Newspaper Production Enters Colorful, Outsourced Era

Good model. Bad timing.

A new approach to producing newspapers in the United States had a colorful beginning this week when the production of all copies of the San Francisco Chronicle were outsourced to a new plant built and run by Transcontinental Inc.

The Chronicle’s own 50-year-old flexographic presses were idled, along with about 200 unionized employees, after production of Sunday’s issue. Filling the void is a $200-million-plus Transcontinental plant in Fremont with three heatset/coldset offset presses, new inserting equipment -- and non-union employees.

As Dead Tree Edition has previously explained, the operation breaks new ground in the U.S. on at least three fronts: 1) The presses can run in either coldset or heatset modes, making them able to print on anything from newsprint to coated paper. Not only do they add color and boost quality for the Chronicle, they are also suited to doing general commercial printing. 2) The outsourcing of a major newspaper’s production to a commercial printer. U.S. dailies typically control their means of production. 3) The plant was designed with the ability to produce multiple newspapers, though no other clients have been announced.

The Hearst-owned Chronicle says the new operation will yield substantial savings without Hearst having to invest in new equipment. It’s not clear to what extent the savings come from the inherently greater efficiency of the new presses, narrowing the paper from six columns to five, or the switch to non-union labor. (One newspaper industry veteran tells me that non-union newspapers tend to pay their press operators as well as similar-sized union papers. But their compensation costs for the pressroom are lower because they don't have contract-imposed staffing requirements and assign more of the less skilled work to lower-paid employees.)

Don’t expect Transcontinental to be replicating its innovative San Francisco model in other metro areas any time soon. With the recession squeezing both its printing and publishing profits, the company is indicating it is tapped out for now as far as major capital investments go. And counting on the long-term viability and credit worthiness of major metro newspapers may be too much of a gamble these days.

Here's a roundup of interesting items that have appeared this week about the Transcontinental-Chronicle deal:

• The Chronicle's cool two-minute video of the plant in action, set to "The Sorcerer's Apprentice". (An ironic choice of music? You decide.)
• The Chronicle's article on Monday about the newspaper's new "wrinkle-free" era. Be sure to check out the reader comments, not all of which are glowing. One commenter says the Chronicle is now "San Francisco's trophy wife" because its role is "to hang around, look good, and not say anything." (In defense of the Chronicle, its investigative reporting -- remember when newspapers did that? -- led to the resignation this week of a college president.)
  
• SF Weekly's knockdown of the Chronicle's coverage of the new production arrangement as "an in-house infomercial". The snarky piece also hints of delivery problems on Monday.
  
• Graphic Arts Online has a rundown of the equipment in the new plant.
• An excellent article about the last day at the old Chronicle printing plant and its 200-plus employees, none of whom has been hired by Transcontinental.
• Transcontinental Monday news release, which includes some details about the new plant's energy efficiency.
  

Does Federal Law Limit Post Office Consolidation?

The laws of economics say the U.S. Postal Service needs to reduce the number of post offices. But the laws of the United States may say otherwise.

As USPS embarks on a study to determine which of approximately 3,000 large post offices can be eliminated, it is seeking the Postal Regulatory Commission's blessing on the legality of its efforts.

The Postal Service is concerned about running afoul of the law requiring it to “maintain[s] postal facilities of such character and in such locations, that postal patrons throughout the Nation will, consistent with reasonable economies of postal operations, have ready access to essential postal services.” It asked the PRC late Thursday to rule that consolidation of some of the large "stations and branches" (which are mostly in urban and suburban locations) does not violate that clause.

Mail volume is declining, and more than 30% of USPS's retail revenue comes from sources other than transactions at retail post offices, according to the filing. "Yet the vast majority of existing Post Offices, stations and branches were established before the advent of the Internet and other convenient alternative access channels that have proven so popular,"the filing states.

"In many cases, the justification for the establishment of a station or branch at a particular location 20 or 40 or more years ago no longer exists," the USPS request says. "Postal retail stations and branches are not intended to operate as monuments to a bygone era of postal customer interaction."

