The nation's nearly 10,000 magazines face a severe new cost squeeze that threatens to be fatal for some. Reason: huge prospective rate increases by the Postal Service, the main distribution channel for most of the publications. In setting up the service as successor to the Federal Post Office Department, whose deficits were met from Government funds, Congress required that mailing charges should cover most postal costs. The service translated this into a request for a boost in second-class material (magazines and newspapers) that would average about 150% over five years, or 30% annually.*
While this astounding proposal was being debated, an interim increase of 25% was put into effect last May and was left in force after the Administration's August wage-price freeze. Now it appears that the Postal Service will be exempted from Phase II guidelines. In a press conference, Donald Rumsfeld, director of the Cost of Living Council, announced that the service need only "certify" the need for increased rates and that no controls should "prevent the full recovery of costs."
Doing Damage. While the Postal Service remains free of guidelines, publishing businesses are very much subject to Phase II restraints in what they can charge readers and advertisers. (An exemption for the communications industry was dropped from legislation passed by Congress last month.) But even if there were no Phase II inhibitions on prices, magazines would still be in jeopardy. The industry has been suffering from rising costs and declining profits in recent years, and passing along huge additional costs could only inflict more damage. To raise subscription prices radically would drive away readers; to hike advertising rates significantly might encourage business to use other outlets, particularly television. The primary reason cited by Gardner Cowles for folding Look was the anticipated postal increase.
Just how much that increase will come to is still uncertain. The independent Postal Rate Commission is awaiting a report on the Postal Service's request from a hearing examiner. The commission must then make its own finding, which goes to the board of governors that oversees postal operations. There has been speculation that the rate commission might cut the increase, but whether it would come down to a level that the industry considers bearable is doubtful.
The effect on individual publications would be uneven. The new second-class rates are set by the piece in a complicated formula that takes into account mailing distance as well as weight. Weeklies would be hit harder than monthlies because of greater mailing frequency, and large-circulation weeklies would be hit harder still because of their great volume. Time Inc., as the nation's largest magazine publisher (TIME, LIFE, SPORTS ILLUSTRATED, FORTUNE), would suffer the biggest second-class boost of all—from $15.4 million to $42.4 million, based on 1970 circulation levels. That increase of $27 million substantially exceeds what the magazines earned last year; it amounts to approximately two-thirds of the corporation's estimated pretax profit for all activities in 1971. Newsweek's postage would nearly double in five years under the original rate request and considerably exceed its 1970 profit.