In the Matter of the Petition by GREAT AMERICAN PUBLICATIONS, INC. 270 Madison Avenue, New York 16, New York for a hearing upon its application on for second-class entry for its publication "SPORTS CAR GUIDE." P.O.D. Docket No. 1/220 May 24, 1960 William A. Duvall Chief Hearing Examiner POST OFFICE DEPARTMENT, WASHINGTON, D. C. APPEARANCES: Milton S. DuBroff, Esq. Leonard A. Weinberger, Esq. 270 Madison Avenue New York 16, New York for the Petitioner Jack T. DiLorenzo, Esq. Office of the General Counsel Post Office Department for the Respondent
On July 1, 1959, Great American Publications, Inc., 41 East 42nd Street, New York, New York, the Petitioner, filed application on POD Form 3501 for entry into the mails as second-class matter of the publication "Sports Car Guide." A second POD Form 3501 was filed by the Petitioner on December 10, 1959, for the purpose of supplying certain supplemental information.
On December 24, 1959, the Director, Division of Postal Services, Bureau of Operations, Post Office Department, the Respondent, advised the Petitioner that, unless he appealed from the ruling within 15 days, the application for second-class mail privileges was denied on the grounds, in substance, that the publication does not have a legitimate list of subscribers and that it is designed primarily for free circulation.
The Petitioner appealed from this ruling and the case came on for hearing before me on March 3, 1960. At the hearing, both parties were represented by counsel who participated in the examination and cross-examination of the witness and counsel for both parties, on April 29, 1960, had filed proposed findings of fact and conclusions of law, together with supporting reasons.
After the hearing had been in progress for some time, the Respondent's counsel moved to amend the answer so as to include the charge, in substance, that the publication is designed for circulation at nominal rates. This motion was granted. In his brief, the Respondent withdraws two of the above mentioned grounds for denial, namely:
1. That the publication does not have a legitimate list of subscribers; and
2. That the publication is designed for circulation at nominal rates.
The result of these withdrawals is that these two issues are resolved in favor of the Petitioner. The remaining issue is whether the publication is designed primarily for free circulation within the meaning of the postal laws and regulations.
The only witness who testified at the hearing was Mr. Sol Fenichel, Business Manager of the Petitioner, who stated that "Sports Car Guide" is a magazine devoted entirely to the field of sports cars. It contains various articles, reports on new cars, sports car racing, and biographical sketches of the various people interested in the field. Mr. Fenichel's testimony, together with the applications heretofore mentioned (Joint Exhibits 1 and 2), indicate that the following disposition was made of the 163,000 copies of the first issue of "Sports Car Guide" (Joint Exhibit 4):
161,850 copies consigned to news agents with return privileges
328 copies distributed to paid subscribers
301 copies sent free to various addressees
10 distributed to advertisers
5 distributed as exchange copies
506 retained by the publisher 163,000
In view of the concessions by the Respondent, the only item of the foregoing tabulation which is now of importance to this proceeding is the first one, or the 161,850 copies which were consigned to news agents with the understanding that the publisher would not receive pay for the unsold copies. 1/ Of these copies 56,897 copies were sold by news agents and 104,953 issues remained unsold.
It may be well at this time to outline the distribution scheme followed by this publisher, which the testimony in this and other cases indicates, with possibly a few minor variations, is utilized throughout this segment of the publishing industry. After the publisher gets the publication back from the printer, the publication is sent to one or more national "distributors." 2/ The distributor, in turn, sends the publication to "wholesalers" located in various communities throughout the country. The wholesaler then places the publication in the hands of "dealers," such as drug stores and corner news stands. At a predetermined time the publication goes "on sale," when it may be purchased from a dealer, and, later, it goes "off sale," when the unsold copies are removed from the stands of the dealers. The unsold copies are then either sent to or picked up by the wholesaler from the dealer. The wholesaler removes the front cover from these unsold copies and returns them to the distributor 3/ The distributor, based upon the number of covers returned to him, prepares an accounting of the sale of the particular issue and submits this report to the publisher.
