Postal Service Given Crucial Short Term Relief;
Will Not Raise Rates in 2010

On the last day of the Postal Service’s fiscal year (September 30th), with the Service poised to default on its mandated payment into the health benefit fund for future retirees, the Senate gave final approval to a bill reducing the size of the payment due that day by $4 billion, from $5.4 billion to $1.4 billion.  Not long thereafter, on October 15th, the Postal Service announced that it would not seek a rate increase in 2010 for periodicals and other market dominant products.  Avoiding an “exigent” rate increase in the seven percent range means an annual savings of about $125 million for MPA members.

MPA led industry efforts to secure passage of the $4 billion in short term relief, ultimately attached to H.R. 2918, an interim government appropriations bill.  The crucial relief helped to forestall a record loss for the Postal Service in 2009; the projected loss before the relief was over $7 billion.  H.R. 2918 allowed the Postal Service to reduce its loss to the $3 billion range, make the smaller payment into the Health Benefit Fund, and continue to operate and meet payroll for its new fiscal year, FY 2010, that began on October 1st.  The assistance – though by no means addressing the Postal Service’s need for fundamental restructuring and reform – does alleviate the Service’s short-term cash flow problem and increases the likelihood that the postal system will be able to function through FY 2010.

The one year relief still leaves the Postal Service facing a difficult financial situation in 2010 and beyond.  With inflation low, it has become clear that the Postal Service would not be able to raise rates in 2010 for market dominant products, including periodicals, under the CPI rate cap in place since 2007.  While the Postal Service is allowed under the reform law passed in 2006 to seek an “exigent” rate increase in extraordinary circumstances, MPA and the mailing community urged the Postal Service not to seek an exigent increase, pointing out that a rate increase would cause even more falloff in mail volume, already down 20% from its peak a few years ago.  Speaking at MPA’s Innovation Summit, Postmaster General Potter hinted that the Postal Service agreed with mailers and was unlikely to seek a rate increase in 2010.  This was followed one day later by an official announcement of the Postal Service’s decision not to raise rates for market dominant products in 2010.

While both of these most welcome developments help the Postal Service’s short term outlook, they do not address the longer-term need for fundamental reform of the Postal Service, which has been unable to shed costs to match volume losses.  MPA will continue to work on urgently needed restructuring and reform of the nation’s postal system. 

Health Care Debate Continues; DTC Deductibility Survives -- For Now

Following a summer full of heated discussion, Congress returned to work with passing health care reform the top priority.  Over the course of several weeks of arduous debate in both the Senate and House, a primary concern for magazine publishers - elimination of the deductibility of pharmaceutical advertising expenses - has faced several threats.  While these threats continue, the version of health care legislation making its way to the floor for consideration by the full Senate does not currently include any adverse DTC provisions. 

In early September, Senator Bill Nelson (D-FL) authored an editorial published in the St. Petersburg Times in which he stated his intention to offer an amendment during the Senate Finance Committee’s debate on health care reform “eliminating the tax break drug makers get for TV advertising,” producing “another $37 billion over the next years to pay for health care.”

Responding in a similar fashion as we did in July - when Congressman Rangel (D-NY)   used the same exaggerated figure to support his argument for eliminating deductibility of DTC advertising in House legislation - MPA, in conjunction with other media and advertising associations participating in a coalition called The Advertising Coalition (TAC), quickly made our opposition known to Senator Nelson.  Following extensive coordinated contacts from TAC member associations and companies, Senator Nelson dropped his plan, although he did offer a different amendment during the Senate Finance Committee debate, which also failed on a 13-10 vote. The Finance Committee bill subsequently was approved by a vote of 14 to 9.

With the Senate bill now awaiting floor action, the threats to DTC deductibility continue.  On October 8th, Senator Al Franken (D-MN) waded into the fray, introducing S.1763 with Senators Whitehouse (D-RI) and Brown (D-OH), a bill that would disallow deductions not just for advertising expenses, but for all marketing costs for prescription medicines.  Senator Franken has since picked up two additional cosponsors, Senators Begich (D-AK) and Udall (D-NM), and is hoping to have his amendment merged into the final health care reform bill that goes to the Senate floor.  Barring that, the sponsors intend to seek a vote on their bill as a floor amendment to the health care reform bill.    Members of TAC are mobilizing once again to protect the deductibility of these usual and customary advertising expenses.  MPA issued an alert to its Government Affairs Council on October 22nd asking members to contact their Senators on this important issue.

