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Publishers Hope to Offset Higher Newsprint Prices in 1996

December 8, 1995

NEW YORK (AP) _ Newspaper publishers are expecting another newsprint price increase in 1996 but hope to be more profitable anyway due to rising advertising and circulation revenue and tighter controls on other costs.

That was the sentiment Thursday as leading publishers including Gannett Co. Inc., Knight-Ridder Inc. and Tribune Co. made presentations at the annual PaineWebber Inc. media conference. The weeklong conference ends today.

Knight-Ridder and Gannett, meanwhile, said they expect combined losses of $100 million this year as a result of a continuing strike at their Detroit newspapers. They expect the losses will shrink by about half in 1996 because they are continuing to publish with fewer employees and say advertising revenue is rising.

The forecast expanded on earlier reports of $46 million in losses for the first three months of the strike, which began in July.

A few newsprint producers have announced price hikes for the spring of about 7 percent on top of increases of 40 percent and more this past year.

But signs have emerged that the announced price hikes may not spread throughout the industry as many publishers have reportedly built inventories and reduced paper use.

While many of the publishers acknowledged there is a chance the price hikes won’t occur, they aren’t banking on it.

``Some of you have come to the conclusion that the paper markets have turned, and newsprint costs will stall next year,″ said Douglas McCorkindale, chief financial officer for Arlington, Va.-based Gannett, the nation’s biggest newspaper publisher. ``We hope you’re right.″

But he said for budget purposes, Gannett was being conservative. It expects newsprint costs to rise 25 percent next year. Newsprint comprises about 20 percent of total newspaper expenses.

Daniel Castellini, chief financial officer at The E.W. Scripps Co. with 18 newspapers, said newsprint costs will be up 15 percent to 16 percent at his company next year even without a new newsprint price increases. That is because some of the hikes in 1995 were in effect for only part of the year.

He said Scripps’ suppliers have indicated an increase may be coming in March, April or May. ``We’ll get at least one increase,″ he said.

But publishers generally have taken steps to mitigate the impact of another price hike.

This year’s increases have driven many publishers to cut back on newsprint consumption by reducing the size of newspaper pages, curtailing circulation in areas distant from the paper’s home base and reducing waste.

Tribune Co., for example, expects non-newsprint expenses will be up 2 percent next year. Others have projected even smaller expense growth.

P. Anthony Ridder, chairman and chief executive at Miami-based Knight-Ridder, has launched a major drive to improve profit margins at its newspapers, which include The Miami Herald and The Philadelphia Inquirer.

The work force is being cut 8 percent in Philadelphia and 10 percent in Miami as part of that effort. Companywide employment is expected to drop by about 700 jobs.

At the same time, publishers said they are generally looking for increases in advertising and circulation revenue next year.

Gannett expects a 4 percent rise in advertising revenue at its papers, excluding Detroit and USA Today and those papers recently acquired from Multimedia Inc. It expects up to 3 percent more in circulation revenue.

But the Detroit newspaper situation has been a drag on both Gannett and Knight-Ridder. Six unions went on strike in July against Knight-Ridder’s Detroit Free Press and Gannett’s The Detroit News, which are part of a joint operating agreement. The unions also struck Detroit Newspapers, the company that oversees the joint operation.

The companies each said they expected to lose $50 million on the Detroit operations in 1995, but were hopeful of cutting that in half in 1996.

Ridder said advertising revenue has been improving each month, and has risen to about 70 percent of last year’s level in December.

On another topic, Ridder said Knight-Ridder plans to sell its cable TV systems in 1996 and hopes to get $300 million to $400 million for them after taxes.

Gannett’s McCorkindale said cable system operators have approached it about buying or forming cable alliances with its new Multimedia cable systems. He said no serious discussions have begun, however.

But he added Gannett intends to stay in the cable system business.

McCorkindale said the company’s plans for the Multimedia programming unit are not complete. It distributes talk shows like ``Jerry Springer″ and ``Sally Jessy Raphael″ that have come under attack for racy content.

McCorkindale said Gannett made the deal expecting Phil Donahue would retire next summer from his long-running talk show, the unit’s biggest profit center. But he said Donahue ``hasn’t decided what he’s going to do yet.″

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