Publishers and paper executives see no end in sight to decreases in demand, prices
Demand for magazine paper started to plummet last fall when the economy began its steep decline, and in the near term there is no sign that the downward spiral won't continue—particularly as print runs of b-to-b magazines shrink.
“A number of titles across the industry have gotten smaller, disappeared or gone digital,” said Keith Hammerbeck, corporate director of media operations at Advanstar Communications. This has created a problem on the demand side in the paper market.
Verle Sutton, founder, editor and publisher of ForestWeb's monthly “Reel Time Newsletter,” which has focused on the paper industry since 1999, said there is a “very small possibility that enough downtime will be taken [as paper mills idle some production lines] to stabilize the market over the next quarter.” He predicted the soft market will continue through this year and into 2010.
“We are closer to the beginning of the down cycle than the end,” Sutton said.
Michael Cohen, director of manufacturing and distribution purchasing at Reed Business Information, said, “Pricing has declined a bit, but not to any great degree, though it feels as if we are approaching the precipice.”
The possibility of plunging over that precipice has magazine production departments and paper brokers worried. “If we have a market rout and the bottom falls out on pricing, we will certainly lose more supply—perhaps permanently—and publishers could face the prospect of a weak paper market with its lousy business implications,” said Dermot Burke, VP-sales at Gould Paper Corp.
Burke said he has noticed orders of super calendared paper on the rise in 2009 but sees it as a low-cost alternative being used by many publishers and therefore part of a temporary shift. “I would call it questionable growth subject to later revision,” he said. He also said he's seen demand for environmentally friendly and recycled paper rising.
Sutton said, “Trends in environmental issues continue, although the urgency decreases when survival of both buyers and sellers is at stake.”
The tough economy will likely cause the closure or merger of some paper manufacturers, Burke said. “We can expect more of what we have seen in recent years, and [that] can happen rather suddenly,” he said.
Cohen also said closures are likely. “This is one of those sea-change periods,” he said. “Historically, the industry has recovered well after recessionary periods. However, this one may be different,” as publishers are moving editorial to digital platforms and may never have the same level of demand for paper again.
“Print will survive,” Cohen said, “but perhaps in a significantly different role.”
When publishing grows strong again, it will be through multiplatform publishing, Cohen said, which isn't good news for papermakers. He sees publishers providing a variety of products and services to subscribers.
“Online integrated with social networking, strong print product support, Web-to-print, print-to-Web, ability to reach mobile devices—[these] all need to be mastered,” he said. “A great understanding of their subscriber and reader needs, as well as a finely tuned organization to support multichannel publishing efforts, is required to be successful.”
Burke warned publishers against banking on low paper prices over the long term. “I would not take "adventures' with unknown paper suppliers, and I would make sure my relations with my paper suppliers were on solid ground going forward,” he said.
Hammerbeck stressed that Advanstar is trying to work within the long-term relationships it already has. “We're happy about prices continuing to drop, obviously,” he said, “but we don't wish closure on anything. We want a healthy paper market.” M