US newspapers “stunned” at USPS direct mail contract approval
US regulators have given the green light to a controversial mail contract for one of the US Postal Service’s largest customers, direct marketing giant Valassis. The three-year deal valued at around $107m involves USPS offering a 20% discount on postage rates for Valassis for any additional mailing it carries out beyond existing volumes.
The American newspaper industry has denounced the contract details were filed with the Postal Regulatory Commission at the end of April – worried that the additional direct marketing from Valassis would undermine newspaper advertising.
Yesterday, the five-member Commission ruled in favour of the USPS contract by a majority vote.
The Newspaper Association of America, which had claimed the contract would inflect $1bn of harm on the newspaper industry, said last night it was “stunned” by the Commission’s ruling, and promised an immediate appeal.
The Commission said the Valassis deal met requirements of US postal law by being above-cost and because in the regulators’ view, it would not cause unreasonable harm on the marketplace.
On this latter point, which the newspaper argued against vigorously during the Commission review period, but the regulators said yesterday that under the terms of the contract USPS was unlikely to gain more than a 1.5% share of the pre-printed insert advertising market.
However, the ruling in favour of Valassis does potentially open the door for similar Negotiated Contract Agreements between USPS and its other major direct mail customers, who must receive fair treatment by the Postal Service in relation to Valassis.
Under the Valassis deal, the discounts would be limited to new saturation mail campaigns run on behalf of only durable and semi-durable goods retailers that have physical retail outlets in 30 or more US states.
Valassis must continue its existing mailing campaigns during the length of the contract, and is not allowed to move clients from existing campaigns into the new discounted service.
Ruth Goldway, the Commission Chairman, said she and her fellow commissioners understood that the newspaper industry was facing the same threat to revenues from the Internet as the Postal Service was itself.
But she said: “Today’s decision affirms that fair competition between these two important institutions is consistent with the law.”
In its ruling, the Presidentially-appointed Commission had found that USPS has been “ineffectively” competing in the market for preprinted retail advertising inserts.
Goldway also pointed to the fact that the newspaper industry in America is already effectively handed an advantage in the Postal Service’s long-standing policy to provide reduced rates for periodical mailing.
“While the Commission is sympathetic to the claims of market disruption, the policies of [current US postal legislation] do not shield newspapers from the consequences of fair competition,” said the Commission chairman.
The Newspaper Association of America, which represents nearly 2,000 newspapers in the US and Canada, described the Valassis deal last night as “anti-competitive and damaging”.
James M Moroney III, the NAA chairman and publisher of the Dallas Morning News, said: “NAA believes this decision is contrary to law, and will challenge it immediately and vigorously in the US Court of Appeals for the District of Columbia Circuit.”
The NAA citied evidence from the Commission’s Public Representative, who is appointed to represent the views of the general public during a regulatory review, and said USPS had a history of “failed price discrimination policies” in its Negotiated Service Agreements.
The Public Representative, Malin Moench, did state the belief that the Valassis deal would essentially see the delivery of hardcopy advertising inserts via the mail transferring from one customer group – newspapers – to Valassis.
“A scheme to authorise one participant in this market to charge an uneconomic and anti-competitively low price not available to the other participants has the potential to push the entire newspaper industry into bankruptcy,” stated Moench, who recommended the Commission reject the Valassis deal.
Meanwhile, Michigan-based Valassis applauded the Commission’s ruling today, stating that it would begin moving forward with its plans to introduce a new marketing mail product for national retail advertisers.
The company, which mailed out 400m mailpieces in each of the last two years, said the Commission’s green light would mean the Postal Service incentivising new mail volume growth and marketplace expansion.
Rob Mason, the Valassis president and chief executive officer, said his company would begin testing its new product in select markets over the next few months.
Mason said: “As partners with the USPS and newspapers, we will continue to work hard to sustain the relevancy of hard copy, consumer-valued advertising and promotion delivered to American mailboxes.”