Stampsheet firms adapt to maintain success

Folio: The Magazine for Magazine Management, April 1, 1992 by Karen Burka

Direct-mail subscription firms - better known as "stampsheet agencies" - are enjoying continued success, despite the recession. Traditionally used as a supplemental subscription source, their value has been enhanced in recent months as magazine publishers face newsstand sales declines and rising direct-mail costs.

"They're risk-free," says Stew Eisberg, Newsweek's circulation manager. "If we mail one million names and get no response, we still have to pay for the mailing. If Publishers Clearing House does the mailing, we don't pay for anything."

Indeed. The stampsheet agencies pay all direct-mail costs, and the publisher not only pays nothing, but typically get to collect 15 percent of all revenue generated. The publisher also gets reap the full benefit if the subscriber converts.

The concepts of stampsheet agencies was born in 1953 with the founding of Publishers Clearing House. The simple premise was that offering consumers a choice of magazines increases the chance that they'll buy one. The idea also was to let the U.S. Postal Service do the work instead of leaving it to door-to-door sales-people. American Family Publishers (AFP) entered the market in 1979, followed by Magazine Marketplace in 1980. Magazine Express, the newest agency, was created in 1989.

Today, the big two - PCH and AFP - reportedly each have sales of about $100 million annually and account for about 30 percent of all new subscription business. The smaller agencies combine to account for about 5 percent of all new subscriptions, says Dan Capell, publisher of "Capell's Circulation Report."

Their importance is undiminished Says Deb Glasserow, president of DDG Communications, a consultancy: "Publishers are much more appreciative of the agencies today because it costs so much to get out in the mail." But to maintain the big numbers, some changes are apparent in the stampsheet business these days. Among them: Agencies are increasing testing non-magazine products, presumably because of the effect the recession has had on publishing; rising printing costs and postal rates are forcing the agencies to mail "smarter"; sweepstakes prizes are ballooning; and packaging techniques are becoming more and more elaborate.

Perhaps the biggest change is the diversification into sales of ancillary products, such as books, videos and audiocassettes. "Years ago, PCH was able to turn a profit on sales to new customers," says Michael Michaelson, president of Rainwater Enterprises, a New York City-based magazine consultancy. "But today, they are in a situation similar to that of the publishers they work with - they have to spend money to generate a new name and then turn to ancillary revenue streams to make a profit."

Today, PCH's offerings include books from magazine clients Rodale Press, the New York Times Co. and Meredith Corp., as well as others. PCH president and CEO Robin Smith says the company is pleased with the results of initial merchandise stampsheet mailings, but she realizes ancillary product sales will never equal magazine sales. "We don't want to hurt magazine sales - therefore, we have strict criteria so that the ancillary products that we sell can't impact magazine sales."

Complementing magazine sales

Michaelson believes that ancillary sales will complement magazine sales. "Ancillary selling will make customer names more valuable," he says. "The more that people buy from you, the more direct-mail responsive they are in general."

Newark, New Jersey-based American Family also features a variety of non-magazine offerings. AFP executives were not available to be interviewed for this report.

Clay Patino, president of Peoria, II-linois-based Magazine Marketplace, says he has diversified to be more competitive with PCH and AFP. "The two larger agencies have been in business longer and have an established reputation. That has precluded us from growing as fast as well would like," he explains.

But the newest agency, New York City-based Magazine Expects, Isn't jumping on the bandwagon. "We want to be important to magazine publishers - we won't sell anything else," says president Henry Turner, who adds that ancillary products take sales away from magazines because discretionary spending is limited by today's tough economy.

Agencies are also having to adjust to the rising postage and printing costs by "mailing smarter." According to Smith, the cost of the average PCH direct-mail package has increased to between $400 and $500 per thousand. the agency has also had to get tougher with non-magazine buyers who enter the sweepstakes. "We can't afford to mail to people who don't buy magazines," she says. "We remind them in subtle - or even not-so-subtle - ways that we are in the business to sell magazines." The decision to drop a name from a mailing list is quite scientific, based on 20 variables.

On the creative side, direct-mail writer Janet Rothstein, a former PCH copy supervisor, says packaging techniques are changing to get potential customers involved more quickly. Involvement devices - all those stamps, stickers and scratch-offs - are now appearing on the outer envelopes of sweepstakes packages, grabbling the prospect's interest even before he or she opens the envelope. "Every time prospects have to scratch or put a stamp somewhere, they believe they're getting closer to that prize money," says Rothstein.