Print and the Stock Market: the Wrong Comparison
March 16, 2008I love British newspapers and all the innovation taking place across the pond. That is no secret, but when I read a blog on The Guardian web site by Roy Greenslade I was surprised, to say the least, not by his blog, but by the comments of one smart reader responding to his blog. Mr. Greeslade repeated on his blog on Thursday March 13 the same arguments I have been hearing from all the prophets of doom and gloom about the demise of print and print companies because their stock market prices are going down. He wrote
I am often accused of taking too negative a view of the future of newspapers. One commenter this week said I should stick up for our own trade instead of appearing to relish its death. But, as I said in response, I am merely recording what is happening and, based on that reality, predicting what will happen. In the face of the depressing truth, even if I was to “talk up” newspapers, it wouldn’t make a blind bit of difference.
At the risk of repeating that overworked phrase – it’s the economy, stupid – I base my views on the flight of advertising revenue and declines in circulation, another revenue drain. Investors, needless to say, are doing the same. So let’s take a look at some up-to-date facts from across the developed world that illustrate the parlous state of newspaper publishing.
I’ll start with the media sector on the British stock market. Shares in the Daily Mail & General Trust, publisher of two national titles that are regarded as the nation’s most successful papers of the past two decades, go on falling week by week. The Daily Mail ‘A’ ordinary share price today stands at 435p, down from its 52-week high of 875p, a decline of more than 50%.
To read the rest of his blog click here.
One reader responded to the Mr. Greenslade blog by writing:
Using newspaper company share prices – and therefore investor confidence – as a proxy for long-term structural fortunes is an interesting approach. But given that Google’s share price is also down almost 50% from its 52-week high, doesn’t your method imply that Google is facing a comparable fundamental structural challenge? Not that I mean to dispute your conclusion – newspapers in many markets clearly are facing the sort of challenges you describe. But I’m not sure investor confidence is a good measure for that, given that the same thing is also going on with the share price of the main winner from the shift of attention, and therefore ad revenues, to the web.
Need I comment? I don’t think so. However, what surprised me even more came from Mr. Greensdale himself the next day. In his Friday’s March 14 blog he describes his journey into the heart of Rupert Murdoch’s new print heaven. Mr. Greensdale wrote
For once the word “awesome” is justified. It is, without any shade of doubt, the most amazing newspaper publishing factory I’ve seen since I started in the business on a weekly in 1963.
Superlatives fail. It is the biggest, most efficient, least labour-intensive press plant in the world.
To read his record of the visit click here. What a difference one day makes…
Mr. Magazine 
That is all well and good, but what are you really suggesting?
That newspapers are alive and well? That ad pages are soaring? That readership is climbing? That there is, in actuality nothing to fear?
There is going to be a revenue plateau, but the bottom of that platform is lower not higher. I am confident that newspapers, nor the printing process is going to disappear, but I am equally sure that they will not be the dominant news delivery vehicle of tomorrow.
The stock market is not about the future. It is about the very here and now. Stocks go up and down. It is a non-sequitor to predicting the future.
Rising price of newsprint clouds publishing costs
http://www.marketwatch.com/news/story/rising-price-newsprint-clouds-publishing/story.aspx?guid=%7b241CC816-218A-4968-802D-9CF7D9ED4F99%7d&siteid=yhoof&print=true&dist=printTop
Paper market seeks firmer footing as newspaper demand shrinks
By Jim Jelter, MarketWatch
Last update: 12:05 a.m. EDT March 17, 2008
SAN FRANCISCO (MarketWatch) — As newspapers across America shrink in readership, page count and format, the price of the paper they are printed on has been rising, piling yet another worry onto the beleaguered industry.
On the surface, the trend seems counterintuitive. What would drive newsprint costs higher if there are fewer pages flying off the printing press?
The answer lies in paper manufacturers’ efforts to gauge the rate of the newspaper industry’s contraction.
“Definitely the trend has been deteriorating for a long time, but it’s gotten worse in the last year. I see that trend continuing,” J.P. Morgan analyst Claudia Shank Hueston said in a recent interview.
“Given the cost constraints on newspapers, the [annual] decline in newsprint demand by the U.S. dailies will likely continue in the 9% to 12% range in 2008 rather than the 5% to 7% range we saw over the 2004-2006 period,” she added.
Data from the Newspaper Association of America show the same falling curve, with newsprint consumption by U.S. dailies tumbling nearly 30% over the past five years.
Paper companies churning out the huge rolls of newsprint trucked to the nation’s newspapers have had no problem reading the writing on the wall. They spent much of last year idling machinery in their mills and, in some cases, selling them. By crimping supplies, they have more clout when it comes to pricing their product.
And prices have risen.
The drop in supply has pushed prices up $60 from their October 2007 low to $620 per metric ton, raising yet another hurdle for newspaper publishers already grappling with declining circulation and advertising revenue.
While newsprint costs have yet to match year-ago levels, they are well on their way. Shank Hueston predicts the price will hit $660 a ton by the fourth quarter, a level not seen since late 2006.
Media industry analysts estimate newsprint accounts for up to 20% of a legacy newspaper’s overall costs. That, and personnel, are the two items on the expense sheet over which they have most direct control, which explains the industry’s steep job loss and the move to downsize papers from broadsheet to the narrower tabloid format.
Among the most noticeable changes to the look and feel of traditional newspapers were the Wall Street Journal’s move to a slimmer page width in 2007 and the Los Angeles Times’ switch to lighter-weight newsprint in 2006.
Such moves run up steep one-time conversion costs. Wall Street Journal owner Dow Jones, now part of the New Corp. empire that also owns MarketWatch.com, estimated they spent $30 million on their printing operations to accommodate the narrower paper. The benefit was swift, however, saving the paper about $18 million in newsprint costs in the first year.
And still, the drop in newsprint demand continues.
“We keep thinking that at some point things are going to get better. Newspapers have gone to narrower pages, lighter basis weight paper, and we keep thinking that those sorts of declines will run their course or at least decelerate. But that hasn’t happened yet,” Shank Hueston said.
Export dilemma
Meanwhile, there has been a 20% increase in U.S. exports of newsprint due to the weakening dollar, more than offsetting a 15% drop in imports. While this is good news for domestic newsprint producers, it does little to benefit newspaper publishers, who continue to face higher prices here at home.
The drop in the dollar also threatens to stifle a recent rise in cheap newsprint rolling out of China, which some analysts said had offered just enough of a cost savings to make it worthwhile to West Coast publishers, giving them a slim regional advantage that unravels quickly as it moves east, undone by soaring fuel costs.
Although a clear upward trend has emerged this year, some analysts are predicting newsprint prices will plateau in the domestic market in 2009, at which point further capacity cuts would only accelerate the decline in demand. And it’s still far too early to read an eventual drop in newsprint prices as a sign that publishers have boosted their bottom lines through other non-print media, or whether they are down for the count.
Through it all, paper and pulp companies with major exposure to the newsprint market, such as AbitibiBowater Inc. or Finland’s Stora Enso OYJ, will be watching closely, seeking to stem their own decline as traditional markets for forest products — especially lumber for home construction — come under heavy economic pressures of their own.