It is likely that the deductibility of DTC advertising will continue to be threatened as both houses of Congress work to pass and then reconcile their health reform bills in Conference.  MPA and our allies in TAC will remain actively engaged during each step of the legislative process. 

Changes Made to Consumer Financial Protection Legislation to Avoid Impacting Financial Magazines and Magazines Carrying Advertising of Financial Products – Other Concerns Remain

Making good on a presidential campaign promise, House Financial Services Committee Chairman Barney Frank (D-MA), has introduced President Obama’s plan to strengthen consumer financial protections.  H.R. 3126, the Consumer Financial Protection Agency Act of 2009, would establish the Consumer Financial Protection Agency (CFPA), a powerful independent agency with a range of rulemaking, information-gathering, supervisory, and enforcement tools to protect consumers who purchase and use “financial products.”

As introduced, the legislation was exceptionally broad in scope and caused a strong negative reaction from many industry groups.  Industry pointed out that many types of businesses could have been caught in the agency’s reach, and would consequently be subject to the same oversight, fees, and regulations as the industries and services the legislation was intended to cover, such as banks, brokerage houses, mortgage brokers, and financial advisers.  A subsequent “discussion draft” introduced in late September provided relief for some industries, as well as providing an “exclusion for merchants, retailers, and sellers of non financial services”.

The discussion draft left several issues of concern for MPA members, including:

• The possibility that general interest financial publications would have been considered financial products because they “acted as an investment adviser to any person.” 
• The possibility that by simply carrying an advertisement for a financial product or service provider (providing a “material service”) media entities would have been subject to the law. 
• A so-called “aiding and abetting” provision that would have made it unlawful to “knowingly and recklessly provide assistance to another person in violation of [the law].”  MPA was concerned that the new agency could have sought to impose a duty on publishers to prescreen all financial advertising.

MPA met with staff from the Financial Services Committee to present our concerns, and prior to committee consideration of H.R. 3126, Chairman Frank issued a Manager’s Amendment addressing each of these three concerns.  In particular, the Manager’s Amendment:

• Explicitly states that a “news magazine or business or financial publication of general and regular circulation” shall not be considered acting as a financial advisor.
• Revises the definition of “material service” to exempt “advertising through print, newspaper, or other electronic media.”
• States that “no person shall be held to have violated this subsection solely by virtue of providing or selling time or space to a person placing an advertisement.”

MPA also expressed concern to Financial Services Committee staff about the scope of the important “merchant exclusion”, necessary to ensure that magazine publishers who “extend credit” to subscribers accepting “pay later” subscription offers would not be subject to regulation by the new agency.  As currently drafted, the exclusion would certainly apply to publishers who sell subscriptions directly to consumers.  However, because the current language only exempts sales of non-financial goods and services sold “directly” by the seller, we asked the Committee to clarify that the exclusion would also apply to sales made by agents or through partnerships on behalf of publishers.  This issue has not yet been resolved to our satisfaction.
 
There are also other issues with the bill that, while not magazine specific, are concerning to the industry.  As drafted, the bill would allow the CFPA to define “unfairness” more broadly than the Federal Trade Commission (FTC) definition.  The bill would also change the rulemaking process at the FTC, allowing expedited proceedings rather than the current procedures, which were put in place in the 1970’s to address concerns that the FTC was not conducting sufficiently structured rulemakings.  In addition, the bill gives overly broad authority to the CFPA Director to expand authority to any activity if the Director decides “the activity is incidental or complementary to any other financial activity regulated by the Agency.”

With the Manager’s Amendment and Merchant Exclusion, the bill passed out of the Financial Services Committee on a vote of 39 to 29 on October 22nd.  The bill will now go to the Energy and Commerce committee for a review of the Federal Trade Commission provisions, and may still undergo further revisions before reaching the House floor.  The Senate is not likely to consider the legislation until next year.  MPA will continue to work to ensure the legislation is workable for magazine publishers as it moves through the House and on to the Senate. 

FTC Releases New Guidelines Concerning
Use of Endorsements and Testimonials

After an extensive two-year review, on October 5th the FTC released revisions to its guidance document, Guides Concerning the Use of Endorsements and Testimonials in Advertising, the first revisions to the Guides since 1980.  The revised Guides will go into effect on December 1st, 2009, and include significant changes, particularly with regard to endorsements and testimonials in “new media” such as blogs, viral marketing, and social network sites. 

