Did you hear the one about the 88-year-old guy from California who flew to Tampa, convinced he’d won $11 million in the American Family Publishers sweepstakes?
How about the one about the guy who wrote million-dollar checks to his kids after convincing himself he’d been declared the AFP winner? Or the Baltimore welfare mom who borrowed $1,500 in order to fly to Tampa for her prize?
If you were anywhere near a newspaper last year, you heard about them. Lurid anecdotes were just the start of the worst times ever in the stampsheet business. In fact, if you really want a scare story, consider these facts:
– Less than ten years ago, American Family Publishers and Publishers Clearinghouse produced half the new subscription business in the magazine industry. Today, despite better targeting and consistent mail volumes, they produce less than a third.
– In 1994, AFP and PCH sold 66 million subscriptions. Last year they sold about 50 million.
– Five years ago, the two companies offered little more than a $10 million grand prize. Now they’ve added thousands of prizes ranging from free subscriptions to $1,00,000. PCH, for one, will double its grand prize to$21 million next year; AFP will offer “19,000 prizes in 1999.”
– AFP has also handed out an additional $6 million in the past 18 months – to settle lawsuits. That includes $4 million AFP paid last May to five states that claimed consumers were misled into buying magazines in order to enter the stampsheet’s sweepstakes.
“They’re taking a bath,” says circulation consultant Chip Block, speaking of the two stampsheet giants. “It’s going to be up to the management to figure out how to transform the companies and rebuild the profitability, whether with sweepstakes or without.”
Some Good News
The good news is that transformation is under way. Low profile and intensely competitive, neither AFP nor PCH exactly leaped at the chance to disclose their latest business strategies to Direct. (“They’re like Coke and Pepsi,” says Jerry Cerasale, senior vice president for government affairs at the Direct Marketing Association.) Both say, however, that they’re rebuilding consumer confidence in sweeps as well as diversifying their businesses for profitability.
They’re also keeping more subscription money to themselves. The average remit to publishers, currently about 14%, “is coming down fast,” says Dan Capell, publisher of Capell’s Circulation Report.
According to president Robin Smith, the strength of PCH is that it’s not strictly a subscription marketer. “We are a database company,” says Smith.
“We manage a customer relationship. We’re in the business of casting a wide net and getting people in to buy.” In its mailings and Web site, videos and electronic equipment now take up space alongside titles like Sports Illustrated. Although magazines, she says, “are still terrific in terms of recruiting new customers,” Smith also notes, “you sell what people want to buy.”
PCH is also “reinvigorating” its direct mail, which drops more than 100 times per year to the large majority of US households. Besides testing new creative – Smith won’t provide details – the company is pushing instant awards weekly drawings and monthly giveaways. The efforts aim to win over both customers and the media. In June, for instance, PCH designated 100 winners in 100 cities, blitzing Prize Patrol vans all over the country. “We got quite a bit of positive media coverage on that,” Smith says. “We’re doing a lot of things to win back consumers and ways to make contests more exciting,” she notes, adding drily, “within the framework of what regulators find acceptable.”
AFP, 50% owned by a division of Time Inc., is also trying to “inject the fun back in sweepstakes,” according to Jeanne Meyer, company spokesperson.
More accurately, though, AFP – harder hit by lawsuits than its competitor – is out to clear the sweepstakes rap sheet. Until recently, its Web site home page sold no product at all. Instead, it was a credo of the company’s “commitment to consumers.” The company also is playing up the “real winners” angle in its television campaigns, and even contributing to scholarships through the Horatio Alger Fund in every state. All of this, says Meyer, is “with the idea of helping people realize the American dream.”
New Channel
At the same time, though, AFP is also varying its merchandise mix, as well as its marketing. In June 1998, it bought Publications Direct, which pushes publications and sweepstakes through credit-card billing statements. “It essentially gives AFP a new channel for marketing magazines,” says Meyer.
Clearly, nobody’s counting on a return to the glory days of stampsheets – not even the stampsheet agencies themselves. Once, selling magazines via mass sweepstakes mailings was practically a license to print money. PCH, which has about two-thirds of the market, once could count on near double-digit gross margins for its estimated $200 million business. Now, says Smith, “Nobody knows to what extent it’s going to come back.”
At the same time, though, that nobody thinks stampsheets and sweepstakes will go away. For better or worse, each party still needs the other (see sidebar). Publishers, faced with eroding newsstand sales (down 6% over the past five years, according to the Audit Bureau of Circulations) rely on stampsheet mailings to maintain advertising rate bases. Stampsheet agencies need publishers because “the magazines are an extremely profitable product line, as long as you can sell it,” say Smith. And both parties need sweepstakes because that’s why consumers open the envelope.
