Heading Into a 'Circulation Recession'

Folio: The Magazine for Magazine Management, July 1, 1999 by Teresa Ennis, Mary Harvey

Hit with one crisis after another, publishers are desperately searching for new ways to attract subscribers--or survive with fewer readers.

It may be the worst two years in the history of magazine circulation.

First came the Federal Trade Commission s crackdown on subscription agent telemarketing practices in July 1997. By March of the following year, American Family Publishers and Publishers Clearing House were knee-deep in consumer deception complaints or lawsuits filed by the attorneys general of more than 30 states. On the heels of those inquiries, the federal government announced it also was investigating sweepstakes promotions, and the Deceptive Mail Prevention and Enforcement Act--a bill that would severely limit sweepstakes promotions by imposing strict regulations--was born. In late May of this year, the bill was approved by the Senate Governmental Affairs Committee and sent to the full Senate to be voted on sometime this summer.

In the middle of the stampsheet crisis, the magazine-circulation business found itself tragically back in the news when a subscription agency was tied to a March 25th van crash in Wisconsin that left seven magazine field sales reps dead and five seriously injured. The case--involving the Oklahoma City, Oklahoma-based subscription agency, Subscriptions Plus Inc.--was passed to the Wisconsin Department of Justice for prosecution of 83 labor law violations. State investigators then tied 229 consumer law violations to the company, and local papers headlined horror stories from teenagers who told tales of drug abuse and harsh working conditions in the high-pressure world of door-to-door magazine sales.

Most recently in the ongoing sweeps saga, AFP agreed to a $4 million settlement with four states and promised to revise its practices by offering clear and conspicuous no purchase necessary" disclaimers on sweeps mailings, as well as prominent disclosure of odds of winning. In addition, there's talk of AFP losing $30 million this year and initiating a zero-remit policy that would have a detrimental impact on the circulation economics of a large number of publications. (See "American Family Woes Stir Talk of Zero-Remit Plan," page 91.)

For over two years, publishers have been fending off one crisis after another in their agent-generated business, in addition to battling declines in response to their own direct-to-publisher orders. And as the hits keep on coming, publishers say the future of subscription marketing is in question and that a "circulation recession" is imminent. As traditional sources produce less and less volume, prices associated with subscription acquisition will continue to soar.

Most urgent is the steep volume declines from the stampsheet agents. A recent industry survey, conducted by Dan Capell, editor of "Capell's Circulation Report," found that responses to the 1998-99 year-end mailings were down an average of 37.4 percent for magazines sold via AFP, compared to year-end 1997-98 mailings. Subscription rates were down an average 29.2 percent for PCH clients.

The most immediate effects of the continued declines may surface in "some very unattractive ABC statements," according to Gregory Zorthian, vice president of business development at Forbes. His magazine has not been as hard hit as others, but he says circulation directors at some titles are scrambling to make rate-base and are being forced to use arrears and other tactics.

"There's no question that stampsheets and direct mail are not generating the kind of volume they used to," says Stephen Giannetti, publisher of Prevention. "The model of direct mail and stampsheets is not one that's sustainable for the future. The consumer has said, 'direct marketing is not the way we want to be solicited.' The question," he says, "is where are we going to get readers?"

Capell agrees. "I don't think that people are going to increase their direct mail volume to try to offset this," he says. "It's just too costly."

The Internet is clearly the first source that publishers are using as a replacement. "We are generating more subscriptions now through the Internet than through offers in our newsstand copies," says Giannetti.

But not all publishers report similar success. David Obey, consumer marketing director of Conde Nast, says, "We all know [the Internet] is coming and that it's going to be big, but it's not a huge factor in our business yet."

Publishers may try to recoup some lost volume by developing proprietary sweeps efforts. "You'll see more and more publishers doing their own sweepstakes," says Brain Beaudry, circulation director for Wenner Media. Although he acknowledges that this type of promotion is difficult for publishers to make work on their own, he says Wenner is currently testing an independent sweepstakes program for its three titles, Rolling Stone, Us and Men's Journal.

But these types of independent promotions may be even more difficult to get off the ground if the federal sweeps bill passes in its current form: The bill proposes a nationwide 800-number through which consumers could request that their names be removed from all sweepstakes lists.