Exclusive: Time Inc. confronts shady circ

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Time Inc.`s Ann Moore is leading the magazine industry to a higher circulation ground-and dumping more than half a million suspect subscribers along the way.

The $5.6 billion Time Warner unit will stop doing business with certain agents who sell questionable subscriptions that lose money for publishers and tend to be devalued by advertisers.

Time Inc., the publisher of such titles as Time, Sports Illustrated and Real Simple, takes in more than 20ยข on every dollar of magazine advertising sold. So its move is sure to reverberate through an industry plagued by circulation problems.

"The bottom line is, other companies should be moving in the same direction as Time Inc.," said Robin Steinberg, VP-director of print at MediaVest, New York.

Ms. Moore, chairman-CEO of Time Inc., has taken aggressive steps to confront growing cracks in the foundation of magazines' business plans, experimenting with new distribution, pricing and ad models.

In the latest move, the company will cut ties to so-called "cash field agents," purveyors of what are known as "zero-remit" or "negative-remit" subscriptions. In lay terms, those are subscriptions for which such agents charge publishers a higher price than what the consumer pays. They are typically sold through a labyrinthine and murky chain of subcontractors and independent salespeople.

`potential for abuse'

Time Inc. said such subscriptions account for 2% of its subscriptions. Since it sells an estimated 35 million subs across its portfolio of titles, that would affect about 700,000.

"The nature of this selling process makes it difficult to obtain a document flow that we feel is trustworthy," said John Squires, the Time Inc. exec VP who oversees circulation. "The nature of the financial exchange between publisher and agent [in these cases] is such that we feel there is potential for abuse."

In recent months, the Audit Bureau of Circulations has cast a much stricter eye on magazine subscriptions sold by third-party agents. Mr. Squires said Time Inc. investigated its own agent business for months. In a few instances, it found that "the orders weren't submitted in the way we authorized them to be."

While the shift can be seen as taking a leadership position, it also is a way for the company to differentiate itself from rivals, since Time Inc.'s circulation practices are already considered the cleanest in the business.

"I can really only speak for us," Mr. Squires said. "It's important to step out and represent to advertisers the way in which we are doing business, particularly in these times."

Negative-remit subscriptions are believed to be at the root of last month's announcement from Gruner & Jahr USA Publishing that it would miss rate base on all but one of its titles in 2004. The company alleged in court filings that subscription agent Publishers Communication Systems could not adequately document consumer payment for over 100,000 subscriptions. PCS calls the allegations "unfounded and without merit." The company is one of the agents Time Inc. will stop using, according to an insider.

Cash-field agents are "an important source to a lot of publishers-rightly or wrongly," said one veteran circulation executive.

Mr. Squires said that not all subscription agents would be affected by Time Inc.'s decision. "We have no problems with agents that sell directly to consumers. We have a lot of clarity into their selling methods."

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