The distributor performs under a contract with the publisher. The publisher can require the distributor to return to him the complete unsold copy instead of just the front cover and the publisher may go to the distributor's office and manually count the covers of unsold copies. Thus, the distributor is the agent or employee of the publisher in the latter's efforts to achieve the largest possible volume of sales of the publication.
The basic issue in this case, stripped of its non-essentials, is whether the shipment by mail of the publication from the publisher to the distributor constitutes "circulation" of the publication, as that term is used in 39 U.S.C. 226 and Section 132.227 of the Postal Manual.
Section 226 of Title 39, United States Code, contains the conditions prescribed by the Congress which publications must meet in order to be eligible for admission to the mails as second-class matter. The concluding sentence of this section reads as follows:
"Nothing herein contained shall be so construed as to admit to the second class rate regular publications designed primarily for advertising purposes, or for free circulation, or for circulation at nominal rates."
Pertinent to this case is Section 132.227 of the Postal Manual in which it is provided that:
"Publications designed primarily for free circulation may not qualify for second-class privileges. Publications that are not circulated principally to a list of subscribers are considered to be designed for free circulation. All copies printed and circulated either by mail or by the publishers' carriers, and at the second-class pound rates or the transient rate, are considered in determining whether a publication is designed for free circulation."
Court decisions in which the term "circulation" has been defined are not numerous and are not too helpful because no case has been found which involves the precise question involved in this case. One case, however, does shed some light on this inquiry.
In Cream of Wheat Co. v. Arthur H. Crist Co. , 152 N.Y.S. 407, the plaintiff entered into a contract with the defendant under which the plaintiff was to purchase advertising space in the defendant's magazine, and the latter guaranteed that the average circulation of the magazine should not be less than 63,000 copies per issue during the 12 months for which the advertisements were to appear. The contract provided that the term circulation should mean "The total number of copies of each issue of the publication above mentioned which shall be published and sold and delivered by the publishers thereof, both to paid subscribers and to news agencies, exclusive of all returns from news agencies and copies given away in any manner whatsoever." A dispute arose as to whether this minimum circulation was maintained or achieved, resulting in the action at law.
The fact that the case was decided in favor of the defendant is not important here, but in reaching its decision the Court said (id., pp. 410-412):
"First. The purpose of the contract is to advertise the plaintiff's product. The actual circulation of the defendant's magazine was confessedly over 70,000 copies per month, although some of these subscribers had not paid for several years. The magazine was only sent upon the request of the subscriber, renewed in writing each year, upon which the trial court has found that there was legal liability to pay. The purpose of the insertion of the advertisement would therefore seem to be fully accomplished, whether or not the subscriber had in fact paid the subscription price in advance.
"Second. The contract itself in effect defines a paid subscriber as one to whom the paper was not sent as a gift. The term 'circulation' is therein described as:
'The total number of copies of each issue of the publication above mentioned which shall be published and sold and delivered by the publishers thereof, both to paid subscribers and to news agencies, exclusive of all returns from news agencies and copies given away in any manner whatsoever.'
"It appears that it was the custom of the different magazines to give away to employees, to advertisers, to advertising agents, to exchanges and for other purposes, what are called 'service copies.' These would seem to be the part of the circulation that was intended to be excluded by the terms of the contract.
"Third. The term 'paid subscriber' has been construed by the plaintiff's general manager and secretary, who negotiated and signed the contracts in question. In 1912 E. Mapes, who for the plaintiff negotiated and signed these contracts, was upon the circulation committee of the Association of American Advertisers, which was an association composed of about 70 or 80 prominent advertisers, which at its own expense had audits made of magazines and newspapers to determine the extent of their circulation, for the purpose of ascertaining their value as advertising mediums. Among the papers thus examined by this association were the Knickerbocker Free Press and the Albany Times Union in the City of Albany. In that year a contest arose between those two papers as to which had the larger 'paid circulation.' This contest was referred to a committee of this association, of which Mr. Mapes was a member. That committee decided that in ascertaining the paid subscription list all those subscribers should be counted who had once paid and to whom the paper was then being sent, although no subscription had in fact been paid for 14 years. The record does not show whether or not Mr. Mapes assented to that decision, but as he was on the committee which made the decision, and it could easily have been shown if he dissented therefrom, it is fair to assume that it was his interpretation, as well as that of the committee, of the term 'paid circulation.' It is true that this was the interpretation of the term as that applied to the circulation of a newspaper, and not of a magazine. As the audit of a newspaper circulation, however, was for the same purpose as the audit of a magazine circulation, it is difficult to see why the term should have a different meaning when applied to the circulation of a magazine, in a contract for advertising. This interpretation of the term made in 1912 by the man who negotiated and signed this contract for the plaintiff is most cogent, if not controlling, evidence of what was intended in the contract to be included in the term 'paid subscriber.'
