The ABC censured Hollinger International’s Chicago Sun-Times and Tribune Co.’s Hoy and Newsday "for circumvention of ABC’s bylaws and rules." ABC also censured Synapse Group, which operates freebizmag.com, for "improper record-keeping" in conjunction with a subscription program it ran for Ziff Davis Media’s PC Magazine.
ABC did not censure Ziff Davis or PC Magazine. But as a result of the Synapse Group’s lapse, Ziff Davis acknowledged in a statement it issued last Monday that ABC may require the company to reclassify some subscriptions to PC Magazine from "paid" to "analyzed nonpaid direct request." Ziff Davis, which declined to comment for this story, said it may appeal the decision.
The particulars of the controversy are unclear. ABC has refused to comment, and Synapse would only say it was working with the auditor to improve its record keeping.
Ziff Davis’ statement said freebizmag.com offered free subscriptions, which were to be paid by a third-party sponsor, to site visitors who completed a survey. Because Synapse didn’t bill the sponsor promptly, the subscriptions weren’t paid for within seven months, which runs afoul of ABC rules for classifying subscriptions as paid. ABC rejected Ziff Davis’ request for an exception to the rule.
Some industry observers surmise that Ziff Davis’ violation was little more than a technicality. "The question is: Did it diminish the value of the advertising? Did the subscribers get the magazine and did the advertising get exposure?" said Robert Crosland, managing director of media investment bank AdMedia Partners. "The only issue I see is that somebody didn’t hold up their end of the deal. Ziff Davis got jobbed."
Others in the industry, however, are concerned that offering the free subscriptions, even if they are paid through a third party, is a suspect way of generating circulation. Further, because many of the subscriptions garnered through freebizmag.com appear to be digital editions, some in the industry—including PC Magazine competitor PC World, published by International Data Group—say Ziff Davis’ practices call into question how electronic subscriptions are accounted for.
ABC has not issued an official audit report on PC Magazine since Dec. 31, 2001. Earlier this year, the magazine reduced its rate base from 1,225,000 to 1,050,000. At issue may be PC Magazine’s digital circulation, which stood at 172,640 in its last official audit, and that is the approximate figure shaved from its rate base.
PC Magazine includes all its digital subscribers on its ABC statements. PC World, on the other hand, counts only those subscribers who have downloaded the digital edition, a necessary step before reading it. While PC Magazine counts more than 170,000 digital subscribers, PC World counts less than 3,000. "This is one of the top 50 magazines in America overusing digital subscriptions to save money," said IDG CEO Pat Kenealy.
But Joel Novak, managing director of media investment bank Berkery, Noyes & Co., argued that the standard for auditing has always been delivery, not whether a subscriber read the publication. "If they subscribe to an electronic copy—and let’s assume it’s paid even if a third party is paying for it—from my point of view, that is a paid subscription, period," he said.
The financial repercussions, if any, of PC Magazine dropping its rate base are unclear, but some advertisers may want rebates or "make goods" for the approximately 14% discrepancy in the rate base. "You’d have to admit that somebody who’s taking the money out of their own pocket or their company’s pocket is a different paid subscriber than someone who’s getting the publication on somebody else’s nickel and then not even taking the time to download it," said one media strategist who spoke on condition of anonymity.
In any case, it’s certain that PC Magazine will find some tough negotiators across the table when ad schedules for 2005 are discussed.