EXHIBIT 3 ESTIMATES OF 2ND CLASS POSTAGE REVENUE REQUIRED All calculations assume that class contribution to ** See Appendix B for Comments on Postal Service Costing Methodology a magazine with a subscription price of, say, $10, such an amount for postage would be of great relative magnitude. Although a 406 per cent increase in the second class revenue likely - and even moreso its implied to be required of magazines is startling per-piece rate increase there are many reasons why it could go considerably higher. If, for example, the share of total Postal Service costs deemed attributable were to be increased from the present 50 per cent to 65 per cent (a figure suggested by Postal Service witnesses in the recent rate case), the effect, all other factors remaining unchanged, would be to add approximately $128 million to the $425 million in second class postage revenue that magazines will have to produce in 1977. Another critical factor is the share of attributable costs assigned to second class magazine mailers. In FY 1971, despite only an imperceptible increase in the number of pieces mailed, the magazine subclass was assigned 4.3 per cent up, inexplicably but sharply, from a 3.3 per cent share in FY 1970? If, in 1977, this share were to increase still more, to say 5.3. per cent, the effect would be to increase the magazine second class postage bill to $524 million, even if only half of all costs were regarded as attributable. Exhibit 3 sums up a number of these possibilities and shows that the magazine industry could be called upon in 1977 to produce as much as $878 million. of attributable costs It is, of course, creasing in the near future. All postal rates will be going up not just second class postal costs that will be in and by an amount that goes well beyond the levels reflected in Postal Service pro 1 Appendix B contains a critical evaluation of the costing methodology presently used by the Postal Service jections. This, too, will have its impact, for to generate new subscriptions and to service existing subscribers magazines must spend large amounts in non-second class postage. According to an MPA sur1 vey the average magazine spends about two dollars in first and third class postage for every three dollars in second class postage. With first and third class rates also escalating, there will be a pronounced cumulative effect on the magazine industry. It is well to keep in mind that the other media face no such prospect. 1 The data were compiled in 1973 by Price Waterhouse & Co. 14 II. BECAUSE ANTICIPATED SECOND CLASS POSTAL RATES ARE BOTH WILL HAVE SERIOUS ADVERSE EFFECTS ON MAGAZINES The problems created by rising second class postal rates for the magazine industry are fundamentally a function of two facts: the sheer scale of the rate increases and the suddenness with which they will take effect. That postal rates will go up is in itself neither unexpected nor inherently objectionable. Over a period of years most, if not all, categories of costs will increase: paper, ink, and wages along with postage and other distributional expenses. All such costs have gone up in the past and it is only common sense to anticipate that they will rise in the future. This is as true of the prices charged for postal service as of everything else in the economy. There is, however, a crucial difference in the case of projected postal rates because of the extraordinarily steep rate of increase. In the last decade (FY 1962 through FY 1971), as shown in Exhibit 4, the average per-piece postage paid to mail magazines has increased about 27 per cent or at average annual rate of about 2.7 It has been possible for the industry to absorb rate increases of this order of magnitude and it would be feasible to adjust to a moderately higher increase that would not disrupt the That, however, is not now per cent. delicate intermedia competive balance. |