Newspapers And The Postal Service, Both Struggling For Survival, Wage War On Each Other

Forget chivalry. In a sinking ship, it's every man for himself -- or so a new battle between two bastions of old media would suggest.

The Newspaper Association of America (NAA) on Thursday blasted the Postal Regulatory Commission over a plan to give one of the industry's largest competitors a special discount on mailing out circulars.

The reduced rate is being given to Valassis Communications (NYSE: VCI), a leading direct-mail company, and will apply to new mail volume on the condition that the company sends at least 1 million additional pieces in the next 12 months.

The NAA said it was "stunned" by the deal, saying it will cause "significant financial harm to newspapers throughout the country." Newspapers still derive a significant portion of their profits from advertising circulars in Sunday editions, placing them in competition with direct-mail services. The NAA said the deal between Valassis and the United States Postal Service will create an "anti-competitive" playing field in which newspapers will lose advertising dollars to a competitor that gets a sweeter deal.

Ruth Goldway, chairman of the Postal Regulatory Commission, or PRC, which oversees the USPS, disagrees. In a phone interview with the International Business Times, she said the PRC went through great lengths to ensure that the agreement fostered fair competition in a way that meets the law.

"We came at this with great sympathy toward the newspapers," she said. "We gave them additional time to prove that this would cause considerable unreasonable harm to their business."

In a procedural process that spanned about two months, Goldway said the NAA submitted only "general estimates" about how the newspaper industry would be negatively impacted by the deal. "None of the information they submitted allowed us to believe that this would create unfair competition," she said.

In its official complaint to the commission, the NAA said the deal places at risk at least $1 billion in advertising revenue. Meanwhile, NAA Chairman James Moroney said in a statement that the organization plans to fight the deal. "NAA believes this decision is contrary to law and will challenge it immediately and vigorously in the U.S. Court of Appeals for the District of Columbia Circuit," he said.

On the surface, newspapers and the USPS might seem to have little in common, but they are similar in more ways than one. Both have struggled to adapt to the advent of electronic communications, and both are heavily reliant on advertisers. Earlier this month, the USPS posted a $5.2 billion loss for the period of April through June, and Goldway said the deal with Valassis, which is intended to increase the volume of mail circulated by national advertisers, will ultimately "improve the financial position of the Postal Service and enhance our standing."

Not so, said the NAA. "The Postal Service should focus on cutting costs and getting the mail delivered on time," said Caroline Little, the organization's president and CEO, in a statement, "and not on using rates to confer a significant and unwarranted advantage on one competitor at the expense of an entire industry."

Little questioned whether the USPS should be in the business of making "special arrangements" that allow it to reap benefits from advertising, but Goldway said, in that respect, the USPS is no different than newspapers, television or the Internet -- all of which employ advertiser-driven models that allow them to provide their services for next to nothing. "In my own radical view, I'd say it's unfortunate that our communications in this country depend on advertising," she said. "But that's the way the system works."

Little acknowledged that newspapers and the USPS share a "long history of working together to keep Americans informed and connected," but in a world where communications have largely shifted from the physical to the virtual, these two former allies may be left fighting over one of the few sectors of old media that still promise hefty profits. Advertising mail brings in an estimated $17.3 billion a year. And while some have decried the growing presence of Target circulars and credit-card offers as evidence for the USPS's obsolescence, Goldway said we should not be so quick assume what our neighbors want in their mailboxes. "I would beg to differ," she added. "One person's junk mail is another person's absolutely essential catalog."