In the Matter of the Petition By: INTERVAL INTERNATIONAL, INC., P.O. Box 431920, 6262 Sunset Drive, Miami, FL 33243-1920; Denial of Application for Second-Class Mail Privileges for TRAVELER P.S. Docket No. 29/70 09/19/88 Mason, Randolph D.; Administrative Law Judge APPEARANCES FOR PETITIONER: Alan N. Schlaifer, Esq.; Joan Brenner, Esq., on brief, 1667 K Street, N.W., Washington, D.C. 20006-1605 APPEARANCE FOR RESPONDENT: Jeffrey H. Zelkowitz, Esq., Law Department, Rate Application Division, United States Postal Service, Washington, D.C. 20260-1143
This proceeding arises out of a Petition filed by Interval International, Inc. ("Petitioner") appealing the denial of its application for second class rates for Traveler on December 29, 1987, by the Director, Office of Classification and Rates Administration (OCRA). The Director denied the application on the basis that Traveler is (1) "primarily designed for advertising purposes" under Domestic Mail Manual ("DMM") 422.231; and that this is so, in part, because it is "owned or controlled by individuals or business concerns and conducted as an auxiliary to and essentially for the advancement of any other business or calling of those who own or control" it within the meaning of DMM 422.231(b). This Initial Decision sustains the Director's determination to deny the application on these grounds.
A hearing was held on March 3, 1988, in Washington, DC before the Administrative Law Judge. Both parties were afforded full opportunity to be heard, adduce relevant evidence, and examine and cross-examine witnesses. Petitioner presented documentary evidence and the testimony of two witnesses: Ms. Edrea Kaiser, Editor in Chief of Traveler, and Ms. Nerissa Berbano, a subscriber and time share property owner. Respondent presented documentary evidence (RX-1 was received after the hearing) and the testimony of Leo F. Raymond, a Classification Support Specialist in the Business Requirements Division, OCRA. Both parties also filed joint exhibits, stipulations, proposed findings of fact, conclusions of law, and reply briefs, all of which have been duly considered.
To the extent indicated below, proposed findings and conclusions have been adopted; otherwise they have been rejected as irrelevant or contrary to the evidence. Based on the entire record herein, including my observation of the witnesses and their demeanor, the exhibits, stipulations, and other relevant evidence adduced at the hearing, I make the following findings of fact and conclusions of law:
1. Interval International, Inc. ("II"), a wholly owned subsidiary of Worldex Corporation ("Worldex"), is a membership organization for owners of time share properties at resorts affiliated with II. II is the second largest vacation exchange network and it has been in business since 1976 (Tr. 30). Traveler magazine is owned and published by II (Stip. 3), and has been in existence since 1982 (Tr. 23). II did not perform any market research prior to starting this publication (Tr. 58).
2. The affiliated resorts sell time shares (the right to use a specific property for a certain number of days during the year) to individuals, who are then automatically eligible for membership in II (J-2). All II resorts arrange for the initial membership in II for their purchasers and also remit payment of the first year's annual membership dues. The purchaser must complete and sign an application for membership at the time of purchase. In subsequent years, individual members are billed directly by II and participation in the II program is voluntary (J-2 "Terms" 2). The major benefit II offers to members is its vacation exchange network, which enables the members to exchange their time share rights for the rights to available time share property at other resorts in the II network. Each year since 1985 about 78% of II members have renewed their membership/subscriptions (PX-14). A "very small number" (less than 100) of Traveler's 225,000 subscribers are nonmembers (Tr. 49).
3. Petitioner admits, and I find, that "nearly three-fourths of time share owners are interested in exchange possibilities" although a smaller fraction, about one fifth, actually participate in an exchange in a given year (Pet. PFOF 7; Tr. 44). Thus the exchange feature is one of the main reasons why people become II members and pay membership dues. II members are also entitled to a variety of benefits and travel services, including discounts, and a subscription to Traveler (J-9 at 2).
4. II is the cornerstone of Worldex (J-25 at 10-11). Two other wholly owned Worldex subsidiaries provide support functions related to II's services (J-5 at 2):
(a) Worldex Travel Club, Inc., provides travel and leisure benefits to enhance the exchange privilege available through II (J-5) (II members are automatically members of Worldex Travel Club and the latter does not charge fees to members (J-6)); and,
(b) Worldex Travel Centers, Inc., operates travel agencies offering specialized knowledge concerning travel to the resorts affiliated with II (PX-6; J-25 at 8). II members are also instructed to call Travel Centers "for the Worldex Travel Club savings and discounts" (PX-6 at 10).
