March 27, 2018

Reeling print businesses stand to take a significant hit this year as a tariff on Canadian newsprint and a scheduled postal rate increase for magazines kick in.

The ultimate amount of the increases is still in flux, but worse case or even next-to-worse case, they may lead to staffing and content cutbacks at strong publications and spell the end for smaller and weaker ones.

Paul Tash, chairman and CEO of Poynter's Tampa Bay Times, said in a letter to readers Sunday that the Times' newsprint bill stands to go up 30 percent or $3 million for this year. The Times and other publishers will cut the size of the print edition and eliminate jobs as a result, he wrote.

The News Media Alliance has been lobbying against the proposed tariff since December and is ramping up those efforts this month with publishers calling on members of Congress. The hope, Alliance lobbyist Paul Boyle told me, is that a wave of opposition from legislators during a public comment period will lead the International Trade Commission to roll back the temporary duties imposed in January.

Meanwhile magazine industry executives are mobilizing against a proposed postal rate increase for periodicals. They claim that what the Postal Service is asking could add 40 percent to their cost of mailing over the next five years.

If that sticks, Meredith CEO Tom Harty wrote to the Postal Commission, his company will be forced "to pursue magazine closures, circulation cuts, issue frequency reductions and conversion to digital formats."

The price shocks are overlapping. While printed on different stock, the magazine industry can ill afford another unplanned expense increase. And some smaller papers are delivered by mail so the postal increase will hit them directly.

Each of the changes has a somewhat complex back story.

The newsprint tariff is not directly the result of the round of tariff offensives President Donald Trump recently announced. But his Commerce Department appears to be friendlier to claims by American manufacturers of unfair competition than was its predecessor.

A single American paper company, Norpac in the Pacific Northwest, complained last fall that Canadian mills, which supply most of the newsprint in the U.S., were unfairly subsidized by the government there and also were dumping at cut-rate prices here. 

Norpac,which had previous favorable rulings from the Commerce Department, got a preliminary judgment in their favor in January.  The matter now goes to the International Trade Commission, whose ruling is expected in September, Boyle said. The Commerce Department will issue a separate ruling on the dumping charges in August.

The sequence of events has steadily driven prices higher since late last year. One report puts the average at $655 per metric ton, up from $560 in August. Other producers have increases scheduled for April and May.

An irony of the situation, Boyle said, is that the largest of the five remaining mills in the United States are owned by Canadian producers — so there is not really a substantial U.S. industry to protect.

The postal rate increase has a similarly long fuse.  A 10-year review of rates by the Postal Regulatory Commission recommended many rate increases with a formula that was especially tough on "flats" like magazines and catalogues.

The ever-ailing U.S. Postal Service, a freestanding but regulated business, has been losing first-class mail volume as digital communication and bill-paying supplant letters. The postal service's share of Amazon shipping has been a plus. Still it operates at a loss.

President Trump weighed in on the controversy in a December tweet:

"Why is the United States Post Office, which is losing many billions of dollars a year, while charging Amazon and others so little to deliver their packages, making Amazon richer and the Post Office dumber and poorer? Should be charging MUCH MORE!"

The period for public comment closes Friday.  A broad group, including non-profits who solicit contributions by mail and greeting card companies, has opposed the changes, but it is the magazine industry that has been leading the charge.

The trade group, MPA, produced a slick 12-page brochure making the case. It argues, among other things, that the punishing increases in periodical rates will be "a drop in the bucket" for USPS revenues and will reduce volume from steady customers as the service needs instead to look harder at cost controls.

Meredith's Harty, in his letter, said that his company's steps to reduce frequency and close some titles to keep costs in line would largely wipe out the hoped-for revenue gains for the service.

The coalition opposing the increase also argues that the service would be operating profitably were it not for a mandate from Congress to fund pensions and retiree health benefits fully as very few other businesses do.

The commission is expected to offer a final ruling this fall, though implementation could be delayed by appeals and lawsuits.

My own view is that both price shocks, even if they get watered down, expose the vulnerability of magazines and newspapers to the unexpected. A resumption of inflation or a recession could be equally challenging. The erosion of print advertising and circulation have played out over years of slow but steady economic growth and moderate increases in costs.

Broadly, this is also one more pressure point to drive both industries to hasten a transition to scaled-back but profitable digital operations, including building a bigger base of paying subscribers. But of course, except for outliers such as the New York Times, that has been proving a tough sell.

I don't see an imminent collapse of print + digital as a strategy, but the vise seems to be tightening one more time.

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Rick Edmonds is media business analyst for the Poynter Institute where he has done research and writing for the last fifteen years. His commentary on…
Rick Edmonds

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