Target Report: The Prize Patrol Goes Digital

Direct mail has proven to be a resilient channel for the delivery of both marketing and transactional content. The maturation of digital inkjet printing technologies has measurably increased the effectiveness of personalized mail communications. However, the direct mail industry faces challenges posed by postal rate increases, paper supply constraints, and the iterative impacts of reduced mail volume, all piled on top of the relentless trend of content transitioning to electronic media. As we have noted over the past several years in The Target Report, we believe that the downward trend in certain print segments is inexorable: content that can move online will move online.

PCH Exits Direct Mail

The world of wishful thinking is not immune to these trends. On April 9^th, Publishers Clearing House filed for Chapter 11 bankruptcy protection. The company, which has fallen from the pinnacle of the direct mail industry, announced that in addition to a balance sheet restructuring, it would exit its legacy direct mail as well as its online retail shopping and subscription solicitation businesses. Despite all this, the company nonetheless promised to continue its sweepstake contests and surprise winners with its oversize checks.

In conjunction with its bankruptcy filing, the company obtained debtor-in-possession financing to fund its now much reduced day-to-day operations, as well as enable it to pay out those prizes. At least for now, the famous PCH Prize Patrol will still knock on doors and deliver an oversize check, and as always, the check will be accompanied by a bottle of champagne and a bouquet of colorful balloons.

In its press release covering the bankruptcy filing, there was no ambiguity about the company’s decision to exit the print and mail mediums; it is “utilizing the financial restructuring process to finalize the shift away from its legacy direct mail and magazine subscription” businesses. The CEO of the company noted that the bankruptcy filing “marks a crucial development in our transition to a digital advertising-supported entertainment company. By taking this step, we are breaking free from the past financial constraints of our legacy direct mail, online retail merchandise, and magazine subscription operating model.” No ambiguity there; print is out.

If PCH, as the company is more commonly called, is no longer in the magazine subscription business, then what is left? An online exploration into the PCH world reveals that the company owns several website channels that entice online visitors to play games, use its proprietary search engine, answer quiz questions, and of course, enter sweepstakes (the allure of winning the big one is still the draw in all PCH offerings). The sites bombard the visitor with personalized advertising, the source of the company’s revenue.

The company leverages its sweepstakes model to collect first-party user data. It claims to have over 170 million opt-in users (clearly, if this number is accurate, it is evidence that hope springs eternal). That treasure trove of data is the company’s best hope for survival as it enables PCH to target advertisers’ campaigns for their brands via the PCH media channels. The future PCH business model appears to mirror the data-driven advertising business that RRD acquired last year when it purchased the Vericast Digital Marketing & Technology business. (See The Target Report: Half a Loaf is Better than None – March 2024.) The difference for PCH is that sweepstakes are always the draw to collect user information.

At one point in its history, PCH was reportedly the highest volume mailer in the United States, second only to the IRS during tax season. During the heyday of its mail-order and online retail merchandise business, prior to Amazon’s and Walmart’s domination of online retail, PCH was generating revenue of approximately one billion dollars per year. Now in bankruptcy, the company has reported that the direct mail print and online merchandize operations are closed. Revenues going forward are projected to be only $38 million in 2025. The employee count is down to just 105 after the bankruptcy filing, with over three hundred employees laid off in 2024. Magazine subscription revenue is now zero. There will be no more oversize manilla colored envelopes dropping into the postal stream proclaiming “Final Step Required,” “Winning Number Found,” and “Guaranteed Winner” in loud red type.

PCH was started in 1953 when Long Island, New York, husband and wife team Harold and LuEsther Mertz mailed out 10,000 envelopes soliciting magazine subscriptions. At the time, magazine subscriptions had mostly been sold by door-to-door salesmen. When one hundred orders were received from that first mailing, Harold and LuEsther, along with their daughter Joyce, were convinced they were onto something. Over the next decade, they successfully grew the company and began their lifelong dedication to charitable causes.

In 1967, PCH ran its first sweepstakes contest, copying a technique pioneered by Reader’s Digest which began the subscription sweepstakes craze with its program in 1962. That initial contest featured the then-stunning grand prize worth $100,000. In 1989, two members of the PCH advertising team dreamed up the Prize Patrol, a happy clean-cut team that shows up unannounced on front doorsteps to surprise sweepstake winners at home. The result was often great TV advertising spots for PCH, candid-camera events that kept millions of aspiring winners’ hopes alive that they too could win.

Critically, it was never a requirement in the PCH sweepstakes that entrants actually buy anything, as that would have made the sweepstakes illegal. However, many recipients either missed that disclaimer, or they believed that their chances of winning were enhanced if they went ahead, subscribed to a publication, or in later years, purchased something that was advertised alongside the sweepstakes promotion. For PCH, and others, the formula worked, and the ongoing sweepstakes kept the magazine subscriptions flowing. According to the New York Times, by 1998 PCH and its copy-cat competitor, AFP, were mailing out in excess of four hundred million pieces of mail annually. The oversized, sticker-laden, exclamation-point-and-arrow-decorated sweepstake solicitations were responsible for nearly one-third of all new magazine subscriptions. More subscriptions drove increased circulation, which in turn supported higher advertising rates. Everybody was happy with the direct mail-sweepstakes-subscription-circulation-advertising business ecosystem.

That is not entirely true, not everybody was happy. The advertising practices of PCH (and its competitors) have been challenged in lawsuits. The company has at one time or another been sued by all fifty state Attorneys General and the Federal Trade Commission (FTC) and investigated by Congress. Over the years, there have been settlements with payouts in the tens of millions of dollars. Most recently, in a settlement that emerged during the bankruptcy proceeding, the FTC is sending a payout of $18.5 million to 281,724 consumers. The claim was that PCH was guilty of deceptive advertising that was purposely aimed at older and lower income audiences. The ongoing settlements, coupled with the dramatic decline in its magazine subscription business and competition from more sophisticated and well-heeled online sellers, led to the April bankruptcy filing and final withdrawal from the direct mail market.

Direct Mail Lives On

Quad, which now bills itself as a “marketing experience company” as opposed to a printing company, has acquired Enru, a third-party co-mailing and logistics service provider. Buried somewhere inside Enru are the remnants of former acquisitions completed under the LSC Communications banner: the Clark Group, Fairrington Logistics, and the former RR Donnelley Logistics & Co-mail Services division.

Enru’s slogan is “tech-enabled logistics” highlighting its use of technology solutions to optimize mailing and freight operations. But make no mistake about it, Enru is all about moving stuff, not digital content, efficiently from one place to another. In other words, Quad is acquiring Enru to get its customers’ printed products to the right place at the right time while maximizing postal and freight discounts. Those printed products include books, catalogs, magazines, and direct mail.

In another notable transaction in April, Arna Marketing Group acquired selected assets of Federal Direct*, a direct mail printing and mailing services company headquartered in Little Falls, New Jersey, and with a former offset and digital print production facility in Torrington, Connecticut. Arna has assumed the manufacturing and servicing of Federal Direct’s business in its Branchburg, New Jersey facility. With an installed fleet of digital web and sheetfed digital inkjet printers, and supporting workflow technology, the Arna facility is well-positioned to produce print in a secure environment well into the future of direct mail.

* Graphic Arts Advisors, publisher of The Target Report, served as exclusive advisor to Federal Direct in this transaction.

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