The chief financial officer of Gruner & Jahr USA, publisher of Rosie O'Donnell's magazine, admitted Monday that his company reported false circulation figures to hide the magazine's losses.
Lawrence Diamond said executives at Gruner & Jahr decided to "manage the financials" of the magazine, Rosie, so they could keep publishing. If the magazine lost more than $4.2 million in a fiscal year, O'Donnell would have been permitted to end her arrangement with Gruner & Jahr.
"We did not want to shut down," Diamond testified under questioning by Matthew Fishbein, an O'Donnell lawyer. The executive was testifying in the breach-of-contract case between O'Donnell and Gruner & Jahr.
O'Donnell's lawyers said the Gruner & Jahr executives were falsifying the circulation numbers during the height of the fight between the entertainer and the company for control of the magazine.
Her lawyers said the bogus numbers were reported to the Audit Bureau of Circulations, an association of publishers and advertising buyers and sellers whose information is used to helped determine ad rates.
Fishbein elicited testimony from Diamond and an ABC official that while Rosie charged advertisers on the basis of a circulation of 3.5 million a month, its actual subscription and newsstand sales usually fell short of that number. Circulation shortfalls would result in lost revenue and rebates to advertisers.
Diamond said the decision to tweak the magazine's numbers came after an e-mail memo on April 26, 2002, from magazine executive Glenn Spotto. "Bad news coming on the newsstand, it appears that we are inching closer to that trigger point," Spotto wrote.
Diamond then wrote a memo to Axel Ganz, an executive at Gruner & Jahr's German parent company, Bertelsmann, saying, "G&J; USA is recommending to you that we manage the financials such that we do not fall below the required threshold point so that we can continue to publish Rosie. We are asking you for approval to this strategy."
"We thought it was in both parties' interests to continue publishing the magazine," Diamond told Fishbein.
Diamond testified that he wrote a follow-up letter to Ganz so that he would have a written record of his approval of the strategy.
In a videotaped deposition of Ganz taken last May, Ganz said he did not remember receiving such a request from Diamond and declared, "We don't manage books. He might have been talking about looking at other ways to enhance revenues."
However, a May 8, 2002, e-mail indicated Diamond sent an e-mail to Gruner & Jahr Chief Executive Daniel Brewster saying, "He [Ganz] agrees with our recommendation."
Fishbein displayed evidence that showed Gruner & Jahr's internal circulation figures were less than those reported to the audit bureau.
Gruner & Jahr lawyers say O'Donnell killed the magazine because of a fight over the cover of the September 2002 issue.
O'Donnell quit Rosie in mid-September 2002, and the magazine, which began publishing in April 2001, folded with the December 2002 issue. The publishers sued O'Donnell for $100 million, alleging breach of contract. She countersued for $125 million, declaring that by cutting her out of key editorial decisions, Gruner & Jahr had violated its contract with her.