THE ISSUE: Postal Service; OUR OPINION: Special deal for newspaper competitor causes real financial harm
Drawing on their deep roots in their communities, newspapers have been one of the staunchest supporters of the U.S. Postal Service and the important role it plays in keeping all Americans connected with their communities. While newspaper companies have applauded the Postal Service’s efforts to address its ongoing funding challenges through operational and financial reforms, it is astonishing to see the USPS try to solve its problems by offering a proposal that would severely harm local newspapers.
First, some background.
Newspapers have been long-standing and important customers of the U.S. Postal Service.
Some newspapers use the Postal Service for delivery of their main product, the local newspaper, and some newspapers supplement the reach of their editorial products by using the mail to deliver Total Market Coverage materials (advertising inserts to nonsubscribers). Newspaper publishers spend approximately $500 million annually for the delivery of TMC pieces and other advertising products.
Newspapers compete head-on with direct mailers for advertising business. One large competitor in the direct-mail business is Valassis, which exclusively uses the Postal Service to deliver its own packages of ad inserts – typically from national retailers with local operations throughout the country.
The threat: In an effort to grow new revenues, the Postal Service has proposed a Negotiated Service Agreement (or contract rate) for Valassis that would give the national advertising mailer a 22 percent to 36 percent discount on “new” advertising mail pieces beyond what it mails now. The discounts are for qualifying mail that includes advertising inserts from national retailers of “durable and semidurable goods” – which could mean companies such as Macy’s, JCPenney, Best Buy, Home Depot, Sears and others. These ad inserts are delivered through newspapers’ free-standing inserts.
There are three things wrong with this proposal.
It does real financial harm. The Postal Service is authorized to offer such special deals only if they will not cause “unreasonable harm” in the marketplace. In proposing the NSA to the Postal Regulatory Commission, USPS asserts that the NSA will have a “minimal financial impact in the marketplace.” However, that assertion is based upon data that is flawed and does not accurately account for the potential shift of retail advertising from local newspapers to a national ad mail competitor.
At a time when revenue challenges facing local newspapers are well known, a special-rate deal for one national competitor – which potentially drains local advertising dollars away from local newspapers and out of local communities – will cause real financial harm and at the least should require a full examination of the impact on the marketplace.
It will not help the Postal Service’s bottom line. The Postal Service is permitted to offer these special deals if there is a net financial benefit to the nation’s postal system. While the proposal would bring in incremental volume and revenues from one mailer, USPS has not provided any data estimating the amount of lost volume and revenues that will occur when daily newspapers move TMC products out of the U.S. mail into lower-cost alternative delivery firms to stay competitive. We believe the Postal Service ultimately will lose more revenue than it will bring in by this special deal.
It is a sweetheart deal that unbalances the marketplace. The Postal Service has negotiated with one company on this special rate, which benefits only that one company and is designed specifically to take advertising business away from newspapers. While it is understandable that USPS is trying to bring in new revenues in a tough economic environment – in this case – the rate-making process is being used by one national company as leverage to get a leg up on its competition in local markets.
The Postal Regulatory Commission, which is reviewing the proposal, should reject it. The Postal Service, a quasi-governmental enterprise, should not be a party to such favoritism.