Pushing paper, counting copies

June 28, 2004

We usually talk about the press as if it’s an entity that operates in the rarefied world of facts and ideas, but now and then we’re reminded that in its fundamentals, the press is a manufacturing business.

If you work at a paper that houses newsroom and presses under the same roof, you know this just by walking down the hall at the right time. You enter a vast, deafening room where tons of paper roar at blinding speed through industrial machines two or three stories high. Half a block away, folded newspapers trundle down conveyors to be bundled for hand-delivery.

The press is thus a 21st Century medium that climbs into bed every night with a 19th Century factory. The business model that joins them is just as incongruous – and increasingly unstable, as the circulation fraud scandal that is quietly brewing suggests.

A newspaper’s worth is measured in many ways, but its financial success depends on only one, slightly ignoble, aspect of what it does: It rents out its audience to advertisers.
The bigger the audience, the higher the rent.

This is obvious, and we don’t consider how bizarre it is. Normally, we figure a great blessing of the market system is its clarity. But what’s clear about an arrangement where the people who buy your product – the readers you primarily serve – aren’t the people you rely on for most of your revenue?

How straightforward is a model where readers provide a third of the newspaper’s revenues, while the editorial outlays they really want typically account for only 15 percent of total spending?

And how transparent is an arrangement where papers depend chiefly on buyers who never really know if they’re getting their money’s worth? Advertisers can rarely determine if their ads work – the old joke is that they know half their money is wasted, but can’t figure out which half.

Advertisers must even take it on faith that their ads are distributed as promised. They can’t count copies themselves, and the circulation numbers they get are estimates, averages and three to six months old.

Hence the current scandal. Though limited, it may widen dramatically, thanks to the zeal with which those involved are pursuing it. In mid-June Hollinger International said its Chicago Sun-Times, the country’s 13th-ranked paper, had been overstating its 480,000 circulation for “the past several years.” Three longtime advertisers, one who had spent as much as $100,000 a year with the paper, promptly sued.

Two days later the Tribune Co., owner of the Sun-Times’ crosstown rival, said two of its papers – Long Island-based Newsday, the country’s ninth-biggest daily, and its Spanish-language sister Hoy — had been making false circulation claims. Tribune was already being sued by advertisers who say the papers “secretly and fraudulently padded and inflated the circulation figures.”

The wrongdoing that’s alleged ranges from recording promotional giveaways as paid to puffing up newsstand sales by discouraging returns of unsold copies. A technique alleged in the Sun-Times case was to pay distributors for dumping them.

Tribune Co. pledged an audit at all 14 of its daily papers –including the Los Angeles Times, Baltimore Sun and South Florida Sun-Sentinel — and said its publishers would henceforth vouch personally for all circulation numbers.

Investigations are under way by the Securities and Exchange Commission and Nassau County (N.Y.) prosecutors. The Washington Post Co. opened an internal audit as well, and an influential Merrill Lynch stock analyst issued a report stating, “Our biggest fear is that these two announcements may not be isolated incidents.”

Bad news for an industry whose distribution fell 8 percent in the last decade, and where 12 of its 25 biggest papers lost circulation last year. Worse, the sins can’t be palmed off on one or two rogue employees, as with the recent newsroom scandals. This wrongdoing smells of institutional dishonesty much more strongly than did the lies of a single reporter.

Still, there is an absurdity to the whole scam. Counting copies is a dopey way to gauge impact. The explosion of information channels necessarily means erosion of audience share held by dominant media. There is still nothing that can rivet the attention of a community the way its daily paper does.

It’s the reliance on advertising that seems as obsolescent as the tons of steel on which the papers are printed. Luckily, we may be approaching a time when both dependencies can be discarded.

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