Newsprint Price Increases Would Hammer Troubled Newspaper Industry

Due to plans to put tariffs on newsprint made in Canada, prices for a product at the heart of the newspaper industry could rise. One publisher wrote that his paper’s newsprint bill could rise 30%. In an industry that operates on razor-thin margins, and some newspaper companies lose money, the increase in prices would be a brutal blow.

The head of the Tampa Bay Times, Paul C. Tash, wrote last Sunday:

This month, the U.S. government piled huge tariffs onto the imports of newsprint from Canada, including those from our biggest supplier. As a result, the price will jump from $600 to $800 for every ton, and we use about 17,000 tons every year.

That increase is more than 30 percent, and would add more than $3 million to the Tampa Bay Times’ annual newsprint bill.

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A look at one newspaper chain’s financial statements hints at how damaging the price increase could be. McClatchy Co. (NYSE: MNI) is one of the country’s largest chains. In the fourth quarter of last year, its revenue fell from $158.4 million in 2016 to $138.2 million. Operating profit for 2017’s fourth quarter was $30 million, compared to $33.4 million in the same period in 2016. Interest expense on McClatchy’s debt in the 2017 quarter was $22.2 million, which means margins were tiny.

McClatchy’s newsprint, supplements and printing expenses were $17.1 million in the fourth quarter. Newsprint costs are only a fraction of this. However, McClatchy is many times larger than the Tampa Bay paper, so presumably, the hit on the chain would be in the low seven figures. It is hard to see how McClatchy could afford that without other cost reductions.

If anything, the newspaper industry needs prices of paper, printing and postage to fall. It appears, though, these costs are moving in the opposite direction, a challenge to an already deeply challenged industry that has gone through serial costs cuts for years.

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