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Despite an almost giddy advertising atmosphere at the recent gathering of the Magazine Publishers of America, executives at an Oct. 28 board meeting received some sobering news.

Magazine ad pages continue to soar, fueled by a healthy economy and dot-com madness. But publishers' second revenue stream, circulation, shows serious signs of decline. And that leaves some of the nation's biggest magazine groups vulnerable to an economic downturn.

A new study commissioned by MPA, a copy of which was obtained by Advertising Age, outlines the degree to which the poor performance of sweepstakes agents such as American Family Enterprises and Publishers Clearing House has affected the economics of circulation.


The cost to acquire subscriptions has escalated dramatically in the last eight years, from $337.94 to mail 1,000 subscription offers in 1990, to $430.80 in 1998. At the same time, there has been a decline in the prices consumers pay for subscriptions. In 1990, the average basic subscription rate was $26.90. In 1998, it was $22.57.

In other words, publishers have to pay more to maintain their rate bases -- the circulation level guaranteed to advertisers -- but make less money on each subscription sold.

"Clearly there is a need for a continued and aggressive search for new cost-effective sources of magazine circulation," said Rebecca McPheters, president of consultancy McPheters & Co., which conducted the study.

According to the study, 97% of publishers who sold subscriptions through American Family Enterprises in 1998 experienced a decline in the number of people who responded to those offers. The average decline from the previous year was 37%. Ninety-two percent of magazines that used Publishers Clearing House in 1998 got fewer orders, with an average decline of 29% from 1997 levels.

Coincidentally, the MPA board was briefed on the study's findings just one day before American Family Enterprises filed for Chapter 11 bankruptcy protection.


To compensate for losses from sweepstakes mailings, 82% of publishers reported turning to field agents, a classification that includes telemarketing operations and door-to-door sales forces. Publishers also increased their own direct mail efforts.

Those sources are more expensive than sweepstakes agents, and the impact of that is clear. For 1998, 81% of publishers reported losing an average of $14.39 on every new subscription order; 9% reported breaking even; and 9% said they made money.

For magazines with circulations of more than 750,000, the average loss per order was $14.14. That compares to a loss of just 81› for magazines of that size in a 1992 MPA study.

Publishers "do have ad revenues that offset circulation losses," Ms. McPheters said. "But at the same time, the largest publishers have to run the hardest to keep what they have. . . . If the ad market softens, it will put pressure on circulation."

The McPheters study compared 1990 and 1992 MPA circulation studies by PriceWaterhouse and data from 1999 CircTrack, a study jointly released by Dan Capell, editor of Capell's Circulation Report, and publishing consultancy Douglas/Jones Group.

MPA Exec VP-Consumer Marketing Michael Pashby characterizes the McPheters study as "the beginning of a program of circulation research." The next step is to conduct research into consumer attitudes about subscription sales methods.

"We want to gather consumer opinions on other ways of selling, whether it is online sales or through continuous service models," Mr. Pashby said.


One positive note to come out of the study was an increase in renewals, which Mr. Pashby attributes in part to a shift to new sources -- especially publishers' direct mail efforts -- and also to customer service improvements.

"The industry has done a much better job at looking at how to keep our subscribers," he said. "With such a huge cost to get a new subscriber, you sure

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