5. The top seven officers of Worldex hold the exact same positions at II (J-10).
6. II obtains most of its revenues from the following sources: (a) annual membership dues of $54, of which $15 is automatically allocated to a subscription to Traveler; (b) fees paid by members for arranging exchanges of time share properties; and (c) profits from II's Worldcard Preferred Card, which entitles II members to certain discounts and privileges for a $35 annual charge (J-9 at 2; Tr. 82-84; J-28 at 3-6).
7. II members receive Traveler's seven annual issues, consisting of the Annual Vacation Planner and Directory ("directory issue") and six bimonthly issues (Stip. 2; Tr. 83; J-25-29). The directory issue is about 300 pages, which is roughly equivalent in length to the combined total pages in all of the bimonthly issues, which are about 50 pages each.
8. The Annual Vacation Planner and Directory issue is published as an auxiliary to II, and is primarily designed to promote the services offered by II, Worldex Travel Centers, and Worldex Travel Club. It fully describes and advertises the benefits of II membership (Tr. 82-83), advertises other companies that offer discounts to II members, and advertises the services of Worldex Travel Centers, Inc. (J-25 at 8-9). It describes in detail the II procedures for making a vacation exchange request and contains a vacation planner work sheet and a postage-paid vacation exchange request form. The bulk of the Directory contains descriptions and pictures of the resorts that are affiliated with II which are available for exchange (J-25; J-26). This issue is designed to serve II members for a full year when read in conjunction with the updated material contained in the six bimonthly issues.
9. The bimonthly issues are also an auxiliary to II, and primarily designed for the advancement of II, Worldex Travel Centers, and Worldex Travel Club. They update the Directory issue by featuring new resorts in the II network, plus tips and instructions for requesting exchanges. They also contain forms for exchanges and membership renewal and information on II policies and benefits (Tr. 33-34, 84-85; J-5, J-6). Preliminary results from an informal survey (J-27 at 47) prepared and taken by Traveler's editor (tabulated by Petitioner's counsel) of a small sample of subscribers suggest that information on exchanges is the most interesting feature to Traveler's readers (PX-10, PX-12, PX-13; Tr. 14-15, 17). Exchange opportunities are clearly of great interest to a majority of the readers (Tr. 63).
10. Moreover, each issue contains many well-placed advertisements for II and Worldex Travel Centers. Articles describing II services and affiliated resorts are highly complimentary (J-28 at 30; J-29 at 6-10, 26; J-30 at 20; J-32 at 27). Worldex Travel Centers is frequently touted in the articles as the best or least expensive travel agency for trips to II resorts (J-25 at 8-9; J-27 at 40; J-28 at 23-24, 26; J-29 at 37). There are many advertisements for companies such as Hertz, Southeast Bank, Alamo Rent A Car, Cruise America, and Cunard Cruises, which state that special rates are given to II members or Worldex Travel Club members, or advertise that arrangements should be made with Worldex Travel Centers (J-28; J-29). Worldex Travel Centers and Worldex Travel Club were formed to provide services and benefits to II members (J-5 at 2).
11. A few ads, such as the one for Chateau Domaine, offer to rent vacation properties as an alternative to an exchange of II resorts and do not mention Worldex companies. Others, such as Sun Bay Beach Club, state that the rental offer is available to II members "and their friends" but not to present owners of the resort (J-32 at 9). But a number of these resorts are not "competitors" of II, as alleged by Petitioner, because they are also time share resorts affiliated with II which are seeking purchasers (e.g., Cliffs Club, Sun Bay Beach Club, Vacation Clubs International, Ridge Tahoe) (PX-9; J-26 "Index to Resorts"). In any event, the above ads do not alter the strong overall impression of the publication as an auxiliary and promotional device of II, Worldex Travel Centers, and Worldex Travel Club.
12. The first page of Traveler states that it is a publication of II. A typical bimonthly issue contains a prominent, two page business reply card advertisement for II's Worldcard Preferred card, plus an additional two to four consecutive pages of color advertisements for this card, which is only available to II members (J-27; J-28). Also, each issue contains a one-page article entitled "Lori's Open Line" written by II's "Director of Consumer Affairs." Lori ("Lori Kennedy" is a "Betty Crocker-type name") does not work in II's Publications Department where Traveler is produced (Tr. 54). She states that "my primary purpose for being here is to ensure that Interval is listening to and resolving your concerns" (J-29, p. 2).
13. Each of the six bimonthly issues also contains useful information and articles related to travel or time sharing without directly mentioning II or its related companies. In this regard, one issue contains two one-page articles about the psychological need for vacations and photography tips (J-32). However, these articles are only incidental to the bulk of the issue, which is designed to advance and promote II and Worldex Travel Centers, Inc. Also, many of the travel articles concern specific destination areas within the II resort network (J-23). More recent issues have contained a few more pages of such general travel articles, but the primary purpose of each issue continues to be to advance II and the related Worldex companies (J-27-29). Although the latter conclusion is based upon an independent examination of these exhibits, it is also corroborated by the statement of Worldex's Chief Operating Officer that Traveler's "purpose is to inform Interval members of what is available to them as members of Interval" (J-6 at 2).
