Postal Service Announces May 2009 Rate Increases

Against a backdrop of record volume and operating losses, the Postal Service on February 10^th announced the 2009 rate increases for market-dominant products, including periodicals. With the twelve-month change in the CPI at 3.8%, average increases for most of the classes are very close to the 3.8% maximum. The average increase for periodicals is slightly higher – just under 4% – because in 2008 the Postal Service raised periodicals rates .2% less than the cap would have allowed and the Service is adding that unused pricing authority to this year’s increase. As in 2008, the Service published the 2009 increases 90 days in advance of the May 11^th effective date.

Unlike last year, the rate increases are not uniform across the periodicals class. Some of the specific rate changes that will affect an individual publication’s rate increase include:

• A decrease in the savings from presorting pieces to the carrier route level. This change reflects the Postal Service’s assumption that the value of carrier route mail will be diminished in the upcoming Flat Sequencing System (FSS) processing environment. Publishers with mostly carrier route mail will have a relatively larger increase.
• Reduction in the portion of revenue derived from the pound rate. The Postal Service says the current rates overstate the cost impact of additional weight. This rate change will benefit heavier-weight publications relative to lighter-weight publications.
• A significant increase in the bundle charge. This is designed to encourage bigger bundles, and will cause larger percentage increases for classroom and other publications that have a lot of “firm bundles”. These bundles of multiple copies going to one location are counted as one piece and have traditionally paid relatively low rates.
• An increase in container charges – particularly for pallets – which is designed to lead to larger containers. This may cause publishers and printers to create larger, but less finely sorted, pallets or to move some mail from pallets to sacks.

The Postal Regulatory Commission will now have 45 days to complete its review of the Postal Service’s planned rate increases, primarily to ensure that they comply with the CPI cap.

MPA Comments on Periodicals Cost Coverage Shortfall

As the Commission begins its review of the 2009 rates, it is also completing its Annual Compliance Review on the 2008 rates. As in previous years, the Commission has received comments during the Compliance Review on the failure of periodicals class to cover its costs. As reported by the Postal Service, periodicals cost coverage was 84% in 2008. Responding to comments from The Public Representative and coupon mailer Valpak, MPA filed comments on February 13 addressing the issue of periodicals cost coverage. Repeating our well-substantiated arguments from the 2007 Compliance Review, we reminded the Commission that the Postal Accountability and Enhancement Act does not allow the Commission to impose rate increases for a class that exceed the CPI-based cap merely because the class fails to cover its attributable costs. Our comments further explained that the lack of progress in increasing periodicals cost coverage in 2008 was the result of the dramatic decline in flats mail volume this year and the difficulty the Postal Service faced in reducing its labor capacity – and cost – fast enough to keep pace with the decline in volume. We noted the significant cost saving measures the Postal Service is undertaking and concluded that the 2008 results are not a reliable indication of long term cost patterns and that periodicals cost coverage in 2008 should not be cause for undue concern.

Postal Service Financial Situation Deteriorates; MPA Fights for Relief for Postal Service from its Retiree Health Benefits Obligations

In the latest indication of the difficult financial situation facing the Postal Service, on February 19^th, the Postal Service filed a report with the PRC detailing its financial results for January 2009. This followed close on the heels of a similar report filed on February 9 containing the financial results for the Service’s first quarter of FY2009 (October-December 2008). After a significant volume loss of close to 10% in Quarter 1, the Postal Service reported that mail volumes in January were down over 16%. The estimated net loss for the month was a staggering $751 million, following a loss of $384 million in the first quarter.

These results underscore the urgency of obtaining some financial relief for the Postal Service from its health benefit fund obligations during this challenging period. The Postal Service, with the strong support of MPA and other mailing industry associations, is seeking legislation that would allow it to pay health premiums for current retirees – a cost of about $2 billion this year – out of funds already paid into the Health Benefit Fund established in the 2006 postal reform law. Legislation to provide this relief to the Postal Service for the next eight years – H.R. 22 – has been introduced in the House by Congressmen John McHugh (R-NY) and cosponsored by Danny Davis (D-IL). Legislation to provide similar relief – albeit for a shorter period – is expected to be introduced shortly in the Senate by Senator Tom Carper (D-DE). MPA continues to lead industry efforts to move this legislation forward and to provide the Postal Service much needed breathing room while it moves forward with severe cost-cutting measures expected to pare down annual costs by close to $6 billion by the end of FY 2010.

