The Time Inc. Auto Renewal Settlement
What are the implications for marketers ... and how much does it matter at this point?
By David Rosen
In March of this year, the attorneys general of 23 states announced an agreement with Time Inc., "settling concerns over billing and collection practices" relating to "approximately 108,000 consumers nationwide who made payments for magazine subscriptions that were automatically renewed between 1998 and May 2004."
Time Inc. agreed to pay $4.5 million to cover investigative costs, divided by the 23 states, in addition to $4.3 million in estimated customer claims.
The possibility of serious government attention and action regarding automatic renewal, or "continuous service" as it's often more euphemistically expressed, was not unexpected by the industry. The subject has been a source of anxiety and frequently has come up at conferences and in private discussions for years, particularly in the aftermath of the sweepstakes/stamp sheet agencies debacle.
So now that the dreaded event has finally come to pass, what are the actual implications of this settlement for circulation and direct marketers? Should it be regarded as a wake-up call for the industry, prompting serious and diligent review of all procedures related to automatic renewal? If so, what does the settlement indicate as far as the measures circulators need to take to avoid legal and regulatory problems themselves?
On the other hand, in light of recent trends, how much does it all really matter? How important is automatic renewal to the industry at present and likely to be in the future?
Key Issues and Takeaways
"Any time a number of state attorneys general band together in a settlement like this, they're formulating a clear message that marketers in the affected indus-tries need to pay attention to," says Lisa Dubrow, an attorney specializing in marketing and advertising and formerly general counsel to The Synapse Group Inc.
That message seems to have been received by most publishers who use automatic renewal, as contacts at a number of publishers recently confirmed. Renewal and billing managers Ann Von Thaden, at Wenner Media, and Patrick McConnell, of Playboy, both report their organizations are undertaking intensive reviews of all copy and procedures relating to continuous service in light of the terms of the Time Inc. settlement.
The key underlying issue in the charges made by the attorneys general, according to Dubrow, was that consumers did not understand that they were signing up for automatic renewal when they responded to Time Inc. solicitations, and that this was caused by deficiencies in the Time Inc. magazines' promotional materials.
Thus, the settlement calls for Time Inc. to "provide clear and conspicuous disclosures to consumers concerning all the material terms for automatic subscription renewals," which reaffirms a basic guideline all publishers were aware of before, but now are re-examining.
The settlement also mentions link letters (though without using that term), which are employed in most publishers' automatic renewal programs and are recommended in the current MPA Guidelines on "Advance Consent Subscription Plans," as well as a couple of provisions referring to procedures publishers already are following: processing of all requests to cancel subscriptions "as soon as reasonably possible and ... provide refunds to consumers charged for magazines that they did not order," as well as "not [submitting] unpaid accounts of automatic renewal customers for third-party collections."
So far, nothing earth-shaking. But there are a few items in the settlement that do give pause. First, there's the provision that states, "[Time Inc.] for the next five years, [will] provide consumers the option to affirmatively choose an automatic renewal option."
This certainly sounds like a "positive option," as in separate "Yes/No" option boxes, which anyone who has worked in this industry for more than a few months knows is a response killer. The "for the next five years" phrase would seem to verify the punitive character of this provision, and also that it may not generally apply to other marketers.
But this is a point where consulting your legal counsel is crucial, because as with the definition of "clear and conspicuous disclosures" there is some latitude of interpretation, depending on the history and context of your communications with and promotions to subscribers. If the terms of an automatic renewal offer are clearly presented, in the context of an approach that communicates "automatic renewal is the way we handle subscription service now, and by accepting this offer you agree to it," then wouldn't that qualify as "affirmatively choosing"?
Again, to be sure, you need to check with your legal counsel.
A second provision that seems problematic is that, "[Time Inc. has agreed to] stop mailing solicitations to consumers for subscriptions that resemble bills, invoices or statements of accounts due."
This one sounds like a bombshellif it applies to the statement and voucher packages that are ubiquitous in acquisition and renewal mailings. But is it?