A change affecting advertisements in all media is elimination of a safe harbor for typicality disclaimers, such as “results not typical” or “individual results may vary.”  While the FTC states that advertisements featuring testimonials and endorsements will be judged on a net impression basis, elimination of the safe harbor is likely to mean that if advertisers are unable to substantiate that an endorser’s experience is representative, they will need to disclose in the advertisement the actual representative results a consumer is likely to experience.

In a change affecting only “consumer-generated” new media, and seeking to address the growing use of consumer-generated media by advertisers and marketers to promote their products and services, the Guides require that “material connections” between advertisers and “endorsers” be disclosed.  The FTC defines material connections broadly to potentially include simply the receipt of free product samples by bloggers and social network users, and defines endorsement broadly to include situations in which the advertiser does not control what, if anything, is said by the endorser about the product.  Both the advertisers and endorsers can be held liable for failing to disclose material connections.

In issuing this guidance, the FTC distinguished between traditional media and consumer-generated content, stating that in the world of consumer-generated content, it is the endorser rather than the advertiser that disseminates the endorsement and that readers are likely to believe that the consumer-generated content reflects the opinion, beliefs, findings, or experiences of the consumer rather than the sponsoring advertiser.  Therefore the consumer making the endorsement has an obligation to disclose material connections with the advertiser. 

Administration Puts Freeze on Shield Bill

Despite passing overwhelmingly in the House, and surviving an initial hearing in the Senate Judiciary Committee, forward progress on federal shield legislation has now been ground to a halt by Administration objections. 

In a contentious second hearing in the Senate Judiciary Committee in mid-September, Republicans on the Committee raised considerable objections to several elements of the bill, and prevented the bill from moving forward.  While working to address Republican concerns, following a meeting with top national security officials, the Obama Administration, which had been working cooperatively with the bill sponsors, proposed changes to the legislation that effectively vitiated the bill’s protections for reporters. 

The Administration language would remove a balancing test, between the public interest in disclosing a source and the public interest in protecting that source to promote the free flow of information to the public, in cases where national security is concerned.  It would also instruct judges to be deferential to executive branch assertions about whether a leak caused or was likely to cause such harm.  The loss of these crucial protections and others made the modified bill unacceptable to the coalition of media interests, including MPA, that have been active advocates for a shield bill.

The Administration’s opposition is particularly disappointing given the President’s support for the legislation during his campaign, and his sponsorship of the bill while a Senator.  Despite the setback, the coalition will now refocus its efforts on working with key players within the Administration, who have indicated a willingness to continue working, to find language that is acceptable for everyone involved, including key Democrats and Republicans in the Senate. 

Agency Activities Amp Up Under Obama Administration -- FTC to Examine the Future of the News Media and Hold Workshop on Privacy; FCC tackles Net Neutrality

Mirroring the intensity of activity this year on Capitol Hill, the new Obama Administration has fostered a much higher level of activity and interest from federal agencies, including the Federal Trade Commission and the Federal Communications Commission.  

During the course of this year and its economic turmoil, there has been growing interest in Washington about the future of the news and media industry.  Legislators in both the House and Senate have held hearings on the topic, and now the FTC will be getting involved as well.  On December 1st and 2nd, the FTC will hold a two day workshop titled “From Town Criers to Bloggers: How Will Journalism Survive the Internet Age?”  During the workshop, the FTC will hear from journalists, as well as the legal, academic, consumer and business communities about how the Internet has impacted journalism, and what changes could be made to protect the industry going forward.  In advance of the December workshop, the Commission is seeking comments on a series of questions looking at the changes driven by technology, such as, how the internet is changing advertising expenditures, consumer access, and news production.  They are also interested in the economic challenges of news organizations, and changes to government policies that could help promote journalism.  MPA will actively participate in the FTC’s examination of news media.  We will file comments with the FTC by November 6th, MPA CEO Nina Link will participate in a panel at the workshop, and MPA will provide supplementary comments following the workshop on the topics addressed. 

Shortly after the journalism workshop, on December 7th, the FTC will host the first of three day-long public roundtable discussions on the impact of new technologies and business practices that collect and use consumer data on privacy.  The FTC’s goal is “how to best protect consumer privacy while supporting beneficial uses of the information and technological innovation.”  Privacy, especially online, has been a longstanding concern for the FTC, and the new chief of the Bureau of Consumer Protection, David Vladek, is continuing this focus.

