Latest worry: newsprint

I realize it's fashionable these days to demonize newspaper owners as greedy bastards and leave it at that, but there's a little more to the story - namely that the business is getting hit on virtually every possible front. Analysts who have followed the industry for 20 and 30 years have never seen anything like it. Case in point is the price of newsprint. It's a newspaper's second-biggest expense, after labor, and the price has hit a 12-year high. The reason has a lot to do with the merger of Abitibi-Consolidated Inc. and Bowater Inc. Never heard of them? Together, they have created the world's largest newsprint producer. "We've seen substantial and unprecedented price increases since the merger," said John Sturm, president of the Newspaper Association of America. From Bloomberg:

Since its formation, money-losingAbitibiBowater Inc. has closed mills to reduce supply by 600,000 tons annually, responding to record oil prices and a strong Canadian dollar. That has allowed the Montreal-based company, with about 45 percent of the North American market, to push through $20-a-ton price increases every month this year, even as consumption of newsprint by daily newspapers fell 15 percent in the 12 months through March. The jump in prices is ``unprecedented'' in a period of falling demand, said Ed Atorino at Benchmark Co. in New York, who has followed newspapers for 25 years.

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Prices will continue to rise $20 a month in the third quarter, AbitibiBowater spokesman Seth Kursman said. Energy, labor and fiber costs have all climbed, he said. RBC Capital Markets paper analyst Paul Quinn in Vancouver expects the increases to continue for six months. The newsprint producers have pricing power because AbitibiBowater, White Birch Paper Co. and Kruger Inc. control 75 percent of the North American newsprint market, said CreditSights Inc. analyst Chris Ucko.

The sharp cutback in pages being mandated by Tribune Co., which owns the LAT, is in part an effort to save on newsprint, though it’s not clear how much of a hit the company has actually taken because of the increases. Some publishing companies, including the NYT, have partially hedged in order to get a cheaper price. Trouble is, the higher cost of newsprint is combining with the drastic plunge in advertising to create the worst of all worlds: higher operating costs and lower revenue coming in. And it's hitting everybody.