The PRC proves publisher-friendly

Folio: The Magazine for Magazine Management, June, 1998 by Joanna Lowenstein

On May 11, after weeks of testimony from concerned publishers and more than 10 months of deliberation, the Postal Rate Commission announced its recommendation on the United States Postal Service's requested rate hike. And although publishers were expecting significant increases, the PRC recommendation wasn't as bad as some had expected.

There are three principal reasons for publishers to feel they got off relatively early this time. First, the per-pound editorial rate was held level at 16.1 cents, rather than increased 1.3 cents as the USPS had initially requested. Second, the total average increase was only 4.6 percent, or slightly higher than the USPS's requested increase of 3.9 percent. "This [4.6 percent hike] is significantly below the rate of inflation since early 1995, when the last rate increase went into effect," says George Gross, executive vice president of the Magazine Publishers of America.

Third, and perhaps most significant, the PRC strongly recommended that these new rates not go into effect until January 1999--even though it's possible they could be implemented as early as July.

The PRC's restraint stems from lower-than-expected inflation and an unprecedented operating surplus by the Postal Service, totaling more than $4.6 billion over the last three years. Feeling that the USPS's economic forecasts and professed need for additional revenue were perhaps overly pessimistic--given its recent profitability and the current strength of the economy--the PRC slashed a total of one-third from the $2.4 billion rate hike that the Postal Service initially asked for last July.

Processing costs still high

It's not all good news, however. Even given the relatively modest increases, circulators remain concerned with the growth in periodicals class processing costs, which have risen more steeply over the past several years than other postal rates and more steeply than inflation. "This has been a long-time problem," Gross says. "Regardless of our efforts for efficiency, our costs are still rising faster than other classes of mail." The USPS, the Magazine Publishers of America and the American Business Press are scheduled to begin a joint study this summer into why periodicals processing costs are still so disproportionately high.

The PRC's recommendation also punishes publishers who ship directly from their printers. "The non-drop-ship titles will incur larger increases than those that drop ship," says Jim O'Brien, director of distribution and postal affairs for Time Inc. O'Brien adds that the USPS set this up to push publishers into putting their products further along in the mail stream. I think you'll start to see people pushing their printers for more drop-shipping because of this."

Additionally, nonprofit periodical publishers were hit with one of the highest increases in the May 11 decision. While the USPS had initially proposed a 3.6 percent average increase for nonprofit publications, the PRC came back with a recommended average hike of 8 percent, citing inflated costs for nonprofit publications as the main reason. However PRC chairman Ed Gleiman says the group had to use older, possibly outdated numbers in coming up with the 8 percent figure. "We're not comfortable with the nonprofit cost data," Gleiman says. "It's conceivable that with updated cost figures, nonprofit rates would not have gone up as much." A request by the PRC for a three-month extension to analyze more recent nonprofit data was denied last March.

The PRC's recommendations go next to the USPS's Board of Governors, which has meetings scheduled June 1-2 to decide whether to accept or reject the rates and when they should take effect. Publishers are still hoping for the latest possible implementation date, especially given that the PRC-recommended date of next January could present them with a difficult choice. As Time Inc.'s O'Brien explains, "If the increase happens then, publishers may wonder whether to do their direct mail drops over the holidays, and risk lower response rates, or wait until January and pay higher postage rates. Our industry should really be pushing for March 1999."

New Postmaster General

The rate case isn't the only news on the postal front. On May 12, the USPS announced that William Henderson would replace Postmaster General Marvin Runyon, who last winter announced that he planned to retire. Henderson, the USPS's COO and executive vice president, took over his new position on May 16. He is only the third postal employee in history to hold the organization's top post.

RELATED ARTICLE: A kinder, gentler postal increase

                                                        PRC
                                 Current     USPS       Recommen-
                                 Rate        Proposal   dation

Journal of opinion               19% [cts.]  20% [cts.] 20.8% [cts.]
3.0 oz.    20%      highly
                    prepared
Weekly newsmagazine              15.8        16.5       16.2
4.8 oz.    43% ads  highly
                    prepared
Large national montly            26.5        27.3       27.0
11.2 oz.   57%      highly
                    prepared

NONPROFIT:

Small publication                22.6        25.4       26.2
4.0 oz.   20% ads   zone 5
                    basic
National magazine                29.1        30.8       31.6
14.0 oz.  60% ads   zone 5
                    carrier
                    route
                    presort