Direct Mail: The Real Threat to Newspapers   

Its growing share of the advertising pie makes it a more serious rival than cyberspace.

Most newspaper people worrying about the future tend to look up into the cyberspace sky to see Web pages chasing after newspaper readers and advertising. Where they should be looking is closer to the ground: at mailboxes.

Cyberspace surely will become a threat to the newspaper business someday, but so far in the vast world of newspaper advertising it counts for about one drop in a big bucket. In five years it probably will not be more than five drops.

What does count for a lot, now and well into the future, is a business that operates under the descriptive title of "direct mail." This is the array of advertising material – circulars, catalogs, fliers, cards – that is stuffed into almost every mailbox in the nation every day but Sunday.

Over the last 20 years direct mail has had an immense impact on newspapers. It has forced newspapers themselves into the junk mail business and into investing many millions of dollars in inserting machines and other equipment required to compete. Moreover, it has cost the newspaper industry time and money to lobby against lower third-class rates for the direct mail industry.

But the newspaper industry's efforts have failed to keep direct mail from growing rapidly, chiefly at the expense of newspaper revenues. Over the last 10 years, the amount of money spent on direct mail advertising has grown more than 100 percent, compared to just over 40 percent for newspaper advertising.

Another way of looking at this phenomenon is to examine the way the nation's advertising pie is divided. Ten years ago newspapers captured nearly 27 percent of total advertising revenue, while direct mail received just over 16 percent. Last year, newspapers' share had dropped to 22.4 percent while direct mail had grown to 20.4 percent. This loss of market share would have been worse but for newspapers' own foray into junk mail. To compete against mailers, newspapers were forced to offer advertisers delivery of circulars by mail to homes that don't receive newspapers.

The emergence of direct mail is in part a consequence of Congress' decision to transform what had been a government operation – the U.S. mail – into a quasi-independent agency whose managers are driven more by empire-building and business imperatives than by merely providing efficient mail service.

In the days of low mail rates, almost all advertising circulars, catalogs and the like were delivered by the federal government's mail system (relatively small private delivery systems handled the rest). In the 1970s, though, with the transformation of the mail system into an independent entity, third-class rates paid by direct mailers began to rise. In response, mailers turned to newspapers for delivery, since the newspaper industry was the only other operation that passed by almost every home in the country.

Postal managers soon realized they had priced themselves out of a big piece of their business and began lowering rates, chiefly by allowing two or three advertising circulars to be lumped together into a folder that could be mailed as one piece. Thus began the battle between newspapers and direct mail over what proved to be a rapidly growing business.

Delivery of advertising circulars boomed because of the low rates (newspapers also lowered their rates to compete), and because back then few newspapers could offer in their regular pages the high-quality color printing that advertisers were demanding.

The latest skirmish in the battle of direct mail is taking place on Capitol Hill. The focus is legislation introduced in the House of Representatives that would give the Postal Service greater ability to raise first- class rates and offer higher volume discounts to direct mailers.

The direct mail industry supports the legislation. The newspaper industry, asserting that the Postal Service unfairly favors direct mailers as part of its efforts to expand its empire, does not.

A newspaper spokesman complained at a House subcommittee hearing recently that first-class mail accounts for 54 percent of the Postal Service's mail volume but already contributes 70 percent of costs. John F. Sturm, head of the Newspaper Association of America, told the lawmakers that the Postal Service is supposed to treat all of its customers equally, but instead is allowing first-class rates to subsidize low direct mail rates. "This is an unwarranted intrusion by the federal government into the private marketplace," Sturm said.

The newspaper industry, of course, also benefits from a subsidy in the form of low second-class rates for mailed newspapers and other editorial material. But at least there was a social imperative behind the creation of second class – the notion that public knowledge and discourse is improved by spreading news and opinion.

But even if the new legislation doesn't become law, direct mail is sure to remain for many years a far more formidable competitor for newspapers than anything lurking in cyberspace. l