Reclassification splits industry

Folio: The Magazine for Magazine Management, May 1, 1995 by Tim Bogardus

The reclassification case that the Postal Service filed with the independent Postal Rate Commission in late March could mean sweeping changes in both pricing and regulations for second-class mailers. Under the proposal, regular second-class mail rates would increase significantly for publishers who are unable to meet work-sharing requirements. Those magazines that can meet the standards, on the other hand, would be rewarded by a sizable rate reduction. The net effect, most analysts say, will be price breaks for larger publishers and price hikes for smaller publishers.

As expected, industry reaction to the reclassification case has been split between the large-volume mailers who support the proposal and small-volume mailers who oppose it.

"We're looking at well over $1 million in potential increases for next year," says Dennis Farley, distribution manager for Fairchild Publications, which publishes more than a dozen trade titles, including the 53,000-circulation Supermarket News.

"We don't think it's fair," complains Cahners Publishing distribution director Louis Bradfield. "Under this proposal, we cannot participate [in the new subclass]. We are locked out." Bradfield explains that even though Cahners is the largest business-to-business publisher in the United States, the circulation sizes of most of its titles are too small to qualify them for the new, more attractive "publications service" rates.

New subclass plan sparks debate

Under the proposed structure, second-class mail would be divided into two subclasses: publications service and regular periodicals mail. The publications-service subclass includes the lower rates for "highly efficient" mailers and would reduce prices by about 14 percent. The regular periodicals subclass, for those titles that are "less efficient," would include a rate increase of about 17 percent. The reclassification case does not change nonprofit or in-county rates, which will be addressed by the USPS at a later date.

The issues are more complex than mere rate changes. The current controversy surrounds the proposed publications-service subclass. In order to qualify for the designation, a magazine must meet at least four requirements: It has to presort 90 percent of its mailings to three-digit Zip Codes or better and contain a minimum 30 percent editorial content. It must also have a minimum 75 percent paid or requested circulation, which must be audited by an independent auditing bureau. Further complicating matters, says Cahners' Bradfield, is a new requirement that puts a 24-piece minimum on bundles going to a Zip Code. If a publication cannot send at least 24 pieces to Zip Code 90210, for example, that unit will not qualify for the publications-service rate.

"In California, the 24-piece rule is not a problem," Bradfield says. "But in Iowa, there aren't 24 people in most Zip Codes reading Variety." As Bradfield notes, the Postal Service predicts that most periodicals with circulations of more than 50,000 will qualify for the new subclass, but that excludes a vast number of magazines. "Only the biggest of the big mailers will benefit," he warns. "Why don't the look at existing work-sharing discounts so the smaller titles will at least have a chance to participate?"

While smaller mailers are asking that question and worrying about the answers they'll receive, publishers of large-circulation books are looking forward to the rate cuts likely to come their way. "I believe our self-interest lies in embracing [reclassification] rather than rejecting it," says David Obey, senior vice president of consumer marketing for Weider Publications, whose titles range in size from the 150,000-circulation Flex to the 800,000-circulation Shape.

Still, size alone will not qualify a magazine for the better rates. Jim O'Brien, director of distribution and postal affairs at Time Inc., explains that while most of the company's magazines will certainly benefit from reclassification, several of its titles - Entertainment Weekly, Sports Illustrated For Kids, Martha Stewart Living - will not qualify for the new publications-service subclass. Even though EW has a circulation of more than one million, it doesn't currently meet all the necessary requirements. "We will change our mailing practices," O'Brien says, "and that's what other mailers will have to do."

O'Brien argues that reclassification should not be a big guy versus little guy controversy. "Right now, it's up to mailers to drive costs out of the Postal Service," he says. "Yes, there are winners and losers, but in the long term, everyone will win."

In fact, smaller publications such as regional and city magazines may benefit from the new subclass because they usually, mail to concentrated areas, which allows them to saturate most of their Zip Codes. O'Brien says co-mailing and pool-shipping may be the solution for titles unable to qualify for the new subclass by themselves. By combining their individual titles, publishers could meet the Zip Code requirement.

But other executives point out that co-mailing can be problematic as well, especially for time-sensitive publications. "You don't want your magazines sitting around for a week waiting for another publication," says Tom Kemp, executive vice president and COO for Miller Freeman.