• by Ross Fadner , November 25, 2003

The trial may have ended in a draw, but in the weeks following Justice Ira Gammerman's de facto stalemate in the Gruner + Jahr vs. Rosie O'Donnell damages case, things seem to be going comparatively worse for the publishing giant.

Following the departure of publishing executive Diane Potter, G+J are now feeling the heat from their advertisers over those infamous circulation figures Potter referred to as "overestimated," and CEO Brewster understated as being "optimistic."

The scrutiny G+J USA now finds itself under was sparked initially by allegations from the O'Donnell team that the publishing company inflated its sales data. As ad rates are based on those sales levels, circulation is tantamount to a magazine's economic health. In the aftermath of such accusations, G+J finds itself in the prickly situation of needing to restore the trust of its advertisers, who rely on the accuracy of those sales numbers.

"They've put themselves on the hot seat," said Tyler Schaeffer, director of media brand planning at Foote, Cone, & Belding. "This is something that requires management attention so that it's corrected."

The timing of this very public breach of contract dispute doesn't exactly favor Gruner + Jahr-or its competitors either, for that matter-as it comes at a time when the magazine industry finds itself in the midst of an advertising slump caused by a sluggish economy, making relations between advertisers and publishers tenuous to begin with.

Although G+J deny O'Donnell's accusations, CEO Dan Brewster did admit to overstating newsstand estimates for Rosie magazine last year. As a result, says Martin Walker, magazine consultant in New York, some advertisers are likely to capitalize on G+J's situation by demanding lower rates. "They are going to be pushed more than normal," Walker said, adding that "ad agencies are always skeptical of magazine circulation numbers anyhow, so this will add fuel to the fire."

The company is planning an independent review of its circulation reporting, and-according to a letter Brewster wrote to advertisers-it also plans to intensify its efforts to report accurate sales numbers.

Potter's exit was followed by Child magazine publisher Kate Kelly Smith, but a G+J spokesperson maintains that the departures were unrelated. However, FC&B's Schaefer says that it's not a mass shakeup that advertisers want to see: "I don't know if it has to be shakeups and that people have to leave, as much as management has to demonstrate that they have got control over the situation," he says. Magazine publishers, who are finding themselves in an increasingly passive position, would do well to heed such advice, and to learn from the mistakes of others.