Print media urged to write their own happy ending to crisis

By Reiner Simanjuntak

JAKARTA (JP): Just a couple of years ago, the print media industry was riding high, with new publications hitting newsstands seemingly every month.

The economic crisis has said a hasty goodbye to that success and created a nightmare scenario in which many publications are wondering whether they can survive.

Last week, The Jakarta Post interviewed Leo S. Batubara, secretary-general of the Association of Indonesian Newspaper Publishers (SPS), for an insider's view on the problems and what he believes should be done to turn the situation around.

Question: How severely has the print media industry been hit by the crisis?

Answer: The crisis has dealt a big blow to the business since the sharp fall of the rupiah against the dollar boosted the newsprint price and printing costs, while the economic slump has slashed revenues from advertisements.

This dire situation has forced publications to take options like cutting the number of pages, raising the selling price, changing the format from a nine-column newspaper to tabloid size, cost-cutting measures, reducing the number of employees and some have even suspended their operations temporarily. A total of eight publications have announced their closures.

The root of the problem is the sharp depreciation of the rupiah, causing the hike in newsprint price.

The exchange rate of the rupiah stood at Rp 2,460 to the dollar during the pre-crisis period in July. The ex-factory price for newsprint was still at Rp 1,530 per kg.

But at an exchange rate of Rp 6,025 to the dollar on Dec. 16, the ex-factory newsprint price jumped to Rp 3,545 per kg.

For a 24-page newspaper with 500,000 copies in circulation like Kompas daily, this meant additional expenses of Rp 4.7 billion per month. And with the exchange rate rising to around Rp 7,000, the additional cost was boosted to Rp 12 billion.

In January, the exchange rate skyrocketed to more than Rp 15,000. You can imagine how large the additional cost would be if the publishers had not reduced their newspaper pages.

Q: Could you describe the Indonesian newsprint industry

A: The national newsprint industry is dominated by PT Aspex Paper, which supplies most of the publishers' newsprint needs. Two other small manufacturers owned by the Pos Kota Group and Jawa Pos Group only supply their affiliates.

So Aspex does not hold a monopoly (over the industry) because there is no government restriction to enter the industry.

Aspex has a total production capacity of 360,000 tons per month, while the domestic need is 15,000 tons per month.

The company was established in 1992 in a joint venture between a South Korean group and businessman Mohamad "Bob" Hasan. Six months later it bought two new sophisticated machines, considered the "Mercedes Benz" of the newsprint machinery, costing US$200 million per unit.

The company financed the expansion through overseas funding. It also employs foreign technicians in its modern facilities. Some 95 percent of its raw materials are imported, including in the form of old newspapers and computer printouts.

Following the modernization of Aspex, the state-owned newsprint manufacturer, PT Kertas Letjes, decided to divert its operation into manufacturing HVS paper.

Before Aspex entered the industry, Letjes was leading with a monthly production capacity of 9,000 tons. There are indications, however, that Letjes is reentering the newsprint market.

Q: What has SPS done to deal with the crisis?

A: Like I said, the main factor affecting the current price of newsprint is the foreign exchange rate. SPS done its utmost to get a reasonable newsprint price despite the plunging rupiah.

After lengthy discussions with APKI (the Indonesian Pulp and Paper Association) and Apex, a new formula for newsprint pricing was reached at the end of December.

This week's price per ton of newsprint will be equal to $505 times the average rupiah-dollar exchange rates during the previous week.

Many criticized the deal as unsuccessful. But I think it's a fair deal. The average price for the U.S. newsprint industry is around $493 per ton. The $12 difference is due to the more efficient operation in the U.S. because of its economics of scale.

So we think that the $505 per ton level is quite reasonable. Achieving the U.S. efficiency level seems to be impossible at the moment. Aspex has stated it would not go lower than this level, pointing out that it was already selling at a loss.

We are also currently urging the government to exempt the print media industry from paying the 10 percent value-added tax. This would give publishers breathing space amid the current tight liquidity condition. There is a strong possibility that the government will grant this request.

Q: Is raising the newspaper selling price the right option?

A: Several newspapers have announced an increase in their selling prices because publishers can't continue to subsidize their operation.

But I think this would only be appropriate for those papers catering to the higher market segment, which would not be much affected by the increase. The business daily Bisnis Indonesia, for instance, will raise its monthly subscription fee from Rp 25,000 to Rp 35,000 by March. This means passing the rise in cost on to customers.

On the other hand, papers which focus on the lower end of the market would experience the consequences of a sharp decline in sales if the price were increased. So the option for them should be to reduce the number of pages.

But for papers eying the middle to upper level market, they should carefully consider their readers' preference in reducing the number of pages.

Q: What are your strategies to prevent a similar predicament in the future?