Federal Trade Commission Issues Report on Behavioral Advertising

On February 12^th, the Federal Trade Commission (FTC) issued its much anticipated report titled “Self-Regulatory Principles for Online Behavioral Advertising.” The report summarizes and responds to comments offered in April by MPA and almost 90 other stakeholders on the FTC’s December 2007 “Proposed Self Regulatory Guidelines.” The report also sets forth the FTC’s revised self-regulatory principles.

The report, which includes a summary of the comments submitted as well as analysis and staff response, discusses the benefits of behavioral advertising, including its use to support free online content and personalization, while at the same time laying out some of the privacy concerns raised. In several instances, the FTC echoes the comments offered by MPA and a consortium of other associations in April, notably in the crucial areas of “first party” usage of behavioral advertising, and contextual advertising.

The first section of the report discusses the scope of the principles. In what was a key point for the MPA and its members, the FTC agreed with MPA’s comments that there should be a distinction for first party and contextual uses of behavioral advertising. The FTC staff concludes that “‘first party’ behavioral advertising practices are more likely to be consistent with consumer expectations and less likely to lead to consumer harm…” and that “it is not necessary to include ‘first party’ behavioral advertising practices within the scope of the Principles.” Similarly, the FTC staff also culls out contextual advertising, saying that “[s]taff consequently does not believe that it is necessary for the Principles to cover this form of online advertising.” As first party publishers, this is a very beneficial carve out for MPA members.

In its discussion of the first of four self-regulatory Principles – transparency and consumer control – the FTC reviewed comments submitted that questioned the need to provide “choice” for the collection of non-personally identifiable information. The over arching theme for the FTC response is support for the idea that “companies should provide consumer choice for the collection of data for online behavioral advertising if the data reasonably could be associated with a particular consumer or with a particular computer or device.” The FTC staff encourages accomplishing this notice and choice through “innovative ways outside of the privacy policy,” – which the FTC has generally found dense and not written in consumer friendly language – and that it be accompanied by an education campaign and research.

Despite a lengthy analysis, the FTC made only a single change to the first Principle, which continues to state that websites where data is collected for behavioral advertising should provide:

“a clear, concise, consumer-friendly, and prominent statement that (1) data about consumers’ activities online is being collected at the site for use in providing advertising about products and services tailored to individual consumers’ interests, and (2) consumers can choose whether or not to have their information collected for such purpose. The website should also provide consumers with a clear, easy-to-use, and accessible method for exercising this option."

To accommodate alternative behavioral advertising models, including behavioral advertising done by Internet Service Providers (ISPs), the FTC has now added:

“Where the data collection occurs outside the traditional website context, companies should develop alternative methods of disclosure and consumer choice that meet the standards described above (i.e., clear, prominent, easy-to-use, etc.)”

With regard to the second Principle – which calls for reasonable security and limited retention of consumer data collected for behavioral advertising – the FTC left the Principle largely unchanged. In acknowledgement of the role data retention plays as part of overall data security, and in light of the recent efforts of some companies to reduce the length of time they store user data, the Principle was modified with respect to data retention:

“Companies should also retain data only as long as is necessary to fulfill a legitimate business or law enforcement need.”

The third Principle relates to changes in privacy policies. In recognition of the legitimate need for businesses to occasionally change privacy policies, Principle three, which calls upon companies to obtain affirmative express consent before they use data in a manner that is materially different from the promises the company made at time of collection, was altered to only include changes that are retroactive. This would cover an action such as “sharing data with third parties, contrary to promises made at the time of collection,” but would exclude circumstances where a company “changes a privacy policy and then proceeds to collect and use new data under the new policy.”

The fourth Principle – that companies should only collect sensitive data for behavioral advertising after they obtain affirmative express consent from the consumer to receive the advertising – was not modified, given the FTC’s heightened privacy concerns associated with sensitive data.

Accompanying the issuance of the Principles, were statements by Commissioners Harbour and Leibowitz, who stressed that despite the FTC’s general support for self regulation, unless such industry self-regulation is strong and effective they would favor more governmental regulation. As stated by Commissioner Leibowitz, “[p]ut simply, this could be the last clear chance to show that self-regulation can – and will – effectively protect consumers’ privacy in a dynamic online marketplace.”

