Friday, September 16, 2011

Postal rates as a catalyst for platform change

In discussions about the need to promote greener energy solutions the conversion often involves proposals that would either artificially lower the costs of alternative energy sources, or conversely, raising the costs of fossil fuels by means of such things as gas taxes. The thinking is that if green energy is economically incentivized then development will speed up.

In some ways this has been already happening in the area of print media. As the price of paper or postage increases, publishers begin to look for alternative ways of getting their products to their customers.

Many publishers rather lazily chalk up all their current woes to the Internet and their inability to find a profitable model for digital publishing. But the combination of new print competition from mass mailers, as well as changes to postal rates (and paper and employment costs) impacted publishers even before the web became a viable publishing platform.
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At left are two charts produced by the USPS which show costs versus revenue comparisons for the post office (Chart 1) and the number of periodicals mailed annually (Chart 2). To be clear, the first chart shows the cost coverage of the post office, not publishers.

To review, second class postage rates, the rate periodicals were charged before the creation of the Periodicals class, have increased dramatically starting in the '70s.

In 1971 the per-pound rate for second class mail was 4 cent. It rose to 5 cents in 1974, and 8 cents in 1977 to 11 cents in 1978. The increases in postal rates were a hardship for publishers to be sure. But as the first chart points out, it could be argued that postal rates for publishers were, for many years, subsidized and artificially low.

In recent years, the twin pressures of the economic recession and the diversion of communications to electronic media have presented financial challenges to both the Postal Service and the newspaper and magazine industry. The annual number of periodicals mailed has plummeted by more than 20 percent since 2001, from 10,077.4 million in 2001 to 7,953.7 million in 2009 – a level not seen since 1960.
Postage Rates for Periodicals: A Narrative History (pdf)
The USPS reported a net loss of $5.7 billion for the first nine months of fiscal 2011. Further, despite rate increases for publishers, the periodicals class has been a net loser for the post office, with losses of $2.2 billion on the class during the 2005 to 2009 time frame (1).

As an advocate for the new digital platforms it would be easy to actually see this as potentially good news for the emerging platforms. But as a former print publisher one can see the impact on the P&Ls of many publishers – and besides, despite the "digital first" cries of some consultants and publishers, a profitable digital strategy still eludes most media companies.

Unlike green energy, however, the economic forces behind distribution cost changes are not just a legislative matter. Sure, Congress could move to help publishers through certain mandates, but any moves would most likely have only a minimal effect on distribution costs.

While the trade associations and publishers continue to lobby for moderating postal costs, it is good to look long term and to see that this ship (rising distribution costs) has sailed, and that while future cost raises could be prevented, the rising costs incurred over the past couple of decades has already made print a less profitable platform.

Imagine if in the '70s Congress had mandated a two dollar tax on gas, what would things look like today for manufacturers dependent on fossil fuels? For publishers, they don't have to imagine, they are living it.

1 Comment:

PaulD said...

The Postal Reorganization Act of 1970 changed the way the post office set rules. Prior to that act, the Congress controlled pricing, and the trade associations representing the publishers could lobby to have lower rates for the press. The act created the Postal Rate Commission, and as you point out, the rates for second class and then Periodical Class postage started their rise.