"Fourth. The witness Turner is an expert accountant, who for four years before the trial had done nothing except examine the circulation of magazines and newspapers. He had done this work under employment from the plaintiff and other individual advertisers, and also of the Association of American Advertisers before mentioned. Of this association said Mapes is now the president and was then upon the circulation committee. He swears that in making those audits the entire circulation of the paper was divided into two branches, paid and unpaid; that there was included in the paid class the entire mailing list and the news agencies, and in the unpaid class the advertisers and advertising agents, exchanges, service copies, and employees; that in the class of paid subscribers was included all subscribers to whom the magazine was sent, whether or not payment had been made in advance or the subscriber was in arrears. It is true that few magazines continue to send the paper where the payment of the subscription is far in arrears. That, however, was a matter entirely within the policy of each magazine, and some were more liberal than others, and since 1912 the tendency had been to draw the lines still closer. The plaintiff produced two experts, who made the audits of the defendant's magazine for the year 1911 and 1912, in order to ascertain whether the plaintiff was entitled to any rebate under the contract. This audit was made, however, at the request of the plaintiff, and with a strict construction of the term 'paid subscriber' as only those who had paid in advance it was found the circulation was substantially less than 63,000 copies a month. The testimony of plaintiff's main expert, Rink, as to what was understood to be included in the term 'paid subscriber' is unsatisfactory and evasive, and in view of the purposes to be accomplished by the contract in question the trial judge was abundantly authorized to find that in the custom of the trade the term 'paid subscriber' was not limited to those subscribers who had paid in advance. An examination of the evidence of the two experts called for the plaintiff will be found to contain no substantial dispute of the evidence of Turner, the defendant's expert, as to what was understood to be embraced within the term 'paid subscriber' in an audit made for the purpose of determining its value as an advertising medium."
In Meredith Publishing Co. v. Commissioner of Internal Revenue , 64 F.(2d) 890, it was said:
"And, again, in Gardner Printing Company, 4 B.T.A. 37, 39, 40: 'Perhaps the most important asset of a news publishing business is its reading and advertising clientele. The advertising clientele is built up on the basis of an approved subscription list, and, therefore, in the parlance of the publishers' business, this asset is known as the circulation structure. ***" (id., p. 892)
"In the Herald-Despatch Case, 4 B.T.A. loc. cit. 1105, 1106, the Board of Tax Appeals said: 'The term circulation, as used in newspaper publishing businesses, comprehends something much broader than what may be characterized as mere subscription lists. * * * It comprehends, on the one hand, a body of subscribers whom experience has demonstrated may be relied upon with some degree of certainty to continue to take and renew their subscriptions to the paper in the future. On the other hand, it includes within its scope an established advertising clientele who use the paper as a medium by which to reach the purchasing public." (id., p. 893)
Finally, in the case of Wahl v. Hart , 332 P.(2d) 195, cited in the Respondent's brief, there are the following statements:
"It is the aim of statutes requiring general circulation of a newspaper that the publication be generally read so that the contents of the notice be brought home to the public generally. Pirie v. Kamps , 68 Wyo. 83, 229 P.2d 927, 26 A.L.R.2d 647. Consequently, we assume at the outset that where the statute requires circulation within a particular area, the aim is for the contents of the notice to be brought home to that portion of the general public within that area." (id., p. 196)
From all of the foregoing excerpts, it is obvious that the Courts, in addition to the publishing industry, regard the word "circulation" as meaning that portion of the copies of a publication which reaches the public. Some circulation is "paid" and some is "unpaid."
