By: D. Eadward Tree
Declining demand is supposed to cause lower prices, but the magazine industry’s key suppliers are likely to defy the law of supply of demand in 2018, with both paper companies and the U.S. Postal Service raising prices by a little – and perhaps by a lot.
Yes, folks, it’s that most wonderful time of year, when the kids are back in school and publishers turn their thoughts to everyone’s favorite annual task – budgets. Here to help you is Dead Tree Edition’s annual forecast of paper, postal, and print pricing, plus a few tidbits of advice and a bonus advertising forecast.
Paper Prices Will Continue to Rise
Told ya so.
In our print forecast for 2017, we warned that “significant moves in the currency markets . . . could be especially disruptive for U.S. buyers of magazine-quality paper.” The U.S. dollar promptly strengthened, making Mr. Tree sound like Chicken Little for a while.
But now the U.S. dollar is weakening, declining more than 10% against the Canadian dollar in the past 90 days. Not coincidentally, the price of magazine paper is on the rise and likely to end the year about 5% above its mid-2017 trough.
You can also blame the higher prices on single-stream recycling. The American practice of mixing paper, glass, metal, and plastics in the same bins raised the level of contaminants in recovered paper, making it a less efficient fiber source. Most U.S. mills that relied heavily on recycled pulp were forced out of business.
For a while, China’s pulp-hungry mills picked up the slack. But Chinese authorities recently responded to the poor quality by reclassifying much of the U.S.’s recovered paper as garbage and blocking its import. Panicked Chinese mills that relied on recycled have been snapping up virgin pulp, causing worldwide pulp prices to soar – and thereby increasing the cost of making paper.
The analytics firm RISI predicts prices for magazine paper will inch up another percentage point or two during 2018. Given recent trends, Mr. Tree thinks the prices could rise even more than that.
Expect a Postal Rate Increase
What we know for sure is that postal officials are planning to increase Periodical rates an average of about 2% in January. Co-mailed and large-circulation titles will pay less than the average, while smaller titles that don’t co-mail will pay more.
But the big worry is the unknown – what will come out of the Postal Regulatory Commission’s 10th anniversary review of the law that established the inflation-based cap on rate increases.
There’s been widespread speculation that the PRC’s review, likely to be revealed in the next few weeks, will ease the cap and allow higher rate hikes. Some reports have speculated about rates rising as much as 20%. Periodicals, especially those mailed by non-profits, are especially likely to get hit with rate hikes because the USPS supposedly loses money on those products.
Any significant breach of the rate cap is likely to face legal challenges, with implementation delayed at least for most of 2018. In any case, the best move for publishers is to work with their printers (or to find new printers) to take full advantage of co-mailing, dropshipping, and other methods of reducing their postage bills.
Custom Print Will Drive Growth
Ad revenue for consumer magazines will decline at an annual rate of 8.8% over the next three years, according to the widely cited PwC forecasts, while trade magazines will drop “only” 6%. That’s actually an improvement from recent reports of declines in the mid-teens.
But those are averages. The big general-interest titles are suffering mightily, while those serving specific interests, industries, or regions seem to be faring better. As in the digital world, the trend in print advertising is to targeted messages.
“Print advertising is dead – except for custom,” a veteran magazine-media advertising rep told me recently. He wasn’t whining; he’s had a pretty good 2017 in both print and digital sales.
That print success has come despite increasing difficulty selling ad pages. The same advertisers that balk at renewing $100 CPM magazine pages, he says, are eagerly shelling out 10 times that rate for custom distribution (such as an insert sent only to select subscribers or sponsorship of a magazine’s conference edition). Or even 100 times -- $10 per copy -- for custom publications. Digital printing technology makes this level of customization and targeting possible.
Digital advertising’s shift to native advertising and other forms of content marketing could be a boon to targeted inserts and custom pubs. When a company discovers what content works online, it’s not such big step to reformat that content into a printed piece that’s delivered to the company’s best prospects.
Magazine Printing Will Continue to Consolidate
The magazine industry might have grounds for filing an antitrust complaint regarding consolidation in the U.S. printing industry, except for two problems:
- The U.S. Justice Department doesn’t understand the printing industry.
- Magazines are no longer run by people who know anything about printing.
In the past two months, industry giant LSC Communications (AKA RR Donnelley) has snapped up two highly regarded, mid-size competitors that specialized in producing magazines, Creel Printing and Publishers Press. There was nary a peep from Justice because it views printing as a single industry with literally thousands of competitors – and therefore immune from antitrust issues.
The reality for publishers, though, is that only a tiny -- and shrinking -- fraction of the country’s printers is truly able to compete for their business. Unless a printing plant specializes in publications, it’s unlikely to have the bindery equipment, ad portal, co-mailing, dropshipping, digital-edition conversion, and a host of other factors and services the typical publisher needs.
Over the past couple of decades or so, the prices of publication printing have been mostly on a gradual descent (without even adjusting for inflation). But by gobbling up competitors, printers may be able to stabilize prices in the face of declining demand.
You never know when your current printer will disappear, so it’s a good time to get to know some other providers. Who knows, you might find one that’s better able to cut your postage costs or to help you produce innovative custom publications.