The First Shall Be Last

It seems that the Good Book is right about the meek inheriting the earth, or at least the U.S. publication business. Consider:

• Big-city dailies are closing or going into bankruptcy, while small-town papers thrive because they were doing "hyper-local" long before it was cool.
  
• Publishing Group of America has grown rapidly by placing its magazines (such as American Profile) into weekly papers rather than duking it out with Parade and USA Weekend and the defunct Life for big-city dailies.
  
• Major magazines are shutting down while niche titles spring up.

And look at the newsweeklies. A few years ago, the pundits talked about the battle between the two giants owned by Fortune 500 companies, Time and Newsweek, and wondered when they would drive smaller, independent U.S. News & World Report out of business.

The Economist was too much of a niche product to be considered, and The Week wasn't taken seriously because it did no original reporting and merely compiled and rewrote what had already been published. Now the two little (by circulation) British imports are prospering and actually growing circulation.

U.S. News has turned its weakness into a strength, abandoning the weekly business altogether, creating rankings for everything that moves (the latest is nursing homes), and launching digital and Web products left and right.

And what of the Big Two? They have shrunk to a shadow of their former selves in both ratebase and page count and can’t seem to figure out the Web.

Time can't scoff at The Week any more, not after it caught heat for picking up a poorly researched blog item that allegedly listed the 10 most endangered U.S. newspapers. At least The Week avoids opinion pieces masquerading as journalism.

Now we hear that Newsweek has decided to slash its ratebase, pattern its magazine after The Economist (You know, like requiring people to pay actual money for a subscription.), and copy the Web strategy of U.S. News.

The 21^st Century will not be kind to mass media. It’s no longer enough to create good content, as Time and Newsweek still do. You have to provide people something they really want and can’t get anywhere else.

Pulp Fiction: Eco-Credits for Black Liquor

A federal program intended to promote the use of renewable fuels is instead encouraging U.S. paper companies to pursue some rather "un-green" practices, such as substituting virgin pulp for recycled pulp.

If the "black liquor" tax loophole persists, it could turn the market for publication papers topsy-turvy and lead to public backlash against paper companies -- and perhaps their customers.

At least two U.S. containerboard mills recently switched from recycled corrugated to wood chips as their fiber source because of the loophole, and others are probably doing the same, Pulp & Paper Week reports in its April 10 edition. (As I wrote in "Hey, Big Boy, Can I Recycle Your Cardboard?" four months ago, the market for recycled corrugated was already so weak that perhaps it's a good thing that the "Corrugated Recycles" phone number was taken over by a phone-sex outfit.)

Most, perhaps all, U.S. kraft-pulp mills are receiving or have applied for alternative-fuel credits for using a mixture of black liquor and a bit of diesel to power the mills, according to Kevin Mason of Equity Research Associates. The credit is worth roughly $200 per ton of pulp, he estimates, which means the federal government could theoretically end up paying out $10 billion for these credits. The current market price for kraft pulp is about $600 per ton.

The credits come from 2005 transportation legislation intended to encourage the use of non-fossil fuels, but the effect for paper companies is just the opposite: For decades, kraft-pulp mills have been using black liquor, a pulp byproduct, for power, but they can only receive the fuel credits if they mix some fossil fuel into the black liquor.

The credits also give paper companies a perverse incentive to use kraft pulp instead of mechanical (groundwood) pulp. Mechanical pulp is usually considered environmentally preferable to kraft because it uses fewer trees and causes less pollution.

Kraft pulp is generally more expensive to make than mechanical pulp, which is one reason that freesheet papers command a price premium over papers containing mechanical pulp. But the fuel credits might actually make kraft pulp cheaper for many mills.

So why should such mills make 50# #4 coated groundwood when it would be more profitable to sell 50# #3 freesheet at #4 prices? And why should a company sell a groundwood-substitute at a discount to uncoated freesheet when it would be cheaper just to make the uncoated freesheet?

I don't blame U.S. paper companies, many of which have undergone massive downsizing, for taking advantage of a perfectly legal loophole that could bolster their anemic bottom lines.

But others will. And in an era when the general public mistakenly views digital content as being greener than paper-based content, that could end up being a huge public-relations nightmare for those of us who toil in the dead-tree world.

