Newspaper publishers might face tough times as the newsprint prices are expected to touch $800 per ton in the coming months.
This has raised concern for the newspaper publishers who feel that this will be a repeat of 2008, where the pages had to be cut down, delay in new editions and costs passed on to the consumers and advertisers.
Bhausaheb Patil, technical director at Sakaal Papers, says: “Most publications are feeling the heat of the spiralling operational costs resulting from newsprint becoming costlier. They will look to combat the increase in cost in various ways. Some may limit circulation.”
Patil added: “Any increase in the cost of newsprint can affect profitability of newspaper organisations, and thus their ability to deliver quality products. It is true that the price of newsprint has been rising in the last couple of years putting pressure on newspaper revenues.”
The newsprint cost comprises as much as 40%-50% of all operational costs for the newspaper publishers. The price of imported newsprint has risen 32% to $730 per ton from $550 a year ago.
Indian newsprint was priced at Rs 35,000 per ton in Q2 of 2011. High newsprint prices resulted in significant erosion in EBITDA margins across the print media industry.
EBITDA margins troughed at 18.3 per cent in Q4 FY09, registering a decline of 12.5% from Q1 FY09 (30.8%). However, the agency notes that along with high newsprint prices, advertising spending was also under pressure during this period. As newsprint prices declined and economic activity – and consequently advertising – started to pick up, EBITDA margins improved from Q1 FY10.
In contrast to FY10, FY11 was a mixed year for newspaper publishers, when moderate revenue growth was offset by steadily increasing newsprint prices. Consequently, industry EBITDA margins declined to 20.6% in Q4 FY11 from 35.5% in Q1 FY11.
Fitch Rating’s analysis of eight leading national and regional newspaper publishers showed that raw material costs, as a percentage of operating revenues, increased to 40.4% in FY09 from 34.3% in FY08. As newsprint prices fell in FY10, this ratio improved back to 33.0%.
However, according to Fitch Ratings, an increase in advertising revenues may partly offset the rising cost of newsprint. Newspaper publishers generate about 70% of revenues from advertising, with the remainder coming predominantly from circulations.