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ABC July 2005 Board Actions and Rule Changes:
Frequently Asked Questions

Q: Please explain the changes to the sponsored-sales rules for consumer magazines. What does “net of all other considerations” mean?

A: The rule changes approved at ABC’s July 2005 board meeting are intended to strengthen the circulation guidelines for consumer magazines and limit the potential for future misuse. For example, beginning in 2006, the qualifying price (which purchasers are required to pay) must be “net of all other considerations.” This simply means that any marketing and distribution fees paid by the publisher must be less than the qualifying payment they receive from the sponsor for the magazine copies.

As an example, let’s say a retail chain contracted with a weekly celebrity magazine to sponsor 10,000 subscriptions. The contract stipulated that the retailer agreed to pay the publisher $10,000 for the copies. In turn, the publisher paid the retailer $15,000 to cover customer database access fees, marketing and distribution costs. Under previous rules, those 10,000 copies would count as paid circulation. Beginning with issues dated January 2006, for those copies to be counted as paid circulation, the publisher would have to receive at least $15,100, where the qualifying price is at least one cent per subscription. In our example $100 would equal the qualifying price for 10,000 subscriptions, above and beyond “all other considerations” (which also include advertising credits or offsets).

[Update: On Sept. 7, 2005, the ABC board voted to modify the effective date of previously announced changes to its rules governing sponsored sales:

• For agreements entered into prior to July 18, 2005, circulation will be considered under the previous ABC sponsored-sales rules and may continue to be reported as "paid," but not for issues dated after June 30, 2006.
• New sponsored-sales agreements entered into July 18, 2005, or later must comply with amended ABC rules beginning with January 2006 issues.
• Sponsored sales that do not meet the updated definitions may be classified under a new "qualified" circulation category on the June 2006 Publisher's Statement.]

Q: What prompted the ABC board to tighten its sponsored-sales rules?

A: ABC revised the sponsored-sales rules to further strengthen magazine sponsorship and payment requirements. This rule review and revision is a normal part of our due process as a member-driven forum of advertisers, agencies and publishers, and is in response to today’s environment of greater accountability.

Q: Why did the board change the definition of an eligible sponsor?

A: The board narrowed the definition to ensure that copies are only purchased by sponsors with a professional or business interest in marketing to consumers. By redefining a “qualified sponsor,” the new rule limits the potential for sponsors to be companies with a financial interest in the publication. This reinforces the element of the rule that defines sponsored copies as promoting the professional or business interest of the purchaser. Examples of acceptable and unacceptable sponsorships include:

Examples – Individually Sponsored
Acceptable: drug company purchases copies for its customers.
Acceptable: realtor purchases copies for new homeowners.
Unacceptable: magazine agent purchases copies for distribution to individuals.
Unacceptable: magazine-printing company purchases copies for distribution to individuals.

Examples – Public-Place Sponsored
Acceptable: toothpaste marketer purchases copies for dental offices.
Acceptable: automobile manufacturer purchases copies for oil-change facilities.
Unacceptable: magazine sales agent purchases copies for distribution in beauty salons.
Unacceptable: MRI equipment manufacturer purchases copies for distribution in doctors’ offices.

Q: Why won’t ABC tell its members which publications’ circulation—and how much—is affected by the disqualification of circulation derived from EBSCO Consumer Magazine Services and InFlight Newspapers and Magazines Inc.?

A: ABC bylaws are designed to maintain audit confidentiality and member equality and, therefore, prohibit ABC from revealing this information. For the majority of the publications involved, the audits could not be completed pending resolution of this matter. ABC is now in the process of working to complete these audits. The verified circulation for each publication will appear in the final ABC Audit Report, with circulation adjustments noted in the explanatory paragraph.

Q: If advertising agencies don’t know which publications’ circulations are affected, what can they tell their clients?

A: Should advertisers or agencies have concerns, we encourage them to contact the publications in which they advertise to discuss the matter.

Q: How were these circulation issues uncovered?

A: ABC identified them during the normal course of its audit process. We will report any variances in each Audit Report.

Q: Is it fair to hold publishers accountable for the actions and circulation programs of independent sales agents?

A: ABC rules require that publishers be accountable for all of their circulation claims, whether generated from publisher direct-marketing programs or from third-party agents. We notified appropriate publishers in May 2005 that circulation claimed from EBSCO and InFlight programs would be disqualified for lack of sponsor payment and/or lack of a qualifying sponsor.

Q: In addition to EBSCO’s and InFlight’s programs, are there other circulation programs from other agents in question?

A: As a routine part of the audit process, ABC examines the records of all circulation programs, including records from programs run by sales agents.

Q: Will ABC continue to allow sponsored sales to qualify as paid circ?

A: Yes. Sponsored sales, provided they adhere to ABC rules, are a legitimate way to extend a publication’s reach—often valued by advertisers for the additional circulation they provide. The revised sponsored-sales rule (F 2.1) clearly defines payment requirements such that the “qualifying price” must be in hand after the publisher has paid all marketing and distribution fees to the sponsor.

Q: How will individually sponsored and public place circulation that doesn’t qualify as paid under the new rules be classified by ABC beginning in 2006?

A: For circulation that is no longer eligible for inclusion in paid, it may be reported in a new “qualified” category on the ABC “pink sheet” Publisher’s Statement. ABC’s industry advisory committees and board are developing the criteria that will be used to classify which copies may be reported in this category.

Q: Does ABC communicate rule changes and board actions to its members? Where can one learn more about the most recent policies?

A. Board actions, rule changes and other important items are featured on ABC’s Web site. Visit the Rules and Resources area to review the latest Guidelines and Policies. Visit the Virtual Pressroom for current news releases, board actions, white papers and other information. We also recommend signing up for free ABC updates to receive items of note from ABC via e-mail.