Thursday, May 15, 2014

A Shortage of Paper? You've Got To Be Kidding!

Demand for graphic papers keeps dropping, usually faster than the industry can reduce capacity. Struggling paper mills are often playing a giant game of chicken, scuffling along on thin margins (or negative margins) in hopes that a competitor will shut down a machine to balance the market.

So why are paper companies suddenly announcing price increases for coated paper, and why is the biggest printer in the U.S. worried about possible paper shortages?

SAPPI surprised nearly everyone late last week by announcing a $40/ton price increase on coated freesheet (CFS) in the U.S. Then Verso delivered an even bigger shock this week with $40 hike not only on CFS but also on coated groundwood (CGW), which is in even greater oversupply than CFS.

But, first, let’s look at the rather cryptic statement from a recent R.R. Donnelley filing with the Securities and Exchange Commission:

“Management believes that the paper supply is consolidating, and there may be shortfalls in the future in supplies necessary to meet the demands of the entire marketplace. Higher paper prices and tight paper supplies may have an impact on customers’ demand for printed products,” the document said. “Contractual arrangements and industry practice should support the Company’s continued ability to pass on any future paper price increases, but there is no assurance that market conditions will continue to enable the Company to successfully do so.”

What does Donnelley know that the rest of us don’t? With or without consolidation, how do you run out of something when demand for it is declining?

Donnelley seems to be worried about the proposed merger of Verso and NewPage, North America’s two largest makers of coated paper. “NewVerso" would control half the continent’s capacity for coated paper, which could stifle Donnelley’s legendary ability to negotiate very huge and very sweet deals.

The paper giant could play the “Our way or the highway card,” as NewPage has often tried to do (usually more to its own detriment than that of its customers). And it may be in a position to balance markets by aggressively idling or shutting capacity.

If the merged company is successful, smaller competitors might give up on certain parts of the market. Then a single NewVerso miscalculation – about demand or imports, for example – could quickly lead to shortages.

And if the highly leveraged company isn’t successful, Donnelley’s (and everyone else’) ability to secure coated paper could depend upon the mercurial moods of a bond market that cares nothing about the health of the paper, printing, or publishing industries.

Or maybe Donnelley is saying, “We really don’t know what consolidation of the paper industry will mean to us, but it could be a big deal. So our lawyers told us we’d better cover our donkeys in case a few know-it-all private-equity boys screw everything up.”

As for the nearer term, market participants say SAPPI’s move is a bit early and aggressive, but there is some hope that capacity reductions, the strong euro, a decent economy, and this year’s election will bring the CFS market into balance later this year. SAPPI is trying to set the table for a July 1, or maybe an Oct. 1, price hike for contract customers who have quarterly price protection.

“They’ll need others to follow and for demand to pick up for it to succeed,” one paper broker commented.

But Verso’s move on CGW seems to be more a matter of wishful thinking by a money-losing supplier. And so far it’s been met with silence by competitors. CGW faces two challenges that CFS doesn't: 1) High-quality supercalendered (SC) paper, which increasingly competes with CGW for some applications, but at a lower price. 2) The weak loonie (Canadian dollar), which means Canadian CGW and SC makers are happy to grab market share in the U.S. by pricing more aggressively than their American counterparts.

Here’s how one paper-market veteran summed up the pricing announcements: “Watch everyone announce, then [watch] the guessing game of who actually went up and who maneuvered for market share. All in all, they probably each have some bottom business they can raise, and that's who it [the price hike] will be applied to.”

Related articles:

Tuesday, May 13, 2014

No Thrillah in Manilla: Paperless 2013 Founder Going Down for the Count

Manilla, a Paperless 2013 sponsor that aimed to save people from the horrors of printed and mailed bills, is throwing in the towel, according to TechCrunch.

Unable, in the words of its own ads, to get its "s**t toghether," the three-year-old Hearst unit will start winding down on June 30 and shut down completely on Sept. 30. (The 2013 article Killah in Manilla: Hearst's Green Reputation Tarnished by Subsidiary examined the company's questionable environmental claims.)

