NEW YORK — The fight between Gruner + Jahr and Rosie O’Donnell was back on the radar Thursday after O’Donnell filed an answer to the complaint against her with the state of New York. Among other things, O’Donnell’s complaint said that Gruner + Jahr had “manipulate[d] the financial books and records of the magazine [Rosie] to ensure that O’Donnell would not be able to exercise her contractual right to terminate her interest in the magazine automatically if the earnings from the magazine fell below a certain dollar amount on June 30, 2002.”
This story first appeared in the January 31, 2003 issue of WWD. Subscribe Today.
In short, O’Donnell alleged that the company inflated its numbers “to ensure that the [financial] targets were met,” because a clause in her contract allowed her to walk away from the magazine if its earnings fell below a certain level, which she claims they had. By manipulating the books, as O’Donnell charged, she was unable to abandon the magazine without paying a fee to the company or taking the matter to court, her complaint claimed.
In a statement, Gruner + Jahr said that the newsstand data it provided on Rosie was highly accurate (within 2 percent of what they reported) and that her claims are therefore without base. They did not provide any indication of whether ad revenue was dropping or how much subscriptions were costing the company.
If the allegations against Brewster are true, it would be the second time in recent weeks that his company has been connected to questionable business tactics.
Two weeks ago, a report in WWD revealed that , according to the Audit Bureau of Circulations, the company had inflated its newsstand data on YM by more than 57 percent in the first half of 2001. Magazine companies occasionally overstate their newsstand sales because advertisers view them as a better barometer of a magazine’s heat than subscriptions, which are frequently sold at cut-rate prices. Titles in the ABC can also do this without having to take a restatement if subscriptions over the same period are underestimated. But few companies inflate newsstand sales to such an extent.
Nor were the inflated numbers at YM in 2001 the company’s only instance of overreporting. Gruner + Jahr had also overreported YM’s newsstand data in the first half of 2000 by 22 percent and had done so in the second half with McCalls — by 16 percent — just before the title was turned into Rosie. Titles like Parents and Family Circle also inflated their newsstand sales by double digit amounts between 2000 and 2002, but only once each during the four reported periods
“There was always a wink and a nod with Brewster and Diane Potter [the company’s VP in charge of circulation]. They said everybody inflated numbers,” said one person who has worked with the company and sat in on circulation meetings with them. “But I don’t think everyone did it to that degree.”
Another source contacted gave a similar version, claiming that it would have been impossible for titles to inflate numbers without Brewster’s awareness. The source also claimed that to characterize the practice as widespread would be inaccurate.
In a conference call with Potter, she said, “what we’re concerned about is delivering rate base on average. The variance to audit on the titles you are looking at is very small,” and consistently reiterated that the overall variation on the company’s titles (subscriptions and newsstand together) was generally within 2 percent.