Is everybody in the newspaper business inflating circulation?
Publishers love to brag about their drinking and lie about their circulation, says the old newspaper industry cliché. I don't know how much the publishers of Hollinger's Chicago Sun-Times, Belo's Dallas Morning News, or the Tribune's Newsday and Spanish-language daily Hoy have been drinking, but the cooked circulation numbers they passed off to the Audit Bureau of Circulations should produce numerous candidates for admission into the Liars' Hall of Fame.
All four newspapers admit having intentionally inflated their circulation numbers. Newsday exaggerated its weekday circulation by 40,000 copies (7 percent) and Sunday circulation by 60,000 copies (10 percent) over the past year. Hoy overstated its circulation by 19 percent. The Sun-Times admitted to cooking its numbers over the past couple of years, reportedly inventing 78,000 daily copies, or 25 percent of newsstand sales. * The Morning News overstated 5 percent on Sunday and 1.5 percent on weekdays for a 6-month period in 2003.
Newsday and Hoy have confessed bad numbers dating back to 2001, and the swindling probably goes farther back than that. The Sun-Times concedes having fudged numbers for years. This isn't the Morning News' first brush with "circulation irregularities," as they're called in the business. Back in the late '80s, Dallas Times Herald owner Dean Singleton sued the Morning News for allegedly inventing circulation numbers.
Ordinarily, the press gives a hot-diggity-dog ride to corporate corruption stories. If it's a banking, real estate, or stock market swindle, it wins multipart coverage on Page One. But, despite the fact that newspapers are a $55 billion business, the press has largely tamped down the circulation scandal, burying its scant coverage in the business pages. As scandals go, it's a big one and threatens to grow bigger. Newsday and Hoy have set aside $35 million to assuage advertisers who purchased ads based on the higher circulation numbers. The Morning News is promising advertisers $23 million in restitution. The Sun-Times, which has been on the verge of collapse for decades,has yet to name a give-back figure. But real damages at these confessing newspapers could grow into the hundreds of millions of dollars. Attorney Joseph Giamio, who represents four advertisers in a circulation fraud lawsuit filed against Newsday in February, claims circulation fraud at the paper dates back to 1995 and calls for $600 million in damages. He adds that racketeering charges would mean "treble damages" against the company.
Newspapers lie about their circulation numbers for two simple reasons: 1) because increased circulation allows increased advertising rates, and that means more revenue; and 2) because industry auditing standards make it easy to do. The agency that's supposed to keep the newspapers honest is the Audit Bureau of Circulations, a nonprofit outfit that validates circulation for nearly every newspaper and magazine of note in the United States, and many abroad. But the ABC is captive of the very industry it monitors, which means that its numbers are only as honest as the newspapers producing them.
Michael Kinsley once noted that the scandal isn't what's illegal, the scandal is what's legal. His truism applies to the circulation brouhaha. Newspaper employees appear to have committed fraud in spiking the numbers, but the circulation scandal really begins with the ABC-sanctioned fuzzy math newspapers use to compile official counts.
Newspaper circulation has declined for decades as consumers have found new places to cull news and information. Edward Wasserman of Washington and Lee University writes that newspapers have lost 8 percent of their circulation in the last decade and that 12 of the 25 largest newspapers lost circulation last year. That lost circulation has steered billions of dollars in advertising away from newspapers to TV, radio, cable, direct-mail operations, classifieds weeklies, and the Internet. At newspapers across the country, publishers push their circulation directors to reverse the tide, promising them bonuses if they succeed or dismissing them if they don't.
To prop the wheezing industry up, the ABC moved a couple of years ago to define "paid circulation" down. (The best reporting on the circulation scandal and the ABC's skimpy standards has appeared in Newsday, from which I draw liberally.) Advertisers regard paid circulation as the most desirable, and in the old days newspapers that sold for a discount greater than 50 percent did not count as paid circulation. But in 2001 the ABC changed the rules to allow newspapers to consider circulation that was discounted by 75 percent "paid circulation."Newsday helped itself to this new rule—generously. In the 6-month period ending in March 2004, 15.5 percent of the newspaper's paid circulation was deeply discounted papers, as Newsday reports, the highest among the top 20 circulation newspapers in the United States.
"Experts said the 2001 change in ABC rules opened the door for papers to boost circulation by increasing bulk sales to airlines, hospitals, hotels and other entities that usually give away copies as a perk to customers," Newsday reports. "The rule change also opened the door to giving people copies of the paper they did not request and spreading the cost through full-paying purchases."
ABC circulation rules give newspapers more crutches than an orthopedic ward. For example, newspapers distributed to employees count toward paid ABC circulation, as Newsday reports. That's 5,500 copies a day at Newsday. "Publishers are permitted to exclude from circulation statements the instances where sales were unusually low. A maximum of 40 days—holidays and the days immediately before or after—can be excluded if each day's sales were at least 5 percent below the same day from the week before," Newsdayreports. If a paper suffers poor circulation during a spate of bad weather, or is stymied by production problems, or readers have dropped the paper because of some horrific news, the ABC's fuzzy math department is here to help. Publishers can strike an unlimited number of those weak days from their official circulation figures. Newsday availed itself of that ploy 31 days in the 12 months ending September 2003. Apply such a lax audit to your golf score and you'd qualify for the PGA Tour!
