What’s wrong with this picture?

The newspaper business — both small and large papers — has sounded full-throated opposition this past month about a plan by the U.S. Postal Service to purposely entice advertising out of the newspaper so ads can be placed instead with USPS favored stakeholder Valassis Inc., which bought direct mail company ADVO in 2006.

The goal of USPS is to create more advertising mail. To newspapers that count on advertising to pay their reporters and cover the news, this new venture is beyond alarming. Many think it will push some newspapers — already made fragile by the economy and the Internet — over the edge. If that happens, it is the communities across our country that will feel the most long-term harm.

People have a love-hate relationship with advertising, whether in the newspaper or in the mail. When advertising helps them find deals or shop smartly, they love it. When it doesn’t happen to scratch the shopping itch, they may not like it so much. But most people understand advertising drives the economy and it brings other intangible benefits, like the paying the bill for news coverage that keeps communities informed.

On every level advertising is highly competitive. Local, regional and nationally, newspapers compete with a growing field of ad media, from Internet to television and door hangers to direct mailers.

But now the Postal Service wants to pick winners and losers in this market. It is providing postage rebates to Valassis of more than 30 percent if Valassis can divert more ad inserts into direct mail from newspapers.

Not everyone can play. The discounts can be offered by Valassis only to large national retailers. Newspapers cannot get the same discount for their own mail because they can’t sign one national postage contract, as the direct mail company did, with USPS. Neither can a small clothing or bookstore or a hairdresser or auto parts shop. We — the newspaper and our small businesses — are all local. This deal is only for the big guys.

For the little guys, USPS has another advertising plan that enables businesses to bring unaddressed advertising directly to the post office.

What’s wrong with this picture? It is that USPS isn’t a business. It is owned by Uncle Sam. It exists to serve all. It shouldn’t be picking winners and losers in any marketplace. It shouldn’t be competing with and undercutting its stakeholders, which are all of us. It should deliver the mail that exists, promptly and affordably.

One of USPS’s big goals is to carry even more advertising, as the Internet saps away letters and bills.

But we have to ask ourselves: does America need a federally-owned advertising service? This newspaper says no.

— An editorial from the National Newspaper Association

FAQs on Valassis Negotiated Service Agreement

[i]What is a Negotiated Service Agreement?

It is a customer-specific contract authorized by law between the Postal Service and a mailing customer. USPS can enter into NSAs after a review by the Postal Regulatory Commission if the proposal would improve USPS’s finances or mail operations, but not cause unreasonable harm to the marketplace.

How many of these NSAs does the Postal Service have?

In its competitive side—where it is largely deregulated to compete for such business as parcel shipping—it has dozens. In its “market dominant” side—regulated by the PRC—there are presently six under way. The Valassis NSA is the first to directly enter into the local advertising marketplace.

Why did the PRC approve it?

PRC says USPS proved it would gain new business and that newspapers did not prove unreasonable harm to the marketplace. PRC’s analysis of competition in the market says USPS has competed poorly in attracting weekend insert mail volume. PRC echoes federal antitrust courts in asserting its obligation is to protect competition, not competitors. It viewed newspapers as trying to protect a monopoly.

What does the NSA allow Valassis to do?

Receive a postage rebate for creating new saturation shared mail programs for durable and semi-durable goods retailers with retail outlets in 30 or more states. The programs may be opened only in markets where Valassis has had for the past two years and will maintain an existing Saturation Mail program at least monthly—it cannot shift advertisers from existing mailing to new mailings. It cannot extend into new ZIP codes or carrier routes. The mail has to be flat sized mail with 3-10 inserts at least 9 of 12 months of each contract year. At least 85 percent must be dropshipped at local delivery units.

Is the package required to be mailed on weekends?

The contract does not specify weekends. But because Valassis has mid-week mail packages, the expectation is that it will aim for a weekend package. The PRC and USPS assumed that in their analyses.

When can it begin?

As of Aug. 23, 2012. Valassis has 90 days to begin, or it could cancel within 30 days.

How long does the contract last?

Three years.

How much volume must Valassis mail to get its discounts?

It must mail at least 1 million pieces within 12 months. If it fails, it will owe USPS $100,000.

The postage discount will be provided in the form of a rebate at the end of each contract year. The rebate schedule works as follows:

Can newspapers—or organizations of newspapers—receive similar discounts?

The law requires “similarly-situated” mailers to be eligible for any NSA after one is approved. But because of the restrictive terms of the Valassis NSA (for example, a saturation mailing program has to have been existence for two years and must continue while the new NSA program is started), it is likely that only Valassis will qualify. Even ValPak, another direct mailer, says it could not qualify. Also, all NSAs so far have involved one vertically integrated company. No associations have asked for NSAs yet. In any event, this NSA was set up specifically to take advertising from newspapers. USPS is not likely to set terms that allow newspapers to get similar discounts.

Will the NSA cause the Postal Service to lose newspaper mail business?

That is what many newspapers have said. But PRC says newspapers will use the most cost effective distribution system, regardless of ire about this NSA. And USPS does not fear the loss of Periodicals-mailed newspapers, where it believes it loses money (though NNA disagrees with its math.) Valassis says newspapers are leaving the mail anyway and their departures are no reason to deny this NSA. PRC says it tried to guess how much mail would be lost but newspapers did not provide enough information to enable it to do so.

How much money will USPS make from this deal?

It anticipates $4.7 to $15.3 million in net contribution (the amount it earns over direct costs) over the life of the contract. But most USPS NSAs in the market dominant areas have not met expectations.

To whom should I complain about this?

If you didn’t participate in the comments gathered by NNA or others during the PRC proceeding, you will want to pay attention to further announcements. This battle isn’t over. There is more to come. For now, you can write your members of Congress. Is there a form letter? No. Please write in your own words. Those are most effective.

What has NNA done and what will it do next?

NNA vigorously opposed this NSA as it has opposed all USPS proposals to tilt the local advertising market toward direct mail. NNA filed opposition in the PRC case and has expressed its views directly to the Postal Service. It is likely that legislation will be required to set the playing field right again. Although getting any postal legislation passed in this Congress is extremely difficult, NNA has received assurances that remedies will be seriously considered. Court appeals are also possible. Newspaper Association of America has already filed with the US Court of Appeals in the District of Columbia Circuit.