“The use of sweepstakes as a tool for the marketing of magazines via direct mail will continue to be prevalent, despite the introduction of federal legislation,” says Linda Goldstein, who chairs the Promotion Marketing Association’s legal and government affairs committee.
“Sweepstakes are a proven effective marketing technique, used by 95% of all marketers that use any promotion. I anticipate there will be some changes in the marketing materials, heightened sensitivity to some of the issues, but I don’t anticipate sweepstakes will be abandoned,” she notes. Why have sweepstakes taken such a beating? Some blame the regulators. The writing was on the wall five years ago, when AFP and PCH voluntarily agreed to copy restrictions after complaints from 14 state attorneys general.
Anti-sweepstakes rumbling started up again in 1997, when the Federal Trade Commission began busting fraudulent subscription agencies like “American Readers Service Inc.,” “Publishers Award Bureau” and the ambitiously named “Family Publishers Clearing Center.” All had either billed customers illegally or induced orders through bogus prize offers, according to the FTC.
Before long, legitimate marketers came under scrutiny. In March 1998, about 30 elderly folks and a welfare mother reportedly flew to AFP’s headquarters in Tampa, convinced they were grand prize winners. Within months, AFP facedcomplaints from attorneys general and a dozen lawsuits. It spent $1.25million in March 1998 to settle complaints from 32 states, then agreed to an additional $800,000 a few months later to satisfy the state of New York.
Publishers Clearinghouse, meanwhile, has been sued by Connecticut, Wisconsin and Indiana for alleged misrepresentation of its own.
A “No-Lose” Issue
For attorneys general, sweepstakes regulation “is a no-lose [issue],” says one magazine industry observer. “The economy’s so good, people feel comfortable, and an attorney general can go to constituents and say, `I’m going to protect you.”
“You’re seeing a change in the regulatory landscape,” says Goldstein.
“For example, one of the practices being challenged is the use of different response devices for people who purchase and people who don’t. If you lookat any supermarket promotion, that’s a fundamental: You either purchase immediately or send in a three-by-five card to receive a game piece. You’re seeing an attempt, particularly by the states attorneys general, to change the rules.”
Others, though, argue that AFP and PCH weren’t entirely innocent victims of the regulators.
Faced with declining response, “a lot of sweepstakes companies, not just the [stampsheet] agencies, have become more aggressive in marketing,” says Block. “But when one of them says, `We need directions to your house for the Prize Patrol,’ that to me is way over the line.”
“I think the stampsheet agents have suffered from a lot of bad publicity with respect to sweepstakes,” says Robert Cohn, vice president of consumer marketing of several Times Mirror titles, “and they may have pushed the envelope a little too far in terms of creative.”
Blame other factors, too, for the sweeps decline. Mail-in sweepstakes entries are no longer as sexy, for instance, as the instant gratification of legalized gambling, or $60 million Powerballs. Nor do sweeps entries stand out in a cluttered mailbox they way they once did. Even beleaguered Reader’s Digest, one of the venerable sweepstakes promoters, is testing direct response TV and non-sweeps mailings in an effort to broaden its marketing. “This is irrespective of the scrutiny that has been paid to sweepstakes,” says Stephen Morello, spokesperson for Reader’s Digest. “It’s something we feel we need to do to make our marketing efforts more efficient and more effective.”
As sweepstakes marketers, though, AFP and PCH are forced to make the best of bad times. To forestall future problems, PCH has spent two years identifying and removing “vulnerable” customers in its database; AFP has followed suit. Both are also currently working with Congress, along with the Direct Marketing Association and the Magazine Publishers Association, to create national standards for sweepstakes regulations.
“It’s not the norm,” says Cerasale of the unprecedented cooperativeventure. “But at the moment people are confused thinking legitimate sweepstakes promotions are similar to the fraudulent [promotions]. All marketing depends on consumer trust.”
In the end, it’s clear that the stampsheets will likely outlast all the embattlements and regulations. They won’t, however, shake free all their problems. Count on it: Next Super Bowl, despite the clearer, regulation-satisfying stampsheet copy, someone’s uncle will be sitting home, icing a bottle of champagne, waiting in vain for the Prize Patrol.
As one magazine publishing executive puts it, “there will always be people who think they’re Napoleon.”
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