago-based Tribune Co., parent of the Los Angeles Times, said his company also is preparing for higher prices but hoping economic conditions may prevent or reverse them later.
“Given all the pressures in the marketplace, including a tough advertising environment, it’s going to be hard for that kind of increase to get pushed through,” Weitman said.
The Los Angeles Times saw a 4% decrease in ad revenue in 2000, mostly due to a drop in dot-com business as well as weakness among transportation advertisers and in the entertainment category, which has been hit by troubles at movie theaters.
The Register, has seen “below-budget advertising revenue since last July,” according to Anderson.
Newspapers and other publishers were paying an average of $615 to $620 per metric ton at the end of 2000 following two price increases totaling $90 per metric ton that hit in the spring and fall of that year, said Dick Wallace, vice president of corporate affairs and head of newsprint purchasing for Freedom Communications Inc., Irvine, the Register’s parent company.
Publishers took measures last year to cut costs and hedge against the hikes, including budgeting for increases, narrowing newspaper widths and increasing advertising and subscription rates. This year, they’re doing more of the same. They’re budgeting for another 14% to 18% increase in newsprint prices, all the while crossing their fingers and hoping it won’t happen.
“Our business is taking a major hit right now,” Wallace said. “Most of the major papers in the U.S. that I’ve talked to have seen a decline (in advertising) that started last July and it hasn’t gotten any better.”
Wallace said Freedom expects to see higher prices come March, but he believes an increase will be rescinded later. “I think (vendors) will be successful putting the price increase in place, but how long will it last?” he said. “I think there will be a price reduction in three to five months. It has happened in the past.”
So far, Wallace said, mills are seeing increased orders for February, probably because papers are stocking up on inventory. But he expects demand to soften in March and months to follow.
Still, Freedom is readying its defenses. It’s one of a few medium-size news organizations, including the Midwest Buying Group, that recently joined a new group called the Newsprint Buyers Consortium to gain better negotiating leverage, Wallace said. There has been much consolidation within newspapers and mills that have made it harder for smaller news organizations to negotiate alone, he said.
“As the 900-pound gorillas turn into 9,000-pound gorillas on both sides, there’s a point where a company like ours, which has substantially less tonnage to negotiate with, says we should get together with a bunch of folks and leverage our strength,” Wallace said.
Freedom, which has about 28 newspapers, uses more than 200,000 tons of paper each year, and pays about $7 to $10 more per ton than the biggest buyers,the reason it wanted to be part of the consortium, Wallace said.
Sam Wolgemuth, Freedom’s chief executive, gave another perspective.
“Each annualized increase of $10 a metric ton takes Freedom’s profits down by $2 million,” he said in a company newsletter.
As cost-saving measures, Freedom plans to continue to shave the width of its newspapers, which could save up to 9% of newsprint cost, said Jon Segal, president of Freedom’s community newspaper division.
The Register, however, took advantage of some of the savings,but not all,to avoid cutting into editorial content, said Anderson, who’s budgeting for two $50 per metric ton increases in 2001 just to be safe. The paper, which saw a 16% increase in newsprint prices in 2000, was “clobbered” when it under-budgeted for the $50 per metric ton newsprint hike that hit last fall, Anderson said.
The Los Angeles Times is taking its own measures. The company, which will buy close to 1 million tons of paper this year, is planning to continue taking advantage of bulk-rate discounts while reducing waste in production, said the Tribune’s Weitman. Tribune paid $563 to $570 per metric ton for paper in 2000,about $50 less than the average price others paid.
Plus, Tribune plans to finish converting its papers from a 54-inch to a 50-inch web width (the Los Angeles Times has already switched). Those changes let Tribune reduce newsprint consumption by 3% in 2000, Weitman said.
Judy Jablonski, publisher of New York-based Village Voice Media Inc.’s OC Weekly and LA Weekly publications, isn’t so sure. She said she tends to think another increase will become a reality. While budgeting and watching expenses, both alternative tabloids increased advertising rates by 5% in 2000 and raised them another 5% in January, she said.
“It’s unbelievably frustrating, particularly for a free newspaper,” Jablonski said. “Advertisers aren’t exactly doing the watusi, but they’re very much understanding what we’re up against.”
Other free papers are in the same boat. Churm Publishing Inc. of Newport Beach, with free titles that include OC Metro, is trimming its 10-by-12.5-inch magazines on newsprint to 9-by-11-inches to save money.
The Business Journal recently cut the width of its paper by eliminating about a half-inch from the margins and in November raised its subscription rate from $74 to $89 per year.
At OC Metro, owner Steve Churm said the publication raised advertising rates by 7% in 2001 to offset any potential newsprint increases. n
