Sunday, November 17, 2013

A Funny Thing Happened on the Way to the Funeral of Print Media

Web publishers launching print magazines, e-book sales plateauing, slow adoption of tablet magazines, and now a profitable U.S. Postal Service: Whatever happened to the death of print?

I recall a magazine editor parading around the office in 2009 and announcing, “Print is dead.” Sure, I recognized it as the exaggeration of a middle-aged journalist trying desperately to prove he was hip to the digital age.

Still, it looked as if he had the basic trend nailed. Although I’m a print guy, I had to admit that within a few years – say, 2013 – print would probably be well along the road to Buggy Whip Lane.

A CueCat, from the author's personal collection of Magazine Failures
But 2013 is turning out to be the year that print media didn’t die. Let’s take a look at some recent events:

Postal profits
The U.S. Postal Service revealed Friday that it was profitable in the year that ended on Sept. 30. OK, the official news release says USPS lost $5 billion, but that included a $5.6 billion payment for pre-funded retiree health benefits that it skipped.

Such payments are in reality low-interest loans to the federal government that mask some of the federal deficit. They're a vestige of the era when USPS was the government’s cash cow.

The $5.6 billion is not truly an expense, and the retiree-benefits shenanigans are so politically controversial that the missed payment will probably be written off. USPS's cash position is still precarious, but better than it was.

The return of junk mail
It wasn’t just downsizing that led to a successful year for the Postal Service. The volume of Standard mail – such as direct mail, catalogs, and promotional flyers – increased 1.8%. Wasn’t everything supposed to have shifted to email promotions and online ordering by now?

Web to print
This month has already seen the launch of two significant print magazines, Allrecipes and Politico, from brands that were previously web-only. That’s the perfect rebuttal to Michael Wolff’s recent analysis for The Guardian, in which he asked, “What is the business basis for print? In fact, is there any reason print should exist?”

If Michael put a bit more effort into looking at actual data and less effort puking up vitriol all over Time Inc., he would know the answer: For most magazine publishers, print is still where the money is.

When I headlined an article early last year Are E-Book Sales Reaching a Plateau?, many laughed off the article as wishful thinking from a print dinosaur even though it was based on an objective study.

But three weeks ago, Digital Book World wrote, “Once thought destined to reach 50% or 80% of all book buying and reading in the U.S., ebooks have stalled out on their way up to higher altitude.”

And more recently Mike Shatzkin, one of the leading commentators on the digital transformation of the book industry, actually used the P-word: “Recent evidence suggests that ebooks have hit either a point of serious resistance or a temporary plateau.”

I got similar blowback for this year’s article A Troubling Sign for Tablet Magazines?, which pointed out a study showing that three-fourths of U.S. tablet owners prefer print magazines to digital editions.

Many articles have subsequently come out about the surprisingly slow adoption of tablet magazines and the struggles publishers are having with selling digital subscriptions.

“Apple is a fickle partner,” Jasper Jackson recently wrote, citing various challenges for magazine publishers. "Until these issues are dealt with, or a genuinely credible competing platform emerges, digital magazine marketers will be working with one hand tied behind their back.”

Print still struggles
Don’t get me wrong: Not all is well in the world of print media. The Web is driving most daily newspapers to the point of extinction. (I’m not na├»ve enough to think Jeff Bezos’ purchase of The Washington Post is a vote for print. Methinks his long-term vision for that hallowed journal doesn’t have much to do with putting ink on paper.)

With the continuing decline of profitable First Class mail and a Congress that can’t pass any meaningful reform, the U.S. Postal Service is still on the ropes.

Newsstand sales are still declining at about 10% annually. Retail chains keep reducing the space devoted to magazines even though it’s their most profitable category. Dysfunctional sales channels, you see, are not Apple’s invention.

So don’t expect people to ditch their laptops and smartphones, dig their typewriters out of the attic, or revert to sending handwritten letters instead of texts and emails.

Digital substitution of print will continue, but it won’t always be at the steady or exponential rates the pundits predict. An unsustainable trend cannot be sustained, and inevitable changes often turn out to be quite evitable.

A few digital innovations are immediate game changers. Some need years of refinement to catch on. (Perhaps digital magazines are in this category.) And others burst onto the scene with much buzz but soon go the way of Friendster, PDAs, and the CueCat.

As for that editor who proclaimed four years ago that print is dead? He was recently heard proposing the creation of a new print product.

Wednesday, November 13, 2013

The Oxymoron at the Root of USPS's Woes

Is the U.S. Postal Service a business or a public service? Congress can't decide on the answer, and that indecision creates a fundamental problem for USPS, says noted postal commentator Leo Raymond.

In the Postal Points newsletter for the Association of Marketing Service Providers, Raymond recently wrote about "an ongoing oxymoron that Congress, in its meddling ineptitude, continues to perpetuate: the Postal Service cannot be cast as a public service, with a 'universal service obligation,' while concurrently being told to be businesslike in its operations."

The universal service obligation means USPS has to provide roughly the same level of service to everyone at the same price, regardless of the agency's costs to serve a particular customer. That's contrary to sensible, business-like behavior: What enterprise in its right mind would charge 49 cents to send an un-presorted letter from Hawaii to a Maine island accessible only by boat?

