Businessweek Fires the Postal Service

Last week, Businessweek told many of its Washington DC customers that the Postal Service will no longer deliver the magazine.  Instead, the weekly magazine will use the Washington Post's delivery service to deliver the magazine early on Friday morning at the same time that it delivers newspapers.

In an interview, Bernie Schraml stated that Washington DC is the fourth market that Businessweek has turned to alternative delivery.  It started the shift in Philadelphia in December, 2010; followed by San Francisco in February, 2011 and Boston, MA in June, 2011.

Combined, alternative delivery now represents 10% of Businessweek's 850,000 subscribers. This shifts 4.42 million magazines from the mailstream annually.

Currently, Businessweek is negotiating with delivery firms in four additional markets which it hopes to bring on-line by the end of the year.   Mr. Schraml indicated that Businessweek is looking for distribution partners in other cities to expand the use of alternative delivery beyond the eight markets already in operation or under negotiation.  

Mr. Schraml indicated that the delivery company in two of the markets is The Washington Post and the Philadelphia Inquirer.  Businessweek is delivered by the newspaper delivery network early on Friday morning at the same time that the Friday paper is delivered.  The magazine arrives at the recipient's address in the same manner as the daily newspaper.

While alternative delivery has shifted subscriptions from the mailstream in four markets, not all subscribers in these markets receive their Businessweek via alternative delivery.   The contracts with delivery firms specify the 5-digit zip codes that the delivery firm delivers to, and in some cases the portion the portion of the 5-digit zip code that it serves.   All other recipients continue to receive their magazine by mail.   Even with the cherry-picking of delivery points, the alternative delivery firms have made a major shift in volume.  Mr. Schraml expects that contracts in other cities will be similar with the delivery firm delivering magazines to a significant portion of Businessweek's subscribers and the Postal Service delivering to only those subscribers that alternative delivery firms cannot reach.

Mr. Schraml indicated that the primary driver in shifting to alternative delivery is service.  In order for Businessweek to compete with the Wall Street Journal's Saturday edition, Barron's, and the Sunday New York Times as well as its own and competitor's web-based content, it needed to arrive on the same day or before these competitors arrived.  Therefore, Businessweek requires delivery on Friday or Saturday with as late a drop-off time as possible.  In cities where Businessweek has begun alternative delivery, Mr. Schraml stated that delivery quality was better than both Postal Service standards and his experience with Postal Service delivery.   The newspaper delivery networks have delivered 100% of its issues on Friday morning.  With the Postal Service, only 30-35% arrived on Friday and no more than 69% were delivered by Saturday.

The alternative delivery networks also offered Businessweek greater flexibility as their critical entry times were no earlier than late afternoon Thursday, and in one city, Friday delivery could be made with entry as late as just before midnight the night before.  Critical entry times for the Postal Service are currently earlier than that of alternative delivery, and starting July 1, they will become even earlier putting the Postal Service at even a larger service disadvantage.   (See Dead Tree Edition)  The potential loss of Saturday delivery creates further problem as that could push the share of magazines with entry into the mailstream on Thursday and delivered before the weekend below 50%.  (For Businessweek and other publications that need late critical entry times due to competitive concerns, earlier critical entry times and the loss of Saturday delivery could make their print product noncompetitive.)

Businessweek's focus on service as the primary motivator for alternative delivery is different from the driver of alternative delivery over two decades ago.  The larger periodical publishers created a nationwide alternative delivery network in 1990 called Publishers Express with a goal of delivering periodicals at a lower cost than the Postal Service. (Pittsburgh Press, Pittsburgh, Pennsylvania) October 29, 1990, pages B5, B7)  Publishers Express acted as a middleman between the publishers and printers and the local delivery firms in both large and small metropolitan areas. This alternative delivery network went out of business in 1996 (Lawrence Journal World, Lawrence, Kansas, February 28, 1996, p. 4D) as it met neither the profitability nor the service requirements that its publishers/owners demanded as well as efforts of the Postal Service to counter the competitive threat.

When asked about price, Mr. Schraml indicated that the total cost of alternative delivery was competitive or less but he did not provide specific cost information.  

He did indicate that alternative delivery had lower preparation costs for Businessweek as addresses were not printed on the magazine, magazines did not have to be combined in bundles to reflect presort requirements and magazines could be loaded on full pallets for alternative delivery as opposed to partial pallets for the Postal Service.  The difference in pallet size reflect the presort requirements of the Postal Service.   The difference in mail preparation and palletization lowers Businessweek's printing and transportation costs.  

Mr. Schraml indicated that he is interested in talking to other publishers about his experience and potential delivery firms about delivering Businessweek in other markets.  Given the speed that he has moved so far to shift subscribers to alternative delivery,  he should be able to shift well over half of his subscribers to alternative delivery within a year.  

Impact on the Postal Service

For a commentary on the impact on the Postal Service see:

The Death Spiral Could It Be Driven By Service As Well As Costs