Cheaper junk mail? Newspapers decry USPS planLOS ANGELES (AP) — The U.S. Postal Service is proposing to cut its rates for one of the nation’s top direct marketing companies, a move that threatens the newspaper industry’s biggest money-maker: the Sunday advertising bundle.
By: Ryan Nakashima, The Associated Press
LOS ANGELES (AP) — The U.S. Postal Service is proposing to cut its rates for one of the nation’s top direct marketing companies, a move that threatens the newspaper industry’s biggest money-maker: the Sunday advertising bundle.
The post office expects to generate $15 million in profits over three years by cutting what it charges Valassis Communications Inc. for new mass mailings. Livonia, Mich.-based Valassis sent more than 3 billion pieces of so-called junk mail through the post office last year. Under the proposal, Valassis has promised to send even more bulk mail. On those additional mailings, the Postal Service will give the company a discount of up to 34 percent. Valassis has agreed to pay a penalty if it does not boost its use of the mail service.
The newspaper industry says the deal is unfair and could wipe away $1 billion in annual revenue it gets from Sunday newspaper inserts and the advertising fliers it sends to non-subscribers during the week.
Valassis would be able to cut prices and attract advertisers like The Home Depot, Lowe’s and JC Penney away from Sunday newspapers and toward its midweek bundle of fliers, called RedPlum. Valassis reaches 100 million homes every week and its clients include companies ranging from L’Oreal to DirecTV.
The Home Depot said in a statement that it has no plans to change distribution of its weekly advertising inserts away from newspapers, “but we are always evaluating new opportunities and options available in the marketplace.”
Ruth Goldway, the Democratic chairman of the Postal Regulatory Commission, said the commission is reviewing the proposal with a critical eye. She acknowledges that the U.S. Postal Service has been “not very good” at predicting the negative consequences of its actions. But she said Congress has encouraged this kind of deal-making with the private sector in order to make the Postal Service “more businesslike.”
“Even if we only make $15 million, but we increase the amount of volume in the mail and we get various businesses to think positively about using the mail in the future, then this is something good to do,” she said.
The battle over mass mailing rates pits two old-world entities in a struggle for survival in the Internet age. The 237-year-old postal service’s mail deliveries are declining as people communicate through e-mail, Facebook and Twitter. Even in the midst of a multibillion-dollar cost-cutting plan that includes the closure of 250 mail processing centers through 2014, the service expects to lose $14.1 billion this year.
“Our financial condition compels us to seek new revenue opportunities,” the U.S. Postal Service said in a statement to The Associated Press.
At the same time, newspaper subscriptions and print advertising revenue have plunged as more people get their news online. At its peak in 2005, U.S. newspapers took in $49.4 billion in advertising revenue, both in print and online, according to the Newspaper Association of America. Last year, that figure had fallen to $23.9 billion. In that time, the industry has suffered waves of layoffs and newspaper bankruptcies.
The Associated Press is owned by U.S. newspapers and broadcasters.
Newspapers see the post office’s proposed discounts as a direct attack on the Sunday newspaper, which is still delivered to subscriber’s doorsteps literally overflowing with ads. Many newspapers would respond to the proposed deal by using cheaper but less reliable third-party firms to deliver fliers instead of the post office.
Many small town newspapers are delivered through the mail, and large metropolitan dailies use the post office to deliver fliers to non-subscribers.
“You’re giving our biggest competitor these deep discounts,” said Paul Boyle, senior vice president of public policy for the NAA. “We’re going to have to respond to those discounts by lowering rates and lowering our costs.”
The NAA’s estimate for $1 billion in revenue losses is based on its survey of half its 806 member newspapers, including companies such as The New York Times Co., The McClatchy Co. and Gannett Co. Inc. Newspapers estimate that more than a third of the $2.5 billion in annual ad revenue they get from retailers of durable and semi-durable goods such as clothes, furniture and appliances could be siphoned off by a lower-cost alternative.