INMA 2009: The art and science of managing newsprint costs to maintain topline

The second day of the Annual South Asia Conference 2009 held by the International Newsmedia Marketing Association (INMA) witnessed in-depth discussion on publisher's concerns related to newsprint.

Mohit Jain, director, business and commercial, The Times of India and chairperson, newsprint committee, Indian Newspaper Society, in his address, revealed that the cost and share of newsprint is the main component affecting bottomlines and revenue earnings of publishers.

Jain focused on commodity management, the current newsprint scenario in the world and the way forward for the newsprint industry. He said that commodity management for newsprint has two aspects, art and the science part of it. Art is all about gut feeling, quick decision and backing your decisions, whereas science is the overriding criterion of understanding the power ration between the demand and supply of newsprint.

Even two years ago, the market was a biased one. A seller's market in 2008, certain developments in 2009 turned it into a biased one for publishers, who had to defer payments of sellers, being cashless and powerless.

The science part of the newsprint business calls for analysing the demand-supply relationship by figuring in parameters such as cost drivers, industry financials, structural changes and performance of related industries.

In 2005, DNA wanted a high pitch launch and sometime ago, another publication, Sakshi, wanted to launch with 12 lakh copies. Now, demands such as these bring in distributional changes in demand for newsprint.

External developments, such as the 17 per cent VAT withdrawal on newsprint in China and the duty removal by the Russian government, resulted in structural changes in the industry. Also, happenings in related industries such as coated or corrugated industry swing the capacity of an organisation to move from one product to another.

Jain explained that cost drivers saw newsprint prices go up from US$140 to US$310 per tonne, even though the demand for newsprint had not moved upwards and again, due to the economic bust the prices crashed from US$330 to US$80 per tonne in November last year. The trouble emerges from the fact that for western publications, newsprint cost is hardly 10 per cent of the topline, but for publishers back home, it's almost one third of the total cost.

Driving home his point, Jain shared some figures related to sale percentage of a given publication and relative newsprint cost for it for a few foreign and Indian publications. Publisher Gannett & Co.'s USA Today accounts for 14 per cent of sales with 17 per cent cost; Gatehouse Media Inc.'s Patriot Ledger reports 8 per cent of sales and a cost of 14 per cent; Axel Springer's Bild and Die Welt contributes 8 per cent of sales as against a cost of 9 per cent.

In case of Indian publishers, HT Media's Hindustan Times' contribution to sales is 35 per cent against a cost share of 44 per cent; Jagran Prakashan's flagship daily's sales stand at 32 per cent with a corresponding cost of 43 per cent; and Deccan Chronicle's sales contribution is 21 per cent against a cost of 57 per cent.

The Indian publishing industry's one-third reliance on a single commodity spells trouble for it. Global fluctuations in demand affect the cost of newsprint. For instance, North America witnessed a loss in demand to the tune of 5 million tonnes annually over a period of five years. In the last 12 months alone, it has lost demand of 2 million ton newsprint. The high level of market maturity in Europe has resulted in a stable demand for newsprint, which hovers around 9-10 million tonnes.

What is frightening is the slump in newsprint demand across developed countries. The reduction in newsprint demand has led to either closure of mills or reduction in capacity. In North America, newsprint manufacturer AbitibiBowater suffered a major drop in newsprint production due to closure of mills covering Mackenzie, Dalhousie, Grandfall, Shawinigan, Alabama, Calhoun, Thunder Bay, Liverpool and Mississippi.

The reduction in newsprint production capacity has severe impact on India, which depends heavily on imports for more than half of its newsprint requirements. Even generation of recycled newsprint has come down because of the fact that after recycling it 6 to 7 times, the fibre loses its strength. Energy fuels such as crude oil and natural gas prices, too, have shot up dramatically, contributing to increased newsprint cost. Again, the exchange rate and the compulsion of dealing in dollars have a huge bearing on the trade.

Jain recommended that the way forward for survival is to address factors such as emerging world of regionalisation vs. globalisation, large capacity rationalisation, government support, environmental concerns and bio-mass fuel development.

He suggested that with shifting trade balances, one has to move from one supplier of newsprint to another, realising that growth is set to take place in Asia. Government support is crucial to aid publishers, which can be brought about by taking more steps such as reducing newsprint duty (from the earlier 5 per cent to nil). Environmental concerns result in increase of newsprint manufacturing cost by 20-30 Euros per ton, so one needs to look for alternative sources of energy and far more efficient ways of newsprint production.

All these measures could go a long way in managing the volatility experienced by the newsprint market by reducing the risks in the business, concluded Jain.