Sunday, April 27, 2008

Postal Debate: Time Inc. vs. The NationMagazines on opposite sides of the shape-based postal rate structure.
BY Jill Ambroz
FOLIO: asked two magazine executives-each with vastly different publishing backgrounds-about the impact of last July's shape-based postal rate structure. While mega magazine publisher Time Inc. was perhaps the foremost proponent of the new structure, it could be argued that The Nation was among those hit the hardest, having to absorb a half-million dollar increase in postage costs. The political weekly, with a circulation of 181,070, had to turn to subscriber donations to stay afloat.

So, ten months into the new rate structure, here's a look at their different approaches and different experiences.
FOLIO:: Do you feel the new shape-based postal rate structure implemented last July is a better system than previous rate structures?
Jim O'Brien, director of distribution and postal affairs, Time Inc.: The new rate structure is definitely a step in the right direction. When the rates begin to match the costs, mailers will work toward the lowest-cost method of preparing their mail, which is why you're seeing new growth in co-mailing and co-palletization right now. The new rates aren't perfect, but they're necessary if we want to keep Periodicals Class rate increases at or below CPI.

Teresa Stack, president, The Nation: I think it is a bad system. Instead of the preference that periodicals were entitled to since the founding of the postal service, the new rate plan imposes the most burdensome requirements for magazine retailers. What these new rates do is favor the large volume magazines (that by definition can better fill containers and perform other worksharing) and shift the costs onto the small magazines, including those that specialize in political content.

Our rates went up between 18 to 20 percent; some other small political magazines saw even larger increases, while the average rate increase was around 12 percent.

FOLIO:: Are the new periodical rates fair to everyone, small publishers and larger publishers?
O'Brien: If you surveyed the industry today, you would probably find that many small mailers think that the rates are unfair because they incurred higher increases than large mailers, and large mailers think that the rates are unfair because they pass through only 40 percent of the bundle and container costs and therefore perpetuate the cross-subsidy to small mailers. Our industry needs to get to the point where the rates reflect the costs and mailers pay for the resources that they consume within the Postal Service.

Stack: Clearly they are not. The largest publishers spent a lot of money lobbying for this new rate structure because it benefits their interests, unfortunately at the expense of small magazines. And while they can correctly argue that the new rates more accurately reflect costs to the postal system of individual titles, we have to remember that the entire class of periodicals has been subsidized for hundreds of years, with the goal of supporting a thriving multitude of opinions and content.

FOLIO:: What would you change in the postal structure?
O'Brien: I would like to see each rate element cover the Postal Service's cost to process and deliver that product and make a contribution to the overhead of the Postal Service. In other words, each mailer should pay for what they use. Last year, Periodicals mail covered only 83 percent of its postal costs. We need to get to 100 percent cost coverage or we may be at risk of an exigent increase.

Stack: In order for small magazines to survive, they cannot be subject to the radical restructuring imposed by the new rates. If we believe in our postal system, we may have to carve out different treatment for small titles in order to preserve the health of the class.

FOLIO:: The first quarter saw a significant decline in both First Class and Standard Mail, which pay for most fixed costs. If this trend continues, what will the repercussions be for the USPS and potentially, for publishers?

O'Brien: If Periodicals Class mail does not make progress toward 100 percent cost coverage then the Postal Service will file for an exigent rate increase to bring us to 100 percent. The average Periodicals contribution to institutional costs last year was negative 5¢ per piece. A 5¢ increase would be devastating for both large and small publishers, which is why Time Inc is pushing for mailers to change their behavior and prepare mail more efficiently.

As far as the Postal Service is concerned, volume losses put additional pressure on their cost reduction efforts. Postal Service management has done an excellent job of removing costs from the system but at some point they will hit the wall on cost reductions. When that happens, if volume does not rise, the USPS will be faced with either an exigent rate increase above the CPI cap or a bail-out from Congress.

Stack: Two things could happen: prices could go up even more (and if the large magazines have their way, those increases will be much higher for small magazines than for large ones). And then volume will go down. At that point, the USPS could be in real trouble. It may then take a congressional subsidy to preserve the universal service that our leaders believed was essential to our form of self government.

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