The study will examine "the feasibility of moving retail units and carrier operations into smaller facilities, as well as the consolidation of both retail and delivery from one location into other nearby retail and delivery units," says Alice M. Vangorder, who heads Customer Service Operations for USPS, in testimony submitted along with the Postal Service's motion. "It is
impossible to predict how many stations and branches ultimately will be subjected to discontinuance."

Though stamp purchases are still the most common type of retail transaction at post offices, she notes that people can buy stamps at nearly 50,000 supermarkets and other private businesses.

The study is just the first step in the Postal Service's plan to conduct "an in-depth examination and reconfiguration of its [entire] retail network," which consists of more than 36,000 locations.

As usual, these efforts to follow the Congressional mandate that USPS break even financially are likely to run into "Not in my district" complaints of various members of Congress.

The Rush to Make Uncoated Paper on Coated Machines

Facing overcapacity in their usual markets, the two big North American manufacturers of coated paper have launched uncoated products made on machines designed to produce coated papers.

The latest move is Verso’s announcement last week that its big coated-groundwood machine (PM3) at the Sartell, MN mill will be used to make the new Clarity line of supercalendered papers. Verso plans to have more than half the machine's capacity dedicated to SC papers, meaning it is removing more than 100,000 annual tons of capacity from the oversupplied LWC (lightweight coated) market.

The continent’s other big coated supplier, NewPage, has recently launched two lines of uncoated products that are being made on machines having coaters. Ideal Offset is a new line of freesheet papers that can be used in everything from direct mail to business reply cards, while Octane is NewPage’s entry into the market for sized groundwood papers that provide a low-cost alternative to uncoated freesheet.

The new products enable the two companies to keep their low-cost machines running without oversupplying the coated markets and thereby depressing prices even further. The U. S. government’s black-liquor credit also gives them a generous, though probably temporary, incentive to keep pumping out products that contain kraft pulp.

Depressed demand and overcapacity have kept operating rates at about 70% for North American coated mills this year. NewPage has announced temporary down time to deal with depressed demand but says it has no more high-cost machines to shut down permanently as a response to overcapacity.

Making uncoated papers on coated machines during depressed markets is nothing new, but it has usually been done quietly on a spot basis. By going public, NewPage and Verso are demonstrating their intent to continue the products even when conditions change in the coated market.

Verso indicated its long-term commitment to Clarity when it told customers that using PM3 to produce SC required ingenuity and “strategic investments.” Making LWC and SC, especially SCA or SCA+, on the same machine is challenging because of the different pulp mixtures: With LWC, the clay or other coating materials are applied after the base sheet is made, while with SC papers the clay is mixed into the pulp furnish at the “wet end” of the paper machine.

The move makes Verso a new player in the market for high-end SCA/SCA+ papers, the kind that offer similar properties to LWC but at a lower price. And with PM3 being roughly double the width of Verso’s existing SC machines at Sartell, Verso will now be in a better position to make paper for giant roto presses (and perhaps eventually to shut one or both of those smaller machines).

Quebecor World Reorganization Still Faces Hurdles

Quebecor World may emerge from bankruptcy reorganization in 10 days if it can work out details with creditors, lenders and the Internal Revenue Service.

The big printing company's reorganization plan was approved by a U.S. bankruptcy court Thursday, two days after getting approval from a Canadian court. But there are some strings attached.

The U.S. court order says Quebecor World needs a decision from the IRS regarding the proposed settlement of $22.5 million in back taxes. And both courts say the company needs to work out with its note holders and its creditors committee "an acceptable compromise" on the wording of the articles of reorganization and a financial document.

If the conditions have not been met, both courts will hold a hearing on July 13 to determine next steps. If the conditions have been met, the company will emerge from bankruptcy protection that day -- reportedly with the new name of "Novink".

"This is a major milestone in successfully restructuring our Company to benefit all stakeholders,” Jacques Mallette, President and CEO, said yesterday about the courts' decisions. “We look forward to exiting creditor protection in mid-July and moving forward with the implementation of our business plan as a strong competitor in the industry.”

Current stockholders in the company would receive no compensation. Quebecor World's lenders and creditors are to become its owners, with the company's stock being traded on the Toronto Stock Exchange.