G&J suit: Tip of the iceberg?

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Gruner & Jahr USA's revelation last week that several of its titles would fall below guaranteed circulation levels was gut-wrenching for its industry peers. The agent it blamed for the circulation shortfall provided an estimated 2 million subscriptions for numerous major publishers.

"This is just the beginning," one veteran circulation executive predicted.

Publishing executives were scrambling last week to examine their own subscription files for any sold by veteran circulation agent Publishers Communication Systems. The customer list of PCS is a virtual industry who's who: Time Inc.; Hachette Filipacchi Media U.S.; American Media; Meredith Corp. and Wenner Media.

Susan Allyn, consumer marketing director of Emap's FHM, warned that four subscription agents are "under the microscope" by the Audit Bureau of Circulations, at which she serves on a key advisory committee. One key circulation executive estimated problems with these four agents could affect "upwards of 80%" of the industry's major consumer magazines.

Though at least one other circulation executive backed Ms. Allyn's claim, Michael Lavery, the Audit Bureau's president-managing director, deflected notions that any agents were receiving special scrutiny.

"We are looking at [all] agents much more closely," he said, adding Audit Bureau bylaws prevented him from commenting on whether more circulation deductions may follow.

More expected

Still, said David Leckey, Hachette Filipacchi Media U.S.'s senior VP-consumer marketing, "It's an assumption on the part of a lot of us that, as [the Audit Bureau] is increasing its audit practice as far as greater documentation" for agent subscription sales. "We may see situations in which [circulation] deductions are made."

"I believe, in the next six or eight months," said Robin Steinberg, VP-director of print, Starcom Media Group's MediaVest, New York, "when [other] books are audited, we will see uncoverings of the same kind throughout the industry."

One knowledgeable circulation executive estimated Publisher Communication Systems sold around 2 million subscriptions a year. (This would make PCS a mid-sized player in the sometimes-shadowy world of subscription agents.)

Executives contacted for the story almost unanimously admitted to doing small volumes of business with PCS, volumes too insignificant to substantially damage rate bases should the subscriptions turn out invalid.

They're also quick to point out that there's no guarantee that their titles were involved in suspect PCS subscription marketing efforts-although agents typically sell multiple magazines in various cross-company packages.

FHM's Ms. Allyn said her magazine did some business with another company run by PCS CEO Walter Stevens. Hearst Magazines, according to Senior VP John Hartig, has not done business with PCS since 1997.

Chuck Townsend, CEO of Conde Nast Publications, said in a statement his company had "done some business with [PCS] over the years, as have most of the people in the publishing business. We never had any problems."

John Squires, the Time Inc. exec VP overseeing circulation, said in a statement that PCS was an "authorized" Time Inc. agent. "We're reviewing these sales and will work closely with [the Audit Bureau] to insure that they meet all the requirements of paid circulation. Since PCS sales represent a very small portion of our circulation business, we expect that any audit adjustments, should they occur, will have minimal impact on our paid circulation."

In the last half of 2003, 165,000 subscriptions from PCS-which G&J has filed a lawsuit against-could not be authenticated as "paid," meaning two G&J titles will miss their rate base, or circulation guaranteed to advertisers. Parents-long the company's sole category-leading title-comes up short by 0.8%. In 2004, the company expects to miss rate base at all of its six titles except for Fitness, most severely at Child (up to 9.9%) and Inc. (up to 3.8%). G&J's other titles include Family Circle and Fast Company.

G&J filed suit Jan. 12 against Mr. Stevens and PCS, alleging fraud and breach of contract. Calls to Mr. Stevens at PCS went unreturned. Mr. Stevens attorney, Anthony Titone, said he had not seen G&J's legal complaint by press time. G&J is "just making [PCS] a scapegoat for something they did wrong," Mr. Titone said. Executives said that Mr. Stevens, the CEO of PCS, had been doing business for over 20 years.

Meanwhile, buyers and publishers alike are bracing for the next revelation.

"It would be nice if we, as an industry, could concentrate on something else besides faulty circulation," Ms. Steinberg said.

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