Despite continued sluggish newspaper sales, there is some good news for advertisers who utilize newspapers to reach their target audiences. Although it may seem counter-intuitive, given that newsprint prices - a major cost driver for the newspaper industry - are actually rising, the dynamics of the newspaper industry and the additional media channels that publishers hold, creates an advertising buyer’s market.

Business Standard sums up recent movement in the newsprint market:

Newsprint prices, which have remained depressed for the last three quarters, are set to move up by about 11 per cent in the next quarter. With international suppliers announcing a price hike of $50-60 a tonne from next quarter, domestic producers are contemplating a similar increase.

This development follows a series of international price increases that were enacted in the 3rd quarter of 2008 that cumulatively will raise newsprint prices by $180 a tonne in nine months.

Collectively, this represents a perfect storm of bad news for struggling newspaper publishers when we considering the rapid declines in newspaper consumption in recent years. However, these negative developments for publishers equate to an interesting buying opportunity for print advertising space.

Newsprint price hikes have historically been passed onto the consumer in the form of rising newsstand and subscription costs. However, in the modern, crowded media sphere of 24hr news channels, free online news sites, and even news delivered electronically to smart phones, there is no longer a captive audience for newspaper publishers to target. Circulation directors are reluctant to raise prices out of fear of accelerating circulation reductions to lower cost, often free, consumer alternatives. With pass through price increases non-viable options, publishers are providing larger amounts of printed space to advertisers. Ad revenue has long since eclipsed circulation as the key revenue generation lever for publishers.

Advertising rates depend to a large extent on circulation and the current downward spiral of newspaper sales provides advertisers a strong negotiating position. At most large newspapers, advertising revenue accounts for nearly four times the revenue that circulation produces. In fact, circulation revenue is frequently barely enough to cover the paper the news is printed on. Publishers have little choice but to keep the cost of the newspaper down to maintain a broad circulation while simultaneously selling ad space at reduced rates to maintain volume and revenue.

However, market dictated advertising rates are falling spurred downward by steady drops in ad sales within the industry this year. Q1 sales were down 29% from the same quarter a year ago, and Q2 were down 28%, according to the Newspaper Association of America. Most analysts expect around the same percentage drop for Q3.

Newspapers are increasingly dependent on ad revenue and market conditions are such that print media advertising is in the middle of a tremendous buyers market. The print media has been in transition for the last 10-15 years and most newspaper publications have expanded into multi-media in order to stay relevant and viable. Traditional newsprint is not going away and still offers a powerful tool for presenting products to customers. As such, savvy media buyers should be looking to leverage the downward movement of print advertising into more lucrative multimedia deals that utilize the full potential of a newspaper publisher’s multi-media capabilities.

Nick Cherrone is a Category Manager for business services in Ariba’s Global Services Organization. Nick has several years of sourcing experience with General Electric and as a logistics officer for the US Army. Nick is recognized by the Institute for Supply Management as a Certified Purchasing Manager (C.P.M).