Pressure to Control Field Agents Mounts

KARLENE LUKOVITZ

Circulation Management, Aug 1, 1999

Original URL: http://circman.com/ar/marketing_pressure_control_field/

It's no secret that consumer publishers have become heavily dependent on cash field and PDS agent subscription sources, particularly during the past two years.

According to CircTrac 1999, a survey of consumer marketers recently released by Capell's Circulation Report and Erdos and Morgan, more than 44 percent used cash field and/or PDS agents in 1998, compared to 39 percent reporting such usage during 1997. Eighty-two percent reported that their levels of production from field agents had increased last year - nearly double the percentage reporting such increases in 1997. Among all respondents, field agents accounted for 23 percent of total subs, on average - the same percentage reported for the DTP direct mail source. And among those with circulations over 750,000, the field source has actually overtaken DTP mail, accounting for 25 percent of production, compared to DTP's 23 percent.

Unfortunately, the quick-fix of using field agents to cost-effectively meet rate bases threatened by the sweepstakes crisis and other circulation source problems is also threatening to become a legal and public relations nightmare for publishers. The industry now faces mounting scrutiny not only from state officials and the media, but from the Federal Trade Commission, which next year could decide to impose much stricter controls on magazine telemarketing sales practices.

The most dramatic signs of trouble came in the form of two vehicular accidents involving the same sub-agent operation, Oklahoma-based Subscriptions Plus, owned by Karleen Hillery. The first incident occurred last December in Kansas, when a van carrying magazine sales reps crashed, killing one 20-year-old woman. CM could locate no record of charges having been filed in that accident.

Most in the industry are aware of the second accident, this past March, when a van carrying young door-to-door magazine sales reps, including four minors, crashed at 12:30 a.m. in Rock County, WI, killing seven people and seriously injuring five. The driver, whose license was under suspension and who was attempting to switch seats with a passenger when the accident occurred, pleaded guilty to vehicular homicide and injury, and was sentenced to seven years in prison. The reps, who traveled across the country, were working for Oklahoma-based YES (Youth Employment Services), whose ownership was split 80/20 in a 1997 divorce agreement between Subscription Plus's Hillery and Choan Lane.

Investigations by Wisconsin labor and consumer protection officials turned up more than 200 alleged violations, including employment of minors, minimum-wage violations and hiring misrepresentations, as well as a host of deceptive sales practices. The business practices of Subscriptions Plus and YES are still under investigation by the Wisconsin attorney general's office.

The accident spurred Oklahoma labor officials to file workers' compensation claims, which Hillery settled without admitting liability, paying $10,000 in fines and agreeing to cease doing business in the state. The state also asked the IRS and FBI to investigate the sub-agent, and, according to news reports, the U.S. Department of Labor and agencies in a number of states are also investigating Subscriptions Plus and YES.

The accident also drew the interest of the media, spurring the television newsmagazine programs Dateline and 20/20 to investigate door-to-door sales operations. Dateline aired a piece that included some content on magazine sales within the broader context of door-to-door sales. At press time, 20/20 had not yet aired such a piece.

By coincidence, the incident has also provided fodder for politicians seeking to make it much more difficult for companies to define workers as independent contractors. In April, Wisconsin Congressman Jerry Kleczka introduced a bill, H.R. 1525, that would amend the Internal Revenue Code, defining all persons performing services for others to be considered employees unless three specific criteria are met: lack of control by the service recipient; availability of the service to others; and entrepreneurial risk. If this bill were to pass, it would have severe economic ramifications for magazine publishers, primarily because of their heavy reliance on freelancers for writing and other creative services. Presumably, the legislation would also affect subscription field sales. And, although Rep. Kleczka reportedly had the bill in the works prior to the fatal YES accident in his state, publishing sources say that he's now less inclined than ever to sympathize with publishers' argument! s against the bill because of hi s outrage about Hillery's insistence that the workers were independent contractors for whom she bears no responsibility.

During the 1980s, Sen. William Roth (R-DE) spearheaded efforts to crack down on door-to-door magazine sales operations, although no legislation was ultimately passed. Sources agree that use of all field agents, and door-to-door agents in particular, declined dramatically in the latter half of the '80s, in part because the founding of American Family Publishers had supplied a significant new source.

Meanwhile, on the telemarketing front, the FTC, reportedly dissatisfied with the results thus far of the MPA guidelines issued in early 1998 to better control sub-agents, could decide to force the issue when the Telemarketing Sales Rule comes up for review next year.

In 1995, MPA, DMA and other industry groups successfully staved off most of a series of very stringent regulations that had been proposed as part of the Telemarketing and Consumer Fraud and Abuse Prevention Act. However, in 1997, the FTC, saying that magazine subscriptions were the number one cause of consumer complaints, told publishers they must control the situation or be faced with much stricter telemarketing rules. The agency, which did not respond to CM inquiries, has been reluctant to provide publishers with hard data. However, one FTC official has reportedly indicated that magazine complaints fell off for some time after the discussions in '97, but then rose again.

Legal sources say it seems unlikely that the FTC could legally ban subscription telemarketing, but that the agency might well attempt to implement requirements that would make such sales impractical, such as mandating that publishers obtain written confirmation of telephone orders from consumers.

MPA senior VP, legislative and regulatory affairs Rita Cohen, speaking in a session at this year's Circulation Management Conference & Expo in early June, indicated that MPA's agent guidelines were meant to cover door-to-door sales, as well as telemarketing sales.

Cohen stressed that the MPA had forewarned the FTC that actual implementation of the guidelines would take substantial time. The guidelines require that all primary clearing agents comply with the Telephone Sales Rule, supply authorized lists of all sub-agents to publishers, and code every order to identify its originator, and that publishers reject unidentified orders and cease doing business with agents who refuse to cooperate with the guidelines. However, Cohen, while confirming that fulfillment bureaus have reprogrammed to accommodate the identification codes, acknowledged that not all agents are supplying the sub-agent ID information. "Publishers will have to step up and show that they are serious about this," she said, referring to the need to stop accepting subscription orders obtained or processed by unidentified or unauthorized sub-agents.

Publishing sources agree that policing field sources is extremely problematic not only because of the multi-tiered nature of subscriptions clearing, but also the fact that some unauthorized sub-agents simply substitute similar magazines from other publishers when one publisher cuts them off. For this reason, they say, policing the business effectively would require consistent, industry-wide cooperation.

The MPA was rumored to be conducting discussions with the FTC to determine the feasibility of maintaining an approved agent list without incurring the risk of being accused of unlawfully interfering with the businesses of non-approved agents. However, MPA executive VP, consumer marketing Michael Pashby strongly denies this, calling the idea "fraught with anti-trust problems." He notes that, in the '70s, the FTC itself shut down an agent registry that had been run by the MPA, saying it constituted an illegal blacklist. (Nevertheless, Chip Block, chairman of the AIM subscription agency, reports that he's attempting to set up a third-party clearing agency that would register with the FTC and every state attorney general and Better Business Bureau. "No single publisher can control [agents]," he asserts. "But to be effective as a clearinghouse, we'd have to get exclusives from the major publishers.")

Pashby also maintains that much progress has been made in the agency policing arena in recent months. "The events of the past few months have been an eye-opener for the entire sales channel," he says, "and have prompted the community to realize that something must be done - that everyone must strictly enforce the guidelines."