There doesn't appear to have been any marked reduction in the use of vouchers and statement formats among circulation marketers in the past few months, so evidently this is another matter of interpretation. Again, "clear and conspicuous disclosures" may keep you safe, e.g., a statement or voucher with a large "Renewal Form" or "Subscription Order Form" header.
As for the net impact on circulators regarding continuous service, Bill Baird, a consultant with a great deal of experience with automatic renewal and who has led numerous industry seminars on the subject, concurs that "The Time Inc. settlement is certainly something to be examined closely," but he doubts that an enormous number of publishers have moved away from their use of automatic renewals in direct-to-publisher business because of it.
Yet, the prevalence of automatic renewal programs has declined in the last few years, for a number of other reasons.
How Much Does It Really Matter?
The recent history of automatic renewal actually has been a mixed bag.
While complaints from subscribers about the number of renewal notices they receive seems to be a perennial phenomenon, and despite the fact that automatic renewal does offer consumers a genuinely more convenient, efficient and resource-saving alternative, the industry has not succeeded in changing consumer attitudes, perceptions and expectations enough to make continuous service the standard way of doing business.
To be sure, automatic renewal has achieved some successes and become firmly established at certain publishers, such as Reader's Digest. But automatic renewal has never been an easy initiative to get into and maintain, involving multiyear testing and diligent, ongoing monitoring to avoid test-invalidating errors.
On the plus side, the number one benefit of automatic renewal for circulators always has been said to be an incremental increase in retention rates, although that assumption now is starting to be challenged (more about this later). Cutting renewal promotion costs is another advantage, although not nearly as significant, as those costs typically are low compared with other forms of direct mail promotion (most renewal efforts involve far fewer creative and stock requirements than acquisition packages, and mail at Standard postage rates).
On the negative side, besides customer service and potential legal/regulatory problems, automatic renewal also typically involves a dramatic change in cash flow. Instead of receiving responses and payments over the course of a multi-effort renewal series, they are deferred until billing starts for the next term.
And in some cases, the total economics just don't work out to be that favorable, e.g., publications with a higher subscription price, lots of cash with order and large numbers of multiterm orders. As Baird points out, regarding the multiterm factor, many publishers never thought through the implications of automatic renewal and didn't realize they were actually cutting term in subsequent years.
Hopes for the success of credit-card automatic renewal, which has superior retention performance compared with the annual billing version, also have not been realized for the majority of magazines.
So the interest and excitement about continuous service in circulation circles that existed up to 2003/2004 has modulated considerably. Baird reports, "The most common call I got three years ago was, 'How can we get into automatic renewals?' Now the question I get most often is 'Should we continue to be in automatic renewals?'"
Industry expert Dan Capell, whose CircTrack survey includes coverage of automatic renewal, says that subscriptions in continuous service programs now constitute less than 10 percent of total subscriptions on file. Capell also maintains that the most recent results show no incremental lift in renewal rates through the use of automatic renewal.
So, considering the recent history, the Time Inc. settlement would have been much bigger news, with a correspondingly greater impact, if it had occurred three or four years ago. It also may be accurate to say that in view of the much broader issuesi.e. the changes and challenges currently facing the publishing industry involving the internet and digital content/delivery in generalthe question of automatic renewal pales in comparison.
If you are a circulation marketer who is using (or considering) automatic renewal, you will want to study the Time Inc. settlement and revisit your own copy and procedures in light of it, a process that should include consulting your legal counsel.
Beyond the particulars of the Time Inc. case, though, all marketers should heed the signal sent by the attorneys general regarding the overall imperative for clear and conspicuous disclosure of all offer details, as a means for making sure consumers fully understand what they are ordering and paying for.
You can be certain that this is a sound practice whether you're promoting products via traditional or new media channels.
David N. Rosen is a direct response copywriter, consultant and founding partner of Rock Hill Direct LLC. He has considerable experience with automatic renewal, having played a leading role in launching successful programs that are still in effect at Boardroom Inc., where he was formerly manager of customer development, and in creating automatic renewal promotions for clients such as MacWorld, Playboy and Wenner Media. He can be contacted at david@rock hilldirect.com or (914) 715-8613.