MAGS STAMPED BY DRAMATIC DROP;AFP, PCH SEE SUBSCRIPTIONS PLUNGE

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Mr. and Ms. Publisher! You may already be a loser!

Magazines report subscriptions generated from the two major stamp sheet agents-Publishers Clearing House and American Family Publishers-are in a dramatic tailspin this year.

Nobody seems to know exactly why, but the shortfall in subscription orders has been dramatic and it's creating some havoc. Both stamp sheet agents have cut advertising over the last year and a half, which may have had an impact as well.

A survey of magazine circulation directors released by Vos, Gruppo & Capell, New York, earlier this month found that a record 69% of circulation director respondents said subscription sales volume from the midyear mailings of AFP and PCH were off this year.

On average, the number of subscriptions was down 22% compared with a year ago.

"I've been in the industry 10 years and I've seen downturns from one or the other before, but never from both at the same time," said Brooke McMurray, director of agency marketing at Time Inc.

Theories abound: Some say the O.J. Simpson trial kept potential respondents glued to the tube and stopped them from opening third-class mail; others theorize the rash of instant win state lotteries and other legal gaming distract from the stamp sheets' multimillion-dollar jackpots.

"People are sweepstaked out," said circulation guru Dan Capell, managing director at Vos. "They're tired of the hoopla surrounding the sweepstakes or else they just don't believe in them anymore."

The sky-high cost of paper could also have played a role, said Chris Little, president of Meredith Magazines. "It would not surprise me if the stamp sheet houses were cutting back on their mailings. They're wrestling with the same high costs of postage and paper as we are."

Port Washington, N.Y.-based Publishers Clearing House did cut back some mailings earlier this year due to paper and postage increases, said VP-Magazine Relations Bob Farley, a former top executive of the Magazine Publishers of America. But he said the cuts were in the 5% range, not enough to account for the dramatic shortfalls.

"There was and probably still are external factors affecting the mass mailers," he said.

Still, for Publishers Clearing House, a company that claims it reaches 75% of U.S. households with at least one mailing per year, even a 5% cutback translates into millions of pieces.

In 1994, PCH chopped its ad expenditures by 7.4% to $21.3 million, according to Competitive Media Reporting. Through July, advertising was down another 1.1% to $8.7 million. AFP has cut back as well, dropping 5.2% in '94 to $10.8 million. Through the first seven months of this year, ad spending is down another 8.7% to $4.2 million.

PCH VP Todd Sloane, said the fluctuation in ad spending wasn't part of any strategic decision and that the company is still maintaining the same number of gross points from year to year.

Both houses do TV advertising to coincide with the mailings. Deutsch, New York, is PCH's agency, with Ogilvy & Mather handling media; AFP does their advertising in-house.

AFP and PCH won't detail how they hope to solve the falling returns-but both acknowledge it's a concern.

"Steps are being taken that will correct the problem," said David Carlin, an attorney whose New York firm represents Newark, N.J.-based AFP. He said that the company has no plans to switch its spokesmen, Dick Clark and Ed McMahon.

"We have to get smarter in the way we do things," PCH's Mr. Farley said. The company is working on everything from better packages and contests to new TV commercials.

Some magazines, including Cosmopolitan and all the Conde Nast Publications titles, avoid the stamp sheet houses. That protects them from this slump-but it's no guarantee of circulation comfort since telemarketers and other third-party subscription agents are also reporting response problems.

Most publishing houses use the companies as a primary source of generating new orders. Although each stamp sheet features 80 to 130 magazines, they are drawn from a total pool of about 500 titles.

The chief attraction: Publishers pay only for the orders they receive. Even though the publishers' slice is only a fraction of the fee collected from the consumer and the renewal rate is poor, this method is still far less costly than single-title direct mail.

The sudden tailspin in the stamp sheet returns couldn't have come at a worse time for magazines. Faced with rapidly accelerating postage/paper costs, most publishers have been managing circulation with extreme care.

As recently as 1992, stamp sheet returns were up, providing a buffer to the decadelong newsstand sales decline. Sporadic downturns in stamp sheet returns cropped up last year. But the bottom really seemed to fall off with the big midyear mailings this year.

"The circulation side of the business is made up of a lot of different components and when any piece of it does something aberrant, it's a big problem," said Carole Mandel, a New York-based marketing consultant.

Meanwhile, magazines are adapting a variety of defenses from lower rate bases to higher circulation prices.

The MPA, in a survey commissioned from Price Waterhouse last year, found consumer publishers were getting 55% of their revenue from circulation and only 45% from advertising.

Mr. Capell said he believes the stamp sheet problems may ultimately tip the formula toward even higher circulation revenue. The extra circulation from the stamp sheets was primarily to appease advertiser demands for ever larger audiences, he said. "Instead of trying to pump up circulation higher and higher to get more ad revenue, publishers will begin to try to get more revenue from circulation," he said. "Ultimately, I think it will be healthy for the industry."

He predicts publishers will soon push to gain 60% of their revenue from circulation.

More circulation price increases are clearly ahead. In the Vos survey, 33% of respondents had raised their cover prices in the past year and 24% raised their basic subscription prices; another 33% planned to raise basic subscription prices next year.

Said Mr. Capell, "For most of those raising prices, consumers accepted the increases."

Another factor could be the bad publicity the stamp sheet houses have experienced. In 1993, a New York City TV station uncovered thousands of unopened sweepstakes entries in a dumpster.

A more serious problem hit PCH when the attorneys general of 22 states argued that stamp sheets were using misleading labeling on the outside of its envelopes. As part of a voluntary agreement, PCH last year agreed to change the wording and has since stopped using the word "finalist" on the outside of its packages.

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