It's Not Looking Rosie For Gruner + Jahr, Publisher Reveals Pervasive Overstatements

Gruner + Jahr USA is in circulation hot water again, but this time they are placing blame on what they say was an incompetent partner. G+J Wednesday revealed that because of alleged errors on the part of a third-party subscription agent, several of the publishers' flagship titles -- including Parents, Child, Family Circle, Inc. and Fast Company -- had overreported circulation in the past year and were in danger of missing their advertising rate base.

As a result, G+J is suing third-party subscription agent Publishers Communication Systems Inc. and its President and Chief Executive Officer, Walter Stevens, filing suit in U.S. District Court for the Southern District of Florida in Fort Lauderdale.

G+J claims to have contracted Publishers Communication Systems for a certain number of subscriptions in 2003 and 2004. Recently, the Audit Bureau of Circulations (ABC) contacted G+J to inform that company that PCS failed to produce proper documentation for numerous subscription orders, resulting in the auditor's decision to classify approximately 165,000 of the 2003 subscriptions as "non-paid."

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Specifically, Parents and Child will miss rate base for the second half of 2003 by approximately 0.82 percent and 2.7 percent, respectively. G+J is still reviewing its 2004 subscription orders with the ABC, with further details to come by the end of February.

G+J estimates that several of its titles may fall short of their rate bases in 2004, including: Parents -3.4 percent; Child -9.9 percent; Family Circle -2.8 percent; Inc. -3.8 percent; and Fast Company -2.5 percent.

In an interview yesterday, Russell Denson, president and CEO of G+J USA, firmly placed culpability for yesterday's announcement at the feet of Stevens.

"This is not a clerical error," he said. "The company failed to produce sufficient documentation. The bottom line is, this is his responsibility." Denson said that during the last several weeks, after the ABC brought the issue to G+J's attention, Stevens promised to produce documentation, yet to no avail.

At this point, Denson still does not know whether these subscriptions are legitimate.

"He maintains that they are," he said, adding: "That would be nice." Denson said that G+J has not received an inordinate amount of complaints related to these subscriptions.

Denson said that G+J has worked with Publishers Communication Systems since 1994, and that the company had built up a strong reputation in the industry over some 30 years in the business.

While the magazine industry has been enjoying something of a renaissance of late, the last few years can only be characterized as tumultuous for G+J.

In 2003, both YM and Rosie (each now defunct) were implemented in embarrassing circulation scandals. G+J's previous CEO, Dan Brewster, was ousted as a result.

When Denson came to G+J last year, he made circulation practices a priority, even requiring ABC audits for every six months rather than every year.

Yesterday, Denson made an effort to separate this incident from past discrepancies--while acknowledging that he expected this story to be given more scrutiny, considering the company's recent history.

"It's a big deal," he said. "It's kind of like being invited up to the place with two strikes. There will be bigger headlines because it's Gruner + Jahr. If I am an advertiser, I am going to think twice."

To satisfy advertisers, G+J is providing $10 million in advertiser make-goods and refunds. Denson said that while those figures were no reflection on the financial health of the company, "principally it's important," he said.

A call to Walter Stevens by MediaPost went unreturned. Officials at the ABC were unable to comment, due to the company's policy on pending audits.

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