Small Publishers Face Uphill Battle in Coming Postal Rate Case

Small Publishers Face Uphill Battle in Coming Postal Rate Case

Barbara Love

Although periodicals still face the prospect of another, even larger postal rate increase, the hike has at least been put off for a while. The next rate case filing, originally expected in July, has been delayed to October or November. At a recent meeting of the National Periodicals Focus Group (NPFG), USPS Deputy Postmaster General John Nolan “guaranteed” that there would be no increases before October 1, 2002.

The rest of the most recent periodicals postal news is either good or bad, depending on your magazine’s circulation size and mailing configuration.

Anita Bizzotto, USPS VP, pricing and product services, confirmed during a recent American Business Media postal conference that, as part of the coming rate case, the USPS intends to propose increased entry-point incentives for drop-shipping periodicals. Bizzotto said that the incentives would be for entry at Destination Delivery Units or Destination Sectional Centers. Also, a new incentive will be introduced for entry at Destination ADC’s.

In addition, USPS officials are making it clear that they will introduce zoned pound rates for the editorial portion of periodicals (currently, only advertising is zoned), if they can get the publishing industry to concur. Zoned edit rates would increase drop-shipping incentives still further.

Greater incentives for drop-shipping would be welcomed by most large-circulation publishers, who have the mailing density and volumes to maximize their use and minimize the impact of the next rate increase. Large publishers have long maximized their use of work-sharing discounts to reduce their postal costs.

But for many smaller-circulation titles, who’ve traditionally maintained that drop-shipping is not feasible for them, zoned edit and the inability to qualify for the greater work-sharing incentives will mean taking a considerably harder cost hit than their large-circulation counterparts.

David Straus, Washington counsel for ABM, notes that these incentives “could be the first in a series of steps to encourage work-sharing and palletization in place of sacks.”

“Small-circulation publishers are between a rock and a hard place,” asserts Jerry Okabe, VP, circulation, PBI Media, LLC. “We’re just not able to do some of the things that larger-circulation magazines can do. And I don’t know that there are many ways to argue against paying more. There’s more and more data available documenting that it costs the Postal Service more to handle smaller-circulation magazines.”

For these reasons, the next rate case, like some in the past, may divide publishers more or less along circulation size lines. For both ABM and Magazine Publishers of America, such scenarios are always particularly difficult because no position they take can possibly represent the views of all members.

While most ABM members have small circulations, some do drop-ship currently. (In some cases, this is not so much a case of realizing major savings, as a desire to get faster delivery.) On the other hand, while most MPA consumer publishers would benefit from the greater drop-shipping incentives, some with small-circulation magazines could, along with small business titles, end up bearing the brunt of the rate hit for the class.

As in other rate cases where this dilemma was unavoidable, each organization will have to support the interests of its membership majority, while also trying to help the exceptions as best possible.

At the NPFG meeting, Straus and MPA senior VP, legislative and regulatory policy Rita Cohen were among those to air their views. Cohen said that the MPA believes that smaller publishers can and must find ways to take advantage of drop-shipping and other work-sharing in order to keep their own costs, and the costs of the periodicals class as a whole, from spiraling upward. She acknowledged that this might require use of private industry to perform co-mingling. “We’re certainly trying to find all ways to drive costs out of the system, including more work-sharing,” Cohen said. “And we do think that work-sharing can be successful,” in part through more co-mingling at printers.

“If private industry can [handle comingling] at a lower cost than the USPS, we think that’s good for everybody,” she added. “But we have to make sure that smaller magazines can use the private provisions. It’s not clear at all that the USPS can do it cheaply. Our experience is that private providers can do it for less. If we can get mailers to drop mail at a consolidation site, it might save all mailers money.”

Straus essentially reaffirmed ABM’s traditional stance, while leaving room for negotiation. “The MPA says that many small magazines could drop-ship, given the right incentive,” he said. “I don’t think it’s possible for many small magazines to drop-ship cost-effectively–especially the lighter-weight publications. But I’m not a distribution expert.”

Straus hopes that the USPS will facilitate a meeting of all of the parties to iron out problems for smaller publications. “Notwithstanding our opposition, these changes could happen,” he admits.

According to some circulators, many magazines are on the margin when it comes to benefitting from drop-shipping. “They may not do it if there’s only a small saving,” says Hearst Business Media VP, circulation Barry Green. “But if there’s a penalty for not doing it, they may opt for the lesser of two evils, which is drop-shipping at a cost greater than your savings in order to avoid a still worse fate.”

But some say that even titles that might benefit in theory will find implementation tough going. “There’s been a push for a long time to get us out of sacks and onto pallets, because pallets can be handled more efficiently all the way through the process,” notes Okabe. “But when you have small numbers of magazines in your mailings, it’s difficult to combine with other titles.

“When I was at Miller Freeman, which had about 100 titles, we tried to do this internally,” he adds. “Co-mailing groups of five or 10 magazines seemed a logical move. But it didn’t work. There were too many logistical and political issues involved. For example, if a magazine is waiting for an ad, do you hold up the others and make them late? Or do you lose the benefit of the discount by mailing without that one title?”

When USPS officials talk about co-mailing, they don’t take into account the hidden costs incurred by publishers, asserts Nick Cavnar, VP, circulation and databases, Hanley-Wood LLC. “One of the costs that nobody ever thinks about is labels,” he says. “With co-mingling, printers have to produce your labels for you. Some say, ‘Well, you have to pay to have labels produced anyway.’ But a lot of publishers have in-house fulfillment operations that handle this, or use fulfillment bureaus that produce labels as part of a basic service charge.” Cavnar says that the additional label costs can easily add up to $10,000 a year. “That’s like being hit with another postage increase right there,” he asserts. “The USPS would have to give awfully big discounts to provide a real incentive to co-mail, given these kinds of realities.”

Many smaller titles–including many B-to-B publications–will also be negatively impacted if the USPS decides to implement a zoned editorial pound rate. Up to now, B-to-B titles, which typically have higher editorial percentages than consumer titles, have been benefitting from the flat edit pound rate.

“Many consumer publishers are advocating a single, zoned rate for edit and advertising, arguing that the costs are the same to handle magazines whether the pages are editorial or advertising,” points out Okabe. “That would mean an increase for business magazines, including most ABM publishers.”

Up to now, the USPS has always ended up heeding the core argument of ABM and other publishers who would suffer from zoned editorial and other strictly cost-based rates, which is that the USPS has a statutory mandate to facilitate the disseminate of information necessary to uphold the First Amendment and our democratic form of government.

But given the USPS’s increasingly desperate financial picture, the law mandating that mailers cover their own delivery costs could win out this time. During the recent ABM meeting, the USPS’s Bizzotto encouraged ABM to rethink its position on the zoned editorial pound rate. However, she did seem to suggest that the next filing would retain the fiat rate if full industry concurrence cannot be reached.

“If periodical rates become fully cost-based, the magazines hardest-hit will be those which, arguably, provide the greatest value, like small journals of opinion,” contends Cavnar. “I’m all in favor of cost-based rates if they’ll work to make the whole process more efficient. But we have to make sure that mid-sized publishers don’t just pass the costs down to the small publishers who are too weak to defend themselves.”

Still, as Okabe points out, “The law says that we have to cover the costs associated with delivering our magazines. If we’re at 101-percent attributable cost coverage–meaning that we’re making almost no contribution to overhead costs, there’s no flexibility there. It’s very difficult, but we may have no alternatives.”

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