ABC feels heat of circ scandals

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The Audit Bureau of Circulations is under fire as publishers and media buyers wrestle with just how accountable the agency is in recent high-profile newspaper- and magazine-circulation scandals, and whether its "gold-standard" status is now tarnished.

"We put a tremendous amount of power in the hands of [the Audit Bureau], and I've always felt uncomfortable with it," said Audrey Siegel, a media agency executive who serves on an advisory committee to Audit Bureau rival BPA. "They're the self-proclaimed gold standard," said Ms. Siegel, exec VP-director of client services, Targetcast TCM. "Perhaps we never reached gold."

Last week, Gruner & Jahr USA Publishing announced five of its six titles would miss rate base-the circulation guaranteed to advertisers-owing to problems with one subscription agent's sales, Publishers Communication Systems of Coral Gables, Fla., which G&J is now suing (see related story, P. 1). Four major newspapers-Belo's Dallas Morning News, Tribune Co.'s Newsday and Hoy and Hollinger's Chicago Sun-Times-confessed in 2004 to significantly overstating circulation figures. Last summer, Ziff Davis' flagship PC Magazine was discovered to have misclassified 320,000 subscriptions between 2002 and 2004 as "paid"; a restatement made the title miss its rate base in 2003 by 21%. And in 2003, Audit Bureau audits revealed G&J's now-defunct YM and Rosie claimed much higher newsstand sales than they'd actually sold.

Audit Bureau audits caught some of the shenanigans-but, as Audit Bureau President-Managing Director Michael Lavery admits, not all of them. And, as publishing and marketing executives are quick to point out, audits only catch mistakes many months after the magazines-and the ads marketers bought in them-have left newsstands and night tables.

The Audit Bureau "is coming under fire," said a major print-buying executive. "They are not immune to all of this controversy."

wake-up call

Sensing opportunity, BPA has ramped up its pitch to publishers and, in the last couple of months, to media buyers. In early December, the BPA board gave final approval to put its consumer-publication audits on the Web. This will end one longstanding gripe about BPA-that its former policy of only issuing audit results if it found significant irregularity to publishers' numbers made its work seem less solid than the Audit Bureau's detailed audit reports. BPA's board also agreed to provide more analysis of "sponsored" sales of publications-which are paid for by a third party, and which currently concern some marketers.

The circulation scandals served "to wake us all up," said Paul Woolmington, CEO-head chef, Media Kitchen, to "how ineffectual we are as a marketing community policing what we pay for, and what we should be getting in return."

The clout the Audit Bureau wields in the marketplace is hard to overstate. It's the sole circulation measure for all of the nation's major daily newspapers and virtually every consumer magazine of note. This gives its audits tremendous power in the allocation of almost every dollar marketers spend in print-which Zenith Media estimates will total $74.6 billion this year. Its board is studded with heavyweights from the marketing and publishing worlds. (Until his retirement last year, the Audit Bureau board was chaired by Michael Browner, the former media-buying head of top print spender General Motors Corp.)

In sheer numerical terms, the Audit Bureau measures circulation on just under 2,400 print publications. In its 2004 fiscal year (which ended Aug. 31), the company reported revenue of $26.2 million-of which $17.1 million comes from auditing fees, which are borne solely by publishers. In BPA's most recent fiscal year, it took in about $15 million; it audits more than 2,000 business-to-business and 600 consumer publications. Both companies, which are not-for-profit organizations, charge publications for their audits based on factors like circulation size and complexity of the audit.

Despite BPA's entreaties, it hasn't won over many converts-yet. But last fall, McGraw-Hill Cos.' Business Week has signed to do dual audits with the Audit Bureau and BPA, and TV Guide Publishing President John Loughlin has indicated that his company's weekly launch, Inside TV, will be dual-audited as well. Insiders said Hearst Magazines mulled using BPA to measure its recent launch, Shop Etc.

To be sure, more than a few influential magazine executives express solidarity with the Audit Bureau. "The [Audit Bureau's] audit process works," said David Leckey, senior VP-consumer marketing, Hachette Filipacchi Media U.S. and an Audit Bureau board member. "What the Audit Bureau rarely gets in the press is credit [when] they uncover these infractions."

Mr. Leckey and other executives credited last week's G&J news to more stringent Audit Bureau scrutiny on subscription agents' sales of paid subscriptions. But several publishing executives also spoke of receiving conflicting marching orders from Audit Bureau as to what constitutes proof-of-payment, a topic which one circulation veteran, witnesses said, heatedly surfaced at a recent Audit Bureau meeting. "I can pick up the phone and get four different [Audit Bureau] staff members, and four different determinations in one day," sighed one circulation executive.

nuances and complexity

"That's inaccurate," said the Audit Bureau's Mr. Lavery. "They may be asking for us to opine on four different circulation marketing programs, each having its own nuances and each being complex." He said proof of payment-which G&J and its agent PCS were apparently unable to provide-required nothing more than a canceled check or evidence of a credit-card transaction, and that those funds went to the agent or publisher.

Still, executives' private comments reveal a new level of concern.

"I have to look at BPA," said one magazine executive recently, "because [the Audit Bureau] is not catching the bad guys." Another circulation executive calls this "a fair statement."

A key selling point for BPA is that its audits are completed within six months. Although the Audit Bureau has substantially shortened the time it takes for its audits, they do not appear as quickly. Mr. Lavery said the Audit Bureau board continues to study ways to speed this process. (Mr. Leckey said the six-month window was "within our grasp.")

