Magazines in Jeopardy

The nation's nearly 10,000 magazines face a severe new cost squeeze that threatens to be fatal for some. Reason: huge prospective rate increases by the Postal Service, the main distribution channel for most of the publications. In setting up the service as successor to the Federal Post Office Department, whose deficits were met from Government funds, Congress required that mailing charges should cover most postal costs. The service translated this into a request for a boost in second-class material (magazines and newspapers) that would average about 150% over five years, or 30% annually.*

While this astounding proposal was being debated, an interim increase of 25% was put into effect last May and was left in force after the Administration's August wage-price freeze. Now it appears that the Postal Service will be exempted from Phase II guidelines. In a press conference, Donald Rumsfeld, director of the Cost of Living Council, announced that the service need only "certify" the need for increased rates and that no controls should "prevent the full recovery of costs."

Doing Damage. While the Postal Service remains free of guidelines, publishing businesses are very much subject to Phase II restraints in what they can charge readers and advertisers. (An exemption for the communications industry was dropped from legislation passed by Congress last month.) But even if there were no Phase II inhibitions on prices, magazines would still be in jeopardy. The industry has been suffering from rising costs and declining profits in recent years, and passing along huge additional costs could only inflict more damage. To raise subscription prices radically would drive away readers; to hike advertising rates significantly might encourage business to use other outlets, particularly television. The primary reason cited by Gardner Cowles for folding Look was the anticipated postal increase.

Just how much that increase will come to is still uncertain. The independent Postal Rate Commission is awaiting a report on the Postal Service's request from a hearing examiner. The commission must then make its own finding, which goes to the board of governors that oversees postal operations. There has been speculation that the rate commission might cut the increase, but whether it would come down to a level that the industry considers bearable is doubtful.

The effect on individual publications would be uneven. The new second-class rates are set by the piece in a complicated formula that takes into account mailing distance as well as weight. Weeklies would be hit harder than monthlies because of greater mailing frequency, and large-circulation weeklies would be hit harder still because of their great volume. Time Inc., as the nation's largest magazine publisher (TIME, LIFE, SPORTS ILLUSTRATED, FORTUNE), would suffer the biggest second-class boost of all--from $15.4 million to $42.4 million, based on 1970 circulation levels. That increase of $27 million substantially exceeds what the magazines earned last year; it amounts to approximately two-thirds of the corporation's estimated pretax profit for all activities in 1971. Newsweek's postage would nearly double in five years under the original rate request and considerably exceed its 1970 profit.

The Postal Service contends that second-class rates have been artificially low for decades and that magazine mailers must pay both direct cost and a share of the service's general overhead. Magazine publishers are willing to pay more; LIFE in August proposed 60% over five years. But the industry argues that the proposed new rates are grossly unfair because they do not take into account the ease with which magazines can be handled; many are now presorted and sacked, requiring only minimal processing by postal employees. The publishers contend therefore that too high a proportion of Postal Service overhead is assigned to second class. Post offices, mail trucks, sorters and carriers are, after all, required primarily for processing first-class mail.

Besides, while Congress wants the Postal Service to try to recover costs, that is only one ingredient in setting new rates. Other factors must be weighed against it. The Postal Reorganization Act that set up the Postal Service specifies eight criteria, including the value of the mails to senders and recipients, and the effect of new rates on the public. Testifying before the rate commission on behalf of his monthly magazine Decision, Evangelist Billy Graham demanded a "social evaluation of the relative merits of various rates."

Unique Role. Theodore Peterson, dean of the University of Illinois College of Communications, pleaded that "magazines have been important in drawing up the agenda of national issues and problems for public discussion and debate." Others recalled that higher postal rates imposed four years ago in Canada brought about widespread magazine failures and cutbacks there. A Canadian parliamentary committee, in deploring that result, said: "A free flow of information is vital to our national existence." While the Washington rate hearings were going on, the New Republic said: "Once prosperous magazines have folded; others, large and small, are on the skids and may go under" if the Postal Service request prevails.

In his testimony, Hedley Donovan, editor in chief of Time Inc., contended that mass-circulation, general-interest magazines in particular "play a unique and indispensable role in American education and political processes" and must be allowed to be "vigorously competitive and reasonably profitable." Unlike local newspapers, Donovan said, magazines "have done much to create national audiences. They enrich our national dialogue. But the present quality, competitiveness and openness of the magazine field cannot be long sustained if profits do not improve beyond current levels."

If the new second-class rates go through approximately as proposed, profits are sure to fall rather than rise --disastrously in some cases. The industry's search for more efficient operating techniques has been stepped up, but most publishers had already made drastic economies even before the postal increase was proposed. Other distribution systems are under study to reduce or eliminate the postage cost, including the servicing of subscriptions with coupons redeemable for magazines at newsstands. But such schemes so far seem both clumsy and prohibitively expensive.

Perhaps some day magazines may be delivered by electronics, cheaply and efficiently. But facsimile technology lags, and "that day is a long way off," according to Stephen E. Kelly, president of the Magazine Publishers Association. "If the rates become effective as proposed," Kelly says, "some of us won't be around to see it."

-Since World War II, no annual second-class increase had exceeded 14%. The average yearly increase was 6.8%.

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