A junk deal

September 19, 2012

The U.S. Postal Regulatory Commission recently approved a deal with junk mail peddlers that cuts rates—up to 40 percent—for direct mail companies to move their preprinted advertisements through the mail.

In exchange for the deep mailing discount, the USPS hopes to generate a relatively small increase in revenues—$15 million over three years. The deal is worth infinitely more to direct mail companies who just got a windfall in savings, compliments of Uncle Sam.

The National Newspaper Association vehemently opposed the deal, arguing that it threatened a key newspaper revenue stream—The Sunday ad bundle. Newspaper industry spokespeople said the USPS deal would eliminate around $1 billion in annual preprint ad revenues.

Valassis Inc.—the junk mail king—sent over 3 billion pieces of direct mail through USPS last year and promised more in exchange for the federal discount. It also told regulators that it would cut its prices to lure newspaper advertisers out of the Sunday paper and into its midweek bundle of fliers, known as RedPlum.

NNA President Reed Anfinson said, “The commission begins with the presumption that having a federal enterprise competing head-on with the newspaper industry is a good thing, but it does not explain how any business can be on a level playing filed with competing with its own government.”

Newspaper Association of America president Caroline Little agreed, questioning how the government could justify “a significant and unwarranted advantage on one competitor at the expense of an entire industry.”

The newspaper industry is challenging the decision in the U.S. Court of Appeals.

Meanwhile, it remains unclear just what exactly the benefit to the USPS is. The federal service, which posted a $5.2 billion loss in the second quarter of 2012 (up from a $3.1 billion loss in the second quarter of 2011)—will likely suffer a net loss from the deal as newspapers migrate entirely away from the USPS. Though the short-term boost for Valassis would be dramatic, it’s unclear how the company will move its product once the USPS collapses under the weight of its own mismanagement.

Though we publish (full disclosure) newspapers, the Valassis deal has far less effect on us than it does our larger metro and mid-market peers. We have no Sunday edition, the vast majority of our revenues are derived locally (while the junk-mail deal favors national chains) and—even with the deep discount—it’s still far cheaper to advertise in The Caledonian-Record than it is in the mail.

Still, the move is frightening. For starters, it should concern everyone that the monopolistic federal government is targeting an industry for attack and subsidizing one group at the expense of another. It’s also hard to believe that the government, in making this play, isn’t working towards the total demise of newspapers.

That’s because, though struggling amidst a changing ad landscape and declining circulation, newspapers still account for 85-percent of original news content in this country. Nobody would benefit more from the collapse of traditional newspaper oversight than bureaucrats and crooked elected officials.

 

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