US newspaper publishing groups could benefit from a substantial fall in newsprint costs in 2002, with a knock-on effect possible for European publishers, according to analysts at ABN Amro. The broker forecasts that print prices may fall by double-digits next year, although advertising visibility remains limited.
A decline in newsprint costs would significantly help the operating profits of publishers that have been hit hard by the downturn in advertising volumes (see
US Newspaper Groups’ Figures Show Tough Conditions). However, given that advertising itself is not necessarily going to improve in the foreseeable future, the beneficial effect may be a little muted.
Since the beginning of 2001, newsprint prices have fallen by 16% in the US, according to ABN Amro’s figures. This decline is a direct result of the reduced demand for newsprint due to falling advertising volumes.
Analysts say that whilst the structure of the European newsprint market is markedly different to that of the US, patterns in the States may well be indicative of European trends.
European costs are negotiated annually, with the 2002 discussions just beginning. The 16% fall of costs in the US may result in a similar decline in the various European markets, aiding the operating profits of newspaper publishers in Europe.
Newsprint fees account for an average of 20% of a publisher’s costs. Taking this and assuming a newsprint decline of 10%, the average boost to operating profits would be around 8.0%, says ABN.