The FCC has decided to tackle a contentious issue that has been languishing in Congress for several years – net neutrality.  Following a well-publicized and still-unresolved dispute with Comcast over its peer-to-peer transmission policies, the FCC, under Chairman Julius Genachowski, on October 22nd unanimously decided to undertake a new rulemaking to formalize net neutrality principles that the Chairman announced last month.  In September, Chairman Genachowski proposed that the agency codify its 2005 Internet policy statement, which included four principles: (1) consumers are entitled to access the lawful Internet content of their choice; (2) consumers are entitled to run applications and services of their choice, subject to the needs of law enforcement; (3) consumers are entitled to connect their choice of legal devices that do not harm the network; and (4) consumers are entitled to competition among network providers, application and service providers, and content providers.  He also added two additional principles explicitly mandating transparency and nondiscrimination.

While the decision to move forward with the Rulemaking was unanimous, the two Republican members of the Commission expressed their disagreement with the substance of the rules.  Initial comments will be due January 14th and reply comments by March 5th, 2010. 

CPSC Issues First Lead Determination;
Hearing Held in House on CPSIA

On August 19th, the Consumer Product Safety Commission (CPSC) issued its first determination for books and other printed matter regarding exemptions from the lead limits mandated under the Consumer Product Safety Improvement Act (CPSIA) of 2008.  Materials covered by a determination do not require testing and certification for lead levels.

In the determination, the CPSC exempted some components important to magazines and books.  These include paper, any product printed with four color process inks, threads used for book binding, animal-based glues, and adhesives and binding materials that are not accessible.  Unfortunately, several key magazine production components were not covered by the determination, including spot or PMS inks, saddle stitching wire, and non-animal based glues that are accessible.  If a material is not covered by the determination and is used in a children’s product, starting in February, it must be tested and certified to ensure that it does not exceed the lead limit. 

Earlier this summer, the CPSIA requirement that children’s products contain a tracking label went into effect.  The tracking label is designed to identify the manufacturer, date and location of production, and “batch” identification, such as issue number.  CPSC is leaving to publishers the determination of the manufacturer – be it the publisher or the printer.

In September, the House Energy and Commerce Subcommittee on Commerce, Trade, and Consumer Protection held an oversight hearing on the CPSC.  CPSC Chairman Inez Tenenbaum testified.  While the main focus of the hearing was on implementation of CPSIA, there was bipartisan interest from Congressmen Barton (R-TX), Radanovich (R-CA), and Dingell (D-MI) in potential legislative revisions to CPSIA, with Rep. Dingell asking specifically about books and other printed materials.  A scheduled Senate Commerce Committee CPSIA hearing was cancelled prior to the August recess.

New Consumer Marketing Laws in California and New York

In California, an automatic renewal bill originally introduced in February and subsequently modified CA 340, was signed into law by Governor Schwarzenegger on October 11th.  In New York, changes were made to the Trial Offer law passed in 2007.  As passed in 2007 the law only applied to free trials in which a credit card is billed.  As passed this year (S 3792), the law now applies to all free trials.

When the California automatic renewal bill was originally introduced, it contained provisions closely modeled on an automatic renewal multi-state agreement reached several years ago.  Several rounds of modifications were made to the bill over the next several months at the urging of industry groups, and the bill was passed by the Assembly on August 24th and the Senate on August 31st.

The new law requires clear and conspicuous disclosure of automatic renewal or continuous service offer terms, affirmative consent from the consumer, and provision of an acknowledgment that can be retained by the consumer that includes the offer terms, cancellation policy, and information on how to cancel.  Sellers also have to provide consumers with clear and conspicuous notice of material changes in terms and a way to cancel after such changes. 

In particular:

• Sellers must present automatic renewal offer terms “in a clear and conspicuous manner before the subscription is fulfilled and in visual proximity to the request for consent to the offer.”  The terms include: 1) that the subscription will continue until the consumer cancels, 2) the description of the cancellation policy; 3) the recurring charges that will be charged, and that the amount may change, and that amount if known; 4) the length of the contract if not chosen by the customer; and 5) the minimum purchase obligation, if any.
• The acknowledgement may be sent after completion of the initial order.  The notice of material change in terms must be sent prior to implementation of the material change. 
• Seller must provide “cost-effective, timely, and easy-to-use mechanism” for cancellation.  This may include toll-free telephone number, email address, or postal address if the seller directly bills the consumer.

The NY trial offer law requires that sellers of free trials send the consumer the terms of the offer and the deadline to cancel at least fifteen but not more than thirty days before the cancellation deadline.  There are two exceptions to the notice requirement:

• “when the free trial is a magazine or newspaper subscription and at any time cancellation occurs the consumer shall receive a refund for issued not mailed; provided, however, that such refund option is disclosed with the free trial subscription offer” or
• When the seller “does not debit or charge any consumer account and sends the consumer an invoice requesting payment which includes information about how to cancel a free trial.” 

