WikiLeaks Reveals Praise for Dead Tree Edition from an Unlikely Source

I was surprised to learn today that WikiLeaks had published glowing praise for Dead Tree Edition's coverage of black-liquor tax credits. Especially considering the source.

"I love Dead Tree Edition's coverage of the issue. Complex situation, but the blogger boils it down pretty nicely," wrote Joseph de Feo in a 2010 email to colleagues at Stratfor, Inc. in reference to U.S. Taxpayers' Black Liquor Tab Surpasses $30 Billion.

WikiLeaks refers to Stratfor as "a company that fronts as an intelligence publisher, but provides confidential intelligence services to large corporations," which is why it published more than 5 million of the company's internal emails. The emails reveal that Stratfor did work for the American Forest and Paper Association, which supported the black-liquor tax credits. (Note this correspondence referencing a meeting between an AF&PA official and Sen. Max Baucus, D-Montana, a key player in the black liquor story who may become the next U.S. ambassador to China.)

 "The Small Business Jobs Act that Obama just signed included a CBP [Cellulosic Biofuel Producer] modification that supposedly nets the government nearly $2 billion by removing crude tall oil's eligibility for the tax credit -- and Dead Tree Edition says that it never would have qualified anyway," de Feo continued. "So the $2 billion in savings is made up. Which would be perfectly consistent with all we've already seen on black liquor. Accuse something (falsely) of being costly, shut it down and claim the (false) savings, skewing budget numbers."

"When corporations do this, doesn't someone usually go to jail?" concluded de Feo, who was a Stratfor analyst and briefer and is now the chief operating officer at Keyframe Policy Consulting, a Stratfor spinoff.

De Feo was referring to just one of about 50 articles Dead Tree Edition has published showing how billions of dollars from federal biofuels programs was diverted to black-liquor subsidies for U.S. pulp companies. As he noted, a recurring theme of the twisted tale is how the subsidies were used to skew federal budget numbers so that Congress could shell out more taxpayer money.

The most recent article in the series is IRS Inaction Leads to Another Black-Liquor Windfall for U.S. Paper Companies.

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How USPS Is Like an Airline, and Why That Matters

A postal official made a revealing statement last week about the U.S. Postal Service’s attempt to get higher-than-inflation rate increases.

If USPS’s “financial challenges were alleviated by the timely enactment of laws that close a $20 billion budget gap, the Postal Service would reconsider its pricing strategy,” Deputy Postmaster General Ron Stroman wrote last week in a Post & Parcel letter to the editor. The request for “exigent” rate increases – on which a ruling is due Monday --was “a last resort,” according to USPS’s #2 man.

USPS has spent years trying to pass exigent rate increases to help it dig out of the red. So why would it even think about walking away from a legal victory that could be worth a couple of billion dollars a years?

My theory: Postal officials aren’t sure an extraordinary rate increase will help the agency. They’re worried that breaching the inflation-based cap that has kept most postal rates in check will undermine confidence in the mail system, pushing mailers to switch even more communications to digital delivery.

In the simplistic thinking of some Congress members – whom USPS is apparently trying to appease with its rate request – the answer to insufficient revenue is simple: Increase your rates.

But postal officials know that higher prices don’t mean more revenue if they lead to fewer mailings. They’ve seen this movie before in the pre-rate-cap days, and the ending wasn’t pretty, including a drastic decline in catalog mailings.

It helps to understand that, as I wrote in 2009, the U.S. Postal Service is like a money-losing airline that is flying a lot of half-full planes. Many of the airline’s costs are the same regardless how many passengers are on the planes.

You can’t fly with fewer pilots or reduce the jet’s depreciation just because most of the seats are empty. Nor can the Postal Service deliver to fewer addresses just because its mail bags are not as full as they used to be.

If the airline raises its prices, competitors will lure away passengers with lower fares. At the margin, even a bargain-rate passenger is profitable; the only cost of adding one to a plane is a few gallons of jet fuel, a bag of stale pretzels, and a tiny can of soda.

Jacking up postal rates merely causes marketers to prospect more with email instead of direct mail, publishers to convert more subscribers to digital editions, and corporations to offer more incentives for customers who switch to electronic billing.

What the Postal Service needs is mostly in the hands of Congress, which structured USPS in the pre-internet days to be a cash cow for the federal government. Times have changed, and the cash cow has been milked so dry it can’t replace 25-year-old delivery vehicles that are held together with duct tape and rubber bands.

But the laws and practices that drained the Postal Service of billions of dollars remain unchanged. And, more than ever, USPS needs less not-in-my district Congressional interference that stymies reasonable downsizing of its distribution network.

What the Postal Service doesn’t need are rate-cap-busting price increases that drive away customers.

Related articles:

• What's Weighing Down the Postal Service?  
• Why the Exigent Postal Rate Increase Will Backfire
• UPS Praises Postal Service's Improvements, But Not Its Rate Hikes

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A Glimmer of Growth Amidst the Newsstand's Gloom

Despite continuing declines in North American newsstand sales the past few years, one category has experienced steady, impressive growth: bookazines.

Unit sales of the special issues in the U.S. and Canada grew at nearly an 11% annual rate from 2008 to 2012, with annual revenue up 80%, according to data presented recently by MagNet, an industry consortium.

During the same period, total unit sales of magazines decreased about 10% annually. The trend of rising bookazine sales and decreasing overall sales is continuing this year.

"If print is dead and newsstand is dead, why is it that consumers will plunk down and make an impulsive purchase to spend 10 or 12 bucks to buy a high-quality publication at the newsstand?"asked Gil Brechtel, MagNet's president, at the Magazine Innovation Center's recent Act 4 Experience conference. (Brechtel's presentation begins at about the 30-minute mark of this video.)

