Why Magazine Circulations Are Like Credit Ratings

If we've learned one thing from the CDO fiasco, it's that in many cases investment banks put products together with more of an eye on the credit rating they could achieve than they had on real financial safety or viability. Impartial auditors are all well and good, but invariably when one or two auditors become all-powerful, they distort the market to the point at which their ratings become the end in themselves, rather than a reflection of underlying reality.

As it is with credit ratings, so is it with magazine circulations. Jeff Bercovici reports:

For the next two weeks, anyone who buys or renews a subscription to the indie music magazine through Pastemagazine.com can name his or her own price. Clever, clever.
Unlike Radiohead, which gave fans the option of paying nothing at all for In Rainbows, Paste has set a minimum of $1.
"We need to count these as paid subscribers," explains publisher Tim Regan-Porter.

The reason why pastemagazine.com is setting a minimum price is exactly the same as the reason why the electronic edition of the New York Times still costs $15 a month, even after TimesSelect has been abolished. If you give it away, it doesn't count as paid circulation for the purposes of the Audit Bureau of Circulation. And ad rates are based not the ABC's audited circulation numbers.

As a result, newspapers and magazines will go to extraordinary lengths to get paid subscribers. It's not uncommon, for instance, for the "free gift" you get with a magazine subscription to be worth more than the amount you're paying. And at the margin, subscriber-acquisition costs are nearly always substantially higher than the price of a subscription. It's all part of a rather silly game played between the ABC, publishers, and advertisers.

But if the music stops on this game, at least, no one's going to lose $8 billion.