Manilla, along with Google, was one of seven sponsors of the controversial Paperless 2013 greenwashing campaign that was supposedly about helping the environment but was actually about bringing the sponsors more green stuff.

Without providing any data or analysis, the anti-paper campaign claimed that businesses become more environmentally friendly when they switch to cloud computing and other paperless processes.

The campaign used the hashtag "Paperless 2013" in social media, but environmentalists and print advocates staged a "hashtag takeover" to counter the campaign's self-serving and misleading claims.

Manilla's CEO said its sponsorship was “truly representative of Manilla’s overall mission ... to help improve the environment by reducing the overall use of paper.” But like the campaign, Manilla never documented how its services helped the environment -- or revealed anything about its own environmental practices.

The start-up's claims were an odd departure from those of its parent company, which is one of the world's largest buyers of publication papers and which has provided extensive reporting of its aggressive and carefully documented environmental efforts.

I'll state my position again: There are legitimate reasons to convert some paper-based functions to digital media. But don't make assertions about "going green" by going paperless without providing evidence, because digital media have a significant environmental footprint.

Thursday, May 8, 2014

Who Killed the Magazine App?: 9 Suspects

OK, I apologize for the over-wrought headline: We publishers tend to be trend-happy. When something that was supposed to be the Next Big Thing turns out to be The Most Recent Overhyped Thing, we reflexively start debating whether it’s dead.

“I would not say the app is dead, but it might have a bullet wound to the leg,” app designer Josh Klenert remarked recently in a discussion of -- you guessed it -- whether magazine apps are dead.

In 2010, all the cool people in publishing were working on apps. But four years after the Star of Bethlehem appeared over Cupertino to announce the birth of the iPad, sales of tablet-based editions are barely a footnote for most magazine publishers, constituting a few percentage points of total circulation.

Pundits and industry suppliers keep proclaiming the inevitable dominance of the magazine app and the Second Coming of Steve Jobs, but most publishers have moved on. Their thought leaders and business-development resources are now focused mostly on the Web – and occasionally, God forbid, on print.

Just an afterthought
Tablet magazines have become an afterthought, intended mostly to impress 22-year-old media buyers and to shave a few percentage points off the 3P (print, paper, and postage) costs of meeting magazines’ bloated circulation guarantees.

So what happened? Despite the obvious convenience and sometimes stunning beauty of tablet-based magazines, nine forces are preventing them from thriving:
  1. Publishers: The magazine industry has been widely criticized for its impatience, throwing in the towel too quickly on app development. In 2010, still smarting and scrambling from the economic recession, we publishers were still in the mindset, “If you can’t pull your weight, get the hell out of the lifeboat.” So when tablet editions showed no signs of immediate success, we cut off their rations. It didn't help that we undercut our apps by putting most of our content on the free web and by offering ridiculous discounts on print subscriptions but not on digital ones.

  2. Advertisers: “Advertisers remain skeptical about paying for digital circulation,” Thea Selby of Next Steps Marketing wrote recently. “They are not yet convinced, even though the advertising is placed in a magazine-like setting, that they should be paying for the digital magazine advertising as they pay for print, based on circulation.”

  3. Apple: The iPad’s creator teased publishers by creating its Newsstand as a way to encourage exploration and purchase of digital magazines, then neglecting it until it became an “unmanageable beast.” Now it’s mostly good for finding crappy Russian porn mags. It’s almost as if Apple’s lawyers told it to screw up its magazine business so that it wouldn’t get sucked into another antitrust investigation after the feds are through flaying its book-selling operation.

  4. Google: With its menagerie of updates – Panda, Penguin, and the like – the giant search engine keeps tilting the Web toward credible publishers with bylined articles by respected authors. That gives publishers more incentive to put new content on the Web and not inside the walled garden of an app. The one place where Google has failed publishers is with e-editions: When it comes to search involving digital magazines, Google does “a worse job than Apple,” says Neil Morgan of, who’s no lover of Apple’s Newsstand.

  5. Amazon: The e-commerce giant spoiled us by making books, both print and e-book, so easy to find and sample. It even has an elaborate recommendation engine that tells us about books we're likely to like. But it hasn't turned its exhaustive data or its magical algorithms loose on finding new subscribers for Kindle magazines.

