Pulp or Pixels
by Mark Toner
Will pixels replace pulp as the industry’s raw material of choice? Not anytime soon, publishers took pains to stress at their annual summit with papermakers.
"Smart publishers are doing what they’ve always done–looking at capital investments where there’s an ROI," said Michael Coleman, president of Gannett’s South Newspaper Group in Melbourne, Fla. He and other publishers speaking at the late-fall summit, sponsored by NAA, the American Forest & Paper Association and the Canadian Pulp and Paper Association, touted recent press purchases as proof they’re bullish on print.
But as circulation continues to stagnate, publishers cautioned that they now place their Web customers on equal footing with print readers. And often, those print readers are reading narrower papers, thanks to the ongoing march to 50-inch-wide webs.
Papermakers expressed general support for web-width reductions, citing surveys indicating strong reader preference for the more compact product. Most papers making the switch have reduced newsprint consumption by only 2-to-3 percent, prompting Jim Burke, president and chief executive of Southeast Paper Manufacturing Co., to joke, "I’d encourage everyone to print smaller, but more pages."
Still, North American newsprint demand shows no signs of reascending to its 1988 peak, only recording modest gains during the recent economic boom. As advertising explodes and circulation stagnates, paper demand is shifting to higher-quality paper grades–and in part to preprints, demand for which is "driven by color," said Martin Glass, senior partner of English consultancy EMGE & Co.
Indeed, publishers said improved runability and color quality is critical if ink-on-newsprint is to remain viable, pointing for help to their papermaking counterparts. The papermakers, still cash-strapped and consolidating, pointed right back.
"One of the most abused words at these conferences is ‘partnership,’ " said Burke. "With a need for more competitive paper, the onus is on the producers. On the other hand, there has to be some reward for doing this."
For newsprint manufacturers, rewards have been few. Adjusted for inflation, prices have remained virtually constant for a decade, while fiber costs and regulatory burdens have grown. Low margins make it increasingly difficult to acquire capital for R&D and mill improvements, meaning papermakers "will be less able to meet newspapers’ quality needs," noted Michel Desbiens, president and chief executive officer of Donohue Inc.
Desbiens credited mill shutdowns, conversions and the recent consolidation push as signs that producers "may have finally figured out that new supply doesn’t mean new demand." At the same time, such moves aren’t "enough to change the [market] basics," he said, predicting another wave of mergers as papermakers seek to please institutional investors and find "a more level playing field."
One of those institutional investors, Mike Wilde of Deutsche Banc Alex Brown, predicted that all three major North American producers will consider further consolidation within a year to help reduce the 250,000-to-500,000 metric ton supply imbalance. "There’s more wood to chop in this business," he quipped.