USPS Playing "Let's Make A Deal"

To counteract its declining revenues, the U.S. Postal Service is rolling out incentives to certain organizations that increase the number of items they mail.

Postal officials are reportedly working on a "Summer Sale" program to encourage businesses and non-profit groups to send more direct mail, catalogs, and other Standard-class mail this summer. Sources say it would offer rebates of 20% to 30% for mailers that increase their Standard mail during July, August, and September of this year.

The Postal Service will reportedly file the Summer Sale proposal with the Postal Regulatory Commission this month. The PRC would then have up to 45 days to rule on the proposal.

The program reportedly grew out of discussions between Postmaster General Jack Potter and CEOs of printing and paper companies about how to increase USPS's volumes during the off-peak summer months. It would apparently be more politically acceptable than Potter's other idea for countering low summer volumes -- temporarily reducing deliveries to five days a week.

Details of another volume-based discount, the Saturation Mail Incentive Program, were released by the Postal Service this week. That will provide a rebate of 2.2 to 4.0 cents per piece only on incremental business during the 12-month period beginning May 11, 2009. Intelisent's Postal Affairs Blog has posted a fact sheet with the details. (Don't bother trying to find this same information via usps.com.)

Some will question how the Postal Service can offer discounts when it is losing money. But that line of thinking overlooks the fact that much of the Postal Service's costs do not vary much with volume. For example, a letter carrier doesn't take nine times longer to deliver nine pieces to an address than to deliver a single piece.

USPS's incremental costs for additional catalogs or presorted letters is much lower than the postage on those catalogs, especially during the slow summer months. Shelling out rebates for incremental off-peak business is somewhat akin to money-losing airlines offering last-minute discounts to fill empty seats.

Don't expect any special discounts for Periodicals-class postage, which is used to mail most magazines and newspapers, because of complaints that the class is not covering its costs. But some publishers would be able to receive rebates on such Standard-class mailings as subscription solicitations and free newspapers.

Flats Sequencing Hits Some Bumps

Declining mail volume, budget cuts, and equipment problems are forcing the U.S. Postal Service to rework its plans for the Flats Sequencing System.

The deployment schedule for Phase I of the system has been pushed back a couple of months, while the coverage area for the 100 machines has been expanded. Some of the 32 original Phase I facilities will get fewer of the enormous machines than originally planned as postal officials adjust to declining volume for catalogs, magazines, and other flat mail.

Those machines will go instead to about a dozen locations that will be added to Phase I, according to one source. And one of the original 32 locations -- the controversial proposed new building in Aliso Viejo, CA -- has been canceled along with other capital projects because of the Postal Service's dire financial condition.

(See "The Unofficial Guide to Flats Sequencing" for more information about the multimillion-dollar FSS program, which postal officials hope will revolutionize its delivery of flat mail.)

Postal officials revealed in February that they would be redeploying some of the machines and that some FSS facilities, contrary to original plans, would get only one machine. But the Postal Service's "FSS Deployment Information" Web site still shows the 100 machines going to only 32 facilities, including Aliso Viejo.

Plans for FSS developed during a time of growing flats volume. But the number of flats handled by the Postal Service declined more than 13% in the past two years, and postal officials now assume that the volume will continue shrinking. As a result, the first 100 machines are now slated to serve more than 2,000 ZIP codes instead of the 1,300 in the original Phase I plan.

FSS machines have been operating in Dulles, VA for a few months but failed an acceptance test recently because they were missing "throughput targets," William Galligan, USPS's senior vice president of operations, told a Mailers Technical Advisory Committee in February. Postal officials are working with the contractor, Northrop Grumman, to correct the problems and hope to resume testing later this month.

There is some good news on the FSS front: Dead Tree Edition's prediction four months ago that FSS would lead to money-saving consolidations of the Postal Service's dropship network is starting to come true. One dropship location on the list of predicted consolidations, in Kansas City, KS, has already been slated for closing, while the one in Winchester, VA is the subject of a consolidation study.

Galligan also told Postcom.org recently that FSS, along with changes to the dropship network, would correct much of the Periodicals class's problem with cost coverage. The Postal Service says its Periodicals revenue covers barely 85% of the cost of delivering newspapers and magazines, leading some to advocate higher rate increases for the class.