NEW YORK — In normal times, when the Audit Bureau of Circulations releases its semiannual magazine circulation reports, the focus is on the box scores — who’s up and who’s down.
But these aren’t normal times. The latest report’s release, due today, will be greeted by bigger questions about the overall health of the U.S. magazine industry, the accuracy of publishers’ reporting methods and the sustainability of current circulation levels.
After simmering quietly for years, the issue of “junk” circulation — subscriptions for which consumers pay little or nothing, and may not even want — has boiled up to a point where publishers and advertisers can no longer ignore it.
The most recent stimulus for this was the announcement in January by Gruner + Jahr that five of its six titles would miss rate base for 2004, auditors having reclassified large portions of their subscription claims. G+J’s plight was the result of its unusually heavy reliance on a single subscription agent, Publishers Communications Systems, which failed to properly document subscriptions it claimed to have sold. But it was also the result of increased rigor on the part of ABC’s auditors, who are getting ever more aggressive in scrutinizing publishers’ statements.
“’We’re into a new climate of accountability,” said Michael Lavery, ABC’s president and managing director, in an interview. “We’re taking a look at all of our rules that may be subject to abuse.”
ABC’s new stance is sending shivers throughout the magazine publishing world and giving it more incentive than ever to wean itself off dubious circulation sources before others end up like G+J. Last week, Time Inc. said that it would stop using so-called cash field agents, including PCS, that sell subscriptions under a zero-remit or negative-remit arrangement. Zero-remit means the agent, rather than passing along a portion of the subscription price to the publisher, keeps it all; negative remit means the agent pockets the subscriber’s money and also receives a payment from the publisher. Such arrangements are considered especially prone to agent fraud. (WWD explored the issue of subscription agents in depth in a Jan. 21 story, “G+J Case Reveals Circulation Secrets.”)
Time Inc. said the agents in question accounted for less than 2 percent of its subscriptions. (Synapse Group, a subscription agency owned by Time Inc., was censured last summer by ABC for keeping insufficient records on its sales.)
Asked whether they planned to follow Time Inc.’s lead, officials from several other major publishers said no, citing different reasons.
“There’s really nothing for us to follow suit on,” said David Leckey, senior vice president of consumer marketing for Hachette Filipacchi. “We don’t run our cash field operation that way. We’re at a positive remit, so we don’t feel it’s a risk from an audit standpoint.”
John Hartig, senior vice president of consumer marketing at Hearst, said his company will continue to deal on a negative-remit basis, albeit cautiously. “Just because a business is negative remit doesn’t mean it’s fraudulent,” he said. “It’s been our long-standing policy that, if we’ve had concerns about specific agents, we’ve terminated those relationships along the way.” Hartig added that Hearst deauthorized PCS in 1997.
Meredith Corp.’s circulation director, Karla Jeffries, said her company makes less use of agents and more use of direct mail than other big publishers.
A spokeswoman for Condé Nast, which, like WWD, is owned by Advance Publications Inc., declined to comment.
Whether it happens all at once or gradually, however, it’s clear that publishers are under great pressure to make their circulation practices more transparent. As it happens, that shift will bring about two related developments, say circulation executives.
The first is a deescalation of rate bases. Across the industry, there’s widespread agreement that circulation levels for many magazines are too high, propped up by exactly the kind of cheap, unaccountable subscriptions that now have fallen into disfavor.
“I would think the industry is going to be taking a closer look at rate-base reduction,” said Hartig, noting that recent increases in the price of paper and postage make the economic logic of downsizing that much harder to ignore.
“It’s always been an ongoing conversation,” agreed Leckey. “It’s probably just a little louder right now.”
The fear that advertisers will punish magazines for scaling back is gradually receding as more and more titles try it. According to publisher Jack Rotherham, when Teen People took its rate base from 1.6 million to 1.45 million at the start of 2004, “we called 40 of our top clients, and 35 of the 40 congratulated us.”
Meanwhile, the cost of consumer marketing will rise. Direct mail, considered a “purer” source of subscribers than agent sales, is also more expensive, at least for companies that, unlike Meredith or Reader’s Digest, lack access to a huge proprietary database. “It’s a tough business to just turn on,” said Jeffries. “You have to be doing it and understand what you’re doing.”
Agent-sold subscriptions also will become more expensive. “We have agents telling us that they’re having to hire legions of people to keep this trail of paper” ABC is requiring, said Cindy Still, executive vice president of consumer marketing for G+J. Still added that she has hired new people whose job it is to monitor G+J’s agent programs. While G+J will likely absorb some of the cost, a portion of it will no doubt be passed along to the very advertisers who have been demanding more accountability from publishers.
“We think this money is a good investment,” said Still. “We want our advertisers to absolutely know that, when they buy our titles, they are getting what they think they’re getting.”