Bookazines, also known as book-a-zines, mooks, SIPs, one-shots, or special issues, are non-subscription publications sold via the newsstand system. They are usually published by subscription magazines, but some are published under such non-magazine brands as Philadelphia Cream Cheese, USA Today, and the American Bible Society. Brechtel's definition of "book-a-zine" includes only titles having a cover price of at least $9.99, which is probably the vast majority of special issues.

"During 2012 there were 900 bookazines released," Brechtel said. "Some did very well. Some didn't do so well." They generated $352 million in retail sales, a 20% increase over 2011. Typical subject matter included tributes to dead celebrities, in-depth looks at a single topic, and recipe books -- lots of recipe books. The top seller was a National Geographic title that brought in almost $3 million.

"Why are people buying $10 bookazines full of information they can get free on the web?" he asked. "A lot of these are coffeetable books."

The formula for bookazine success, according to Brechtel, is strong brands, high-quality cover and paper stock, and appealing content. Bookazines have the advantage of avoiding a major cause of declining retail sales -- low-ball subscription offers.

"Publishers are trying to chase ratebase so much they're basically giving magazines for free or for a very low price," Brechtel said. "If you buy Cosmopolitan 12 issues for $5 a year why in heck would you spend $3.95 for one issue?"

Bookazines accounted for more than 10% of total newsstand sales last year, and that share seems to be growing rapidly. At a couple of stores I visited recently, it was hard to find actual weekly or monthly magazines amidst all the special issues.

At Target recently: An issue of TIME surrounded by bookazines.

One advantage of the special issues is that they don't go "stale" quickly and can remain on sale for up to three months, versus a month or less for regular issues.

But that's not relevant to all locations: As some stores shrink the amount of space for magazines (though it's the most profitable category for supermarkets), there's increased pressure to turn inventory over quickly, even for successful, high-priced titles.

Related articles:

• Invasion of the Bookazines, Featuring the Return of the Living Dead 
• Mooks and Canucks: The Bookazine Invasion Crosses the Border
• Rupert, Weiner and Cardboard Animals: 5 Who Should Be Ahead of Me on RISI’s Top 50 Power List
• 8 Questions About Newsweek's Future

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UPS Praises Postal Service's Improvements, But Not Its Rate Hikes

United Parcel Service recently praised “impressive efforts by the Postal Service to reduce costs and improve productivity” but criticized USPS's request for emergency rate hikes.

The Postal Service’s request for “exigent” rate increases on “Market-Dominant” mail is “an unsustainable business model which can only lead to continued postal deficits and more requests to exceed the rate cap,” UPS wrote in a filing last week with the Postal Regulatory Commission. Instead, USPS’s “Competitive” products should bear a larger share of the agency’s institutional costs, according to UPS, which is a major competitor, customer, and vendor of the Postal Service.

Market-Dominant mail includes such classes as First-Class, Standard, and Periodicals, where USPS’s mailbox monopoly is a huge barrier to competition. Rate increases for such mail can generally be no greater than the rate of inflation, except USPS is seeking higher rates starting in January to compensate for revenue it lost as a result of the recent recession.

By contrast, “Competitive” services include expedited and parcel delivery, where USPS tends to compete head on with UPS, FedEx, and other private businesses. For such mail, USPS can charge what the market will bear. But much of the category’s profit gets tied up in a Competitive Products Fund that the Postal Service cannot easily access.

In the past six years, “Competitive Product revenues have grown by more than 40%, while Postal Service mail and services revenues as a whole have fallen by about 13%.”

Nevertheless, Competitive Products have continued to pay only 5.5% of USPS’s institutional costs, while the unprofitable Market-Dominant category covers the rest.

“Competitive Products’ share of total Postal Service revenue has risen from approximately 11% in FY2008 to over 18% in FY2012,” UPS wrote. “This trend is likely to continue, with Competitive Products expected to account for more than 20% of total postal revenue in FY2013 and over 23% in FY2014.”

Yet the Postal Service’s pricing strategy runs counter to the customary tactic of hiking prices based on rising demand.

“The Postal Service proposes a Market-Dominant average rate increase of more than 5.9%, while it proposes a Competitive Products average rate increase of only 2.4%, with no rate increase for Priority Mail overall,” UPS notes.

Breaching the inflation-based price cap on Market-Dominant mail will “accelerate” the ongoing decline in such mail, UPS claims.

“In short, it is unsustainable for the Postal Service to continue to rely on shrinking Market-Dominant volumes to pay the vast majority of institutional costs. The Commission should require growing Competitive Product revenues to contribute a more equitable share.”

The UPS filing doesn’t spell out the company’s motives. Its proposal would tend to cause larger price increases for the Postal Service’s Competitive Products, which go head to head with UPS’s own offerings and are gaining market share. But because it often outsources the “last mile” of delivery to the Postal Service’s vast carrier network, UPS also has a genuine interest in the health of Market-Dominant mail.

UPS’s filing doesn’t seem to be the work of a company that, as some conspiracy theorists claim, secretly wants to take over the Postal Service. Instead, its actions are consistent with its 2009 statement that, "We believe that the government plays a role in terms of ensuring that every mailbox is reached every day. That is not a responsibility that UPS would want.”

Related articles:

• USPS's Own Words May Doom Its Rate Increases 
• Why the Exigent Postal Rate Increase Will Backfire
• The Oxymoron at the Root of USPS's Woes

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