POVs
ABC Explains Recent Magazine Rule Changes
A Point of View By Teresa Perry, Senior Vice President, Publisher Relations and Report Processing Services, Audit Bureau of Circulations, Schaumburg, Ill.
At the Audit Bureau of Circulations’ July 2005 board meeting, ABC directors voted to strengthen the rules governing consumer magazine sponsored sales (copies or subscriptions purchased by third parties to promote their business or professional interests). Understandably, these changes have received quite a bit of attention. I’d like to clarify what the rule changes mean for circulators and publishers, and give context to the significance of these actions.
Why Change the Sponsored-Sales Rules?
ABC is a member-led forum in which publishers, advertisers and advertising agencies work together to determine the standards for circulation accounting and reporting. Since the newspaper circulation scandals of 2004, the board and its member advisory committees have continued to examine ways to strengthen rules open to potential misuse. The board’s approach reflects today’s environment of increased corporate accountability, where Sarbanes-Oxley rules reign, circulation accounting is highly visible and auditors strive to close the “expectation gap” between providing reasonable and absolute assurance in their reporting.
As ABC Chairman of the Board Robert Troutbeck, president of Troutbeck- Chernoff, noted in July, “We are sending a strong message to the industry that we are firmly committed to maintaining the integrity and credibility of ABC-verified information and its essential role in the media buying and selling process.”
The changes to rules governing consumer magazine sponsored sales—unanimously agreed to by ABC’s board—are necessary to strengthen circulation practices, reinforce advertiser confidence and limit the potential for future misuse.
This is not to denigrate sponsored subscriptions. On the contrary, this element of circulation may be highly valued by advertisers and can be an effective way to extend a publication’s reach.
How Have the Sponsorship Rules Changed?
The amended Rule F 1.1 - Paid Circulation Defined and Rule F 2.1 – Sponsored Sales require that the amount a sponsor pays for subscriptions must meet the definition of paid circulation after considering other items. This includes any marketing and distribution fees, advertising credits, and other refunds or rebates paid by the publisher or its agent to the sponsor. In other words, the sponsor must be “out of pocket” a qualifying amount for the program to meet the standards of paid circulation.
It’s important to note that fees paid by a publisher to an agent are not considered in the qualification formula. Nor is it necessary that the sponsor’s fees be paid to the publisher; those fees may be collected and retained by the sales agent.
Let’s look at two examples to further explain:
1. Scenario One: A publisher of a cooking magazine develops a new marketing program and agrees to pay an agent $4.00 per new subscription generated by the program. The agent secures sponsorship from a grocery store chain, which agrees to pay $1.00 per subscription.
Qualification formula:
| Amount per sub paid by sponsor: | $1.00 |
| Amount rebated to sponsor: | 0 |
| Net amount paid by sponsor: | $1.00 |
| Qualifies as “paid”: | Yes |
2. Scenario Two: In our second example, the cooking-magazine publisher once again agrees to pay an agent $4.00 per subscription generated by a new marketing program. The agent secures sponsorship from a kitchen appliance manufacturer; the agent also agrees to pay the sponsor $2.00 per name for customer database access and list development.
Qualification formula:
| Amount per sub paid by sponsor: | $1.00 |
| Amount rebated to sponsor: | ($2.00) |
| Net amount paid by sponsor: | ($1.00) |
| Qualifies as “paid”: | No |
Who Can Sponsor Magazine Subscriptions?
The ABC board also narrowed the definition of an eligible sponsor to ensure that copies are purchased by organizations that directly sell goods or services to consumers. The amended rule also limits the potential for a sponsor to have a financial interest in the publication.
Under this new definition, sports teams, beverage producers and hotels, for instance, would be eligible sponsors. Direct marketing firms and advertising agencies would not. (Magazine distributors, wholesalers and subscription agents continue to be ineligible subscription sponsors.)
Other examples of sponsorships that are typically acceptable and unacceptable include:
- Acceptable: drug company purchases copies for its customers.
- Acceptable: realtor purchases copies for new homeowners.
- Acceptable: toothpaste supplier purchases copies for dental offices.
- Acceptable: automobile manufacturer purchases copies for oil-change facilities.
