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What Do Rising Paper and Gas Prices Mean for Publishers?

Gundel Henke

Gundel Henke

2022 has offered one of the most economically challenging landscapes in recent years. The smallest startups to the largest corporations are facing plenty of near-term headwinds. Whether it is the economic fallout from the Russia-Ukraine war, the continued fallout from Covid-19, or stubbornly high inflation, organizations all throughout Europe are doing their best to navigate these turbulent times.  

The publishing industry is not immune to these challenges. Specifically, rising input costs have pressured publishers’ bottom lines. While it is difficult to forecast how long these pressures will last, this extreme cost pressure is making publishers’ lives that much more difficult. If sustained, these harsh economic pressures can even force some publishers to close their doors. 

In these increasingly uncertain economic times, it is even more important to embrace the digital revolution. Publishers that transform their content into digital products not only reduce their operating costs, but they also increase their productivity. Embracing digital content can even unlock additional revenue channels, which can help nearly every publisher reach their growth goals.  

Ultimately, publishers need to focus on what they can control. While they can’t control the future direction of commodity prices, they can control their content strategy. A digital strategy can offer publishers more top-line growth while cutting costs. It provides a win-win for small and large publishers alike.  

The Problem

The past several years in the publishing world can be summed up by the word uncertainty. Everything from the rise of Facebook and Google as advertising juggernauts to opportunistic hedge funds purchasing newspapers and making steep labor cuts has littered the publishing industry with question marks. That being said, this past year has highlighted publishers’ vulnerability to variables that make up a substantial part of their input costs.  

Ultimately, we can put the blame on two interconnected things: rising paper costs and rising gas prices. According to data from Mintec Global, rising paper costs have a causal relationship with the conflict in Ukraine. Energy comprises around 15 to 30 percent of paper production costs. Further, around 40 percent of the energy used in the paper industry comes from natural gas. You can guess what happened next. Publishers that are producing daily, weekly, or even biweekly paper editions of their content have been seeing gross margin compression due to these factors outside their control. And to be clear: this is a trend that didn’t start with Russia’s campaign against Ukraine. Since 2020, newsprint prices have risen by over 30 percent.  

This isn’t the only area where publishers are getting hit. Higher fuel prices directly affect the distribution of print newspapers. As The Seattle Times noted, newspaper circulation is its highest expense behind payroll. The Times uses contractors for delivery of its physical editions, and higher fuel prices make it harder to retain those contractors. If publishers decide to save costs and cut back on distribution, the product becomes less appealing to advertisers, which consequently affects publishers’ top lines. 

The story is similar in Europe. The war in Ukraine has caused a workforce exodus—specifically among individuals in the transportation industry. For instance, around 100,000 Ukrainian lorry drivers used to work in Poland, but many of them have needed to return to Ukraine to assist their families. In Germany, a significant amount of lorry traffic used to come from Eastern Europe, but those numbers are now down due to the conflict. As is the case with the Seattle Times, labor shortages lead to higher distribution prices for European publishers.  

So what do all of these headwinds mean? For starters, it makes life extremely difficult for publishers of print editions. While it may not seem obvious, print continues to be a key revenue driver for publishers around the world. According to data from WAN-IFRA, print circulation revenue was nearly $55 billion in 2021. The print circulation audience is around 533 million, which is a 2.3 percent increase from the prior year. These are significant numbers, meaning that publishers in Europe and throughout the world have needed to respond to these rapid price increases. 

In some instances, publishers have appealed for governmental intervention. Several publishers in the United States, for instance, have called for Congress to pass the Local Journalism Sustainability Act. Among other things, the legislation would provide valuable tax credits to organizations that hire and employ journalists. With many local newspapers shutting their doors in the United States, supporters of the Local Journalism Sustainability Act hope that these financial incentives can help relieve the pressure on small newspapers across the country. But relying on government action to provide financial relief can be hazardous. There is no guarantee that bills like the Local Journalism Sustainability Act will pass. Even if they do, it could take years for actual progress to be made.   

The Solution

Publishers are in a difficult spot. On one hand, they may still have significant amounts of readers of their print editions. But on the other hand, publishing is a business. There are costs and publishers need to generate enough revenue to cover those costs. Ultimately, their survival hangs in the balance.  

The good news is that publishers have a compelling option. They can embrace a digital strategy and publish more of their content on digital channels. Digital channels can include a website, but it doesn’t have to stop there. Publishers can share their valuable content through videos, podcasts, social media posts, and more.   

A digital content strategy has become increasingly important for essentially every publisher. This is because digital channels provide key benefits over print. Sure, there are associated costs with creating digital content.  

That being said, one of the most powerful benefits of a digital content strategy is that incremental costs are extremely low. In effect, publishers are relying on bits over atoms. Publishers wishing to release print editions of their content are subject to incremental costs (like rising print and fuel costs) that can unexpectedly emerge. On the other hand, digital content can be published at nearly zero incremental cost. The simplest example comes from publishing a new edition. While a publisher will need to pay for ink and distribution (among other things), the digital version of that same content can be published with just a few keystrokes. The difference is substantial and can help publishers avoid the whims of international paper and fuel markets. 

Besides extremely low incremental costs, a digital strategy can lead to more significant growth. Simply put, younger consumers prefer to view news in a digital form, and as they age, they will likely prefer to consume news in the same way. Two years ago, Millennials overtook Baby Boomers as the largest generation in America. Further, according to Deloitte, Millennials will comprise 75 percent of the workforce by 2025. Publishers must cater to the preferences of these younger consumers—both to satisfy their desire to consume content the way they want and to satisfy advertisers who want to reach this lucrative demographic.   

Finally, a digital strategy can create additional revenue channels. Instead of simply being in the business of selling print copies and courting advertisers for those print copies, publishers can monetize their digital content in many different ways. For instance, digital publishers can launch and host digital events. By inviting thought leaders and catering to consumers around the world, these digital forums and events can be lucrative. Publishers can even create different types of subscription packages that let subscribers access both content and other products or services. Because this area is so nascent, publishers are incentivized to experiment to find new, compelling revenue sources.  

How Purple DS Can Help 

We are living in fascinating times. While it is unclear when global inflation will subside or the war in Ukraine will end, we have seen the power of digital content. From the smallest publishers to some of the largest publishers in the world, a digital content strategy can help publishers deal with macroeconomic headwinds and grow their businesses. 

At Purple DS, we recognize the importance of digital content. Because of this, we offer a solution for publishers who want to transform their content into digital products. Our intelligent app and multichannel publishing software can help you hit your sales goals and deliver compelling content to your audience. We have helped more than 600 publishers and brands from nine countries as they have successfully implemented digital content strategies.  

The best news? We are still in the early days of digital content. The opportunity is there for you to leverage this trend. In the end, the best time to get started is right now. 

To learn more about Purple DS, feel free to visit our website. You can also contact us by clicking here.  

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