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Publisher's Clearing House: Sales are down, but not by 40%, says a PCH executive. DISMAL YEAR FOR SWEEPSTAKES DOESN'T SIGNAL A DEMISE PUBLISHERS SEE A DOWNTURN, BUT SOME SAY AGENTS' BUSINESS IS CYCLICAL

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The volatile business of so-called stamp-sheet selling took a turn for the worse this year, and though the two major publishers' agents-American Family Publishers and Publishers Clearing House-won't confirm figures, publishers are estimating the subscription orders are down by as much as 30% to 50%.

"Subscriptions have been terrifically impacted by very, very disappointing stamp-sheet results," says Kent Brownridge, senior VP-general manager at Wenner Media.

The agents agree that volume is down, but argue the numbers are exaggerated.

"Subscription volume is down," agrees Pete Pedersen, executive director of publisher relations at Publishers Clearing House. However, he says, "It's certainly nowhere in the neighborhood of 40%."

Susan Caughman, president-CEO of AFP parent American Family Enterprises, the publishers' agent owned jointly by Time Inc. and Pritzker Group, agrees with Mr. Pedersen but points out the business should be measured in revenues rather than subscriptions.

"Revenue is down," she says. "The business is revenues. It's orders, not just subscriptions."

The effect on the industry is pronounced because of a generally heavy reliance on the stamp-sheet business to boost circulation.

"The general trend in the industry over the last 10 years or so has been the movement to the agents to the point where 60% of all new subscriptions are generated by agents," says Dan Capell, editor of Capell's Circulation Report.

Few in the industry like to admit just how reliant they are.

"People have denied they even use stamp-sheets," says Mr. Brownridge.

Publishers are quick to note that the stamp-sheet situation is far from dire.

"It's not putting any rate bases at risk," says Jeremy Koch, senior VP-consumer marketing at Time Inc., "but it's definitely an adjustment and required us to look at some other sources to compensate for the shortfall."

`MEN'S HEALTH' NOT WORRIED

Ed Fones, VP-general manager at Men's Health, claims it doesn't affect his business much at all.

"Part of our strategy is not to be too reliant on stamp-sheet agents and to make sure we can balance a variety of sources for our circulation needs," he says. "What it comes down to is protecting yourself specifically from situations like this."

A few factors have been cited as possible reasons for the trouble in this form of circulation building, but the one most often cited is negative publicity. In the last several months, a tsunami of bad press appeared because of the numerous lawsuits brought against American Family Publishers and Publishers Clearing House.

The negative publicity began to pick up speed in February, when AFP came under fire because 88-year-old Richard Lusk of Victorville, Calif., traveled to Tampa, Fla., to try to claim the $11 million he thought he won.

"There's a direct correlation between the negative publicity on the sweepstakes business and their production volume," says Greg Coleman, president-U.S. magazines at Reader's Digest Association.

Mr. Koch concurs, adding: "The negative publicity about sweeps has made consumers in general wary of sweepstakes."

Publishers believe the controversy is affecting their singular direct-mail efforts as well.

"The negativity about sweepstakes affects everybody who uses them," says Mr. Capell.

The fallout from the lawsuits, which hinged mainly on the wording and official-looking graphics of the sweepstakes mailings, prompted AFP to soften its marketing tactics and draw up a five-point "Commitment to Consumers" as the first step in a planned image overhaul.

"They've toned down their promotions, so that obviously affects response," says Mr. Capell, adding "They also may have cut their volume of mail down, knowing it was not going to pull as well."

SWEEPSTAKES FATIGUE

More troubling to publishers is a belief that if it is not the negative publicity depressing responses, than maybe consumers are now just inured to the sweepstakes lure.

"Sweepstakes fatigue" as some executives have dubbed it, was suggested as a significant factor.

"There's some truth that sweepstakes are weakening as a promotion device," says Chip Block, president of consumer marketing at Petersen Publishing Co.

"There's more competition for the consumers' dollar in terms of lotteries and gambling," says Mr. Pedersen. "There's now legalized gambling within three-and-a-half-hours of everyone in this country."

When Powerball lottery tickets promise $50 million gold mines, and state lotteries' winnings often offer a chance to win $20 million or more nearly every month, consumers may not consider the 5 to 10 minutes needed to fill out and respond to a stamp-sheet offer worth it.

CONTINUOUS SERVICE MODEL

"I think it's an astonishing commentary, but we now live in an age where $10 million is not the eye-popping figure it once was," says Michael Loeb, president-CEO of NewSub Services, a magazine subscription service agency.

Mr. Loeb and Jay S. Walker, the company's chairman, founded NewSub in 1991 on the notion of creating a "continuous service" selling model. Instead of fixed-term subscriptions, the magazines are sold with an open-ended contract that is billed to the customer's credit card.

Most publishers and circulation executives agree the best preventive medicine is diversity in circulation sources. That might include in-house mailing efforts with and without sweepstakes promotions, direct response TV, other subscription suppliers, telemarketing, newsstand sales, gift subscription programs, premiums, free trial offers and alliances with advertisers and retailers.

INTERNET OF GREAT VALUE

The Internet also has figured in more prominently as well.

"The Internet has been a very strong, growing source for us," says Mr. Fones.

"Circulation people have to be a lot smarter about developing new sources," says Philip Whitney, VP-consumer marketing at Money. "We talk to most of our financial advertisers in ways that they can help us sell subscriptions to their customers. We have a couple of different programs going."

Despite current woes, the stamp-sheet business historically has been cyclical, with no dire predictions of its demise being made any time.

The smaller and newer agents, like NewSub, have made inroads as alternative circulation sources, but without great impact on the two stamp-sheet giants.

Some predict there will be adjustments in the way the stamp-sheet companies do business.

"They're trying non-sweeps offers and other types of smaller mailings," says Cindy Still, VP-consumer marketing for Times Mirror Magazines. "I just think they're evaluating where consumers are going and looking at ways to adjust their business to adapt to those trends."

"As long as AFP and PCH keep trying to test new concepts that are exciting and communicate credibility, which is essential to communicate [to consumers], I think they will rebuild their businesses, and it's just a question of back to what level," says Mr. Whitney.

Testing remains significant.

"Nobody in direct marketing tests more than these two companies," says Mr. Capell. "They'll test their way out of this and come up with another promotion package and another approach."

He's not the only believer in the business model. "It's one of the greatest inventions in the history of the publishing business," says Mr. Brownridge. "All you do is put a logo on a one-inch stamp, and based on the power of your brand, people will pull it off and subscribe."

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