A: We are devising ways to have multiproviders for newsprint. This may include enticing foreign producers to sell their products here. We would ask the government to lower the import duty for newsprint. With multiproviders, Apex will be forced to have a more competitive pricing.

In the short term, we will push the state-owned Letjes to reenter the domestic newsprint market. If Letjes can offer products of the same quality as those of Aspex and at a cheaper rate, the publishers will certainly come to them.

Q: What about suggestions for SPS to establish its own facility?

A: Many people blind (to the facts) of the newsprint industry have been calling for such a move.

But I think we should be especially careful with this idea because newsprint is not our "core business" and it certainly would need high investment.

The first thing to contemplate is that the new facility should be able to support the national print media industry, not the opposite way round. This means that the operation must be profitable and able to produce newsprint at the same quality as Aspex and simultaneously have a lower price.

To achieve this, it must be a mass production unit to gain economics of scale. And it must be more efficient than Aspex. This would be a difficult task since the South Koreans (Aspex' majority owner) are well-known for their super-efficient operations.

Having an efficient operation would also mean sophisticated machinery. But this is expensive. A unit with an annual production capacity of 200,000 tons per annum would cost some $200 million.

Obtaining the pulp raw materials would be another problem. Importing them would be expensive and susceptible to foreign exchange fluctuation.

Indonesia is one of the world's largest pulp producers. But these pulps are short-fiber ones, while those for newsprint must be the long-fiber type.

This kind of raw material can be obtained from pines, eucalyptus and acacia. Indonesia has abundant source of pines, but none of the last two.

Our pines, however, are in remote places or mountains, which would be very costly in harvesting and transporting them. So the alternative is to plant these trees.

Acacia can be harvested after seven years, while it would take 10 years for eucalyptus and 25 years to 30 years for pines. So if we decide to establish a new facility, the trees should be planted right away.

The cost, however, is not cheap. A 150,000 hectare plot of eucalyptus and acacia would need some $100 million. So a new facility would take up to $300 million, a hefty sum. Many people thought that it would only take up to Rp 8 billion to Rp 16 billion.

Q: What about merging several of the smaller newspaper publishers?

A: Indonesia has some 289 print media publications. Merging them may sound a good solution amid the current crisis. But it's not easy. Newspapers are different from other types of business operations like banking. Every newspaper has a different readership profile and different editorials. So merging is difficult to accomplish.

Q: Any other lessons from the crisis?

A: I think the crisis provides a momentum for the national print media industry to reposition its business orientation.

Repositioning means establishing more local community newspapers with a circulation of around 5,000 copies per day. This type of paper will have a more specific market target, a lower circulation rate to reach the break-even point level, a streamlined and more efficient organization, and the main important thing is that local community newspapers will be more resistant to pressure from the monetary crisis.

Because local papers are able to represent more local interests, they could compete with TV media, which over the past few years have been aggressively taking up the national advertising pie.

This has happened in the U.S., where local businesses prefer to put their ads in the local papers.

The World Association of Newspapers has also recommended newspapers to be more specific in their market target to deal with the upcoming globalization era.

I think the national press should mull the opinion expressed by Jakob Oetama (editor in chief of Kompas) that the national press may have been run with a vision that is no longer applicable today. He said that the old vision tended to not create newspapers, but "viewpapers", ... the contents of the papers are not news, but views of politicians and bureaucrats.

Q: What is the profile of the print media industry?

A: We have a total of 289 publications, all members of SPS. Some 20 dailies, 24 weekly newspapers and 30 magazines are published in Jakarta and control between 60 percent and 80 percent of the national circulation in each category. The growth rate of the industry was very fast between July 1995 and 1997.

Only some 30 percent of the publications, however, are considered profitable. This means that some 50 percent of their income comes from advertising revenue. This group has also been able to publish more pages, apply the remote printing process and diversify operations.

The remaining 70 percent are not profitable, meaning that based on business calculations, they should have been closed down.

The national advertising pie jumped by 63.8 percent from Rp 1.03 trillion in 1992 to Rp 4.96 trillion in 1997. Some 27 percent of this went into newspapers, and 6.6 percent to magazines. The ad spending was mostly concentrated in six major cities, with Jakarta absorbing more than 60 percent.

The TV media has been aggressive in increasing its share of the pie from 38 percent in 1992 to a hefty 55.8 percent last year. The high penetration of TV was because of the large viewerships resulting from the country's some 24 million TV sets.

The ratio of the country's population to newspapers was only one newspaper to 42 readers, which is much lower than the target set by UNESCO, at one newspaper for every 10 readers for developing countries. In Malaysia and Singapore, the ratios are 1:8 and 1:3.4 respectively.

With the current crisis plaguing the print media industry, efforts to reach the ideal level will be more cumbersome. Thus it will hamper the process of educating the Indonesian people.