Respondent in his brief points out that the word "principally" means "mainly," "chiefly," "in the main," "in the majority," "for the most part" and "more than fifty percent." With these definitions I wholeheartedly concur.
Respondent also quotes the following definition of the verb "circulate" from Webster's New International Dictionary, Unabridged, Second Edition:
"*** 2. To pass or go about from place to place, from person to person, ***, specif., of a book, newspaper, etc., to go into the hands of readers."
The Respondent then argues that because about 162,000 copies moved from person to person and from place to place, i.e. from the publisher in New York City to the distributor in Mount Morris, Illinois, this movement is "circulation." Under this reasoning, if the publisher, sitting at his desk, picked up a copy of the magazine and walked across the room and gave it to his secretary at her desk, this movement from place to place and from person to person would be "circulation." This argument completely ignores the latter part of Webster's definition, the part specifically applicable to the publishing business, which stresses putting the published material "into the hands of readers."
Respondent argues that his position is supported by the wording of Section 226 of Title 39 of the United States Code. I can not agree. The purpose of this section is to set forth the prerequisites for eligibility of publications to be mailed at second-class rates. One of the main conditions to be met is that the publication must be "originated and published for the dissemination of information of a public character." This requirement certainly contemplates that the published material shall "go into the hands of readers," namely, the public. It is after this requirement has been prescribed that there is set forth the proscription against "free circulation" and "circulation at nominal rates." These phrases clearly mean that the publication shall not be given to the public free of cost or at nominal cost.
Respondent urges that his position is supported because in Section 233 of Title 39, United States Code, certain newspaper publishers are required periodically to submit sworn statements as to "the average of the number of copies of each issue of such publication sold or distributed to paid subscribers during the preceding twelve months ***." The fact that publishers of certain types of publications must submit such statements while publishers of other types of publications are not so required has no relevance or materiality to this proceeding.
Let us now look at the manner in which the Post Office Department has used the word "circulation."
Section 132.226 of the Postal Manual embodies regulations relating to publications designed primarily for advertising purposes. An illustration of this type of publication is given in subsection "d," which reads:
"Those that consist principally of advertising and that have only a token list of subscribers, the circulation being mainly free."
Again, Section 132.228 of the Postal Manual provides:
" 132.228 Nominal Rate Publications. Publications designed primarily for circulation at nominal rates may not qualify for second-class privileges. They include those for which subscriptions are sold:
a. At a token subscription price that is so low that it cannot be considered a material consideration.
b. At a reduction to the subscriber, under a premium offer or any other arrangements, of more than 50 percent of the regular advertised annual subscription price. The value of a premium is considered to be its actual cost to the publisher, the recognized retail value, or the represented value, whichever is highest."
Clearly, the word "circulation" as used in the regulations immediately before and after the one now relied upon by the Respondent denotes and connotes the going of the publications "into the hands of readers." Why, then, should this same word when used in Section 132.227 of the Postal Manual be used to describe a much more limited distribution than is described in the preceding and succeeding regulations? The fact is that a publication is not "circulated" until it has reached the public. Or, stated another way, the mailing of a publication from the publisher to the distributor is but a step toward circulation, but does not, of itself, constitute circulation.
Turning now to another phase of this question, it has been pointed out that the statute denies admission to the mails as second-class matter to publications that are "designed primarily
*** for free circulation." This Petitioner publishes some twenty publications (Tr. 28). From the record in this case, it is apparent that the Petitioner's life blood is dependent upon revenues derived from its publishing activities. Would such a business normally put out a magazine which it proposed to give away? I think not.
