G&J suit: War of 'Rosie' raises rate base questions

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The court battle between Gruner & Jahr USA Publishing and erstwhile business partner Rosie O'Donnell is based on claims of breach of contract. But Ms. O'Donnell's case is certain to touch on circulation issues of interest to the industry, like overstated newsstand sales and the pressures to maintain rate bases in an uncertain climate.

These concerns are expected to come to light more fully when Ms. O'Donnell's attorneys begin to call their own witnesses, which could come as early as mid-week.

During her opening statement, Ms. O'Donnell's attorney Lorna Schofield displayed to the court G&J's newsstand estimates for the joint venture title, Rosie, as well as its actual sales-which she asserted showed the misstatements weren't just "isolated misjudgments."

Just days before the trial hit Judge Ira Gammerman's Manhattan courtroom, an audit released by Audit Bureau of Circulations showed significant overstatements of Rosie's newsstand numbers. For the first half of 2002, for instance, G&J claimed average newsstand sales of 407,500. The actual figures, as audited by the Audit Bureau, was 278,935-32% lower. The title missed making its rate base in all but two of its 2002 issues.

A G&J spokeswoman said in a statement that "we were confident we would make rate base for the year" and that 2002's variance for total circulation (which combines subscriptions and newsstand sales) from rate base was 1.6%, "well under the 2% variance allowed" by the Audit Bureau.

Audit Bureau rules require magazines that restate total circulation by under 2% in two consecutive six-month periods to notify advertisers in a report.


Insiders at G&J said that the volatility of Rosie's newsstand sales-which former Editor in Chief Cathy Cavender testified ran as high as 800,000 near launch, but ultimately fell below 200,000-made precise estimations difficult, as did the generalized troubles in getting final newsstand figures on a timely basis. They also point out that double-digit adjustments to newsstand estimates are not uncommon when magazines' numbers are audited.

In spring of 2002, Ms. Schofield said in her opening statement, G&J made a "unilateral" decision to maintain Rosie's 3.5 million rate base, the guaranteed circulation to advertisers. "They needed to sell more magazines," she said, and the pressure was even greater because of "inflated estimates" of newsstand sales.

G&J sued Ms. O'Donnell for breach of contract in October 2002, seeking damages of at least $100 million. Ms. O'Donnell returned suit, seeking, for several claims, "an amount not yet known but likely to be in excess of $125 million."

cavender's testimony

The testimony of Ms. Cavender-a cool and controlled witness who appeared disillusioned with both G&J and Ms. O'Donnell-touched on her opinion of Ms. O'Donnell's judgment of cover subjects and the need to keep newsstand sales going in order to convince advertisers of a magazine's strength.

One example she related was when Ms. O'Donnell suggested putting boxer Mike Tyson and his baby on the cover, and said in a memo to Ms. Cavender the magazine "needs not to give a [expletive]-it needs to scream the truth."

These and other story suggestions prompted an email from Ms. Cavender to key G&J executives saying such demands left Ms. Cavender "very concerned about the direction of the covers, given the demands of our business plan."

In her testimony, Ms. Cavender also touched on concerns about balancing advertiser and reader expectations.

Ms. Cavender said advertisers had expressed fears "the magazine was already too edgy."

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