In anticipation of these comments, MPA, in conjunction with a diverse collection of associations and companies representing many of the components of the online ecosphere, is participating in several coalitions conducting evaluations of, and improvements to, existing self-regulatory programs. In addition, we continue to monitor legislative developments at the Federal and State level. Already there have been bills introduced at the state level and the possibility of legislation from the Senate Commerce Committee or House Energy and Commerce Committee remains likely.

Federal Reporter’s “Shield” Bill Re-Introduced

With strong support from MPA and a broad coalition of journalist associations, Federal “shield” bills have been reintroduced in the House and Senate. The prospects for passage of this important legislation this year are promising, particularly due to the backing of President Obama, who supported a “shield” bill during his campaign, and the change in leadership at the Department of Justice.

H.R. 985 and S. 448 – both titled the “Free Flow of Information Act” – would create a privilege balancing the need for disclosure of a reporter’s confidential information with the First Amendment protections for the confidential source and the reporter. Both bills would provide exceptions to the confidentiality shield for purposes such as national security and the protection of trade secrets.

The bill introduced in the House, which is identical to the legislation that passed overwhelmingly late in 2007, was introduced by Representatives Boucher (D-VA) and Pence (R-IN), two longstanding champions of the bill. They are joined by 37 other Members, among them a former publisher, Representative John Yarmuth (D-KY).

The bill introduced in the Senate is sponsored by Senators Specter (R-PA), Lugar (R-IN), Graham (R-SC), and Schumer (D-NY), and is identical to the bill that passed out of the Judiciary Committee in October of 2007. Last year the bill failed to pass out of the Senate after being caught in the political crossfire of a heavily debated piece of energy legislation.

We anticipate that the legislation will be taken up toward the second half of the year, as Senate Judiciary Committee Chairman Patrick Leahy (D-VT) has indicated he would like to afford new Attorney General Eric Holder and the Department of Justice an opportunity to comment on the legislation.

Efforts to Restrict Direct-to-Consumer Prescription Drug Advertising
Continue in Congress and the States

Shortly after his selection as the next Chairman of the House Energy and Commerce Committee, Representative Henry Waxman (D-CA), was already contemplating the future of direct-to-consumer (DTC) prescription drug advertising.

In a speech in December to the Prescription Project, a group looking to restrict marketing to physicians and consumers, Chairman Waxman told the attendees that he wants to restrict DTC for some new products for up to two years. In contrast to Representative Bart Stupak (D-MI), who Chairs the House Energy and Commerce Subcommittee on Oversight and Investigations, and favors a no exception two year moratorium, Chairman Waxman appears willing to let the FDA have the discretion to make exceptions to the moratorium. While no legislation has yet been introduced in the new Congress, a moratorium on DTC advertising, even one ostensibly allowing exceptions, could have a dramatic impact on magazine DTC advertising revenues.

While broader health care reform may currently be a higher priority for both Congress and the Obama Administration, the appointment of a new FDA Commissioner, which may come in the near future, will likely bring renewed attention to the issue on the Hill, particularly if the choice for Commissioner is former Waxman staffer Dr. Joshua Sharfstein. It is also possible that other pieces of legislation the Committee has on its front burner, for example medical device liability preemption legislation, could become vehicles for some type of DTC legislation.

In anticipation of possible legislation, MPA is executing on a multi pronged approach, including visits to key Congressional staff, to make sure that Legislators understand the effectiveness of print DTC advertisements, the value of print DTC advertisements to the consumer, and the importance of not placing restrictions on First Amendment protected speech.

At the state level, in New York a bill has been introduced in the Assembly – A5030 – that would eliminate the tax deducibility of prescription drug advertising expenses. Currently with the Ways and Means Committee, this bill has been introduced in prior years and not progressed forward. However, with the New York Senate now controlled by Democrats for the first time in over four decades, and a budget shortfall still unresolved, it is possible that the legislation could move this session.

Consumer Product Safety Commission Begins Implementation of Consumer Product Safety Improvement Act (CPSIA)

In response to incidences of lead found in children’s toys – particularly toys from China – in July of 2008 Congress passed the Consumer Product Safety Improvement Act (CPSIA) which included a set of sweeping new regulations on lead and phthalates in any children’s products. The Consumer Product Safety Commission Act, which guides the activities of the Consumer Product Safety Commission (CPSC), defines a children’s product as a “consumer product designed or intended primarily for children 12 years of age or younger.” CPSIA creates limits on the amount of lead that may be present in such a product, and requires that producers provide a general conformity certificate from a CPSC-certified third party laboratory. As passed, the deadline for enforcement and required certification was February 10, 2009.

