Expected Rise in Paper Costs Leaves Publishers Shuddering

Mags Could Be Paying 25% More Next Year Due to Mergers in Pulp Biz

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Magazine publishers are already facing way too many rising costs: technology investments, postage, editors both diva and deserving. But the seemingly mundane budget line for glossy paper is suddenly the one everyone is worried about.

Welcome to our hell, publishers said last week.

"I frankly became more of a quasi-expert than I would want to be, only out of necessity," said John P. Loughlin, exec VP-general manager at Hearst Magazines.

The weakness of the American dollar is increasingly restricting publishers' overseas options.

Seller's market
More worrisome, paper seems to be emerging from a competitive era of cyclically rising and falling prices. This year already has seen increases implemented and announced. Now structural changes, including mergers and a growing role for aggressive private equity, look likely to drive prices up next year by another 20% to 25%, Mr. Loughlin said.

The industry hasn't seen a spike like that since 1995, when announced increases led to a brief run on the paper market that echoed Dutch Tulip Mania. This isn't spare change, either: Paper comprises some 15%-20% of publishers' costs, Mr. Loughlin estimated. One big publisher said it's still unclear how big a hit is bearing down. "We're still examining what we believe specifics amount to, and whether there are benefits to our scale," an executive there said, speaking on the condition of anonymity.

Planning the right strategic response is complicated by that fact that visibility, beyond such rough projections, remains limited. Paper manufacturers aren't too helpful on this score. A spokesman for AbitibiBowater, the result of an October merger and now the third-largest publicly traded paper company in North America, declined to discuss publishers' fears. "We cannot speculate on pricing on a going-forward basis," he said.

A spokeswoman for NewPage, which hopes to close on the acquisition of Stora Enso's North American operations by the first quarter, did not respond to a voicemail and an e-mail seeking comment Nov. 21.

Hearst ready
Mr. Loughlin said Hearst would get by. The company increased cover and subscription pricing on many of its magazines this year and is considering a couple more hikes next year. "We have tried to be thoughtful about our structure in the good years and in the tough years relative to paper prices," he said. "Nobody wants to be here, but frankly we're in a good position in that we've managed our costs and don't have to change the physical specs on the magazines."

The other obvious recourse, trying to pass costs along to advertisers, just won't work well enough for everyone, said Malcolm Campbell, publisher of Spin. "It's going to put some people out of business," he said.

And he didn't just mean the indies. "Don't kid yourself," he said. "There are a lot of large-publishing-company old titles that are very marginal anyway. You're going to see a lot of icons going down if paper prices go up that much."

Spin, he said, will continue just fine in print, even without exploring options like switching to cheaper paper stock or reducing the magazine's size. "There may be some adjustments," he said. "I don't think we're going to go that route. We'll find other ways."
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