ARLINGTON, VA. — The Postal Regulatory Commission approved a negotiated services agreement between the U.S. Postal Service and Valassis Direct Mail on Thursday, August 23, despite the opposition of NAA, individual newspapers, its own Public Representative, numerous members of Congress and the majority of other commenters, including media placement firms Vertis and Geomentum. The vote was 4-1, with Commissioner Tony Hammond dissenting.
Within 24 hours, NAA filed an appeal with the U.S. Court of Appeals for the District of Columbia Circuit and filed an emergency motion for a stay of the decision. Today, the court issued a briefing schedule on the motion for a stay, with the PRC’s brief due on September 3 and NAA’s reply due on September 10.
The NSA offers Valassis potential rebates ranging from 20 percent to 34 percent for “new” saturation mailings of preprint advertising for national retailers of durable and semidurable goods, subject to various conditions. NAA, many member newspapers and others opposed the NSA on numerous grounds, contending that it violates statutory requirements for NSAs and is unreasonably discriminatory.
The commission said in its decision that the Postal Service “currently is competing ineffectively in the competitive marketplace for reprinted, free standing retail advertising inserts.” Indeed, the commission said the NSA is “highly contested precisely because it constitutes a price reduction in an attempt to better compete in a marketplace already populated by competitors.” This statement is very disturbing because it indicates the commission views the Postal Service as a competitor in the advertising distribution market, rather than as a government enterprise serving all participants in the private advertising market in a non-discriminatory manner. The commission further concluded that the rebated prices offered to Valassis under the NSA were “non-predatory” because they were not below cost and thus “not unfair” in that competitive market.
Go here for a great editorial on the subject from the Seattle Times.
The commission rejected all of the objections raised against the NSA. It dismissed as speculative newspapers’ claims that the Postal Service would lose more revenue from total market coverage products leaving the mail than it stands to gain from new Valassis mail packages. The commission discounted estimates of lost volume by individual newspapers, asserting they had included data from markets in which Valassis would not offer the package (although at no time did the commission ever ask Valassis to identify markets in which it intends to offer the program). The commission did not accept newspapers’ position that the NSA would cause TMC mail to leave the postal system because durable-goods advertising is typically not in TMCs today: “The assertion that price competition for Sunday insert advertisements will cause a significant number of newspapers to abandon midweek TMC advertising is insufficiently supported to allow the commission to conclude that the NSA will not benefit the Postal Service.” The commission concluded that newspapers’ claims of marketplace harm “do not lend themselves to reasonable quantification” and were "unsubstantiated."
In the decision, the Commission addressed comments which it said had argued that as a matter of public policy, "newspapers, as important civic institutions, should be shielded from the competitive consequences of the NSA." Noting, in its view, that the Postal Service currently "is unsuccessfully competing with newspapers" for distribution of preprint inserts at issue in the NSA, the commission said although the Postal Service by law confers newspapers with reduced periodicals rates for editorial content, the postal law does not "shield newspapers from the consequences of fair competition."
Finally, the commission concluded that the NSA does not violate the statutory prohibition against "unduly discriminatory" rates because "the NSA will be available on reasonable terms to similarly situated mailers." In other words, the commission's answer was that newspapers should seek a similar NSA from the Postal Service. The PRC stated that a functionally equivalent agreement would have to address several vital elements: (a) a rate incentive designed to induce new volume in the delivery of a segment of standard mail saturation flats; (b) produce new volume and not merely diversion from existing mail programs (although Valassis' presence in many markets would make this criterion difficult to satisfy in practice); and (c) lead to financial gain for the Postal Service. The commission, however, failed to consider that many of newspapers’ TMC products are mailed at high-density rather than saturation rates. Consequently, it may be difficult for a newspaper to qualify for a similar NSA.
Under the ruling, the Postal Service must notify the commission within 30 days of when the NSA becomes operational in a particular market, and is directed to analyze the impact of the NSA on TMC mailings for each market where the Valassis NSA is operational.
Although he did not issue a formal opinion, Commissioner Tony Hammond dissented and authorized the PRC staff to issue the following statement on his behalf: "While this Negotiated Service Agreement met the other requirements for approval, too much evidence was presented to the Commission by the many opponents of this NSA for me to conclude that it will not cause unreasonable harm to the marketplace. By law, that is a major factor the PRC must consider."
As NAA pursues avenues to overturn this illogical decision by the PRC, we will provide members with updates. In the meantime, please contact Paul Boyle if you have any questions.