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ABC Strengthens Sponsored Sales Rules for Consumer Magazines
Approves New Formats for Magazine and Newspaper Publisher’s Statements, Disqualifies Circulation from EBSCO and InFlight Agent Programs

Schaumburg, Ill. (July 19, 2005) – The Audit Bureau of Circulations (ABC) announced several significant decisions reached during its board of directors meeting held July 13-16, 2005.

Continuing its focus on rules review and revision begun in 2004, the board unanimously voted to strengthen the rules governing how third-party consumer magazine sponsor programs may qualify as paid circulation. Beginning with issues dated January 2006, publishers must receive payment at a qualifying price “net of all other considerations,” including agent marketing and distribution fees. The board also narrowed the definition of eligible magazine subscription sponsors by requiring that sponsors sell their products directly to consumers.

(note: On Sept. 7, the ABC board of directors voted to amend the effective date for sponsored rule changes mentioned in this release.)

The Magazine Committee of ABC also approved a new format for the “pink sheet” Publisher’s Statement that reflects recent rule changes and repositions some forms of sponsored subscriptions in a new category. Once finalized, the new Publisher’s Statement will include an executive summary of circulation in Paragraph One covering paid, “public place” and designated recipients. The new pink sheet provides advertisers 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.

ABC board member John Squires, president of Sports Illustrated, noted that the new rules related to sponsored magazine circulation and the appropriate enforcement of existing rules will benefit the entire industry. “Many third-party programs, such as those that deliver magazines to public places like medical offices and beauty salons, are highly valued by both advertisers and publishers, whether they are classified as paid or not,” Squires said. “The actions taken by the board recognize this, putting the emphasis where it belongs—namely, on the overall quality of a magazine’s circulation and audience.”

ABC board member Alec Gerster, CEO of Initiative Worldwide, added, “As magazines increasingly explore new and valuable distribution channels to reach their readers, it is important to the advertising community that ABC is there to verify that the copies are properly distributed and available to readers. The recent ABC rule changes, decisions on publisher exception requests and changes in report formats all help support the value of magazines in today’s marketing mix.”

Since July 2004 ABC has increased its audit staff approximately 15 percent, and its board and subcommittees have continued to examine ways to strengthen rules open to potential misuse. The board’s approach reflects today’s environment, 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.

In March of 2005 ABC censured EBSCO Consumer Magazine Services (ECMS), a subscription sales agent, for improper record keeping. ABC’s continued investigation of ECMS’s records led the ABC board at its July 2005 meeting to disqualify the circulation claimed as paid from these sponsorship programs because of a lack of qualified sponsors and a lack of payment. This affects circulation from ECMS programs served in July 2003 or later. Action taken at the July 2005 board meeting affects more than 80 consumer magazines and applies to all current and previous ECMS-related exception requests considered by the board.

The ABC board also disqualified the circulation of sponsorship programs managed by InFlight Newspapers and Magazines Inc., affecting at least 20 magazines, with more likely to follow as audits are completed. Beginning in the second half of 2004, InFlight did not pay these publishers for copies of the magazines; ABC rules require that publishers receive payment in a timely manner for sponsored copies to qualify as paid circulation.

“ABC’s actions at this meeting continue our focus on strengthening rules and reflect the complete and unanimous support of the board,” said ABC Chairman of the Board Robert Troutbeck, president of Troutbeck-Chernoff. “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.”

As follow-up to the circulation disqualifications, ABC will, as appropriate, contact the boards and audit committees of publishers involved with ECMS and InFlight to notify them of the board’s actions and its concern about circulation irregularities. Should ABC determine that any of the publications associated with the disqualified ECMS and InFlight sponsorship programs willfully circumvented ABC rules, the board may consider censure as an appropriate next step.

Newspaper Actions

For newspapers, the board voted to continue development of a new ABC quantitative insert verification service, which will provide credible and independent verification of the distribution of advertising inserts (commonly referred to as “free-standing inserts” or FSIs). The service will be tested with several newspapers in the next few months, including the Chicago Tribune, Washington Post, St. Petersburg Times and Dayton Daily News. ABC expects to make the service available to its full membership in early 2006.

“For many advertisers, FSIs represent a substantial portion of their marketing investment,” said ABC board member Merle Davidson, media service director, J. C. Penney Company Inc. “ABC’s new insert verification service will help all marketers to better manage FSI costs and improve our return on investment.”

The ABC board also approved format changes to newspaper Publisher’s Statements and Audit Reports to reflect reporting of circulation by day-of-week and five-day combined daily average. These changes will begin appearing in September 2005 Publisher’s Statements (for those with March-ending audits) and thereafter at the beginning of new audit periods for newspaper members with June, September and December audit cycles.

As a way to further define and strengthen the rules governing newspaper barter payments, the board voted to reintroduce the “green stamp” model for placing a valuation on bartered items. Effective immediately, this model requires that bartered items be redeemable for a broad selection of goods or services, or have a “cash-out” option. At its March 2005 meeting the ABC board also required that sales through barter agreements be reported as a separate line item on Publisher’s Statements and Audit Reports.

The ABC board also agreed to continue examining rules surrounding newspaper membership, so that a non-paid home-delivered newspaper not owned or operated by an ABC member may become a member of ABC and, therefore, be audited by ABC. At its next meeting the board expects to review potential rule changes on this matter that could take effect as early as 2006.

An overview of all ABC board actions taken at the July 2005 meeting is available online at www.accessabc.com/press. For additional information, please contact ABC’s communications department at (847) 879-8432.

ABC also announced the theme of its 91st Annual Conference and Meeting to be “Accountability: the Rules of Engagement.” The event will be held at the Sheraton Bal Harbour in Bal Harbour, Fla., November 2-4, 2005. Registration is currently open and accessible via ABC’s Web site or by calling ABC at (847) 879-8241.

With more than 4,000 members, ABC is in its 91st year as the first and largest circulation-auditing organization in the world, maintaining the world’s foremost electronic database of audited-circulation information and a growing array of verified readership, subscriber demographics and online activity data. ABC offers reports and services in a variety of flexible formats, including print, spreadsheet, CD-ROM and online at http://www.accessabc.com.