Thursday, August 16, 2012

Postal Service deal with mass mailer could cut into newspapers' already bleeding revenue

The U.S. Postal Service is proposing a rate cut for one of the country's largest direct marketing companies, which could have a direct impact on the weekend advertising bundles in newspapers, the industry's biggest source of revenue. The USPS says it would make $15 million over three years by cutting what it charges Valassis Communications, because the company has promised to send even more under the proposal, Ryan Nakashima of The Associated Press reports.

The deficit-laden USPS would give Valassis a discount of up to 34 percent, and the company has agreed to pay a penalty if it doesn't boost its number of mailings. Valassis reaches 100 million homes every week and would be able to cut prices for advertisers, including Home Depot, Lowe's and JC Penney, which could pull business from Sunday newspaper inserts and into its midweek bundles, known as RedPlum.

The move could take $1 billion of annual revenue from the newspaper industry, which gets about $24 billion a year from ads, much in weekend inserts and advertising fliers sent weekly to non-subscribers. That's down from $49 billion in 2005, and "The outlook isn't promising for newspapers," Nakashima writes. "The commission has never in its 42-year history denied an application for a so-called 'negotiated service agreement' related to its mail delivery monopoly," according to a Postal Regulatory Commission spokeswoman. "Critics say the discounts don't always produce the intended boost in mail volume and profits. . . . The eight negotiated service agreements in effect from 2007 to 2011 have lost money instead of generating new income."

PRC Chair Ruth Goldway said the commission is "reviewing the proposal with a critical eye," because the USPS hasn't been "very good at predicting the negative consequences of its actions," Nakashima reports. But the newspaper industry is worried about another quote from Goldway: "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." (Read more) If newspapers lose the case, they could appeal to the courts and Congress.

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