POSTAL RATE REVISION TUESDAY, MAY 24, 1960 HOUSE OF REPRESENTATIVES, COMMITTEE ON POST OFFICE AND CIVIL SERVICE, Washington, D.C. The committee met, pursuant to recess, at 10 a.m., in room 215, House Office Building, Hon. Tom Murray (chairman of the committee) presiding. The CHAIRMAN. The committee will be in order. The hearing will be resumed on the postal rate legislation now before the committee. The first witness this morning is Mr. Arthur Z. Gray, chairman, General Operations Committee of the Magazine Publishers Association. Mr. Gray. STATEMENT OF ARTHUR Z. GRAY, CHAIRMAN, MAGAZINE PUBLISHERS ASSOCIATION, INC., GENERAL OPERATIONS COMMITTEE, NEW YORK CITY; ACCOMPANIED BY FRANCIS R. CAWLEY, VICE PRESIDENT, MAGAZINE PUBLISHERS ASSOCIATION, INC. Mr. GRAY. Mr. Chairman and members of the House Post Office and Civil Service Committee, my name is Arthur Z. Gray. I am president of Street & Smith Publications, Inc. I am here before your committee to speak today on behalf of the Magazine Publishers Association, Inc., of which my company is a member, and for which group I serve as chairman of the General Operations Committee. I have asked Mr. Francis R. Cawley, vice president of the Magazine Publishers Association and in charge of our Washington office, to be associated with me before your committee. The CHAIRMAN. Very well, sir. Mr. GRAY. The MPA, Inc., is a membership corporation which was organized on November 3, 1919, under the membership corporation law of the State of New York. The association is composed of 95 publishers, of 250 consumer, religious, fraternal, scientific, educational, farm, and business publications. Their combined circulation, according to our most recent calculations, amounts to 155 million copies an issue. These are just over one-half the total of all periodicals circulated. The Magazine Publishers Association opposes the enactment of H.R. 11140, calling for the further upward adjustments of postal rates, for the following reasons: 1. The facts submitted in support of this postal rate bill are inconsistent with the long history of presentations by the Post Office Department which led up to the Postal Policy Act of 1958. In other words, their facts are either incomplete or in open conflict with the provisions of law. 2. The Department has not complied with the postal policy requirements of the 1958 law. 3. Under a proper interpretation of the 1958 act, many publishers of magazines carrying heavy advertising content will be more than paying their way after the rate provisions of the 1958 act have gone into effect. Members of this committee will recall that the third and last increase in second-class rates, pursuant to provisions of the 1958 law, goes into effect January 1, 1961. 4. Increased postal rates are nothing more than increased taxes. If, as the Post Office Department claims, magazine publishers can pass the increases on to the consumer, the increases are inflationary. If they cannot pass them on, the Treasury can only keep 48 percent of the increases, and to "balance the postal budget" would require increases amounting to over 200 percent of any "deficit." Furthermore, various States would lose revenue. We believe that a visual presentation, in the form of charts, will enable the committee to understand more readily the reasons for our position in this matter, and Mr. Cawley will present these charts with appropriate comments. The CHAIRMAN. Very well. We will be glad to hear from Mr. Cawley. Mr. JOHANSEN. Before you proceed, do I understand that in addressing yourself in opposition to this, you are speaking not only of second class but of first-class rate increases? Mr. GRAY. I think that is probably the basis of our whole position; yes, sir. As we go along, we will amplify. Mr. JOHANSEN. I wanted to clarify it that you were speaking to both of those. Mr. GRAY. Yes, sir. Mr. CAWLEY. Mr. Chairman, before I proceed, may I have permission to have copies of these charts inserted in the record next preceding my explanation of each one? The CHAIRMAN. Yes, sir. That will be granted. Mr. CAWLEY. Thank you, sir. The first chart is simply a summary of our position. (Chart I follows:) CHART I MPA opposes the enactment of H.R. 11140 because 1. Postal figures for 1960 are either incomplete or in open conflict with the provisions of the law; 2. The Post Office Department has not complied with the postal policy requirements of the 1958 law; and 3. Once the 1958 second-class rates have run their full force, MPA members will be paying their way under the terms of the 1958 Postal Policy Act. Mr. CAWLEY. Item 3 deals with the fact that MPA members will be paying their way under the terms of the 1958 Postal Policy Act. This requires just a word of explanation. The MPA membership is also made up of nonprofit members and a few very lightweight publications. I have in mind Children's Digest, Jack and Jill, and The Catholic Digest, which are lightweight, and which will suffer pretty badly under the proposed bill. When I speak of the MPA members who pay their way, I am talking about the heavy publications carrying an average of 50 percent advertising. That leads up to my next chart. (Chart II follows:) CHART II. SECOND-CLASS MAIL IS MADE UP OF 25,000 PUBLICATIONS Newspapers (daily, weekly, exempt, free). Magazines (weekly, monthly, exempt). Total 12, 500 12, 500 25, 000 In 1956, 124 magazines paid $31 million in second-class rates-almost 50 percent of total second-class postal revenues. Net profits after taxes amounted to $21 million. Magazines with heavy advertising content pay their way on "out-of-pocketcost" basis. Mr. CAWLEY. I think it is well at times to recall that second-class entry is composed of 25,000 publications. And according to the post office, they are pretty well divided between newspapers and magazines. In other words, there are 12,500 daily, weekly, exempt, and free newspapers, and 12,500 weekly, monthly, and exempt magazines. One other factor that should be pointed out there: In the sum total of 25,000 publications, approximately 6,500 of those publications are nonprofit. They are issued by religious, fraternal, or philanthropic groups on a nonprofit basis and have never been required fully to meet their costs. Now, in 1956, 124 magazines paid $31 million in second-class rates. That was almost 50 percent of the total second-class postal revenues. Only 124 out of 25,000 in second-class entry. This same group had net profits after taxes of $21 million, and the total profits for the industry were 2.7 percent as percent of sales. Since that time the profits have dropped to 1.9 percent as a percent of sales. However, the most complete report I had was dated in 1956. Mr. PORTER. Why do you figure profits as a percent of sales? Mr. CAWLEY. We are advised by financial firms that that is the only true measure of profits in the magazine industry, because many publishers have no heavy asset investment. So much of the printing is contracted out. So the best and true measure, according to financial institutions is a percent of sales after taxes. That is standard in the industry. It is standard in the market. Mr. PORTER. You mean retail sales? Mr. CAWLEY. Yes. Mr. PORTER. Sales to the actual reader? Mr. CAWLEY. Yes, after taxes. You take your sales after taxes and determine your profit as a percent of that. You are quite right, Congressman. Mr. GRAY. If I might so say, Mr. Congressman, my company is a good example of that. We have no plant or equipment whatever. So the only measure for us would be percentage of revenue, which is percent of advertising and circulation. Mr. PORTER. But your profit that you pay taxes on-is that the same, 2.7 percent? Mr. GRAY. It varies, naturally. Mr. PORTER. You mean in terms of shareholders you are running less than 3 percent? Mr. GRAY. Yes, sir. Mr. PORTER. And that is true throughout the whole magazine industry? Mr. GRAY. Well, you can pick out extreme examples one way or the other, but it certainly is a very good average figure. Mr. CAWLEY. Congressman, may I add something else to that question? We show a $21 million profit here in 1956. Our industry, or our portion of it, consumes about two-thirds of the paper. I think on an overall basis the profits would average out somewhere around $30 million net. I went to the Internal Revenue Service and obtained a statistical analysis of corporate income tax returns, and I was able to verify that the magazine publishing industry in net profits is somewhere around $30 million. Mr. PORTER. Which would be 2 or 3 percent? Mr. CAWLEY. Yes; 1.9, now. Mr. PORTER. And how do you get people to invest in such enterprises? Mr. CAWLEY. Well, I have seen some discouraging reports on investments. Mr. PORTER. I would think when you could get 2 and 3 percent at the bank, a lot of people would take their money out of magazines and put them into even buying mortgages and make a lot more money. I would think there would be a great flight of capital. But that has not happened. So I am still mystified as to how the magazine industry stays up, on this basis. Mr. LESINSKI. You say 124 magazines had an income there in 1956. What balance of magazines are there? In other words, the total number of magazines being published? Mr. CAWLEY. Congressman, the best answer to that is to just take the total which is registered with the Post Office Department under the second-class permit. And I do not think that is complete, because in addition to this group here, you have the controlled circulation, which is not under the second-class category. So you would have in excess of 12,000 magazines. Mr. LESINSKI. And they are paying higher rates than third class, I believe. Mr. CAWLEY. Congressman, some of them are paying higher rates and some of them are not. I will get into that in a minute. I think your nonprofit scale for second class, where you get into the oneeighth per piece minimum, would find you in a situation where undoubtedly many of the lightweight publications are paying less than third class. The CHAIRMAN. Mr. Johansen? Mr. JOHANSEN. May I be sure I understand the word "sales." That means revenue from advertising and subscriptions combined? Mr. CAWLEY. Yes, sir. Mr. PORTER. Magazines with heavy advertising content pay their way on an out-of-pocket basis. That refers to the Postmaster General's figures, which are challenged, but even on his figures you say they do? Mr. CAWLEY. That is on my next chart. Mrs. ST. GEORGE. On this net profit, which you say now is 1.9 percent rather than 2.7 percent, when you call that net profit, do |