New Threat to Free Press: Newsprint Prices

Newsprint prices may cripple already challenged newspaper company bottom lines. In the case of some papers, there is a struggle to stay open. As more fold or are forced to cut editorial staff, the industry cannot handle another major financial headwind.

The Tampa Bay Times laid off 50 people last week. Management blamed the action on tariffs levied against newsprint imported from Canada to the United States. That bump in prices will cost Tampa $3 million a year. Major newspaper chains face newsprint expenses that will be much higher, although these expenses are weighed against larger revenue. A small number of them hedge the price of newsprint as well.

Several large newspaper chains will face the largest increases in newsprint prices in absolute dollars. These are Gannett, Tronc, Hearst, Advance Media, McClatchy, Gatehouse Media and hedge fund owned Digital First Media, which just laid off dozens of people in Denver and on the West Coast. Among them, these companies own most of the large newspapers in America, hundreds of newspapers in aggregate. Each of these companies has newsprint demand much larger than that of The Tampa Bay Times.

These companies operate on razor-thin margins, often less than 5% based on net income. McClatchy Co. (NYSEAMERICAN: MNI), for example, had net income before taxes of $4 million in the fourth quarter, on $245 million in revenue.

Newspapers, with the exception of a few that can charge large sums for digital subscriptions, have run out of options to increase revenue. Print ad revenue has fallen quickly over the past decade. So have numbers of print subscribers. Digital advertising seemed like a promising offset. However, in many cases, that growth has flattened.

The only U.S. papers that have been able to buck these trends are The New York Times, the Jeff Bezos-owned Washington Post and The Wall Street Journal, each of which produces content that appeals to enough people that it has created a large digital subscription base. At the end of the most recently reported quarter, New York Times Co. (NYSE: NYT) had over 2.6 million digital-only subscriptions. No other newspaper has a number that is even close.

Papers have already cut to skeleton staffs. Some newsrooms are less than half of what they were at the turn of the century. Papers also have cut the number of papers they print and they have chopped the number of pages in each edition.

Recently, newspaper executives have found themselves in an ever-shrinking box. Their options, in most cases, are down to zero. Higher newsprint costs put those options into negative numbers, if that math is even possible.

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