While well intended, the legislation as passed has proved to be considerably overbroad in its scope. Concerns have been raised from many industries with products that do not contain lead at levels near the CPSIA limit – including books and magazines – about the need for third party testing and certification for the entirety of children’s products. Recognizing the enormity of the industries impacted, on January 30^th, the CPSC approved a one year stay of enforcement on the testing requirements. The CPSC also announced that they will begin a process of evaluating classes of products whose lead content is consistently below the 300 ppm limit imposed by the legislation for permanent exclusion from the testing and certification requirements. Already included on the exclusion list of products are what the CPCS is calling “ordinary” children’s books printed after 1985, and the CPSC General Counsel recently mentioned the possible applicability of the “ordinary book” exclusion to other products, including other printed materials such as children’s magazines.

As the situation has developed, MPA has worked with the Printing Industries of America (PIA) in their submissions to the CPSC, and kept in contact with MPA members who publish children’s magazines.

House Judiciary Subcommittee Holds Hearing on Libel Tourism

On February 12^th, the House Judiciary Subcommittee on Commercial and Administrative Law held a hearing to discuss possible remedies to the issue of “libel tourism” – the practice of bringing libel suits against U.S.-based defendants in foreign countries that have weaker protection for speech than does the United States.

Testifying at the hearing was U.S. author Rachel Ehrenfeld, who wrote a book about the financing of terrorist organizations, titled Funding Evil, and was subsequently sued by a Saudi billionaire who was named in the book and won a $225,000 judgment in London.

As subcommittee Chairman Steve Cohen (D-TN) and the rest of the Judiciary Committee commence work on this issue, MPA will continue to actively support their efforts.

Sales Tax Bills Affecting Magazine Subscriptions Introduced

Bills that would eliminate the existing tax exemptions for magazine subscription sales have been introduced in two states, and, with 46 states facing revenue shortfalls, there is a possibility that others could follow suit.

In Connecticut, HB 6350, which was discussed at a joint Finance Committee hearing earlier this month, would lower the state’s general sales tax rate from 6% to 5%, and cover a portion of the lost revenue by eliminating all sales tax exemptions, including the exemption for magazine subscriptions. This exemption has been eliminated before, in 2003, but was reinstated in 2004.

Similarly, Oklahoma Senate Bill SB 430, introduced by Senator Mazzei (R-Tulsa), would eliminate the current sales tax exemption for both retail and subscription sales of magazines and newspapers. At this juncture, it appears that the Oklahoma Senate is unwilling to take up the matter, but we have indications that it may resurface later in the year. A similar piece of legislation was introduced last year, but did not pass.

MPA will continue to oppose taxes on magazine subscription sales. Currently, about half of the states, including all the largest states, exempt magazine subscriptions sales from taxation.

New York Legislature Considers Several Magazine Related Bills

Since the January 7^th start to the legislative session, a number of bills that could potentially impact the magazine industry have been introduced in the New York legislature.

Three bills fall under the purview of the Consumer Protection Committee, which is chaired by Audrey Pheffer (D-Queens) who is the author of several of the bills herself. The bills include:

• A2642: This bill would extend subscription expiration date notice requirements currently imposed on magazines to newspapers. At the same time, the bill would change the requirements for how expiration dates must be disclosed on subscription renewal solicitations for both magazines and newspapers – adding a new requirement that the expiration date be printed in twelve point bold type. It would also add a new requirement for renewal offers packaged with a magazine, mandating disclosure of the location of the subscription expiration date on the mailing label.
  
• A1393: As he did last year, Assemblyman Richard Brodsky (D-Westchester) has introduced an online behavioral advertising bill. The bill would prohibit all website operators from collecting non-personally identifiable information without offering website visitors an opportunity to opt out. Unlike at the Federal level, the bill offers no distinction or exemption for contextual advertising.

