The federal government’s $500 million subsidy to magazine publishers

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Few people love magazines more than I do. At last count, I have a half-dozen subscriptions, down from the baker’s dozen of a few years ago (with four young children, I only have so much reading time). Magazines provide incredible value. A single issue tends to cost between $1 and $3 if you subscribe. Whether one spends 30 minutes or 2 hours, magazine’s per-hour cost for edification and entertainment are tough to beat.

So nobody can rightly call me a periodicals hater when I report that the federal government is subsidizing magazines to the tune of $500 million per year. This fact is little known outside the world of mailers; why that would be is an interesting question. Perhaps media are disinclined to report it?

The mega-subsidy to magazines comes in the form of below-rate postage. It costs the U.S. Postal Service more to deliver magazines than the postage it charges. Each year, the Postal Regulatory Commission reviews USPS’ finances and operations, and issues what it calls its Annual Compliance Determination. Ever since the PRC started issuing the report a decade ago, the ACD has shown periodical mailers pay postage 25 percent below the cost of delivery.

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Chart showing periodicals cost coverage totaling $500.
Source: Postal Regulatory Commission, Annual Compliance Determination, FY2015, March 2016, p. 43.

Magazine representatives often blame the Postal Service for having too much overhead, or for misallocating costs. Their arguments would be more believable were it not for the fact that the publishing industry continually fights increased postage rates. Back in 1962, a Time magazine representative told the New YorkTimes that higher postage rates would be “something close to a death sentence.” In 2007, publishers queued up before the House Oversight and Government Reform Committee to ask that higher postage rates be stopped. Victor Navasky, then emeritus publisher of the left-leaning Nation magazine, spoke with admirable candor:

[Magazines of political opinion] are a public good. This country was founded on the idea that free speech and robust public discourse is a good thing. Like education and defense and the environment, the Government, in my view, ought to subsidize that.

There are two big reasons this subsidy exists. In part, it is a Postal Service whoops. The PRC reports the agency has been offering “workshare” discounts that are too high. By law, the USPS can reduce postage costs when a bulk-mail sender prepares mail in ways that reduce the work the USPS has to do. Pre-sorting is the most obvious form of preparation; a mailer will separate their items into bundles by five- or nine-digit ZIP code. Unfortunately, the discounts amount to more than the cost of the work avoided.

But the main reason is tradition; Congress has subsidized periodicals since the birth of the republic. Sub-cost postage rates for magazines were first enacted in 1794. The people, it was argued, needed information about their government and the doings of the far flung peoples of America. Mail was a news-and-information medium. By 1801, periodicals (including newspapers) comprised 45 percent of all mail pieces delivered, but brought in only 8 percent of the Post Office’s revenue.

In 1970, Congress reformed the struggling agency, refashioning it as a self-supporting government business. No longer would it get taxpayer dollars each year. To ensure its solvency, all mailers were supposed to pay the full cost of the mail they sent. Nonetheless, the postage subsidy for periodicals lived on, thanks in part to lobbying by publishers. By law, mail with “educational, cultural, scientific or informational value” must receive lower rates.

The 2006 Postal Accountability and Enhancement Act exacerbated the subsidy by forbidding the USPS to raise postage rates on any mail class by more than the rate of inflation. The USPS’ operating costs mostly stem from employee compensation, and those costs tend to run higher than inflation (health care is a big driver).

Indubitably, it is tough to be a magazine publisher these days, what with the internet stealing advertising dollars and readers. But with the Postal Service struggling financially, the periodicals subsidy is difficult to defend. Among other things, its original rationale no longer holds. The public today can get information via radio, television and online. And other mailers certainly do not think it is fair that they pay full freight and publishers do not.

The PRC currently is pushing the USPS to reduce its excessive workshare discounts. With postal-reform legislation wending through both chambers of Congress, maybe we all will end up having to pay a little bit more for our magazines. Which, indubitably, are really inexpensive for the knowledge and pleasure they deliver.

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