With standards like these, it's no wonder circulation employees engaged in numerical fiction to reach the goals set by the publisher. Newsday reporters went inside the circulation system to describe how the workers gamed the process there. One unnamed former circulation worker alleges that home delivery would be started for people who hadn't requested the paper—sometimes 1,000 or more at a time. When recipients called customer service to demand a stop of delivery, the calls would be ignored. "We even delivered to addresses where the house had been burned down," one former employee—unnamed—tells Newsday. Death offered no refuge from the Newsday circulation, either. Copies would continue to arrive at the deceased subscriber's last earthly address long after he died. At Hoy, where the pressure to match the circulation of rival newspaper El Diario/La Prensa was intense, money from circulation's promotional fund was allegedly funneled to distributors to "buy" copies of Hoy from the company; the newspapers were then dumped. Customers who didn't pay their bills still got the paper. Free home-delivery promotional copies were often counted as paid circ. And according to the lawsuit filed against Newsday, the circulation department manipulated numbers with a special computer system called "Fudge ABC."
Newsday Publisher Raymond A. Jansen blames the fraud on a "rogue operation" inside circulation. Where have we heard that excuse before? Did Jansen never doubt the good news of Newsday's15 consecutive semiannual periods of increased circulation during a time when the most of the industry was enduring flat or decreasing circ?
Given the scope of the scandal, you'd think that advertisers getting gouged by rate increases based on fraudulent circulation would be hollering. Indeed, some local advertisers are suing, but for mysterious reasons the big corporate advertisers aren't making much noise, even though they're perfectly situated to do so. Corporate advertisers command a big delegation on the 36-member board of directors that runs the ABC, sharing power with representatives from publishing and advertising agencies. Why have these advertisers (Target, Pfizer, J.C. Penney, L'Oreal, Walgreen's, Sears, Xerox, Kraft, et al.) allowed the ABC to liberalize the definition of paid circulation, which is against their interests? Why haven't they publicly demanded an internal investigation of ABC auditing practices? Perhaps they've stuck their heads in the sand because they're overinvested in the status quo. The scandal could stretch back years, maybe even decades. How will they explain to their bosses that while they slept the publishers profited?
How shoddy an operation is the ABC? The group concedes that its audits aren't rigorous enough to spot dedicated frauds. ABC Senior Vice President for Communications John Payne told Editor & Publisher, "We're reviewing our process internally, but if there is a real concerted effort to cheat, it can work."
It's worth noting that the ABC doesn't seem to have uncovered any of the recent circulation fraud. At Newsday, the February advertiser lawsuit appears to have alerted the newspaper. (The paper maintains it uncovered them without the help of suit.) The Sun-Times discovered its circulation fraud on its own. Incoming Sun-Times Publisher John Cruickshank says he caught the scam when he found that circulation revenue didn't match claimed circulation.
Despite the blatant fraud, the newspaper-advertiser industrial complex insists all is well in the newspaper industry. "There is no circulation scandal," Gannett Chief Executive Douglas McCorkindale told the Gannett-owned USA Today. The story is being "blown out of proportion" by the media, he said. "I don't want to blame A.B.C., because we deceived them,'' Sun-Times Publisher Cruickshank told the New York Times, which published a good overview of the scandal. "A.B.C. is not at fault in either of these situations,'' Robin Steinberg, director of print at MediaVest, which buys advertising for clients like Nintendo, Coca-Cola, and Johnny Walker, told the Times. "They are the newspaper and magazine print police, and I think they did a good job of finding and detecting fraudulent numbers."
The most sober voice in the house belongs to Merrill Lynch analyst Lauren Rich Fine, who told Newsday the Hoy and Newsday overstatements "may not be isolated incidents" and that they "suggest that there may be loopholes in the ABC audit system." The Chicago Tribune quoted her saying, "This isn't good. … The question is how bad is it." To the Times, she said, "Me, as an analyst, I was never thinking there was an issue. … Now I think there's an issue.'' Note to investment funds: Sell newspaper stock?
An immutable law of the universe states that if you can cheat, you will. With the financial incentives to deceive so great and the risks of getting caught by the flat-footed ABC so low, who's to say how many newspapers are cooking their books? While it's near impossible for a reporter to investigate the newspaper that employs him, the Newsday dispatches show that the job can be done. E.W. Scripps Co. and other newspaper chains have ordered internal circulation reviews to soothe nervous advertisers. That's all well and good, but wouldn't the reports be more credible if they were supplemented by news accounts from the newspapers' own staffs? The big guns from the Wall Street Journal, the Los Angeles Times, the New York Times, the Washington Post, the Boston Globe, the Chicago Tribune, and the Philadelphia Inquirer might want to pay a call on ABC headquarters in Schaumburg, Ill., and practice a little investigative journalism.
How about it, barons of the press? You have nothing to lose but your inflated circulations!
Addendum, Aug. 19: Belatedly coming to my attention is the fine coverage of the Newsday scandal in the alt-weekly Long Island Press. Don't miss it.
Correction, Aug. 19: The original version of this article mistakenly stated that the Chicago Sun-Times reportedly invented 25 percent of total circulation. The newspaper reportedly invented 25 percent of newsstand sales. (Return to the corrected sentence.)
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