G&J Grapples With Collateral Damage of Rosie Trial

Media Buyers Angry; Mea Culpa Letter to Industry Readied

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NEW YORK (AdAge.com) -- Gruner & Jahr USA Publishing is under fire from advertisers following its bruising courtroom battle with Rosie O'Donnell. Media buyers are expected to seek cash rebates or makegoods on past buys in Rosie magazine and to closely scrutinize the circulation practices of other G&J magazines.

Testimony about misstated circulation numbers has sent a wave of anger through the media-buying community. Jeff Morgan, president, Polo Ralph Lauren Media Group called the trial fallout "a real blemish on the integrity of G&J."

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Some observers said the testimony by a G&J executive that the company knowingly overstated circulation for its joint venture title with Ms. O'Donnell gave a black eye to the magazine industry, which in recent months has been criticized for artificially inflating circulation in a bid for more ad dollars.

Media buyers look bad
"The tide lowered all boats," said Carat North America CEO David Verklin. The G&J situation didn't just affect its publishers but made media buyers look bad in the eyes of their clients, he said. "We look like we were asleep at the switch."

A print buyer who asked not to be identified was more succinct: "I'm pissed when I read someone outright deceived us."

An executive at G&J who requested anonymity reported being contacted by media buyers concerned about circulation. "I don't see how this is going to help me," the executive said.

In her pre-trial deposition, Diane Potter, G&J senior vice president for consumer marketing, said, "Rosie's newsstand sales were so low compared to what we had seen previously" that the publisher feared "if we were to report them accurately, the advertising community would react so negatively that the magazine would be in great difficulty."

Courtroom bombshell
That courtroom bombshell followed a serious circulation issue for another G&J title, YM, which was found to have overstated newsstand sales in the first half of 2001. Last April, it lowered its rate base to 2 million. G&J's other titles include Family Circle, Parents and Fitness.

The trial's revelations sparked speculation about the job security of Ms. Potter and other G&J executives. "The person ultimately responsible is still working there," said a leading print buyer, who specifically referenced "the person who oversees circulation."

Asked about Ms. Potter's future, Daniel Brewster, president-CEO of G&J, told reporters after last week's trial, "I don't have any plans at the moment to make changes." Ms. Potter did not return a phone call.

Regaining trust
G&J now is taking steps to keep or win back the trust of the ad community. It has hired Greg Zorthian, a former Time Inc. executive, to audit its circulation processes.

But, said Mr. Brewster, "I don't think we have adopted any practices that, frankly, aren't widespread within the industry."

Cindy Spengler, G&J's chief marketing officer, said the company has contacted marketers that advertised in Rosie to offer cash or credit for the rate base shortfall. She said Audit Bureau of Circulations has already agreed to audit all of G&J's titles for the first half of 2003, although she was uncertain when those would be complete. The company also planned to run an open letter to advertisers this week in the Wall Street Journal.

"I've had clients ask me about it," said one media buyer. "I'm throwing it back to G&J as to what steps they're taking."

'A real blemish'
But G&J still needs to overcome the blow to its reputation. "A real blemish on the integrity of G&J," said Jeff Morgan, president, Polo Ralph Lauren Media Group.

Some within the industry speculated about Mr. Brewster's future. "How do you leave Brewster there?" asked one industry executive. Mr. Brewster said he'd received assurances of support from G&J's top executives; one of them, G&J international head Axel Ganz, concurred in an interview.

Judge Ira Gammerman has yet to rule in the lawsuit, and written summations aren't due until Dec. 17. But he said neither side had proved damages.

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