There are a whole lot of challenges out there for American newspapers, from declining circulations and ad rates to increased digital competition to the need to produce more content more frequently with less people. But the latest blow may come from an unusual source…rising costs of the paper they’re printed on, which could skyrocket further thanks to an international trade dispute.
A recent Bloomberg piece by Jen Skerritt talks about how high newsprint prices are currently ($570 per metric ton as of Dec. 26, the highest since Dec. 2014 and a 4.8 per cent surge since this dispute became prominent in October), and how they’re expected to rise much further thanks to a projected U.S. tax of 15 to 25 per cent on Canadian uncoated groundwood paper, which makes up most of the U.S. newsprint market. That projected duty has a lot of people quite worried about the effects on newspapers small and large:
“It could have a catastrophic impact on community journalism,” said Matt Davison, the publisher and president of the Idaho Press-Tribune, which publishes six days a week and has a circulation of 15,000 in Nampa, about 20 miles west of Boise.…Prices will probably rise even further in 2018 because it’s “pretty much a guarantee” that the U.S. will impose preliminary countervailing duties of 15 percent to 25 percent, said Kevin Mason, managing director Vancouver-based ERA Forest Products Research.
…If duties are imposed, Canadian newsprint exporters will have to boost prices, causing immediate hardship for smaller U.S. publications that operate on thin margins, said Paul Boyle, senior vice president of public policy at the Arlington, Virginia-based News Media Alliance. The group represents almost 2,000 news organizations from the Journal Star in Peoria, Illinois, to the New York Times.“It’s a killer,” and the pain of higher newsprint costs is compounded by U.S. mills that already are unable to produce enough to meet domestic demand, Boyle said. “In some cases, you’re going to see smaller newspapers go out of business.”
The duties in question here would go beyond newspapers too, as the material in question is uncoated groundwood paper, which is used for other things like book publishing, graphics inserts and all sorts of other commercial printing. And while there’s discussion of the U.S. leaving the North American Free Trade Agreement (NAFTA) altogether, this dispute is actually within the framework of that agreement, as it’s about one U.S. producer (North Pacific Paper, based in Washington) filing a complaint that Canadian paper is unfairly subsidized by the Canadian government.
That’s similar to disputes that have popped up over softwood lumber and dairy products, both decades-long battles that flared up again in 2017. But what’s interesting about these disputes is that they’re not as much U.S. interests versus Canadian interests as they are U.S. materials producers versus American companies that use those materials (whether from U.S. or international sources). And that has a whole lot of U.S. newspaper executives upset that one paper company is potentially damaging their business, potentially to boost their short-term hedge fund owners’ interests:
A group of more than 1,100 local newspapers was so alarmed about rising newsprint costs that it sent a letter to Commerce Secretary Wilbur Ross this month saying that the market is being upended by just one company, North Pacific Paper, known as Norpac.
The company, formerly a joint venture of Weyerhaeuser Co. and Nippon Paper Industries Co., was acquired in November 2016 by One Rock Capital Partners LLC. Norpac’s trade claim appears to be driven by the “short-term investment strategies of the company’s hedge fund owners,” the newspapers said in their Dec. 4 letter.
“This is really egregious,” said Seth Kursman, a spokesman for Resolute Forest Products, the world’s largest newsprint maker. “This is one company. The entire U.S. domestic industry is against them.”
In its petition, Norpac notes that the market share of Canadian producers in the U.S. has risen even as demand has slowed since 2012. “Norpac is simply trying to level the playing field to stay competitive to help preserve rural manufacturing jobs in the U.S.,” David Richey, a company spokesman, said by telephone Friday.
If this duties do go into effect as projected, they’re going to be a big deal for a lot of companies. How big of a deal? Well, Skerritt’s piece notes that The New York Times alone spent $72 million on newsprint in 2016, five per cent of their operating costs. If a 15 per cent duty was imposed on Canadian paper and that price increase was fully passed on to newspapers, that’s an extra $10.8 million. If the duty is 25 per cent, that’s an extra $18 million.
Now, the cost increase wouldn’t necessarily be strictly that much, as U.S. companies like Norpac could undercut the Canadian ones (as they wouldn’t have to pay the import duty). But there isn’t enough of this kind of paper produced in the U.S. to meet the demand, so lots of companies are going to have to continue to buy from Canadian sources, even at a higher price. And while the raw price increases will be biggest for large papers like the NYT, this could be even more disastrous for already-struggling smaller papers working on thin margins.
Newsprint prices certainly aren’t the only issue newspapers are facing. Print’s share of advertising revenue has declined massively, falling by 80 per cent since 2005, and that trend has continued downwards recently. And falling print circulation and decisions to end print editions on some days means that a duty won’t impact many newspapers as much as it would if they were still printing more copies. High print prices may push many newspapers towards further digital moves, too, and that may be helpful for their long-term future if they’re able to monetize that digital coverage enough.
But that’s the big challenge. Digital monetization is extremely difficult, and for all its struggles, print is still important to many newspapers given the rates paid for ads there, given the ability to target a local-only audience, and given the lower competition. Most newspapers are still very reliant on revenue from their print product, and it’s not realistic for them to move away from it in a major way. And there aren’t really alternatives to printing on newsprint. So if the cost of newsprint rises thanks to this proposed import duty, that’s going to impact a lot of papers, from the big to the small. And given the issues those newspapers are already facing, that could have a major effect on the industry.