Gruner & Jahr Under Scrutiny After Rosie Battle

Gruner & Jahr’s bitter court fight with Rosie O’Donnell ended in a stalemate, but the publisher is nonetheless paying a price for the battle.

Gruner & Jahr USA Publishing, a unit of Germany’s Bertelsmann, is under increased scrutiny from advertisers over the accuracy of its sales numbers. It already has seen a top executive quit amid fallout from the case.

The high-profile court fight ended this month with the judge saying neither side deserved substantial damages over the demise of Rosie magazine. But now Gruner & Jahr is on the defensive with advertisers over its circulation practices, sparked by O’Donnell’s accusations that it inflated sales data.

Circulation is the lifeblood of the magazine industry because ad rates are based on sales levels.

Now, after both O’Donnell and Gruner & Jahr have spent millions in legal fees on their dueling suits, Gruner & Jahr must focus on restoring trust with ad clients, said Tyler Schaeffer, director of media brand planning at ad agency Foote, Cone & Belding Worldwide.

“They’ve put themselves on the hot seat,� he said. “This is something that requires management attention so it is corrected.�

The Bertelsmann unit’s titles include Parents, Child, Family Circle and Fast Company. It created Rosie, a makeover of the women’s magazine McCall’s, in 2001 as part of an effort to boost its U.S. profile.

But Rosie collapsed amid fights over editorial control, leading to the acrimonious breach-of-contract battle. The case also came at a time when magazine publishers have struggled with a deep advertising slump caused by the sluggish economy.

Gruner & Jahr fiercely denied O’Donnell’s accusations that it finagled sales estimates to prevent her from walking away from their contract. But the company has acknowledged that it overstated newsstand sales estimates for the magazine last year. The discrepancies were revealed in a routine industry audit.

Now, some advertisers probably will try to capitalize on Gruner & Jahr’s woes by demanding lower rates and other discounts, said Martin Walker, a magazine consultant in New York.

“They are going to be pushed more than normal,� he said of Gruner & Jahr. “Ad agencies are always skeptical of magazine circulation numbers anyhow, so this will add fuel to that fire.�

Gruner & Jahr says it is taking steps to correct any errors in its sales reports and has good relations with advertisers.

Amid the fallout, Gruner & Jahr’s top circulation executive, Diane Potter, resigned late last week.

The company plans an independent review of its circulation reporting and is redoubling efforts to make sure sales figures are accurate, according to a recent letter to the advertising community from Chief Executive Daniel Brewster.

“G+J has already taken steps to ensure that our circulation reporting is consistent with the best practices in the business,� he wrote.