NEW YORK — To the casual observer, it may seem the magazine industry has weathered an awful lot of bad news about circulation over the past two years.
The best-informed publishing executives don’t see it that way, however. In their candid moments, these insiders freely acknowledge the worst is yet to come.
“We’ve only seen the tip of the iceberg,” said a top executive, who asked not to be named. “This is a f—ing disaster. It’s Armageddon.”
Publishers and advertisers got a glimpse of what the end-of-days could look like several days ago when the Audit Bureau of Circulations, the chief organization monitoring magazine and newspaper sales in the U.S., revised its audit for Business Week, dismissing 6 percent of the title’s subscription claims. The change, which retroactively caused Business Week to miss its rate base, or circulation guarantee, for the 12 months ended in June 2004, stemmed from a recent decision by ABC’s board to disqualify many subscriptions sold by two major agencies, EBSCO and In-Flight.
ABC president Michael Lavery said at the time the decision would affect approximately 100 magazines. This week, Lavery revealed to WWD that the ABC is digging even deeper and has reopened its 2003 audits for “less than a dozen” magazines that did business with EBSCO or In-Flight. He also said ABC has identified a number of other agents that have aroused suspicion by failing to provide auditors with documentation requested of them.
“There is a small group, three or four other agents, that we are awaiting information on,” he said. “It is too early to identify them.”
This risk-averse stance has many consumer marketing officials fuming. “A good auditing organization would tell you where you might have future problems,” said one executive. “It’s like they’re saying, ‘We know you’re doing something wrong, but we’re not going to tell you what,’ so it’s only after the fact that you go, ‘Oh my God, I could’ve fixed this.’ Frankly, a lot of publishers are going to say, ‘Let’s just keep going until someone steps on another land mine.'”
The question of which agents will come under the microscope next looms especially large in light of the impending release Monday of ABC’s semiannual FAS-FAX report, containing publishers’ circulation estimates for the first half of 2005. The figures reported in FAS-FAX are always subject to audit, but given the zeal with which ABC has been tossing out suspect circulation of late, this batch of numbers will be regarded with particular skepticism.
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“Nobody knows exactly what the deduction level is going to be,” said one circulation executive. “You cannot rely on FAS-FAX for accurate reporting.”
And there are even larger questions looming over next year. Beginning in January, there will be new rules governing bulk circulation, such as public-place copies distributed in doctors’ waiting rooms and sponsored copies published en masse by businesses. Most such copies can currently be reported as paid circulation; under the new rules, most of them will fall under a new category, called qualified. Publishers will have to choose between eliminating the bulk from their files, resulting in lower rate bases; spending more money to replace those copies with subscriptions that will count as paid, or trying to sell advertisers on the value of qualified — i.e. unpaid — circulation.
Several major publishers, including Time Inc., Hearst Corp. and Hachette Filipacchi, have indicated they plan to take the last course, at least in some cases. “There’s a real value for what has traditionally been called public-place copies,” said Michael Clinton, Hearst’s executive vice president and chief marketing officer. “I think the advertiser puts a lot of value on the right amount of copies going into targeted areas. It becomes a question of how much. If someone has 30 percent of their circulation in public place, I think the advertiser questions that.”
But advertisers, who are always looking for any leverage they can get in negotiations, may take more persuading. Charlie Rutman, chief executive officer of North American operations for media agency MPG, said he did not expect marketers to pay as much for bulk copies as they do for individually paid ones. “One of the beliefs in the magazine business is must-buy equals must-read,” he said. “I like that. It’s a little hard for me to value the person who goes to the newsstand every month or conscientiously fills out a subscription card once a year as equal to the person who happens to be sitting there in a waiting room, picks up the magazine and looks through 10 pages.”
And it’s not just advertisers’ reactions that publishers have to worry about, but each other’s, too. One executive said he intended to purge his magazines of all circulation that might be labeled qualified, fearing that otherwise, rival publishers would successfully use it to disparage his titles in the eyes of advertisers. He ruled out reducing rate bases by the same logic. “The people who have to do that are going to get attacked by their opponents. This is going to be nasty.”
One potential way out of the mess would be for publishers to become more like television broadcasters and sell to advertisers based on audience rather than circulation. Hachette ceo Jack Kliger is a major proponent of this idea. “I don’t see how return-on-investment can be evaluated based on circulation metrics,” he argued. “There’s a lot of parts of this discussion that go beyond the question of what’s paid.”
It’s a discussion more publishers may be interested in having before long. For now, however, they’re mostly preoccupied with wondering who will be the next Business Week. ABC would not say which magazines are affected by the EBSCO and In-Flight decisions, or whose 2003 audits have been reopened. One magazine known to be among the latter, however, is Martha Stewart Living: Auditors deducted 42,000 subscriptions, or 1.8 percent of the total, from its 2003 claim, although the magazine still made rate base for the period, according to a spokeswoman. She added that subsequent statements were not affected.
Beyond that, the only certainty is that there will be plenty more Business Weeks in the weeks ahead. “The only people who know are ABC and the individual publishers, and neither is going to talk,” said a circulation executive. “This is going to come out one magazine at a time. It’s like Chinese water torture.”