Wednesday, July 31, 2013

Four Print-Related Giants That Have Defied Bankruptcy Predictions

So much for crowd sourcing.

Exactly 18 months ago, 79% of voters in a Dead Tree Edition poll predicted that at least one of four major U.S. print-related companies would be in bankruptcy court by the end of 2012. All four companies – the country’s largest magazine distributor, the largest seller of magazines, and the #2 printer and paper maker for the industry – are still afloat. Two of the four are even profitable.

Print, it turns out, isn’t dead. Maybe comatose, but definitely not dead yet.

The 743 voters in that January 2012 poll couldn’t agree which of the four would go belly up, but the vast majority thought at least one would. Here’s another look at those four organizations and where they are today:

Barnes & Noble was chosen Most Likely to Expire, with 30% of the voters saying it would be in bankruptcy by the end of the year. Pundits were dubious whether B&N’s Nook venture would be sufficient to save the big bookseller from the rapid shift to digital media.

The bookstores, however, continue to be profitable, keeping the company afloat despite continuing losses in the Nook business, which has turned out to be more of an anchor than a lifeboat. The company seems likely to spin off the Nook business or at least to de-emphasize sales of Nook tablets.

What’s not clear is what would take the place of the huge Nook department in the typical brick-and-mortar B&N store. Books? Event space? Food service? Kindles and iPads? In any case, Barnes & Noble’s stock price is up 45% since Jan. 31, 2012 when the Dead Tree Edition poll ended.

Quad/Graphics was #2 on the See-You-In-Chapter 11 list with 21% of those January 2012 voters saying it wouldn’t survive the year. Meanwhile, its stock has risen 131%, it gobbled up another major competitor (Vertis) in January, and it’s apparently on pace for a profitable year.

It’s not that catalogs, books, and direct mail are suddenly growth businesses, but those who predicted the sort of catastrophic declines that devastated the newspaper industry have so far missed the mark. Quad has been able to grow market share with acquisitions and to battle declining demand and prices with efficiency-improving plant consolidations.

A close third to Quad was Verso Paper, which has continued to defy predictions that bankruptcy reorganization was just around the corner. Its stock price is down 14% since the January 2012 poll, and “profit” is still not part of Verso’s lexicon.

The heavily indebted paper maker seemed too fragile to survive a major disaster like the May 2012 explosion that led to the closing of its Sartell, MN mill. But an insurance settlement and sale of the mill property have provided cash infusions, and prices for coated paper have remained remarkably stable despite eroding demand.

And then there’s the U.S. Postal Service, which brought up the rear with only 20% of the voters predicting a 2012 bankruptcy despite suffering by far the largest financial losses. Commenters noted that USPS was on a financially unsustainable path but said Congress would eventually do something because a shutdown of the Postal Service would be politically unacceptable.

But, so far, Congress has done little except to prevent USPS from curtailing Saturday deliveries and to extract projections from postal officials about the exact hour and day when USPS will run out of cash. Oh, and of course to name more post offices – a task so crucial to national security that even one of the most do-nothing Congresses in U.S. history would not shirk it.

If the Postal Service were a real business, its stock price would be zero now. Then again, if it were a real business it wouldn’t have loaned the federal government billions of dollars interest-free in the form of “prepaid” retiree health benefits. And Congress would probably have bailed it out by now.

Related articles:

Thursday, July 25, 2013

IRS Inaction Leads to Another Black-Liquor Windfall for U.S. Paper Companies

First there were the black liquor tax credits. Then there was Son of Black Liquor. And now there's The Creature From the Black Liquor Lagoon, another IRS handout to the U.S. paper industry

IRS inaction has led to an approximately $2 billion windfall for U.S. paper companies that burn black liquor, according to the reporter who originally broke the story about black liquor tax credits in 2009.

Steven Mufson of the Washington Post recently chronicled how paper companies originally thought the Alternative Fuel Mixture tax credits they received in 2009 would be taxable income. But when some companies changed to treating the credits as non-taxable, "IRS examination agents were told to stand down and not challenge the position that the refundable credits were not taxable income," one IRS employee said.

"If the IRS says nothing, the returns will go unchallenged, and the companies will keep the money," Mufson wrote. "The agency still has not issued a ruling — even as the clock runs on the statute of limitations for challenging the companies’ interpretation. For some companies, time could expire this fall."

International Paper originally set aside money to pay for income taxes on the $2.1 billion the IRS handed it for burning black liquor, a pulp byproduct. But it booked $700 million in additional income when it switched to treating the credits as non-taxable. All for doing something that had been standard operating procedure around the world for decades -- burning black liquor, a hazardous pulp byproduct, to provide energy for its pulp mills.

Mufson's tale of black-liquor boondoggles, lobbying by paper companies, and a politicized IRS is well worth the read. But the picture is actually worse than he presents in several ways:
  •  Mufson puts the tab for the original black liquor credits as $8 billion, but that appears to be on the low side. Publicly traded companies reported $6.6 billion in credits. But we don't know what was handed out to privately held companies, which owned more than one-fourth of the country's kraft pulp capacity when the Alternative Fuel Mixture tax credits were being handed out.
  • After the original tax credits program was ended, paper companies received additional money via what's come to be known as the Son of Black Liquor tax credits, officially known as the Cellulosic Biofuel Producer Credits. Paper companies have not been able to use all their credits yet, but when all is said and done the tab will probably be several billion dollars.
  • IRS inaction hasn't been its only sin. Questionable rulings from the IRS (See IRS Ruling Helps Pulp Makers Keep Black Liquor Billions and Pulp Manufacturers Scratching Their Heads Over Son of Black Liquor Ruling, for example) made Son of Black Liquor possible and boosted the payouts for the original credits.
 Background: Since 2009, Dead Tree Edition has published more than 50 articles about the twisted tale of black liquor bailouts. How Democrats Helped Finance the Tea Party With Black Liquor provides a taste of the tale's many ironies.

