AROUND THE WORLD, newspapers are struggling for survival and some are losing the battle. Other print media, such as mag­azines, books, and catalogs are also competing fiercely for con­sumers' time and money, as well as for advertising revenues. These shifts are critical for the paper industry and in recent years, some markets have seen stagnation, flattening or even decreasing demand for graphic paper.

To understand the underlying drivers of media consump­tion and technology adoption - and thus graphic paper con­sumption - we recently performed detailed analyses of con­sumer behavior, advertising trends, and publishing strategies in eight markets that together account for some 55% of the world's consumption of graphic paper: Brazil, China, Germany, India, Russia, Scandinavia, South Korea, and the US.

Combining our insight with data such as GDP growth, pop­ulation growth and internet penetration, we developed a detailed model of paper demand and substitution, which we used to forecast worldwide demand through 2020. Other mar­kets around the world are also included in our global forecasts as we designed 11 regional clusters on the basis of geographical, demographic, economic and technical factors.

Technology drives substitution

There is a tremendous rate of technological development worldwide and it is difficult to forecast the real effect of substi­tution over the next 10-15 years. Nevertheless, we are confident that the key driver of future substitution is broadband availabil­ity - wired or wireless - at reasonable prices. In the US, dial­up connection is declining by almost 7%/yr, while broadband is growing annually by 12%. Brazil is another example, with a 5% annual growth in internet users and 20')70 growth in broadband subscribers. Of course, there are also many uncertainties. However, we expect that electronic paper, continued develop­ment of mobile devices, and technology such as WiMax will prove to be the other main drivers of substitution, but the jury is still out.

The internet is gaining significant share among consumers.

For example, from 2000 through 2006 the internet's share of all media consumption in Norway doubled from 7 to 14%. A simi­lar development can be seen in both developed and developing countries. As a consequence of increased internet access and consumers' changing behavior, newspaper readership and cir­culation have declined across most Western countries, some by as much as 3%/yr.

The internet is also causing problems for other printed media. Although at a slower pace than newspapers, some mag­azines sponsor complementary online offerings, and some niche magazines have closed down and re-entered the market, purely online. For catalogs, industries such as travel and mail­order services have seen a significant drop in circulation, while

the circulation of IKESs catalog. for example, grew by a global average of 13% from ::>00::> through 2005. Finally, printed direc­tories are being outperformcd bv faster and morc up-to-date online services. Besides the internet, it is also important to bear in mind the dominant position of television. Over the past years, television retained a stable share of 50 to 80'J(, in all our eight markets, including those where television penetration increased.

Impact of a new generation

When forecasting the future, it is essential to understand the reading habits of the younger generation. Data from China's five largest cities showed that in 2004, people aged I (i to 30 were already spending three times as many minutes on the internet as they were reading newspapers. Moreover, teenagers and adults under 25 in Germany, Norway, and Sweden all showed a strong decline in readership from 1998 through 2005, between 10 and 25%. As the "online" generation grows up it will put fur­ther pressure on paper based news demand.

Our forecast for graphic paper demand shows significant growth in markets such as China and India, while Western Europe and the US will experience a decline. On a global level, application by application, we expect ne\\spapers, inserts, and directories to be hit hardest by substitution. The future of mag­azines is more uncertain. Glossy international magazines are growing strongly, but the combination of the increase in titles and smaller increase in circulation pushes fragml'ntation and challenges the economics in mature markets. Profe"ional jour­nals are increasingly going online. Similar mownwnh are seen for books. Textbooks are being challenged bv onlllll' content, while fiction still outperforms electronic \crsiol1s Jinally, we believe printed catalogs will experience a slm\ dt'clillt' as online offerings are improving and being discovered h\ l( iIhumers.

To succeed in the future, paper companit', vIi]] need to develop a thorough understanding of the ke\ d mn, of demand in specific markets and for specific grades of paper Thev must monitor the development of those drivers and dl'tl'rmine the long-term strategic implications for their busim's'l".

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