- Unacceptable: magazine agent purchases copies for distribution to beauty salons.
- Unacceptable: direct-mail firm purchases copies for distribution to individuals.
New Effective Dates
Following an interim meeting of the Consumer Magazine Committee, the ABC board voted in September to modify the effective date of these sponsored-sales rule changes as follows:
Guidelines for New Programs: As previously announced, new sponsored-sales agreements entered into July 18, 2005, or later must comply with the amended ABC rules beginning with January 2006 issues. Sponsored sales that do not meet the updated definitions may be classified under a new “qualified” 1 circulation category on the June 2006 Publisher’s Statement.
Guidelines for Existing Programs: Copies served under agreements entered into prior to July 18, 2005, will be considered under the previous ABC sponsored-sales rules and may continue to be reported as “paid sponsored” circulation through the term of the original agreement for issues dated no later than June 30, 2006. Issues dated July 2006 and later will be reported using the amended rules.
Were the New Rules Applied Retroactively?
There has been some confusion about the new sponsored-sales rules and their correlation to another action taken by the ABC board at its July meeting: the disqualification of circulation generated by EBSCO Consumer Magazine Services (ECMS) and InFlight Newspapers and Magazines Inc.
These were two separate board actions.
ABC auditors disqualified circulation from certain ECMS and InFlight programs because there was either no proof of payment or no qualified sponsor, both long required by ABC rules. The new sponsored-sales rules do not go into effect until 2006 and were not part of this ruling. In fact, had the board not amended the sponsorship rules, the EBSCO and InFlight circulation claims still would have been disqualified.
“Pink Sheet” Changes
To provide transparency to the rule changes, the ABC board also approved a new format for the “pink sheet” Publisher’s Statement that repositions some forms of sponsored subscriptions in a new category. Once it has received final approval, the new Publisher’s Statement will include an executive summary in the first paragraph covering “paid” and “qualified”1 circulation. The latter category includes public place and individually addressed subscriptions. ABC’s industry advisory committees and board are finalizing the criteria that will be used to classify copies reported in this category.
The new “pink sheet” provides buyers and publishers with more detailed data, including profiles by circulation channel and category, and is designed to be easier to read and understand. ABC expects to implement the new “pink sheet” for the June 2006 Publisher’s Statement period.
Credibility and Trust
The new rules related to sponsored magazine circulation and the appropriate enforcement of existing rules will benefit the entire publishing industry. Many thirdparty programs, such as those that deliver magazines to public places like medical offices and beauty salons, may be highly valued by both advertisers and publishers, whether they are classified as “paid” or not. The actions taken by the ABC board recognize this, putting the emphasis where it belongs—namely, on the overall quality of a magazine’s circulation and audience.
As magazines increasingly explore new and valuable distribution channels to reach their readers, it is important to the advertising community that ABC verify that the copies are properly distributed and available to readers. The recent ABC rule changes and changes in report formats all help support the value of magazines in today’s marketing mix.
To learn more about ABC’s rule changes, policies and board actions, visit the ABC Web site at www.accessabc.com. We also recommend signing up for free ABC updates to receive items of note via e-mail. For additional clarification regarding this rule change, members are encouraged to contact their Publisher Relations manager at ABC headquarters (847) 605-0909.
Links to Related ABC Rules and Guidelines
Guidelines discussing sponsorship rule changes
Amended Rule F 2.1 – Sponsored Sales
Amended Rule F 1.1 – Paid Circulation Defined
Sponsored sales FAQs
Defining “net of all considerations”
Amended effective dates for sponsored sales rule changes
Teresa Perry acts as senior vice president, publisher member audit
and report processing services and oversees two critical publisherfacing
divisions at ABC: Publisher Relations and Technical Review and
Report Processing (TRRP).
Perry joined ABC as a field auditor in 1989 and was promoted to director, Field Auditing, Periodicals in 1998. In 2000, she was promoted to vice president, Field Auditing, Periodicals and in 2004, she was promoted to her current position.
Currently, Perry serves as the ABC staff liaison to the Magazine Directors’ Advisory Committee (MDAC), the Magazine Publisher’s Liaison Committee (MPLC), and the Magazine Agent and Fulfillment Committee.