NEW YORK — The circulation practices of Gruner + Jahr USA Publishing have come in for scrutiny once again — but this time, the fallout could extend well beyond the Bertelsmann-owned publisher.
G+J disclosed Wednesday that five of its six titles — Family Circle, Parents, Child, Inc. and Fast Company — will miss their advertising rate bases for 2004 as a result of misclassified subscriptions. Only Fitness will meet its circulation guarantee of 1.5 million.
The news marks a continuation of the company’s much-publicized circulation woes, which began two years ago with the revelation that its former title YM had inflated its rate base. The scandal spread from there, and eventually contributed to the downfall of Dan Brewster, G+J’s former chief executive officer.
G+J blamed the latest problem on a subscription-sales agent, Publishers Communications Systems of Coral Springs, Fla. In a lawsuit filed Wednesday, G+J accused PCS of failing to provide proof that subscriptions G+J had claimed as individually paid were, in fact, ever sold to anyone. G+J is seeking the return of the $725,000 it paid PCS, plus damages, including reimbursement for the rebates the company owes to its advertisers.
Russell Denson, who became ceo of G+J last May, said the total cost of rebates will be “something less than $10 million,” an amount he called “immaterial from a financial-impact standpoint.”
“We feel like we were defrauded by this third party, but, that being said, we are standing by our relationship with our advertisers,” he added.
The question is whether advertisers, who have watched the company weather one damaging revelation after another, will continue to stand by G+J. Since Brewster’s removal in January 2004, the company has made every effort to mend its image, including hiring a new consumer marketing director, Cindy Still, from Time4Media. When in July an audit revealed relatively minor problems with Parents’ subscription file, Denson promptly fired several employees who were responsible.
This latest setback, however, could erase all of G+J’s hard work.
“They have almost zero credibility,” said Peter Gardiner, chief media officer of Deutsch Inc., an ad agency. “It leaves you with the perception that you’re dealing with a company that’s not minding the store, and that bothers you.”
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