U.S. newsprint bounces back, but challenges remain.

The U.S. newsprint market (the biggest in the world) is expected to bounce back in 2005, driven by a positive change in advertising. Major factors impacting U.S. newsprint market conditions are:

* Performance of the U.S. economy--the forecast is a move upward in 2005 by 3.7%

* U.S. advertising expenditures--advertising growth of more than 6% is forecast for 2005, which will exceed the rate of improvement in the overall economy. This suggests newspapers are beginning to win back at least some of the advertising lost during the three-year recession.

* Technological changes that will impact on major end-user markets--newspapers will continue to be negatively affected by the proliferation of news available from a broad range of sources, including the Internet and cable TV news.

* Newspaper publishers' usage of newsprint is forecast to be flat

* Daily and Sunday circulations are expected to continue their steady decline

ISSUES AND TRENDS

Current issues and trends related to newspapers include the following:

Tabloid sizes are expected to become more popular for some sections and special issues. They offer benefits over broadsheets, because they are easier for commuters to read and they can be targeted to specific demographic groups, increasing their attractiveness to advertisers. Tabloids have also been found to expose the reader to ads for a longer period of time.

Free daily newspapers will continue to grow rapidly as established daily papers publish editions to compete with free competitors to stem the long-term decline in circulation.

National advertising is gaining share against retail and classified ads. Last year, national ads grew 8.1% vs. 1.7% for retail and -0.6% for classified. The latter two categories together still generate more than twice as much revenue as national ads. Through the third quarter 2004, national ad revenue was up 3.7% while retail and classified grew 3.0% and 5.0%, respectively. Overall, ad spending is 3.8% above the 2003 level. Forecasts for 2005 newspaper ad spending growth are within a 4.0-4.5% range.

Classified advertising will continue to be challenged by online competitors. Newspaper websites will blunt the move to pure online sites as they offer package deals with print editions to local advertisers. Also, Monster and other job-sites are not attracting the same level of job-seekers as newspapers. It is a question of "class vs. mass."

The spotlight will remain fixed on capturing young readers with new sections, including tabloids, features, and new writing styles. As yet, no strategy has drawn young readers back to newspapers in the desired numbers.

There is a trend toward more 4-color printing for pictures and ROP (run-of-press) ads. This is an evolutionary change as new printing presses are installed that make higher quality color printing more cost-efficient.

The movement to 4-color might compete with the trend toward lower than 30# basis weight papers. Reports from some publishers indicate 27.7# newsprint has opacity problems when both sides of the sheet are printed in heavy 4-color. It also leads to more web breaks and a loss of productivity.

Technological advancements in the computer-to-plate area makes this process more affordable because of reduced film usage. This is a big change in the newspaper industry.

U.S. Newspaper Advertising Revenues

National    19%
Retail      46%
Classified  35%

6 months, 2004 $21.7 billion

Newsprint outlook and ad revenues. Source: Jaakko Poyry

Note: Table made from pie chart.

Note: This article is part of a series by Jaakko Poyry Consulting, Tarrytown, New York, USA, a provider of marketing and consulting services. Contact Soile Kilpi by email at [e-mail], or by phone at [phone].