14. In this regard, Traveler is the primary communications link between II and its members (Tr. 82-85; Tr. 48; PX-6 at 6; J-18, p. 5). According to its editor, it is "the best source for readers to know which resorts are in II's system" (Tr. 48). II instructs its members to utilize the publication when using the vacation exchange system (PX-6 at 6; PX-8). II also uses the magazine to inform its members of new discounts and services (J-5; J-6). The Executive Vice President of Worldex admitted that Traveler's "only purpose is to advise II members of: (i) new benefits available to them; (ii) changes in Interval policies and procedures; (iii) new vacation destinations in the Interval Exchange programs; and (iv) information of special interest to time share owners" (J-6).
15. In addition, it is noted that the publication is closely interwoven with II, and the two are basically operated as a single, interdependent business. In this regard, Traveler is published by a department of II (Tr. 50; J-13 at 2), it uses information, suggestions, and articles supplied by other departments of II at no charge (Tr. 51-55; Tr. 45-46), uses common employees and management (J-13, Statement at 2; J-10; Tr. 54-55; Tr. 23, 45), and derives its subscriptions by allocation from the II membership dues. The contributing departments include II's Exchange Department, Consumer Affairs Department, and Resort Affiliation Department (Tr. 54-55). Traveler's editor, who has a background in public relations (Tr. 22), is II's Assistant Vice President for Publications, and as such is also responsible for producing II's brochures, forms, and flyers (Tr. 45). In practice, she makes the final decisions regarding Traveler's content and design; however, she reports to II's Vice President of Communications, who would let her know if he was upset about something in the magazine (Tr. 60-61). Finally, Traveler provides its subscribers with preferential treatment for other aspects of II's business (J-28 at 1; J-29 at 1; J-31 at 7).
16. Thus Traveler advances the business of II and Worldex in several ways. It makes possible the operation of II's vacation exchange and membership benefit program, and thus enables II to attract and retain members. It is also used to promote additional services provided by II that enable it to obtain additional revenues from its members, such as revenues from the Worldcard Preferred Card, and from fees for members who obtain exchanges. Finally, it is used to promote Worldex Travel Centers and the Worldex Travel Club (Tr. 82-87).
17. The time share resorts affiliated with II purchase issues of Traveler to use as a marketing tool to demonstrate the benefits of ownership and explain the exchange process to prospective customers (J-5). It is noted that about 400,000 copies of the Annual Directory issue of Traveler are published even though there are only about 225,000 subscribers (Tr. 50). Extra copies are distributed thoughout the year by II to new subscribers as well as by affiliated resorts to potential time share purchasers (Tr. 50, 86; J-3). II benefits because new purchasers become members of II.
18. In view of the above, it is concluded that Traveler is conducted as an auxiliary to, and is essentially for the advancement of II, Worldex Travel Club, and Worldex Travel Centers, Inc.
19. Traveler is primarily designed for advertising purposes.
1. The basic issue is whether Traveler fails to qualify for second-class privileges under Domestic Mail Manual 422.231, which provides in part as follows:
422.231 Publications Designed for Advertising Purposes. General publications primarily designed for advertising purposes may not qualify for second-class privileges. These include, but are not limited to:
. . .
b. Publications owned or controlled by individuals or business concerns and conducted as an auxiliary to and essentially for the advancement of any other business or calling of those who own or control them.
2. Traveler is owned by Interval International, Inc., (II). Thus, if the publication is "conducted as an auxiliary to and essentially for the advancement of" the other business of II, then the magazine fails to qualify for second-class privileges. In addition, since Worldex Corporation ("Worldex") "owns" both II and Worldex Travel Centers, Inc. (WTC), second-class rates will be denied if Traveler is conducted in the same manner for the benefit of WTC.
3. The first question is whether Traveler is conducted as an "auxiliary" to II's other businesses. "Auxiliary" means "aiding or assisting." Florists' Transworld Delivery Association, P.S. Docket No. 1/167 (P.S.D. May 24, 1974) ("FTDA"). First, it is published by II and is operated as a single, interdependent business with II. It uses information and articles supplied at no charge by other II departments, uses common employees and management, and derives its subscriptions by allocation from II membership dues. Second, Traveler is the primary communications link between II and its customers. It provides the means by which II's customers are informed of the resort units available for exchange and the procedures and forms for making such exchanges. It informs them of the other benefits and discounts available to them through their II membership and the discounts available from another Worldex Corporation subsidiary, Worldex Travel Centers, Inc., (WTC). Accordingly, it is concluded that Traveler is conducted as an auxiliary to II's other business. The fact that II operated for six years without Traveler is of no consequence; the relevant inquiry concerns its relationship with the publication.
