The Age is in panic mode about its declining circulation and is taking desperate steps to boost sales and protect its advertising revenue.

The newspaper apparently failed to meet its revenue target in the first week of this financial year by a whopping $500,000. Saturday circulation figures are now hovering between 280,000 and 290,000, down from nearly 300,000. Daily sales have also fallen to below 200,000.

The paper has resorted to the discredited tactic of bribing readers with special offers to prop up circulation. Tomorrow it will offer readers the second free CD within a month and there’s a third giveaway planned for 30 August to commemorate Michael Jackson’s birthday. These, and another reader promotion this month — a shopping bag giveaway — are unprecedented in their cost and frequency.

Insiders have told Crikey that this focus of four sales stunts in one audit period is both alarming and revealing: the winter quarter is traditionally the paper’s strongest as it has relatively few holidays or other factors affecting sales.

The giveaways have been described as a circulation “drug”, because the hits they give are temporary and because there’s a strong tendency for the paper to get hooked on those temporary increases. When the paper is artificially boosting its circulation like this it has to keep on giving stuff away to stop its sales numbers going backwards.

Age CEO Don Churchill had assured senior staff that the paper would break the giveaway habit, but faced with revenue falling from $316 million when he started in June 2005 to just $267 million last financial year, the paper has relapsed into behaviour that everyone seems to agree is ultimately self defeating.

And it’s not cheap. At 50 cents per CD plus marketing costs, it costs approximately $300,000 for each CD promotion — even more when the paper has to buy the rights for music as popular as August’s offering of Michael Jackson hits. The CDs create a boost in sales of perhaps 30,000 (The Sunday Age is hoping for at least double that with Jackson), which means every extra sale costs the publisher about $10. Others says the 30,000 figure is ambitious.

In the 08/09 financial year The Age’s revenue was $267 million, of which $135 million was derived from classifieds, $82 million from display ads and $50 million from circulation. That equalled earnings before interest and tax of $45 million, down from $105 million when Churchill joined the paper.

Expected revenue from all classifieds, including real estate, motoring and employment has fallen from $200 million before Churchill arrived to $135 million in this financial year. The promotions suggest the paper is falling short of even that target, and that it has had to throw a whole lot of money at the problem.

And even the CD strategy has faltered. Three Saturdays ago The Age offered a “20 weekends for $20” deal which undermined the success of the CD promotion because it attempted to convert retail purchasers to subscriptions just before the CD deal, which relied on new retail sales to succeed. And in another recent marketing exercise it offered readers a free bag but Crikey understands that was less than successful too thanks to production stuff ups that delayed delivery of the paper containing the offer.

All this means The Age could be spending close to $2 million to sell perhaps an extra 100,000 papers, sales which will not be on-going and will be averaged out to boost figures in only one circulation period.

The obvious question is what’s next? What will it need to do to maintain those levels in the same quarter next year … and what will that cost?