Outside of the Consumer Protection Committee, but also of concern for the magazine industry, is A3023, a producer responsibility bill under the purview of the Committee on Environmental Conservation. Producer responsibility bills are a growing trend around the nation, and seek to put the burden of the cost of disposing of or recycling products on the producer. This bill would make manufacturers, wholesalers, distributors, and retailers of a long list of products, including magazines sold at retail, collectively responsible for fees totaling .000525% of the cost of the item, the proceeds of which would be used for recycling development.

MPA will work on these issues at the New York State Legislature, in conjunction with individual MPA members and other potentially affected industry groups.

“Do Not Mail” Bills Introduced

Already this year there has been six do not mail bills introduced in three states. In New York, SB 2132 has been introduced by Senator Carl Kruger (D-Brooklyn). The bill is a variation on the standard do not mail bill and is styled as a “Do Not Offer” registry. It exempts existing business relationships and verbal or written requests from the customer, and defines a “direct mail marketer” as one who mails for financial profit or commercial purposes. This is a refile of SB 1403 from the 2007-2008 session, which never received initial consideration in the Senate.

While not a do not mail bill in the strictest sense, a similar bill, A3191, would require senders of “unsolicited advertisements” – defined as any written material advertising a good or service – who mail or deliver to a consumer targeted based on personal information, to send the recipients a written notice offering an opportunity to opt out of future mailings on a yearly basis. The mailer would also have to maintain an exclusion list of consumers opting out.

In Connecticut, HB 5410, introduced by Representative O'Rourke, seeks the creation of a do not mail registry, while HB 5413, introduced by Representative Giannaros is broader in scope. It seeks to amend the general statutes to provide an “opt out” for receipt of telephone books, newspapers, flyers and advertising mail. Both have been referred to the Committee on General Law.

And in Florida, where the legislature does not convene until March 3^rd, two bills have already been prefiled. SB 1324, introduced by Senator Dave Aronberg (D-Palm Beach), and its House counterpart HB 781, introduced by Representative Mary Brandenburg (D-Palm Beach County), would require the creation of a do not mail list. Unlike other do-not-mail bills, these bills require the payment of a $10 initial listing fee from consumers and a $5 renewal fee. The bills also exempt newspaper publishers and their agents or employees.

Washington State Introduces Troubling Consumer Marketing Bill

At the request of the Attorney General, a bill has been introduced in Washington that could have broad implications for marketers. HB 1192 is currently with the Committee on Commerce, which held a hearing on the bill in late January.

The bill would affect many popular marketing techniques, including sweepstakes, free trials, and automatic renewals and includes several restrictive proposals:

· Requiring written or electronic signature as “express agreement” from consumers to signify acceptance of the terms of an offer;

· Requiring sellers to provide a specific date or dates that charges would be submitted for payment in a free trial or automatic renewal;

· In transactions involving preacquired account information, requiring sellers to obtain the last four digits of the account number being charged and to notify the customer ten days prior to a charge being made; and

· Not allowing sellers to call a premium a “prize, gift, award” etc. if a recipient is required to participate in a trial subscription or enter into any agreement to purchase a product or service.

MPA is working on this legislation with other potentially affected industry groups, including the Direct Marketing Association and Promotion Marketing Association.

Postal Service Works on Green Initiatives

Along with many other mailing industry associations, MPA participates in the Postal Service’s Greening of the Mail Taskforce. The goal of the Taskforce is to improve and communicate the environmental profile of the mail, and to help counter misperception of the mail as an environmental problem.

The Taskforce’s Standards and Certification working group is evaluating the possibility of creating an environmental certification for mail. Concept development is being handled by Green Seals, a non profit organization that creates environmental certification standards. One possibility is the creation of a Green Mailer Partnership Program, which would recognize and promote environmental best practices for most mailers. The second possibility is to create a more stringent green certification for mail that would have increasingly difficult levels of compliance, with only a small number of mailers able to obtain the top level. MPA and other mailers will carefully examine the need for, and specifications of, any mail certification program.

A second working group recently released a life cycle inventory of the mail. The inventory reports greenhouse gas emissions throughout the mail production process, essentially quantifying the environmental footprint of the mail. Interestingly, the report shows that a years worth of mail for the average household produces the same level of carbon emissions as a coffee maker running an hour a day. Contrary to public perceptions, mail is only responsible for about .6% of national carbon dioxide output. MPA plans to extract and expand on the magazine-specific data contained in the inventory, which could prove useful during expected legislative activity on environmental matters.