Includes PDF of Time Letter to Advertisers

Time Inc. Circulation Records Subpoenaed

150 Clients and Advertisers Notified of Federal Investigation

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NEW YORK (AdAge.com) -- Time Inc. has been subpoenaed by the U.S. Attorney in the Eastern District of the Court of New York for information about the company's sponsored sales programs. Such programs have come under new scrutiny after the Audit Bureau of Circulations disqualified a sponsor earlier this year.

audio bug See Time Inc. letter to advertisers

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150 notified
The company, which received the subpoena in late July, has talked to about 150 of its major clients and media buyers to alert them to the subpoena and walk them through the sponsored sales programs that some of its titles have used.

Sponsored sales programs, as described by Time Inc. Executive Vice President Jack Haire in a letter to advertisers, include "magazine subscriptions purchased by a sponsor for distribution either to public places, such as waiting rooms in doctors' offices, or to a targeted group of individuals selected based on the subject matter of the magazines."

Under Audit Bureau of Circulations rules, sponsored sales subscriptions may be counted as "paid" circulation if the sponsor pays at least one cent per subscription. Time Inc. now plans to change a number of those subscriptions from "paid" to "qualified" on ABC Publisher Statements as of the period ending June 30, 2006.

5% of total circulation
At the Time Inc. magazines that are tracked by the audit bureau and have rate bases -- paid circulation guarantees for advertisers -- about 5% of the total circulation is now classified under sponsored sales.

And certain titles are far more exposed to reclassifications than others. People en Espanol, for example, reported an average paid circulation of 462,099 during the first six months of the year, comfortably above its rate base of 450,000. But the total includes 108,682 copies that were derived from sponsored sales, or a whopping 24.2% of the rate base.

In an interview today, Mr. Haire said the company and the audit bureau will review all its sponsorship programs. "There are programs that have gone on for many years that have passed muster in the past that may not now," he said. "If any subscriptions that we have in our files don't pass this new threshold we will reclassify them."

Wildly mixed reactions
A media agency executive who had been briefed by Time Inc. predicted wildly mixed reactions to the news. "There will be very angry buyers," the executive said. "There will be buyers who understand how the magazine business has changed over the years and how hard it's been."

Any circulation that shifts from the "paid" column to the "qualified" column will place another burden on Time Inc., the executive added: "They're going to have to come up with some research on engagement." That means the company will have to demonstrate how well readers remember advertising from magazines in waiting rooms and compare that with the recall of home subscribers or newsstand buyers.

Mr. Haire declined to comment on the subpoena.

Investigation confirmed
Dawn Bridges, a spokeswoman at Time Inc., said the company is cooperating fully with the investigation and is committed to open and transparent communication with its advertisers. She declined to comment further. Robert Nardoza, a spokesman at the U.S. Attorney's office, declined to comment.

It is not clear whether other subpoenas have gone out, but Time Inc. may stand alone among the biggest publishers. No subpoenas have been received by Conde Nast Publications, its sibling Fairchild Publications, Hearst Magazines, Hachette Filipacchi Media, Martha Stewart Living Omnimedia, McGraw-Hill (which publishes BusinessWeek), American Media, Meredith or Ziff Davis Media, according to the companies. Other publishers could not be reached or could not provide comment on deadline.

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