The U.S. Postal Service overhauled the way it calculates the amount that publishers must pay to mail periodicals in a change that took effect July 15. Postal officials say the new rates, based on a plan advanced by media giant Time Warner (TWX), give mailers incentives to be more efficient and will help curb the rising costs of mailing periodicals. But small publishers say the plan, which affects newspapers, magazines, and newsletters, threatens to drive up their costs at a time when many already face losses.
"We were all budgeting for around 11%," says Teresa Stack, president of the left-wing weekly The Nation. The Postal Service first asked regulators for that increase, which would have been about the same for large and small mags, in May, 2006. It was the fourth rate hike since 2000. After months of hearings, the Postal Regulatory Commission recommended in February, 2007, a modified version of Time Warner's plan that the governors of the USPS soon approved. "We were shocked because it quickly became clear that there was going to be a huge variation in increases," says Stack. (BusinessWeek publisher McGraw-Hill (MHP) filed a brief arguing that the Time Warner plan would cause "an unduly large number of unacceptably high rate increases, particularly for smaller mailers."
The coalition of 22 magazines Stack is leading—mostly small political and cultural journals on both sides of the political spectrum—faces hikes between 16% and 23%, she said. The Nation, with a weekly circulation of 186,000, expects to see a 17% increase in mailing expenses, meaning an extra $500,000 a year.
No Simple Transition
Postal officials point out that the cost of mailing periodicals has increased faster than for other classes of mail, and federal law requires each class of mail to break even. The new rate structure increases discounts for more efficient mailers who can bundle magazines going to the same Zip Code, ship them directly to a postal distribution center, and make them sortable by machine. Officials hope the incentives will be enough for smaller publishers to adopt these techniques. "There was a need to implement a rate structure based on what you use," says Nanci Langley, a spokeswoman for the Postal Regulatory Commission. "Some magazines roll their magazine and put a rubber band around it. Somebody has to unroll it."
The transition to the new rate system is not simple. The Postal Service gave publishers an extra two months beyond when other rate hikes took effect in May to plan for the change, but Stack and others say their printers are still struggling to figure out the new rules (see BusinessWeek.com, 5/14/07, "Beating the Postage Hike"). The Postal Service's March press release announcing the delay explained it this way: "USPS had proposed a single container charge for periodicals to encourage efficiency, but the [Postal Regulatory Commission] recommended 55 different prices based on container type, entry point, and level of sortation."
Jim O'Brien, vice-president of Time Inc., which, with 130 titles, is the largest U.S.publisher, says the rate change helps correct a system where big publishers pay for small publishers' inefficiencies. "Efficient mailers are still subsidizing inefficient mailers to the tune of 60¢ on the dollar," he says. "Is it fair for the subscribers of Time, BusinessWeek, Newsweek, and other larger publications to be subsidizing these other titles?" Time Inc. spends $250 million a year on mailing costs, he says, and expects that to rise by 11.1%, in line with the industry average 11.7% increase.
Level Playing Field
At the heart of the debate is whether the Postal Service should be a market instrument that benefits the most efficient players or a distribution system that levels the playing field to create a free flow of ideas.
"One of the reasons the Post Office even exists is to help engage in free speech, and nothing is more important in free speech than free political speech," says Jack Fowler, publisher of the conservative biweekly National Review. "Now it seems the reason the Post Office exists is more to circulate entertainment magazines and direct mail for time-shares in Hawaii."