4. Finally, since Worldex owns both II and WTC, and since WTC is promoted so extensively in Traveler, the latter is also conducted as an auxiliary to WTC.
5. The next issue is whether Traveler is conducted "essentially for the advancement of" the other business of II or WTC. "Essentially" means "primarily," "principally," "fundamentally," or "first in importance or precedence." SmokEnders, Inc., P.S. Docket No. 4/192 (I.D. 1977 at 15); Lotus Publishing Corp., P.S. Docket No. 24/68 (I.D. April 7, 1987). Petitioner argues that Traveler is an independent, profitable publication whose primary purpose is "to inform and advise readers with an expressed interest in vacation planning about travel, leisure, and the educated use of timeshare resort property." Respondent contends that the magazine is operated as a single, interdependent business with II, is primarily for the advancement of II and WTC, and that the nonpromotional content of the publication is merely incidental. Whether a publication is primarily designed for advertising purposes is a factual question to be determined on a case by case basis. T.V. Host, Inc., P.S. Docket No. 17/25 (P.S.D. 1985).
6. As set forth in detail in the findings of fact, it is concluded that Traveler is essentially for the advancement of the other business of II and WTC. The magazine is literally filled with promotional information about II's services and benefits and advertisements for the WTC travel agency. Ads for competing services are minimal. The annual directory issue not only promotes II and WTC, but the bulk of the issue contains pictures and descriptions of the time share resorts that are available to II members for exchange. As such, it is an essential part of II's exchange business. The bimonthly issues also perform this function by updating the annual directory with new resorts. All issues contain numerous pages of forms, tips, and instructions which promote membership renewal and the use of II's exchange business. The services of II and WTC are frequently touted in the articles as well as the advertisements.
7. Petitioner points to the fact that the bimonthly issues also contain interesting articles which do not mention II or WTC, and emphasizes that recent issues have contained more of this material. However, as stated in the findings of fact, such articles have failed to alter Traveler's primary purpose, which is to advance the other business of II and WTC.
8. In attempting to establish that Traveler is independent and self-sustaining, Petitioner alleges that Traveler is profitable. Although profitability is not essential to second-class status, it is a factor to consider when determining whether a publication is primarily designed for advertising purposes. Willamette TV and Cable Guides, P.S. Docket No. 16/97 (P.S.D. 1985).
9. Although Petitioner was asked by the Director to demonstrate the financial independence of Traveler and II, it declined to provide detailed financial statements (J-13 at 2). When asked to submit more detail, Petitioner submitted more conclusory evidence (J-19; J-20, J-22). As indicated in its prehearing brief at p. 10, Petitioner considered profitability an issue. At the outset of the hearing, Counsel for the Postal Service did not accept Petitioner's estimates of profitability (Tr. 18). Nevertheless, Petitioner chose to present only limited, conclusory evidence which fails to satisfy its burden of proof before the Administrative Law Judge. The evidence failed to show any dollar amount of either revenues or expenses, and merely showed percentages of an unstated total. For example, printing was expressed as 51.3% of "Traveler expenses." (J-22). Also, although the schedule contains minor items such as "mail handling" and "photo fees", it does not include any cost for office space, equipment, or utilities. Likewise, the letter from II's Director of Budgets, written the day of the hearing, simply alleging that Traveler was profitable on a "fully allocated basis" (PX-14), does not satisfy the burden of proof. In any event, even if Traveler were profitable, this would not alter the conclusion dictated by the magazine itself and other evidence that it is primarily designed for advertising purposes.
10. The conclusion with respect to Traveler's primary purpose is also supported by statements made by officials of Worldex and II (J-6; J-5). For example, the Executive Vice President of Worldex said that "its purpose is to inform Interval members of what is available to them as members of Interval." However, the conclusions herein have been based upon the publication itself and other evidence, and these statements are viewed as merely corroborating the finding on the primary purpose.
11. Also, Petitioner emphasizes that Traveler's readers are interested in the contents of the magazine, particularly the portions relating to the exchange service. However, the fact that readers may be interested in the purchase of exchange services, or that they enjoy reading promotional material, is not inconsistent with a finding that the publication is essentially for the advancement of II's membership and exchange service. Thus readership interest is not dispositive of the issue of a publication's primary purpose. Accordingly, Petitioner's argument is rejected.
12. Since Traveler is a publication designed for advertising purposes within the meaning of DMM 422.231 and 422.231(b), the magazine does not qualify for second-class privileges. In view of this conclusion, it is not necessary to discuss Respondent's remaining arguments. Accordingly, the decision of the Director is sustained and the petition is dismissed.