Just What We Didn't Need

Folio: The Magazine for Magazine Management, Feb 1, 2004 by Jillian S. Ambroz

Byline: Jillian S. Ambroz

David Leckey, senior vice president of consumer marketing for Hachette Filipacchi Magazines, began the new year by accompanying Woman's Day publisher Laura Klein on an agency call. The agency, representing a packaged-goods client, had asked for Leckey to explain the details of the magazine's audit statement. Leckey, who has grown used to such requests, was unprepared for the grilling he got this time.

Instead of simply going over the Woman's Day audit statement, Leckey was hammered about circ trends not only at that magazine, but across Hachette and the industry. It soon became clear that having read about unreliable newsstand and subscription data, this advertiser wanted extraordinary assurances about the size and quality of circ. And this agency is not alone in putting the screws to magazine publishers. "I find myself going to more sales calls," Leckey says.

Ad managers, publishers and marketing directors suddenly getting the third degree know who to blame: Gruner + Jahr. Its notorious newsstand reporting gaffes have raised fresh questions about circ practices across the industry. "The most important thing that happened in 2003 was the whole contretemps with G+J and its overstatement with single-copy sales," says Chip Block, a circulation consultant. "The fact that a major company had this problem calls into question the circulation data used by advertisers." In late January, two months after the damaging reports emerged in the Rosie trial, CEO Dan Brewster Jr., was being forced out.

So far, there is no evidence that what G+J did is indicative of an industrywide problem. Nor, in fact, did the well-publicized incidents cause G+J customers grievous harm: The company's magazines missed their promised rate bases by less than 2 percent, which is allowed under rules of the Audit Bureau of Circulations. Every year, according to ABC, approximately 10 percent of audited magazines report shortfalls within the 2 percent limit.

Nevertheless, the G+J revelations have become a convenient excuse for advertisers to ask even more probing questions about the quality and size of magazine audiences. "Publishers are complaining that all advertisers want to talk about is circulation," says Block. "It's a distraction to the sales process."

Denny Fallon, advertising sales manager for Guns magazine, calls it the "Enron Effect." He explains: "Any time you plant a seed of doubt - any type of insecurity, instability or attack of credibility - in any portion of the publishing business, everyone feels it."

And what is merely annoying and time-consuming for major publishers could be life-threatening to smaller ones. New and unaudited magazines, as well as second-tier books, stand to lose the most in this climate of skepticism, says consultant Martin Walker, chairman of Walker Communications.

Startups, especially those not affiliated with major publishers, could be particularly vulnerable. New magazines always face the hurdle of convincing would-be advertisers that newsstand sales will materialize. In this environment, says Maggie Connors, vice president and group media director at Foote, Cone & Belding New York, advertisers may simply choose to avoid the risk.

Unaudited publications will likely face an uphill battle in this era of heightened scrutiny, too. In fact, Block predicts, the situation could lead to a higher mortality rate among magazines in 2004. "Publishers will fight more and more for pages and dollars," he says. "All the secondary magazines will have problems."

Although the increased scrutiny did not start with Gruner's woes, its high-profile errors put the simmering issue of circ credibility squarely on the front burner. Ever since the sweepstakes uproar of a decade ago raised questions about the quality of circ, advertisers have demanded more proof of readership size and quality. Then, when ABC and BPA International eliminated the so-called 50 percent rule in 2001, publishers had to disclose more information on how much money is actually being paid per subscription. That gave advertisers another way to gauge the level of reader interest in a particular magazine.

As in any business dispute, the tussle over missed rate bases and fluctuating newsstand is really about dollars. Whenever a magazine misses these days, "advertisers are merciless in coming back and demanding rebates," says consultant John Harrington of Harrington Associates. These take the form of free make-goods or discounts on future rate-base bonuses. And, while few contracts yet require it, more advertisers are pressing for magazines to hit their bases with every issue - not just on an annual basis.

Clearly, the sight of tabloid headlines about Gruner's misses was the last thing magazine publishers needed. Just when they were looking forward to a turnaround from 2003 - a year marked by falling newsstand, an anemic ad environment and costly rate-base cuts - the Rosie trial unearthed allegations that G+J had blatantly manipulated newsstand estimates to keep the joint-venture with Rosie O'Donnell going. The New York Post and various ad-industry publications carried detailed coverage of testimony by Brewster and his circ chief, Diane Potter, who told how her people had counted some subscription sales as newsstand to cover up the declining performance of Rosie.