The recent postal rate increase is inflicting higher costs on small publishers than it is on large publishers, but no business that uses the mail to reach its customers is escaping unscathed.

On May 14, the price to mail a single first-class business letter rose from 39 to 41 cents, a 5 percent increase. For first-class bulk mail the category for many business communications the jump was nearly 9 percent, from 23 to 25 cents, according to calculations by Chris Kaye, production director in the L.A. office of Direct Partners, a unit of Omnicom Group. But for a typical magazine mailed in a flat envelope, Kaye figures the price will rise from about 36 cents to almost 69 cents, a hike of 91 percent.

However, “there are some incentives built into the price increase,” said Neal Vitale, president of Chatsworth-based 1105 Media, a publisher of niche business titles. “They are trying to spur publishers to take advantage of certain processes that make handling the mail easier for the Post Office.”

Taking those incentives into account, American Business Media, a trade group for publishers, estimated the costs for large publishers would rise 10 percent, while for small publishers they would rise more than 14 percent, according to testimony before the Postal Rate Commission. In absolute terms, the increase for a big-circulation consumer magazine would increase 2.8 cents per copy; for a small publication, the increase totaled 6.4 cents per copy.

“It’s been quite a shock to some of us about the rates,” said Kaye, who specializes in direct mail advertising. “In our business, bigger is better the more real estate, the more you can tell. Obviously, we’ll have to re-think that.”

“We had budgeted for a double-digit increase, and we’ve come in at or above expectations,” said Vitale. “It affects business publishers more than consumer magazines.”

“They’ll have to absorb (increased costs) if they don’t make a change in their circulation strategy,” added Brad Stauffer, publisher at L.A.-based Stauffer Media and also president of the Western Publications Association, a trade group based in Westlake Village.

But Peter Craig, partner in the accounting firm Bay Sherman & Craig in Los Angeles, said higher postage rates show up as a large increase in distribution costs, but not necessarily for the entire publishing company. He figured for a lot of publishers, the rates will up costs “a couple percent.”

According to Kaye, the new rules mark a significant change in the price structure for the U.S. Postal Service. In the past, mailing costs were based mostly on weight. But with new machines to sort and process mail, extra weight doesn’t make much difference in cost. Instead, the shape of the piece and how easily it can move through the machine determines its profitability for the postal system. As a result, the new prices encourage mailers to use small, standard envelope sizes.

The new regulations put a high price on “flats,” or large envelopes roughly 8 by 11 inches, the usual category for magazines and catalogs. The new rates for periodicals go into effect on July 15 to give publishers time to adjust their mailing systems.

Besides flats, anything poly-wrapped, of an unusual shape, or with non-uniform thickness will cost more under the new rules. An envelope with a promotional pen inside will cost nearly $1 per piece, according to Kaye.

The new rules further encourage economies of scale available only to large publishers.

For example, delivering magazines to the Post Office on forklift-friendly pallets, rather than in bags, will receive a bigger discount on postage under the new rules.

“Large publishers can take advantage of palletizing from the printer, but you have to be with a printer who has that capacity,” said Craig. “Regional publishers typically don’t have that option.”

The rates take distance into account by dividing the country into geographic zones and charging for mail that crosses zones. So large publishers truck their copies to post offices in the various zones, rather than mailing them from one central location.

“It’s an advantage to drop-ship, but it’s expensive so the smaller guys can’t do that. They just put their product in the mail,” said Kaye.

Likewise, commingling, where various pieces of mail are combined in one envelope, obviously means less work for the postal system. Kaye recommends this for small publishers, and he predicts that companies that handle commingling “are going to get very, very big.”

Financially, publishers in the past have not passed higher postage costs onto their customers in the form of higher subscription rates, Craig said. In this round, he doesn’t expect them to do it either, even though gasoline prices have jacked up the price of every other delivery system.

Nor can publishers compensate with higher ad revenues, Craig continued. “Ad prices are a function of themselves. So there’s no easy solution,” he said. “You can’t say, ‘Postal rates go up, so I’ll increase this line item to compensate.'”

Digital incentive?

Stauffer believes the higher postage rates will encourage magazines to move more of their content online, especially with digital editions. Unlike simply posting stories online, a digital magazine retains the page-by-page structure, including the all-important advertising.

As for direct mail advertising, Kaye agreed that “generally, people are mailing less. There’s been a real shift to interactive.”

For smaller publishers, Stauffer suggests they trim the size of their magazine, change the shape away from the trendy square look, or print on lighter paper. Kaye adds that they could fold their magazines in half to fit in a regulation-sized envelope.

Also, publishers will “rethink their circulation strategy,” Stauffer predicted. “Some publishers are even cutting back their circulation and not finding particular problems with that.”

While no one likes postal increases, Craig gives the Post Office credit for allowing businesses to reach everywhere, whether across the street or across the continent. “All costs go up salaries, paper, printing, rent and postage rates,” he said. “The Post Office is suffering from e-mail, faxes and other delivery services. They still deliver to everybody. Given all the factors, it’s a pretty efficient process.”