Crikey is shocked and surprised that not one newspaper or magazine
publisher has contacted us to angrily refute the claims of our
anonymous insider that they’re rigging their circulation figures. They
should be outraged and demand that Crikey withdraws its scurrilous
claims – but not a peep.

And we’re equally shocked and surprised
that so far only one of the big media buyers we’ve contacted for
reaction to this scandal has responded – that was Starcom’s John
Sintras, who has been campaigning (unsuccessfully) to expose the
circulation rigging fraud.

Actually, we’re not shocked or
surprised that the big guns in the industry are lying low. The
publishers want this story to disappear. The last thing they need is
for the ACCC to start to investigate the fraud that has been taking
place for more than a decade in their organisations with their
knowledge and approval. After all, one big American newspaper company,
Times Mirror, recently had to repay its advertisers US$90 million
because it was caught cooking its circulation books.

The big
media buyers like Harold Mitchell won’t go public on this because they
don’t want to offend the big media companies who they rely on for
favours and special deals. That’s despite the fact that they’re
supposed to be working on behalf of advertisers – who are the ones
being defrauded by these circulation rorts

But the information continues to come in. Jack Waterford, editor-in-chief on TheCanberra Times , knows about newspaper circulation rorts from inside the industry, and
he’s not afraid to go public with what he knows. Jack sent us a story
on the subject he wrote for his own paper last August – here are the
key bits:

The American newspaper industry is gripped by
circulation scandals, and I should not be greatly surprised if the
backwash hits Australia. Four major newspapers have admitted cooking
their claims of paid circulation. New York’s Newsday
was exaggerating by 40,000 copies a day on weekdays and 60,000 on
Sundays – between 6% and 10% of its actual circulation. The Chicago Sun-Times invented about 78,000 fake sales a day – about 25% of its claimed newsstand sales. The Dallas Morning News has admitted padding by about 5% on Sundays and 1.5% on weekdays, and a Spanish-language paper, Hoy , has admitted overstatement of about 20%.

This
is not mere bragging, or seeking to overstate one’s influence.
Circulation figures are used to justify advertising rates. As Edward
Wasserman from Washington and Lee University put it, newspapers rent
out their audiences to advertisers. “The bigger the audience, the
higher the rent.” If claims about the size of the audience are
fraudulent, advertisers have some right to consider that they have been
dudded. There are already lawsuits from advertisers in train, and most
expect that there will be more revelations before the dust settles.

In
theory, American newspaper circulations are audited, as in Australia,
by an independent body known as the Audit Bureau of Circulations. The
ABC is not complicit in the circulation frauds, but its systems have
seemed extremely susceptible to false claims and not well adapted to
detecting them. In any event, some critics have suggested that they
allow as legitimate so many “fuzzy” sales, that the scandal is not so
much what is illegal as what is legal.

Ever wonder, for example, why there is often a copy of The Australian
readily available on your airline seat or at any number of hotels or
conventions? The chances are very high that each copy seen about is
rated as paid circulation for the newspaper, even though you have
picked it up, if you did, without payment. The bundles of newspapers
not even picked up by day’s end will probably also rate as paid
circulation.

Why? Probably because there is a paper trail
showing that the airline, or the convention host, did actually pay, and
at market price for these newspapers. If Qantas wants to bulk-buy and
distribute them free to its patrons, why should they not count as paid
circulation.

What that particular paper-trail will not disclose
is that there is also another set of transactions not disclosed as part
of the circulation reporting. This will show that the “payments” for
the newspapers were recorded elsewhere as a credit, whether of cash or
advertising, and that no real money changed hands. Some people think
that as much as a third of The Australian ’s claimed circulation of 134,000 comes from such tricks.

All newspapers, including The Canberra Times , offer discounts for regular subscribers, and as incentives to begin
taking a subscription. Nothing wrong with that, why should not steady
readers be rewarded? But the nature of some offers by some newspapers
to some groups invite the question of whether they are simply padding
their figures rather than genuinely making sales.

Old ABC
rules had it that newspapers discounted by more than 50% could not
count as “paid” circulation. The figure is now much lower, and, for
some newspapers, such discounted sales have become an increasingly
important proportion of total sales. And some make special offers to
particular groups – teachers or university students, say – where the
effective return to the publisher is less than 10c a copy (in some
cases possibly even at a loss) – but which can claimed as not having
been too greatly discounted because they have long maintained a special
price for such groups.

ABC rules always allow publishers to not
count for circulation audit purposes public holidays and days
immediately before and after, and sometimes bad weather, production
problems or even unusual events, though, of course, unusual events
likely to increase sales – a major bushfire, September 11, or the death
of Princess Diana are always included.

I did say “of course”
but, actually, long term managers sometimes shudder at
circulation-boosting special events. They want a steady upward trend in
circulations. But they know that if, say, something like a major
bushfire dramatically improves sales from the average over a
six-months’ period last year, then this year will be a headache for the
circulation manager. Unless, of course, he goes out and lights another
bushfire or arranges for some dramatic event…

The problem on
some newspapers is that the marginal cost of getting extra sales – with
promotion, advertising, the run-on cost of newspapers and so on –
exceeds the actual circulation revenue obtained. That does not mean
that it is not profitable to have a higher circulation even at no
increase in circulation revenue – because some of that cost might be
recouped in extra advertising. On most Australian newspapers
advertising revenue is at least 50% greater than circulation revenue;
on some it exceeds circulation revenue four to one. That explains why
some newspapers are prepared to effectively give away their product to
some classes of buyers.

But the bigger the rorts, the more cynical many advertisers become.


And an anonymous tipper writes:

Your
ABC story is on the money, but you are attacking it too weakly. This
important issue will disappear this way. I suggest you do the
following. Ask the senior executives of Fairfax/News/ACP etc to reveal
what percentage of their ABC numbers come from:

a) full rate newstand sales
b) discounted sales from special offers
c) sales where the product is given out at some kind of event where the entry price includes a copy of the paper
d) sales to students
e) sales to teachers/educational establishments
f) any other sponsorship-type arrangement where the product is provided as extra value to the attendees/delegates.

Not
only is this a rort that everyone knows about – most of these
companies, most notably the newspaper companies, spend hours and hours
dreaming up new ways of including sales in any work they do. Ultimately
the real numbers will make a further mockery of the Morgan readership
methodology as well which also over inflates advertising rates.

Keep going Crikey – you’re not there yet!

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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