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Magazines begin their own delivery

Magazine publishers say they've found a way to beat the high cost of delivering: They're doing it themselves. A few small alternative magazine delivery systems have popped up over the last few years, but now one of the industry's heavy hitters _ Time Warner Inc. _ has entered the picture.

The publishing industry says if Time's system prospers, more companies could follow and eventually provide significant competition for the U.S. Postal Service.

"There's no question what the motivation here is," said George Gross, an executive vice president of the trade group Magazine Publishers of America. "By building a distribution system you are saying to the Postal Service that while there is no alternative now, in time there will be."

The magazine industry has been complaining for years that rising postal rates have been cutting into their profits. Postmaster General Anthony Frank has acknowledged that postal rates have increased beyond general inflation, and he has vowed to slow the pace.

But the Postal Service maintains it can do a better job of delivery than alternative systems such as Publishers Express, for which Time Warner is the managing partner. Eight other equity partners are involved in the project.

Begun in Atlanta last year on a trial basis, Publishers Express now is delivering more than 100,000 magazines, catalogs and advertisement packages a month to more than 80,000 households within five ZIP codes. The company has set a goal of 200,000 pieces a month to 100,000 households by the end of the year.

From a suburban Atlanta facility, delivery crews sort 24 titles _ including Time, Sports Illustrated, TV Guide, The Atlantic Monthly and Playboy _ and deliver them in sealed packages before dawn each day.

Under federal law, Publishers Express cannot use mailboxes. The magazines and catalogs are delivered to doorsteps or left at the base of a mailbox.

"If you look at the magazine business, distribution is the only cost we don't have control over," said Howard Rosen, president of Publishers Express. "But it's very tough to tell the post office you don't like their pricing structure. They'd say, "Fine, but you've got nowhere else to go.' "

Since 1970, Rosen said, the cost for second-class postage _ which is the rate for newspapers and magazines _ has risen 811 percent compared to a general inflation rate of 209 percent over that time. Third-class postage _ the rate for most catalogs _ has gone up 364 percent, he said.

The Postal Service puts the figures a bit lower: 767 percent for second class and 247 percent for third class.

Nonetheless, Rosen said, "It's too cost-prohibitive to distribute our products through the post office."

In addition to titles published by Time Warner, the distribution service has contracted with other magazines and catalogs to deliver their products, Rosen said. The titles in the designated ZIP code areas are automatically distributed through Publishers Express, although consumers may request that the Postal Service take over their service.

Postal Service spokesman Bob Hoobing said costs may be higher but service is reliable.

"The fact of the matter is, we have people who are career workers delivering the mail. We think we're more reliable," he said.

Hoobing declined to speculate on the impact of such alternative delivery services. He said about 6.5 percent of the 161.6-billion pieces of mail handled last year by the Postal Service was second class.

If future postal rate increases continue to pinch, "there will be more magazines saying (to Time) we want to join you," said Gross of the Magazine Publishers of America.

Kofie Q. Dadzie, an assistant marketing professor at Georgia State University who specializes in distribution systems, said an operation such as Time Warner's would have to handle an enormous amount of ma'erial to make its costs competitive with the Postal Service.

Rosen declined to disclose Publishers Express' income, but he acknowledged the distribution system must expand if it is to do the job of the Postal Service at a lower cost.

"Clearly at the scale we're at, we are not in a competitive price situation with the post office," he said. "We need to double our volume. It can be reached within the next year or two."