Way out of the crisis: rising paper and gas prices and how digital transformation can help

Gundel Henke

The year 2022 presents many of us with major economic challenges. The smallest startups to the largest corporations face major tasks in the near future. Whether it's the economic impact of the war between Russia and Ukraine, the lingering effects of the pandemic, or stubbornly high inflation, companies across Europe are doing their best to weather these turbulent times.

The year 2022 presents many of us with major economic challenges. The smallest startups to the largest corporations face major tasks in the near future. Whether it's the economic impact of the war between Russia and Ukraine, the lingering effects of the pandemic, or stubbornly high inflation, companies across Europe are doing their best to weather these turbulent times.  

Uncertain times for publishers

The publishing industry is not immune to these challenges. Rising costs in particular have put pressure on publishers' profits. While it's hard to predict how long this pressure will last, this extreme cost pressure is making life very difficult for publishers. If it continues, this tough economic pressure may even force some publishers to close their doors.

In these increasingly uncertain economic times, it is all the more important to embrace digital transformation. Publishers who convert their content into digital products not only reduce their operating costs, but also increase their productivity. The shift to digital content can even open up additional revenue channels, which can help almost any publisher achieve its growth targets.  

Ultimately, publishers must focus on what they can control. While they cannot influence the future development of commodity prices, they can influence their content strategy. A digital strategy can offer publishers more revenue growth while reducing costs. This is a win-win for both small and large publishers.

The problem

The last few 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 buying up newspapers and taking drastic pay cuts has left the publishing industry with question marks. The past year has highlighted publishers' vulnerability to political and economic developments that have a significant impact on their costs.  

Ultimately, we can blame it on two interlinked things: rising paper costs and rising gas prices. According to Mintec Global, rising paper costs are causally linked to the conflict in Ukraine. Energy accounts for about 15 to 30 percent of paper production costs. In addition, about 40 percent of the energy used in the paper industry is derived from natural gas. You can guess what happened next. Publishers that produce paper editions of their content on a daily or weekly basis saw their gross margins decline due to these factors beyond their control. And to be clear, this trend didn't just start with Russia's campaign against Ukraine. Since 2020, prices for newsprint have risen by over 30 percent.  

Logistics as a challenge

This is not the only area where publishers are affected. Higher fuel prices are having a direct impact on newspaper distribution. As the Seattle Times noted, newspaper distribution is its biggest cost after salaries. The Times uses transportation contractors to deliver its physical editions. Naturally, prices for these contractors are rising, which directly affects publishers' profits. When publishers decide to cut costs and reduce distribution, the product becomes less attractive to advertisers, which in turn affects publishers' profits.

The situation is similar in Europe. The war in Ukraine has led to an exodus of workers, especially in the transport industry. For example, about 100,000 Ukrainian truck drivers were working in Poland, but many of them had to return to Ukraine to support their families. In Germany, much of the truck traffic used to come from Eastern Europe, but those numbers are now declining because of the conflict. As in the case of the Seattle Times, labor shortages are leading to higher distribution prices for European publishers.

Consequences for publishers

What do all these circumstances mean for publishers? First of all, they make life extremely difficult for publishers of print editions. Even if it's not obvious at first glance, the print business is still an important revenue driver for publishers all over the world. According to WAN-IFRA data, print circulation revenue was nearly $55 billion in 2021. The number of print circulations is 533 million, an increase of 2.3 percent over the previous year. These are substantial figures, and they mean that publishers in Europe and around the world must respond to these rapid price increases.

In some cases, publishers have appealed to the government to intervene. For example, several publishers in the United States have called on Congress to pass the Local Journalism Sustainability Act. This act would, among other things, provide valuable tax credits to organizations that hire and employ journalists. With many local newspapers in the United States closing their doors, proponents of the Local Journalism Sustainability Act hope these financial incentives can help ease the pressure on small newspapers across the country. Relying on government action for financial relief, however, can be dangerous. There is no guarantee that bills like the Local Journalism Sustainability Act will pass. And even if it does, it could be years before real progress is made.

The solution

Publishers are in a difficult situation. On the one hand, they still have a considerable number of readers of their print editions. On the other hand, publishing is also a business. Costs are incurred and publishers need to generate enough revenue to cover these costs. Ultimately, their survival is at stake.  

The good news is that there is a way out for publishers. They can pursue a digital strategy and publish more of their content via digital channels. Digital channels can include a website, but it doesn't have to stop there. Publishers can also distribute their valuable content through videos, podcasts, social media posts and more.  

A digital content strategy is becoming increasingly important for almost all publishers. The reason is that digital channels offer decisive advantages over print media. Sure, creating digital content comes at a cost.  

Advantages digital strategy

But one of the biggest advantages of a digital strategy is that the additional costs are low. Publishers who want to publish their content in print face additional costs (e.g., rising printing and fuel costs) that can pop up unexpectedly. In contrast, digital content can be published at little additional cost. The simplest example is publishing a new issue. While a publisher must pay for ink, paper, and distribution, among other costs, the digital version of the same content can be published with just a few keystrokes. The difference is significant and can help publishers avoid the vagaries of international paper and fuel markets.

Apart from the low additional cost, a digital strategy can lead to significant growth. Simply put, younger readers prefer to see news in digital form, and as they get older, they will likely prefer to consume news in the same way. Two years ago, Millennials replaced Baby Boomers as the largest generation in America. According to Deloitte, Millennials will make up 75 percent of the workforce by 2025. Publishers must cater to the preferences of these younger readers - both to satisfy their desire to consume content the way they want to, and to satisfy advertisers who want to reach this lucrative demographic.  

Finally, a digital strategy can create additional revenue streams. Instead of simply selling print copies and courting advertisers for those print copies, publishers can monetize their digital content in many different ways. For example, digital publishers can create and host digital events. By inviting thought leaders and engaging readers around the world, these digital forums and events can be lucrative. Publishers can create different types of subscription packages that give subscribers access to content as well as other products or services. Because this area is still in its infancy, publishers have the incentive to experiment to find compelling new revenue streams.  

How Purple can help

We live in fascinating times. While it is unclear when global inflation will subside or the war in Ukraine will end, we have realized the power of digital content. From the smallest publishers to some of the largest publishers in the world, a digital strategy can help publishers deal with economic challenges and grow their business.

At Purple, we understand the importance of digital content. That's why we offer a solution for publishers to transform their content into digital products. Our intelligent multichannel publishing software can help you meet your sales targets and deliver compelling content to your audience. We have already helped many major players in the publishing world to successfully implement digital content strategies.

The best news? We are still in the early days of digital transformation. You have the opportunity to take advantage of this trend. The best time to start is right now.

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Kevin Kallenbach
Head of Sales