The conclusion that the publication is not "designed" for free circulation is buttressed by the fact that the distributor advanced to the publisher the funds with which to publish this first issue of the magazine (Tr. 13, 25). The undersigned would be amazed, and it would probably be a blow to the publishing industry from which it would not recover, to learn at this late date that Kable News Company is an eleemosynary institution. Whatever may be the purposes for which this publication was designed, free circulation is not one of them. Actually, the sports car business and the attractiveness of sports cars to the American public are growing phases of life in this country today. It is reasonable to think that a publication devoted to this field would find a ready acceptance -- a premise that is borne out by the fact that 57,225 copies of the first issue of this publication were sold.
Furthermore, if the Respondent's position were valid it would be incumbent upon the publisher of every new publication otherwise entitled to second-class mail entry to estimate within a rather close range the number of copies which would be sold. Being not conversant with this phase of the publishing business, I can not say to what extent, if any, this calculation may be made. To persons not in the publishing business, however, it would appear that for each new venture a publisher would need to have a crystal ball of a rather high order of accuracy and reliability or he would run the risk of sending too many copies to the distributor and then, when the sales figures are computed, he would be required to pay a much higher postage bill than he had anticipated. It would seem, therefore, that the tendency of publishers would be to restrict the number of copies sent to the distributor. This tendency might be desirable from the point of view of the Post Office Department, but it could happen that a publisher might underestimate his sales and be deprived of revenue to which he otherwise would be entitled. This possibility may be remote, but there is such a possibility and this result would not be in consonance with the purposes and objectives of the laws relating to second-class mail privileges because potential readers would be deprived of an opportunity to see the publication. To this extent, therefore, the dissemination of information of a public character would be limited and restricted.
Finally, the movement of copies of a publication from the publisher to the distributor does not really constitute a movement from person to person - despite the fact that the legal title may pass to the distributor. This is so because the distributor is to all intents and purposes the agent or employee of the publisher and, as such, is really a part of the publisher's organization. The truth of this statement is illustrated by the degree of control which the publisher retains over the magazine. He may call the magazine "off sale" whenever he wishes, and he may require that all unsold copies be returned to him. Hence, as a practical matter, such a movement of an issue of a publication is but a movement between different branches or departments of the same publishing enterprise.
If the Respondent desires to treat the movement of publications between publisher and distributor in the manner indicated by its position in this case, it must state this intent in clear and unequivocal language rather than distort and restrict the meaning of a word which has been so long and so widely recognized to have a broader meaning. To do this would not be a difficult task and the Respondent has suggested language which admirably would achieve this end. The last sentence of Section 132.227 of the Postal Manual could be amended to read: "All copies printed and 'consigned to newsagents with return privileges' (Resp. Brief, p. 1) either by mail or by the publishers' carriers, and at the second-class pound rates or the transient rate, are considered in determining whether a publication is designed for free circulation." This suggested amendment may need refinements of various sorts but it is stated to illustrate the fact that to provide by regulation for the situation contemplated by the Respondent's position is not an insuperable obstacle. The validity of such a regulation is a separate question with which we are not here concerned.
I find as a fact that the shipment of a publication from the publisher to the distributor does not constitute "circulation" of that publication.
I find as a fact that the publication, "Sports Car Guide" is not designed primarily for free circulation.
Upon the basis of the entire record in this case, I conclude that, as a matter of law, the publication "Sports Car Guide" conforms to the requirements of law and of the regulations of the Post Office Department for entry into the mails as second-class mail matter, specifically Section 226 of Title 39, United States Code, and Section 132.227 of the Postal Manual.
The Respondent's action in denying a second-class mail permit for the publication "Sports Car Guide" is set aside.
The Petitioner's application for second-class mail privileges for the publication "Sports Car Guide" is granted.
Proposed findings of fact and conclusions of law, together with the reasons in support thereof, submitted by the parties have been fully considered and they are adopted to the extent herein indicated. Otherwise, such proposed findings of fact and conclusions of law are denied for reasons herein stated or because of their immateriality.
1/ For the purpose of resolving the issue in this case the approximately 650 copies variously distributed may be ignored.
2/ It is possible that some publications go directly from the printer to the distributor.
3/ The reason for returning only the front cover is to reduce the cost of handling unsold material.