Monday, July 22, 2013

Seven Lessons for Publishers from the Boston Bomber Cover Controversy

As part of our mission to provide helpful advice to the magazine industry, Dead Tree Edition offers seven ways Rolling Stone could have avoided the recent Boston Bomber cover controversy:

Remember your history: You can’t spend decades gracing your cover with the likes of pedophile rock stars, drug-addled actors, and Charles Manson – and then expect us to be happy when you desecrate that hallowed space with a criminal.

Emphatic language: Some thought Rolling Stone was depicting Jahar Tsarnaev as a hero. Merely calling him a “monster” wasn’t enough; the cover should have had big red letters saying “This is a really bad man.” Besides, because Monster is a popular web site, perhaps some confused people thought Rolling Stone was endorsing him as a resource for job searches.

Learn to use Photoshop: People complained that the photo of Tsarnaev looks like Jim Morrison or a young Bob Dylan. Outrageous! Every good American knows that terrorists wear turbans, have badly styled facial hair, and are obviously from somewhere else. They’re not supposed to look like a Sad-Eyed Laddie of the Suburbs. Couldn’t Rolling Stone have had the decency to edit the photo so that Tsarnaev didn’t look so much like one of us?

Give him the Juice: Don’t forget the infamous TIME magazine trick of darkening O.J. Simpson in hopes of making him look more sinister.

Know your sales channels. Among the first retailers to jump on the boycott bandwagon were major drugstore chains. They’re used to seeing Rolling Stone covers featuring their most profitable type of client – abusers of prescription medicines. You can’t expect them to stomach a cover model whose demons are apparently all non-pharmaceutical.

Know your sales channels’ customers: Noting that The New York Times had previously used the same image on its front page, without controversy, Matt Taibbi of Rolling Stone summed up the controversy as “it's OK for the Times [to use the photo], not OK for Rolling Stone, because many people out there understandably do not know that Rolling Stone is also a hard-news publication.” No, it’s OK for the Times because its magazine is not on display in supermarkets and drugstores. People in such venues don’t want to be reminded of bad things in the real world. They want to see fluffy stuff about movie stars and royal babies that get their minds off their hemorrhoids, cold sores, oxycontin addiction, or whatever it was from the real world that brought them to the store in the first place.

Ban my magazine, please: Getting banned from some stores will get you more publicity than money can buy, boost your web traffic and digital subscriptions, and turn your issue into a collector’s item.

Thursday, July 11, 2013

It's A Case of L.L. Beanwash

The L.L. Bean brand used to connote squeaky-clean business practices with a heavy dose of earth friendliness. No more.

The venerable outdoorsy Bean brand is now connected to a rather egregious greenwashing effort – a crude attempt to squeeze extra profits by making unfounded environmental claims.

“Go Paperless and help keep the world green,” advises a recent promotion to holders of L.L. Bean Visa cards. “Paperless statements are . . . better for the environment. Eliminating paper statements conserves trees and energy,” advises an email, without providing a shred of evidence or even a link to anything backing up the claim.

The real culprit may be Barclaycard, the banking organization that actually issues the cards in a partnership with Bean. Barclaycard is apparently behind the promotion – and the business whose coffers would presumably become “greener” if more customers opted out of printed, mailed statements.

The Barclay bank conglomerate’s somewhat sketchy sustainability reporting provides no evidence that its digital processing is inherently more earth friendly than ink on paper. Its main response to climate change is the purchase of carbon credits to offset its 1-million-tons plus annual emissions of greenhouse gases. A fair portion of those emissions apparently were the result of its data centers, which consumed 332 gigawatt hours of energy in 2011, a 4% increase over 2010.

And what about Barclay’s progress in 2012? Who knows – it hasn’t published its environmental data for last year yet. (Note to Barclay: We’re now in the second half of 2013. It’s time to reveal what you did to the earth last year.)

Bean’s environmental efforts – including the use of paper with recycled and sustainably forested fiber, green buildings, and participation in the EPA’s voluntary Climate Leaders program – seem exemplary. But, like Barclay, Bean's sustainability reporting is far less detailed or revealing than what’s typically published by much smaller and less profitable printing and paper companies that are being indirectly slandered by the "Beanwash” campaign.

By allowing its name to be used in such a tawdry fashion, Bean is damaging its credibility and reputation. Could it be another Toshiba, which made unfounded anti-print green claims that ultimately failed to distract attention from its shady environmental record? (See 9 Lessons From Toshiba's No-Print-Day Debacle.)

The good news is that print-oriented industries are fighting back. The latest effort is the Ecographic Challenge issued by the U.S. branch of Two Sides. The non-profit advocacy group will award a $2,500 cash prize to the designer of the infographic that best demonstrates “the sustainability of print and paper in a way that’s fun and easy to understand.” Details are here.

To prime the pump, Deborah Corn of Print Media Centr has created three ecographics that challenge vague claims about switching from print to the coal-fired internet. My favorite is this fun “Save the Batteries! Harvest a Tree” message.

For further reading: