When magazine readers sit at home, do they look at the pages any differently than when they're at a doctor's office or a hair salon? Do they flip through advertising one way if they paid for the magazine and another way if they did not?
Those are the questions ad agencies that buy ads in consumer magazines might be asking themselves now that the Audit Bureau of Circulations has created a new circulation category, separate from paid subscriptions–called "verified"–which publishers can now use to report distribution to public places.
The announcement of the new verified category follows a round of rule changes regarding sponsored sales that ABC announced in July, hoping to reinforce advertiser confidence about circulation figures after a string of public overstatements. Those overstatements have led to one of the worst periods for magazine circulation ever, with several companies under suspicion for claiming unpaid distribution as paid circulation through a complicated sleight of hand called "check-swapping." In that practice, third parties, typically subscription sales agents, would buy quantities of magazines for a given amount, and then charge that same amount back to publishers for "services rendered." Time Inc., the former Gruner + Jahr, Business Week and others have had their circulation scrutinized and several have had to restate their actual paid circulation.
The Rise of Sponsored Circ
The misrepresentation of circulation totals started small and then snowballed. Bulk, or sponsored, sales took off 10-12 years ago when the stampsheets and sweepstakes began to decline. Publisher's Clearing House and AFP at one time produced about 40 percent of all new orders, and they were replaced not with direct-to-publisher orders, but with agent orders. Transactions were minor. Sponsored sales added up to a relatively small amount of circulation. But when Publisher's Clearing House shut down, publishers had to scramble to replace those subscriptions. They relied on agents to sell over the phone a bundle of, say, five different magazines together for three years for $5 a month. The practice is called paid-during-service. Or, publishers needing a few thousand more sales to make their ratebase would look to agents, who solicited a list of people who fit the target demographic–boat owners or mountain climbers, for example. The publisher paid less than $5 per order, and that order was classified as paid even though the subscriber might have received the magazine for free.
It wasn't usual that a publisher might pay more to acquire a subscription than the revenue it collected The change was that the reader wasn't paying anything for the magazine. So publishers were left paying for subscriptions, about $3, instead of generating revenue from them, and the orders were unlikely to renew.
Changes to auditing rules by the ABC also contributed to abuse, according to one source. In 1997, the bureau said that publishers or agents could spend any amount of money on marketing or distribution fees to obtain circulation. Then, four years later, the group revoked its rule that required publishers or agents to receive at least 50 percent of the basic subscription price of a magazine.
How Widespread?
There is a belief that overstating the paid nature of sponsored circulation has been a fairly common practice. In a letter to its advertisers dated September 21, Time Inc. executive vice president Jack Haire announced that the company intends to report circulation from its sponsored sales programs as "qualified" starting with its second-half publisher's statement.
The new ABC rules narrowed the definition of an eligible sponsor to organizations that directly sell goods or services to consumers and said that sponsors must actually pay more for a subscription than any refunds or advertising credits they might receive in return for their purchase.
Even with the abuses of recent years–it's hard to know how widespread–the use of sponsored circulation is legitimate. In fact, publishers insist those copies attract more readers than others sold at newsstands–some studies say as many as seven-and-half-times more. The problem is with advertisers. There's no guarantee they will accept verified as legitimate circulation or be willing to pay regular ad rates for it.
"Publishers will try to do everything they can to create paid sponsored rather than verified," says Chip Block, vice chairman of subscription agency USA Pubs Inc. "Advertisers might just say we don't care what you call it, we're not paying for it. There will be some advertisers who won't look past the first page of the publisher's statement on the [ABC] audit."
Dubious ad buyers could be convinced otherwise, however, Block believes, if the largest publishers like Time Inc., Hachette, Meredith and Hearst endorse the new category.
"If they decide they don't want to show verified on their ABC statements, then it has no chance," he says. "If the biggest and most respected publishers out there make a case that this is legitimate stuff, then it has a better chance of being accepted."
It may be that market demand led to some of the overstatements of paid circulation–the popularity of public-place copies has skyrocketed over the past decade, perhaps leading some publishers to leap in and represent marginal circulation as paid. More than one-fourth of magazine reading is done in public places today, up from 14 percent ten years ago, an 80 percent increase, according to Rick Jones, president and CEO of DJG Marketing LLC. He gave a presentation at a Magazine Publishers of America meeting Sept. 15 saying that based on spring 2005 data from Mediamark Research, 53.3 percent of all consumer magazine readership originates outside of homes.
Says Dan Capell, president of Capell and Associates, "Bulk is no longer an issue. Public place is what its about. Advertisers should be saying, the more public place, the better–this circulation has value, and it's cheaper than going out and buying 50,000 direct mail orders."
Verified circulation reporting, which gives ad buyers an unprecedented level of detail about the sources of circulation and where it is distributed, will start with the January to June 2006 reporting period. The ABC board of directors, which agreed on the new category at its meeting Nov. 2-4, established two classes of verified circulation: Public place and individual use.
Public-Place Rules
Public place comprises waiting rooms, with a distribution limit of no more than three copies of any magazine, and hotels, where the limit is two copies per room for a monthly publication and one copy for a weekly. In both cases, the publisher or its agent must obtain documents that detail the agreement.
For individual-use copies to qualify as verified circulation, only one copy can be delivered to a consumer, who must be given a chance once per year to stop service.
When publishers report verified circulation to ABC, they may record the primary rate base in Paragraph 1 of their pink sheets, next to the line denoting total circulation, and then include a ratebase claim for paid or verified segments in the explanatory paragraph. Newly added Paragraphs 6A and 6B will include a list of a magazine's top five public place distribution locations and top five sources used to acquire consumer names for individual use copies.
"That's more detail than advertisers have ever had," Capell says. "There's more information on the pink sheet now than there's ever been before."
Not all advertisers are buying. Audrey Siegel, EVP, Director of Client Services, TargetCast tcm, says she isn't impressed with ABC's rules in general and disputes the claims about bulk. Siegel says the audit process at ABC is what led to people misrepresenting circ figures in the first place and needs to be revamped. "It's not an audit in the truest sense of the word," she says. "Too many hands touch it. the publishers have any number of opportunities to report this but not report that, adjust this but not adjust that."
But Capell, citing MRI data, says that the size of the total audience for magazines has grown 8 percent over the last ten years despite ABC member circulation remaining flat during the same period, a sign of the power of copies placed in waiting rooms and barbershops. He estimates that 10 percent to 15 percent of ABC members have public place distribution.
In what may be the most telling statistic, the Magazine Publishers of America reports that a magazine sold at a newsstand will generate four readers per copy, while a public place copy attracts as many as 30, more than seven times as many.
Capell says he doesn't understand why advertisers and agencies, which consider total audience size when making buying decisions, would turn around and negotiate prices based on circulation totals. "They're talking out of two sides of their mouth," he says.
That leaves publishers with some campaigning to do on the merits of public-place copies.
And in this new world of verified circulation they'll have to decide if they want to include verified circulation in their rate base–a choice that largely depends on whether or not advertisers will pay for it.
Michael Sheehy, circulation director for Wenner Media, which publishes Rolling Stone, US Weekly and Men's Journal, believes the larger ad-buying firms will understand the value of the verified category, but their smaller competitors may need some convincing. "The enemy in any sales call is question and doubt. The little guys are going to have questions and doubts," he says.
Advertisers should be used to the concept though, Sheehy says. "Verified is just the new word as opposed to qualified or targeted."
Still, he likes the sound of verified circulation. "It has an audited implication. Verified puts the onus on ABC to go out and check," he says. "The truth is it doesn't make a difference to anyone. More than anything it's a sign of bureaucracy."
Why Have a Ratebase at All?
The creation of the verified category is somewhat a result of the rule changes announced by ABC in July, says Teresa Perry, the bureau's senior vice president for publisher relations and report processing. But since sponsored sales are paid for and verified copies are not, in her mind the two categories are like apples and oranges. "I see this as two different subjects," she says.
But magazine readers don't draw those distinctions, and that's what counts. John Lavine, the director of the Media Management Center of Northwestern University, has found that people react in similar ways to advertising regardless of whether they pay for a magazine or if they get a free copy.
