When the Audit Bureau of Circulations on Monday distributed its much-delayed and much-disputed 2002 and 2003 audit reports for PC Magazine, the Ziff Davis Media flagship presented the verdict as a split decision.
On one hand, the 2003 audit report reclassified a significant portion—an average of almost 260,000—of PC Magazine’s circulation from "paid" to "analyzed nonpaid." The magazine fell an average of 21% short of its paid rate base at the time of 1.2 million, according to the audit report.
This shortfall will likely pose problems for PC Magazine when it deals with advertisers and media buyers, which may come to the negotiating table with demands for rebates or discounts. "You are getting value, but there’s the question as to the degree of value relative to what you thought you were buying," said Tyler Schaeffer, a media strategist at Foote, Cone & Belding, New York. "You should definitely discuss with magazine management, depending on each advertiser’s situation, whether this could involve reduced costs or remuneration or future negotiations."
That situation, in turn, has the potential to hurt Ziff Davis financially when the company has been gaining strength over the past year. Newspaper companies, faced with their own circulation troubles this year, have set aside funds on the balance sheet for make-goods with advertisers.
"This has nothing to do with that," said Ziff Davis spokesman Randy Zane. "They actually delivered newspapers to people who were dead. ABC verified that we delivered our copies to individuals. We’re not giving any rebates back."
This is Ziff Davis’ take on the situation: The audit reports appear to support PC Magazine’s contention that it delivered on its total circulation. The argument that the company is taking with a press release it distributed and crisis public relations talking points is that the reclassification of some subscribers to "analyzed nonpaid" is nothing but a technicality that didn’t affect the quality of the circulation. "Advertisers understand that it’s a reclassification, and they understand that we delivered value," said Tim Castelli, senior VP-publisher of the PC Magazine group.
The circulation flap centers around freebizmag.com, a subscription agent Web site operated by Synapse, which is owned by Time Warner. Subscriptions to PC Magazine, which were free to visitors but paid for by a third-party sponsor, were offered on freebizmag.com in 2002 and 2003.
In its audit of PC Magazine, the ABC discovered that the subscriptions had not been paid for within the organization’s required seven-month time frame and thus disallowed them as paid. The ABC also censured Synapse for its lax billing practices. But because Synapse’s freebizmag.com Web site gathered information about the subscribers for PC Magazine, the circulation was classified as "analyzed nonpaid."
International Data Group’s PC World, PC Magazine’s key competitor, argues that PC Magazine’s audit report shows a magazine cutting corners to maintain circulation. Not only did PC Magazine rely on digital editions--which reduce postage and printing costs--for a large number of subscriptions, it included nearly 35,000 "transfers" from defunct Ziff Davis publications Yahoo! Internet Life and Sm@rt Business.
"They cut circulation expenses a little too much it looks like to me," said Pat Kenealy IDG CEO.
For its part, PC Magazine said it has intensified its oversight of its subscription agents, and Castelli expects that with timely billing, PC Magazine’s "analyzed unpaid" circulation will dwindle over the next few years and its "paid" circulation will increase.