Monday, May. 12, 1941

Scandal in Circulation

Not once in a blue moon does any large publishing firm pad its circulation figures--the basis on which its advertising is sold--but last week it became evident that one of the largest had done so. The publisher was MacFadden Publications, Inc. (True Story, Physical Culture, Liberty, True Romances and seven others) of which 73-year-old Bernarr MacFadden relinquished control three months ago. The story became known when the new management began cleaning house.

Since Publisher MacFadden retired the MacFadden magazines have been managed by a group of executives headed by Orr Jay Elder, who started as assistant advertising manager of Physical Culture 38 years ago. The new management admitted in a letter to advertisers that True Story circulation for 1940 was phony. Result: to advertisers, guaranteed a True Story circulation of 2,000,000, MacFadden Publications will have to make good the shortage.

Just how much the refunds will be cannot be known until the, A.B.C. (Audit Bureau of Circulation) has reaudited True Story's circulation. Preparations for the reaudit were made a month ago when Circulation Manager Samuel Oliver Shapiro (rehired three months ago; he was circulation manager from 1934 to 1938) sent newsstand distributors a letter asking them "to come clean"--to tell just how many copies of True Story they had sold. He added that the new management was not to blame, wanted to clean up the mess.

The mess, as the newsstand distributors did not need to be told, was produced by false reports of True Story sales. Since newsstand wholesalers ordinarily pay only for copies sold, and return the rest, the difference between the number of copies distributed and the number returned is usually good evidence of sale.

But when True Story (priced at 15-c-) found its sales slipping in competition with 10-c- magazines, distributors were offered bonuses for keeping up their sales quotas. As the bonuses were scaled it was made profitable for distributors to "eat" copies--i.e., to destroy unsold copies instead of returning them, since the bonus was big enough to leave something over after a distributor had paid for the copies he destroyed. Because the MacFadden account was a profitable one, the distributors "ate" copies and liked it.

This scandal from the past was not the only one which last week still haunted the MacFadden enterprises. In the courts are three minority stockholders' suits against retired Bernarr MacFadden for company money allegedly spent trying to wangle the Republican Presidential nomination in 1936 and on his Foundation charities. MacFadden called it a "trumped-up" suit. But out of the $600,000 paid him to "relinquish control" he agreed to turn back $300,000 and 22,000 shares of preferred stock to settle the suit.

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