In that sense, circulators like Sheehy and advertisers share the same goal: To capture the attention of as many readers in their target demographic as possible.
"Public place is a very economical means for subscription delivery. It's a shame if people hold this against us, because it's also an efficient and economic place for advertising delivery," he says.
With all this hand-wringing over circulation totals, why have a ratebase at all? Jack Kliger, president & CEO, Hachette Filipacchi Media U.S., has repeatedly called for the end of circulation ratebase guarantees. Capell points out that not one magazine in Canada or one ABC-audited newspaper claims a ratebase and that 95 percent of the new ABC members in the last five years don't bother with a ratebase either, though they tend to be smaller titles.
"If one major [magazine] player said we're no longer having a ratebase, the whole industry would follow, but it's going to take a major player," Capell says.
After all, television ads are not bought based on ratebase. A new measurement for magazine audiences could be how readers "engage" with a particular publication.
The question is how to quantify something like that. Media research consultant Rebecca McPheters has developed an audience reporting tool, readership.com, which will begin its data collection in January. An online survey will ask readers of a given magazine how many of the four most recent issues they have read, the percentage of pages they opened, what actions they took as a result, how interested they are in the magazine and if they would recommend it.
Where Value Resides
Readership.com will report the information for each issue two and half weeks after a weekly's publication date and four and a half weeks after monthlies hit newsstands. Publishing companies Condé Nast, Time Inc., Hachette, Meredith, Parade and TV Guide, along with agency Starcom USA, a division of Starcom MediaVest Group, funded a pilot program during the spring and summer.
"We think the major ad value lies with audience; that's how all other non-print media are evaluated," McPheters says. "Print is disadvantaged because publishers don't have the [readership] data to be as accountable as electronic media. We're trying to level the playing field."
She's more interested in how many readers one copy reaches and how engaged they are with a publication, rather than where they pick it up–be it a newsstand, their mailbox or their dentist's waiting room. She doesn't believe that the price consumers pay for their magazines predicts their quality as a reader.
"Good public-place distribution reaches enough readers per copy so that regardless of how narrow the [advertiser's] target group, more of that target is reached than with a subscription or newsstand copy," she says.
The new ABC verified category has the potential to make advertisers happy–but it will require circulators to prove that copies are reaching a specific demographic, an extra burden for them, according to Baird Davis, a former senior vice president of circulation for Ziff Davis and now a consultant and circulation-trends analyst. "It will force publishers to do a lot more work to meet the engagement scale that advertisers are so interested in, even though engagement isn't a fully defined thing at this time," he says.
Davis describes circulators as "wildly unhappy" with the new ABC rules enacted since last summer. But the rules demonstrate the extra clout now wielded by ad buyers.
Consider the potential reaction from the ad community, at least as represented by TargetCast's Siegel: "It's an awful lot of discussion and noise around something that in the end is not that meaningful," she says. "The most valuable reader is the person who actively sought out the publication. That doesn't mean they paid for it, but that person actively chose to engage, not just picked it up because it was there. A magazine reader is intimately involved with the edit and the ads."
So as ad buyers push for more transparency in the verified category, publishers now are facing a critical decision: how much of their nonpaid circulation should they continue to report? How many can they prove are valuable readers?
While they wrestle with that decision, circulators must also contend with the rule changes ABC announced in July regarding sponsored sales. New agreements reached after July 18 must comply with the new rules beginning January 1. There's a new outlet for sponsored sales that they might not know about. In fact, it looks a lot like an old one. InFlight Newspapers and Magazines Inc. went out of business last summer after ABC disqualified its transactions for lacking either proof of payment or qualified sponsors, and a startup is trying to take its place.
On-Board Media Inc. has teamed up with British-based Dawson Media Direct, whose largest customer is British Airways, to supply it and other international airlines with American magazines Dawson does not currently offer.
Just six months old, On-Board delivers up to 150,000 magazines a month and 25,000 newspapers a week to foreign airlines and their VIP or first-class lounges in U.S. airports. U.S. airlines are not customers yet. "Domestics aren't used to paying," says John Glabman, On-Board's vice president. "With the new ABC rules, nothing is free anymore."
