Publishers fear another round of price hikes like the ones they saw in 1994 and '95, when list prices rose some 40% to 50%. Increases in paper prices can quickly wipe out gains in advertising and circulation revenue.
FIGHTING THE INCREASES
Some magazine executives said they will fight the increases, and they believe the paper companies might back down.
The price hike "is never going to stick," said one executive at a leading magazine group. "It was a total trial balloon-there was no justification for it."
Paper prices have been on a roller coaster for the past two years-spiking to all-time highs in 1995 as shortages drove prices up and then tumbling in 1996 as conservation measures and slackened demand caused the prices to drop.
In January, the No. 5, 40-pound coated groundwood that many magazines use was listed for between $1,220 and $1,260 per ton, but was actually selling at $740 to $820 per ton, according to Pulp & Paper Week. Mills generally offer discounts in slower demand periods to keep operating at full capacity.
5% to 7% BOOST
In late February, though, Mead Corp. said it was raising its transaction price 5% to 7% from the discounted price as of April 1. At the same time, International Paper told customers that effective April 1 it was reducing its discount on coated groundwood, also effectively boosting prices by 5% from the discounted price.
The increases have far reaching implications for magazine advertisers and catalogers.
In 1995, many magazines used the runaway paper price hikes as a justification for double-digit ad price increases. Last year, with paper prices falling about 35%, publishers tended to push through moderate single-digit increases.
NO WORD FROM CHAMPION
So far there is no word from Champion International-which is typically aggressive in seeking increases-on its pricing plans. But other planned paper-price increases have collapsed in the past if some key suppliers don't follow suit.
Paper prices have been rising gradually since January on the spot market as the number of backlogged orders increased.
"We have backlogs for orders for five or six weeks," said a Mead spokesman. "At that point, you test the market to see if this is real demand."
Ad demand is booming. Publishers Information Bureau said ad pages were up 5.1% in February compared to a year ago and 3.5% year-to-date.
"Our advertising response for the first quarter has been strong, but I don't know if that is automatically going to translate into increased demand for paper industrywide," said Time Inc. President-CEO Don Logan. "A lot of the measures taken in late 1995 and early 1996-such as the rate base reductions at Hearst and the reduction of trim sizes-are still working themselves through the system."