Rising Cost Of Newsprint Adds Pressure On Print Medias Industrial Age Distribution Chain

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China, Citigroup, Daily Mail and General Trust, Europe, Newspaper circulation, Patrick Smith, Peter Preston, The Guardian, TheMediaBriefing Experts' Blog, United Kingdom, Trinity Mirror, Newspapers

Broxbourne printing press

There is much discussion of the 30 percent revenue share publishers must agree with Apple and Amazon, in return for the right for content to be distributed digitally to consumers of mobile gadgets. But what about the other distribution cost that newspaper and magazine companies are lumbered with: print?

UK publishers are complaining privately of year-on-year rises of between 20 and 25 percent. One regional magazine chain and a national newspaper group confirmed this to me on the condition of not being named. Peter Preston of the Observer and Mark Sweney at Guardian.co.uk rightly highlighted this as major threat to print-based business at the start of the year, so what happened?

In short, the price decreased very sharply at the start of 2010 and has since recovered very robustly – so it’s a relative price rise that media businesses are dealing with, not just a long-term drift upwards. UK publishers are negatively affected due to the currency conversion from Euros and are now facing something close to a 20-year high for paper prices.

Finnish paper industry analysis company FOEX Indexes says its Europe-wide newsprint price index his risen 21 percent since December 2010, as this chart shows (figures from FOEX.fi, reproduced with permission and thanks)

FOEX print prices

So during the 2005-2010 period, European newsprint prices in Euros were stable at around the €500 (£437) to €550 (£481) per tonne mark. The 2010 price drop of €100 per tonne – partly due to decreased demand – was unexpected but very welcome. But the recovery to €500 per tonne was just as unexpected and not very welcome.

The problem is very much an international one. Tom Wright, research director of UK-based paper industry analysts Hawkins Wright, tells me that the UK consumed around 1.8 million tonnes of newsprint in 2010, of which 800,000 tonnes was imported.

“Prices in pounds have been a little more volatile due to currency movements. In general, the weakening pound and reduction in domestic capacity caused prices to trend upwards steadily from 2006-09. They then crashed from £410 per tonne to £335 per tonne in 2010, but have since recovered to over £440 per tonne which is the highest level since the mid-1990s,” he says.

Emerging market threat

The efficiency, people power and size of emerging economies are affecting every industry and media is no different. One factor in the rise of newsprint is China and its insatiable desire for recycled paper. Newsprint is generally made from recycled paper from Northern Europe – but China is spending big on paper to build cardboard boxes. sending demand and prices higher. Ironically, China then uses those boxes to package goods for shipment back to Europe.

Lars Halén of FOEX tells me: “Recycled fibre is nowadays also an international trade commodity, and China being a large importer of recycled fibre is likely to have some impact on price changes of recycled fibre on the international market. Other factors also play a role in the local price movements, such as availability of recycled fibre, and other related cost factors like energy (cost of fuel for transport etc).”

Print’s retail supply chain in real danger

The average UK daily newspaper circulation has dropped from 12.11 million copies in September 2006 to 9.53 million in September 2011 (according to the ABC), so the overall spend by newspapers on printing has declined accordingly, along with circulation and advertising revenue.

But on top of printing and material costs, printed media have to pay for distribution and retail too. Guardian News & Media found itself at the wrong end of a campaign by the National Federation of Retail Newsagents in September by raising the price of the Monday-Friday edition Guardian from £0.90 to £1.10 but lowering the newsagents’ margin from 25 to 24 percent. That’s only the equivalent of 1.2p per copy, but amounts to £750,000 a year across the country, the NFRN argues.

And chillingly for print media managers who have for decades set the margins independent retailers receive, NFRN national president Kieran McDonnell warned: “This may be the last year that publishers own the power to control prices and manipulate margins. If they lose it, then they will only have themselves to blame.” (The latest on that is here at the NFRN site).

Why does this matter

The continuing rise of Chinese demand and the turmoil of the Eurozone mean that they can expect to pay even more for those dead trees next year too. For publicly-quoted publishers this is a real worry – Citigroup downgraded Trinity Mirror’s 2011 earnings partly due to newsprint prices hikes and it’s become a common downcast theme in the quarterly reports of DMGT and others.

This shows how the print media industry is hostage to so many external cyclical factors. It’s the mixture of physical costs, reduced advertising, falling circulation and changing reading habits contribute to what Enders Analysis calls newspaper circulation’s “inexorable decline”. There is, however, undoubtedly an important role for newspapers to play in this diverse, mixed economy and the daily edition format of magazine and news publishing is in rude health. It’s the profit motive for printing on paper that is under threat. 

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