Is Newsprint Consolidation The Key To Profits?

Implications: Abitibi-Bowaters has recently shut down four newsprint mills: one in New Brunswick, two in Ontario and one in British Columbia.  Catalyst has shut down one machine as have several other major producers.  Will this be enough to bring supply in balance with demand? 85% of newsprint production is now controlled by 7 large multi-mill companies located throughout Canada and the US.  Demand continues to diminish as circulation drops and advertizing of homes, cars and classified drops.  How much more will demand drop before it levels off....or, will it continue to drop with each passing year? White Birch is the 2nd largest producer of newsprint in North America with production totalling 1.35 mmt.  SP, a general partnership of three major newspaper publishers, was sold for only $350 million - a deeply discounted price for two major papermills and a recycling subsidiary. Is this a tell-tale indication of how dimly publishers see the future of newspapers?

Analysis: Newprint demand has been falling annually since 2000 and it's been said, half-jokingly, that "no one under 35 reads newspapers anymore".  From over 15 million tons/year to less than 12 million there seems to be no light at the end of the tunnel.  January, 2008 showed a decline of almost 10% as home and car advertizing plus classified all dropped.
To reduce their paper costs publishers have reduced the weight of the paper and reduced the size of the paper itself (i.e. the new WSJ).  These publishers grew accustomed in 2007 to paying as little as US$540/st for their paper requirements.   List was $565/st.  Then, in the 4Q producers announced a $25/st increase followed by the year end announcement that 1Q prices would be $60/st higher.  Publishers fought bitterly and got suppliers to agree to implement the increase in $20/month increments through the 1Q.  However, with so much curtailment, publishers had little choice but to go along.
And...lastly, when newsprint prices finally get to $725/st and the mills are in a position to make a profit, what will Publishers do?  Raise the price of their daily newspapers to $1.00?  And what will that do to circulation?   Only time will tell how these problems will resolve themselves....not many people are willing to predict the outcome.