"Fortunately for Congress, it only has to give orders, not figure out how to implement them," Raymond noted.

Raymond was commenting on my recent article Nine Ways the Postal Service Is Not Like a Real Business, which he said "gets to the heart" of the oxymoron.

Getting praise like that from someone who's a rock star among postal geeks -- and an almost simultaneous Twitter follow from the equally prestigious "Mr. Magazine" (Dr. Samir Husni) -- almost lends an air of respectability to this blog.

Hmm, I'll have to do something about that.

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Saturday, November 9, 2013

FSS Contractor Defrauded USPS, Whistleblower Says

A whistleblower is claiming that his former employer, Northrop Grumman, defrauded the U.S. Postal Service by providing it false information about the Flats Sequencing System.

The ex-employee “alleges that the company violated the False Claims Act in a number of ways with respect to the FSS contract [and] alleges damage to the USPS in an amount of at least approximately $179 million annually,” Northrop Grumman stated in its recent quarterly financial report to the U.S. Securities and Exchange Commission. The ex-employee also “alleges he or she was improperly discharged in retaliation.”
Magazines accidentally ejected from an FSS machine.

Northrop Grumman was the lead contractor for the FSS – 100 football-field-sized machines designed to sort catalogs, magazines, and other flat mail. The company has sued USPS for non-payment, and the Postal Service has counter-sued with a claim that Northrop’s late and substandard work prevented the FSS from realizing its expected cost savings.

So far, the FSS has resulted in higher mail-handling costs that have outweighed the Postal Service’s decreased delivery costs. But postal officials expect productivity to rise early next year when flats mailers will be required to present mail for FSS ZIP codes in a manner that is optimized for FSS.

The Washington Post has identified the whistleblower as Beau Michaud and says his complaint charges that Northrop Grumman and a subcontractor “repeatedly made false certifications about the machines’ speed, reliability and accuracy” and that they “provided the Postal Service with a fraudulent handbook for the machines.” (Update: Michaud's complaint was posted online by Save the Post Office on Nov. 10, 2013.

An FSS machine tore the cover of this mail piece.
A LinkedIn profile indicates Michaud was a technical trainer and engineer for Northrop. Someone identifying himself as Beau Michaud has reportedly been contacting postal experts to get photographs of mail that was damaged by FSS machines.

USPS has made a number of adjustments to its procedures and to the machines themselves to minimize torn covers, “foldovers,” and other damage that resulted in employees nicknaming the billion-dollar investment the "Flats Shredding System."

Northrop “intends vigorously to pursue and defend” both the whistle-blower case and the USPS litigation, its says in the SEC filing.

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Monday, November 4, 2013

USPS's Own Words May Doom Its Rate Increases

The U.S. Postal Service’s attempt to enact hefty rate increases has plenty of critics, but the most damaging words against the proposal may have come from the Postal Service itself.

Postal officials claim that the vast majority of USPS’s revenue losses in recent years were caused by the economic recession of 2007-2009 – an “exigent” circumstance that could justify rate increases exceeding the rate of inflation.

But trade associations from several mail-dependent industries contend that the losses came primarily from “electronic diversion and other trends that do not qualify as extraordinary or exceptional circumstances” that would allow the cap on price hikes to be breached. And the associations point to none other than the Postal Service’s own statements to prove their point.

One coalition of mailers’ groups recently pointed out to the Postal Regulatory Commission a USPS report from last year that stated, ““Diversion of communication and commerce to electronic channels is a principal contributor to declining First-Class Mail volumes”; and “Diversion reflects a permanent secular shift in customer behavior and is more pronounced during periods of economic weakness.” [The report also states, "The Economy is NOT the Main Cause of Diversion."]

The coalition also pointed out a 2010 USPS report stating, "While the recession accelerated the volume decline, its primary cause is a fundamental and permanent change in mail use by households and businesses. Hardcopy communication of all types continues to shift to digital alternatives. More people are paying bills and transacting business online.”

“In this proceeding, in which it [USPS] must show that volume declines are ‘due to’ the recession, it now claims that the recession is responsible for the largest share of First-Class mail volume declines during the same years” and that the recession's impact "dwarfs all other factors that affect mail volumes," the coalition told the PRC. “By attributing the same volume declines to different factors in different fora, the Postal Service’s volume forecasting credibility is undermined. The Postal Service should be required to reconcile its seemingly conflicting statements.”

Thomas Thress, an economist who consults for USPS, attempted to explain to the PRC late last week how the recession and electronic diversion teamed up to deal the Postal Service a double whammy:

“I believe the recession increased electronic diversion because the steep decline in the economy created much stronger incentives for consumers, businesses and governments to find less costly ways to engage in communication and conduct financial transactions. Therefore, it seems logical that people would increase their use of cheaper electronic methods in place of the mail, and do so more quickly and more extensively than they would have done absent the economic constraints imposed on them by the Great Recession. However, it must be emphasized that the increase in electronic diversion was not the only way, or even the most important way, that the Great Recession affected mail volumes.”

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