State of Maine Enacts Restrictions on Marketing to Minors;
Outcry leads to Renewed Legislative Activity
and Hold on Enforcement Actions

The State of Maine recently enacted legislation, LD 1183, that effectively prohibits direct marketing of products and services to Maine residents under the age of 18, but recent legislative and judicial action have put enforcement of the law effectively on hold and the sustained future of the law in doubt. 

The new law, which applies to both online and offline activities, prohibits the collection of personal information from a minor without first obtaining the verifiable consent of the minor’s parent or legal guardian. (“Personal information” is defined to mean (1) a person’s first name or first initial and last name, (2) a home or other physical address, (3) a Social Security number, (4) a driver’s license or state identification card number, and (5) any information concerning a minor that is collected in combination with one of the identifiers described above.)  The law also prohibits the use of a minor’s personal information for the purpose of marketing a product or service to that minor—with no exceptions, even if the information was collected with parental consent.  

In response to the law, a coalition of educational and industry groups filed a lawsuit in the U.S. District Court in Maine, challenging the law on the basis that it violates the First Amendment and the Commerce Clause of the Constitution.  On September 9, 2009, the court entered a stipulated order of dismissal.  While determining that the plaintiffs had established a likelihood of success on their claims, the judge noted that the Attorney General, acknowledging the substantial legal issues raised by the new law, had committed not to enforce it.  The judge also pointedly stated in the order that “third parties are on notice that a private cause of action [under the new law] could suffer from the same constitutional infirmities,” in an apparent attempt to discourage private individuals from filing a private cause of action to enforce the law.

Given the opposition, in a dramatic move, on October 15th, House and Senate leaders requested that the Maine Joint Standing Committee on the Judiciary convene a special session to address the concerns about the law.  At the end of the two-day hearing, the Committee voted to recommend the repeal of the law and indicated they would work on a new privacy bill when the legislature reconvenes in January of 2010. 

Michigan Considers Eliminating Tax Exemption for Periodicals

Facing a $2.8 billion dollar shortfall in their 2010 budget, Michigan lawmakers have been considering various revenue measures to fill the deficit, including the elimination of the tax exemption for periodicals.  While Michigan has previously considered eliminating the exemption for newspapers, this is the first time focus has shifted to magazines. 
In early September, with only three weeks left before the start of the 2010 fiscal year, and no budget yet in place, House Appropriations Chair George Cushingberry introduced legislation that would have cut a number of tax exemptions, including the tax exemption for periodicals sold on both the newsstand and by subscription.  Shortly thereafter, MPA and local counsel went to Lansing to lobby against the measure. 
With the budget deadline looming, on October 1st (two hours into a government shut-down), the legislature passed a continuing budget resolution, which extended the date for a budget to be passed to October 31st.  While it appears that our efforts to protect the exemption have so far been successful, MPA will continue to monitor the situation until the final deadline. 

United Steelworkers Union Files Trade Case
Asking for Duties on Coated Paper

On September 23rd, the United Steelworkers union, which represents workers in a number of industries, in conjunction with three paper companies (Appleton Coated LLC, Sappi Fine Paper North America, and NewPage) filed an antidumping case at the U.S. Department of Commerce and the U.S. International Trade Commission (ITC). The case seeks duties on coated paper from both China and Indonesia.  The cases are expected to take about a year to complete, with an ITC preliminary determination by mid-November.

The complaint alleges that imports of coated paper from China and Indonesia have increased 40% in the first half of 2009 compared to last year, that China is unfairly granting subsidies to its domestic paper producers, and that Indonesian companies are benefiting from government loans and timber from government owned land sold at below-market prices. 

This is not the first time a trade case involving coated paper has been brought against China.  In 2007, the Commerce department placed tariffs on coated paper from China, Indonesia and South Korea, after U.S. producers made similar claims.  The decision was later reversed by the International Trade Commission. 

Also of Note

A “producer responsibility” bill in Massachusetts (S.1525) imposing a fee paid jointly by manufacturers, wholesalers, distributors and retailers of .00055% of the price of a magazine was heard in the Joint Committee on Telecom, Utilities, and Energy in October.  The bill, which would also impose fees on other products, is not moving forward at this time, but MPA will continue to monitor the legislation as the session comes to a close.