But Kent Brownridge, general manager, Wenner Media, believes the situation won't improve until the Audit Bureau can provide real time audits. "If the Audit Bureau is serious about reforming, they need to establish a Web site and put everyone's circulation on there issue by issue in real time. So any agency can check out a magazine's circulation and see what the November issue did." That way, he said, publishers can't backtrack at the end of a reporting period "to see how bad they have to cheat."

Yet signing up with BPA is not as simple as it sounds. Key marketers-among them, those that rank high among print's biggest spenders-make clear that publications simply switching from ABC won't necessarily result in circulation claims accepted at face value.

"Dual auditing, to me, is really ridiculous," said Donna Campanella, Pfizer's director-team leader, media at Pfizer and an Audit Bureau board member, who cited concerns about "comparability" of BPA audits to past Audit Bureau figures. Should consumer titles switch to an outside auditing firm like PriceWaterhouse Coopers, which some publishing executives have mused aloud, Ms. Campanella said "I would have to wonder why someone is taking it in-house."

"The current BPA statement does not get you there," said Betsy Lazar, GM's general director of media operations. "There would be levels of additional disclosure we would be looking for." Adds Linda Thomas Brooks, exec VP-managing director of GM Mediaworks, "The [Audit Bureau] audit is the more thorough audit. ... There is a reason we dedicate our time to the Audit Bureau. We believe in the process and the data we get."

BPA audits "provide more information than [Ms. Lazar is] used to getting," said BPA President-CEO Glenn Hansen.

Still, as publishers continue to scrap for every ad dollar they get- in an environment in which circulation scandals, rightly or wrongly, result in all circulation claims being subject to dissection-such concerns from big spenders are not easily dismissed. Executives in various parts of the industry say some top marketers' reactions to the prospect of publications leaving the Audit Bureau is that titles would do so "at [their] own peril," as one put it, in terms of ensuring future ad buys. (Ms. Lazar, for one, says she's not aware of GM ever having made such threats.)

Audit Bureau audits "are accepted as coin of the realm," Mr. Lavery said. "Ask if any agency has ever questioned [the Audit Bureau's] audit numbers. They all answer, `No.' So, I think any move to have dual audits, perhaps, speaks to another agenda."

In response to the newspaper overstatements and mounting internal and external attention to them, the Audit Bureau's board last year undertook additional rule changes aimed at strengthening its oversight. Newspapers' street-sales will be held to greater scrutiny. Consumer publications can also opt for quarterly release of audited circulation, a process that was first adopted by the New York Daily News.

In an interview conducted during the Audit Bureau's annual meeting in November, Mr. Lavery pledged to increase ABC's auditors by around 10%, which will add between 10 and 15 positions. (In its last fiscal year, the company spent $8.5 million on auditor-related expenses.) In a more recent interview, he amended that statement to say "we are going to get however many more it takes." He also said the Audit Bureau will now conduct more "investigative audits" in hopes of catching other misdeeds sooner. Last year, the Audit Bureau made new rules governing the censure of members that ran afoul of certain circulation guidelines.


"I've been at BPA 25 years," said a cheeky Mr. Hansen, during which "we've censured, expelled, put on probation close to 400 [titles]. They've decided to do it for the first time. I am delighted, and we welcome them to this space." (An Audit Bureau spokeswoman said the 90-year-old Audit Bureau has previously censured members, but before 2004 it had not done so for "at least 20 years.")

"We continue to fully endorse" the Audit Bureau," said George Janson, managing partner-director of print, WPP Group's Mediaedge:cia. "They are taking some of the right steps by hiring more auditors and reviewing some of the processes."

But this alone isn't enough to satisfy some print-buying executives. "No one has come forth with an explanation of how these [circulation overstatements] slipped through the cracks" at the Audit Bureau, said one.

"The one-word answer is `collusion,"' Mr. Lavery said. "Collusion and intent to circumvent ... can defeat audits for a period of time." He points out that there have been "numerous examples" of such instances in public accounting, but "you don't have any less faith in public accounting"-though former Worldcom shareholders might beg to differ.

All of the extra auditing practices will come at a price. Mr. Lavery said such moves are likely to make audit costs increase, "just like [federal disclosure law] Sarbanes-Oxley caused financial audits of public companies" to become more expensive. And here speed, too, becomes an issue. "The degree of granularity the audits go into ... it does have an impact on audit speed," said Mr. Lavery, though it had "not as great an impact as you would think." And audit timing remains a concern with both marketers and publishers, even among those that vocally support the Audit Bureau. "We want the audits out there and we want them faster," Ms. Campanella said.

The speed issue could work against the Audit Bureau, as well as the institutional heft of the organization.

Henry Scott, publisher of New York daily Metro, recently chose BPA to perform monthly audits of its circulation. Since Metro's a free paper not owned by a domestic newspaper company, Mr. Scott pointed out that the Audit Bureau was not even able to audit it. But that he nonetheless expressed doubt the Audit Bureau would have gone for such a ploy.

BPA "was willing to entertain our wacky idea," he said. The Audit Bureau "is a fantastic organization," said Mr. Scott, a former New York Times executive, but "from what I know I would have been surprised to get the same reaction" from it.

"It's much more bureaucratic."

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