Strib drawn into growing newspaper circ scandal

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On Tuesday the Star Tribune became the fourth major daily in the past year-plus to be accused of dumping papers by various means to plump its paid circulation figures and thus its ad rates. Last year executives from Newsday, the Dallas Morning News, and the Chicago Sun-Times admitted to deliberately kiting their circ numbers.

Circulation practices show every sign of being an industry-wide scandal. Following the Newsday et al. disclosures last year, investigations of newspaper circulation practices were launched at the Securities and Exchange Commission, the IRS, and the US Postal Service. The Strib, meanwhile, isn�t the only Midwestern daily being sued by its advertisers. In April, a Milwaukee real estate developer filed a similar suit against the local Journal-Sentinel.

Daily newspapers everywhere are scrambling to find means to prop up their dropping paid circulation figures, and creative accounting appears the rule rather than the exception. "Newspapers lie about their circulation numbers for two simple reasons," wrote Slate media critic Jack Shafer last summer: "1) because increased circulation allows increased advertising rates, and that means more revenue; and 2) because industry auditing standards make it easy to do.... With the financial incentives to deceive so great and the risks of getting caught by the flat-footed [Audit Bureau of Circulation] so low, who's to say how many newspapers are cooking their books?"

One of the steps taken by industry bean-counters at the Audit Bureau of Circulation to help the press in its time of need was a 2001 rule change that lowered the bar for "paid circulation" from 50 percent of the newsstand price to 25 percent. This whopping cut allowed for papering towns with essentially free papers and amortizing the cost over the remainder of the paid circulation base. Shafer quotes this money graf from a Newsday post-mortem on the circulation fraud that happened there:

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. Papers distributed in schools, through Newspaper In Education programs, usually also are deeply discounted with businesses and vacationing subscribers picking up the tab. 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.

In other words, a large measure of what the Star Tribune stands accused of doing is tacitly sanctioned by the circulation watchdogs themselves. 

Be that as it may, circulation lawsuits can get very expensive. The plaintiffs in the Strib suit have applied for class action certification, which would allow innumerable other advertisers to queue up for settlements of their own. Definitive figures on the payouts so far by Newsday, DMN, and the Sun-Times are hard to come by, but it's been widely reported that the Tribune Company, which owns Newsday, set aside $90 million for paying claims and so far has settled with 30,000 ad clients. Nor are the possible consequences strictly monetary: A subsequent federal investigation into Newday's circulation has so far yielded fraud allegations against three employees of the paper. The trio was arrested by federal agents on June 15 on charges that carry potential sentences of up to 20 years.

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