HOW TO KEEP ABC RELEVANT: PRINT AUDITOR MUST MAKE ITS CHIEF MISSION FULL DISCLOSURE OF CIRCULATION DATA

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Over the next couple of weeks, as students cram for midterm examinations, the nation's newspaper publishers will sit breathlessly at their desks awaiting the examination results contained in the industry's biannual report card: The Sept. 30 Audit Bureau of Circulations statement.

Each daily's ABC "yellow sheet" will be scrutinized by trade media, security analysts and media pundits seeking to assert the life/death/stagnation/rebirth of the American newspaper business, depending on the mood of the moment. A similar ritual will follow the January release of the magazine industry's statement of average paid circulation for the six months ended Dec. 30.

There is only one problem with the traditional "average paid" statement: It represents a report card with only one grade, with the choices limited to pass (i.e. paid) or fail (unpaid). Circulation performance, like performance in school, is a lot more complicated than that.

CHANGING THE RULES

Dissension in the ranks of ABC's newspaper members over just that point has resulted in a historic agenda at ABC's November board meeting. ABC is debating its 84-year-old rule defining paid circulation as copies sold at 50% or more of basic price.

Where potential rule changes end up, however, will depend on the outcome of a debate only marginally less contentious than the one currently facing the U.S. House Judiciary Committee. One thing is certain: In an effort to offend no one, ABC's rule book will inevitably get more complicated.

Why have these debates in the first place? ABC, an organization whose 34-person board is drawn from the publishing, advertising agency and client communities, exists for one reason only: to serve the needs of advertisers. It regulates the reporting of circulation data to the media buying community, permitting buyers to make judgments based upon a common template. But in performing this mission, ABC has failed to keep up with the times.

The front pages of the March 1998 and the March 1938 average paid statements for The Wall Street Journal, for example, are remark-able in their similarity, a similarity that only serves to underline that the paid/unpaid categories that are employed today were crafted in a far simpler era than the one in which contemporary media and Badvertisers operate.

ABC's rigid adherence to what appears to be a strong standard has served, ironically, to discourage full disclosure of truly meaningful circulation data that enables media buyers to make informed judgments.

NO REQUIRED DISCLOSURE

For example, ABC rules define paid subscriptions as those sold at 50% or more of a "basic price." A monthly magazine with a $30 annual basic rate may count as paid all annual subscriptions sold for $15 or more, or six-month subs at $7.50 or more. However, ABC rules do not require magazines to disclose the average price paid, average subscription term or composite renewal rate.

Consider then two magazines with identical paid circulation of 500,000, and identical annual prices of $30.

Magazine A might have 80% of subscriptions sold annually at a full price of $30, and 20% in six-month subs at a half price of $7.50; magazine B might have the exact opposite ratio.

To a media planner, such variance would imply real differences in reader commitment, which, presumably, would reflect on the relative quality of each title as an advertising medium. But if the buyer relies on each publication's ABC statement, he or she will discover no differences whatsoever between the titles. As far as ABC is concerned, 500,000 is 500,000, and circulation quality a secondary issue.

ABC, to be fair, has instituted optional reporting columns in which magazines can detail average price paid and renewal rates. However, out of 700 magazines audited by ABC, only 60 report average price, and -- ominously -- only four report renewal rates. One title, AutoWeek [a sister publication of Advertising Age], reports both. ABC ought to make these optional standards mandatory. Statement Plus, an updated magazine disclosure form ABC will introduce next month, will have little impact should it remain discretionary for publishers.

The newspaper industry faces a different set of issues, which have tied it and ABC in knots.

SPECIAL DISPENSATION

Newspapers have found themselves seeking special dispensation to establish discounts for groups such as students and senior citizens -- a tactic termed Market Segment Pricing -- the same way the airlines used to petition the now-abolished Civil Aeronautics Board in the days before deregulation. Lost in all the theology of who does and does not deserve a discount is the question of whether or not the groups targeted are actually reading the publications, and whether or not an industry-sponsored research study of that question might be warranted.

But the Big Kahuna dividing ABC and the newspapers is bulk circulation, copies typically distributed in hotels, aboard airlines and in other public-place environments. All or various categories of bulk have been included, in turn, in the paid column, moved to "third-party (bulk) sales," moved back to paid and moved back to bulk again, depending on who held sway over the ABC board at the time in question.

RESOLVING A DISPUTE

In 1985, Gannett Co. and its irrepressible chairman, Al Neu-harth, temporarily pulled 14 of its titles out of ABC in a dispute over the status of USA Today's bulk circulation. The dispute was "resolved" via the 1987 creation of line 1C on Page 1 of the yellow sheet, on which was listed all bulk sold at 50% of retail cover price -- in contrast to those copies listed on Page 3, paragraph 5, which are bulk copies sold at less than half of cover price.

Copies covered in line 1C cannot be included in the official "average paid" total. But a publication can promote its total circulation, paid and unpaid, while citing as backup its ABC publisher's statement, since paragraph 1C technically does appear on the ABC statement. Got that?

If ABC members would pause from arguing with each other, they would conclude their advertisers, in fact, couldn't care less what a hotel manager pays for bulk copies; advertisers want to know if guests are reading those copies.

OBSCURING KEY DETAILS

This senseless debate over paragraphs and footnotes sounds like the publishing equivalent of wanting to tell the technical truth, while obscuring the key details (to borrow from current political vernacular). As a result, ABC finds itself in a quagmire that seriously threatens its credibility.

What is the way out?

The ABC must exit the business of making judgments and redefine its mission as the promotion of full disclosure.

Compared with 1938, or even 1988, today's media buyers are savvy enough to make up their own minds about the value of bulk circulation, the positives and negatives of subscription churn, and the relevance, or not, of retail and subscription discounting.

ABC must give these buyers standardized access to this data, not preemptively attempt to do their jobs for them by withholding or obscuring it.

CHANGES FOR CANADIAN PAPERS

ABC recently took a major step in that direction by allowing Canadian newspapers to include in their total circulation statements copies sold in bulk, for less than 50% of cover price or even distributed free -- as long as they are broken out separately.

But the proposal for changes in U.S. auditing requirements would not go that far. In fact, the proposal ABC's board will consider next month would even retain the bizarre rule that allows newspapers to count as fully paid those copies distributed by hotels for free -- as long as there is "acceptance language" printed in mouse type on the guests' registration form or room-key jacket.

Earlier this year, The Wall Street Journal took a significant step toward fuller disclosure by issuing its first Statement of Total Circulation. The STC, produced in parallel with the publication's March 1998 ABC statement, provides totals for all categories of Journal circulation -- paid, complimentary and third-party bulk. It details the average term, average price paid and renewal rate for the entire subscription inventory, including student subscriptions.

OFFERING A TEMPLATE

Finally, the statement shows the average price paid for all retail and bulk circulation, and the newsstand sell-through rate. Prepared with the assistance of Price Waterhouse Coopers, auditor of Dow Jones & Co., the Journal's parent, the STC offers a template we believe publishers of dailies, weeklies and monthlies ought to adopt.

"If we're not careful," said MediaNews Group's William Dean Singleton in a recent interview, "we're going to make the ABC irrelevant." Unfortunately, it may already be just that.

As publishers face increased competition in the coming world of Internet-driven "virtual circulations," ABC can help make the case for print only if it refocuses on the metrics that make print valuable: audience quality, audience loyalty and audience response.

You won't find that in paragraph 1C.

Mr. Atkinson is VP-advertising, The Wall Street Journal.

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