  6. Consumers: C’mon, despite all the whining about the discoverability of apps, people can probably find an electronic edition of their favorite magazine if they do some searching, right? Yes, but American consumers generally don’t go looking for magazines to buy. They pick one up on impulse at the grocery store, at the hair salon, or at a friend’s house. They have to be cajoled into subscribing with breathless marketing copy and special discounts. Hell, when it comes to apps they have to be cajoled just to look at a free sample issue. And when they do subscribe to an e-edition, they often forget about it (and therefore end up not renewing) because they still pay more attention to what’s in their snailbox than to the notifications on their tablet.

  7. Angry Birds and its ilk: Despite an owner’s best intentions, there’s something about a tablet that wants to be more toy than tool. You’ve got a few minutes of down time and a tablet in your hands: Are you going to start plowing through that article on the global debt crisis – or try to beat your personal-best score?

  8. Netflix: Streaming videos can look fabulous on a high-end tablet. Yet another distraction.

  9. Smart phones: Phablets and app-heavy smart phones have turned tablets from a must-have item into a nice-to-have-if-you’ve got-some-bucks-to-spare luxury. Smartphone sales are booming, far eclipsing unit sales of tablets. iPad sales were actually down 16% in the First Quarter. When publishers said “mobile strategy” three years ago, they had tablets in mind; now the phrase means making your web site more smart-phone friendly.
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Saturday, May 3, 2014

R.R. Donnelley Ready To Deliver When the Postal Service Doesn't

If Congress decides to allow private delivery of newspapers and magazines on Sundays, the nation’s largest printing company is ready to step in.

“We are looking at alternative delivery methods for content, for physical content,” Thomas J. Quinlan, CEO of R.R. Donnelley, told financial analysts this week. (SeekingAlpha has the complete transcript.) “With the platform that we've built . . . with the addition of [recently acquired competitor] Consolidated Graphics, we've got the ability to be in the majority of populated cities in the United States.”

Thomas J. Quinlan
Quinlan expressed interest in the recent proposal by influential Congressman Darrell Issa, R-CA, that would “permit periodicals, newspapers and unstamped mail to be placed in mailboxes on days when the Postal Service does not provide mail delivery.” Current law gives the U.S. Postal Service a monopoly on delivery to mailboxes.

Issa’s proposal, especially if coupled with curtailment of Saturday USPS delivery, “creates an opportunity for us,” Quinlan declared.

He indicated that Donnelley’s interest is as much about keeping its publishing customers in business (and perhaps gaining a competitive advantage over other printers) as it is about actually making money on the delivery service.

“It's all about our customers and how can we reduce their overall total cost, make them more efficient,” he said. The Postal Service’s recent price hikes and reductions in service are forcing Donnelley to think that way.

Just not sustainable
“Look what USPS is doing to the mailing industry. It's just not sustainable. There's significant cost increases that they've put through. They're shifting cost to the players in the mailing industry, Quinlan said. “All these things, these are costs for the mailing industry that, quite frankly, we and other people like us have to go ahead and mitigate to our customers because our customers can't go ahead and aren't going to take the additional cost and look for people like us to, again, go ahead and mitigate those.”

“You look at Ladies' Home Journal that was announced by Meredith earlier this week [would be shutting down]. I mean, 40 to 47 percent of their cost was related to postage. It was nothing to do with electronic content.”

Issa’s proposal is no slam dunk. It’s sure to face a full-court press from postal unions and front-line employees who fear it would cost jobs and undercut the Postal Service.

USPS's position on the proposal is not as clear. The agency doesn’t want to give up the mailbox monopoly. But if it really loses money on delivering periodicals, as it claims, then perhaps it would welcome the opportunity to lose some of that business to the private sector [though methinks the alternate-delivery services would cherry-pick the most efficient periodicals mail and leave the dregs to USPS].

For a few years during the early 1990s, two alternate delivery networks that used newspaper publishers to deliver monthly magazines to driveways and front doors grew rapidly. But USPS won the magazines back – and squashed the private services -- by introducing more rate incentives for efficient Periodicals class mailers.

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