WASHINGTON — Imagine if wide-scale fraud was found in a major
American industry.
Imagine if observers commonly agreed that there was more fraud
going on beyond what was already known, it just hasn’t been
uncovered yet.
Imagine if the companies had gotten away with this for years
because the industry was essentially self-regulated.
And finally, imagine if no efforts were being made to change
that.
You’d expect it would be the business scandal of the year,
right? That newspapers would splash the latest scoops across their
front pages, correct? That there would be a clamor on the op-ed
pages for congressional action, may even a whole new federal
regulatory agency to insure this never happened again, right?
Ordinarily it might, but in this case the scandal involves the
newspaper industry itself. And, wouldn’t you know it, this one time
the major papers have decided to let the free market take care of
itself.
What am I talking about? Well, in recent months, several papers
have been found to have seriously inflated their circulations. The
big offenders are Newsday (it inflated circulation by
100,000 copies), the Chicago Sun-Times (inflated by 72,000
copies), the Dallas Morning News (inflated daily
circulation by 1.5%) and the Spanish-language Hoy
(inflated by between 38,000-48,000 copies).
The point of this inflation is to con advertisers into thinking
these newspapers have a wider readership than they really do in
order to charge higher ad rates.
That’s fraud, plain and simple. But this business scandal seems
to lack the newsworthiness of, say, Enron.
“(D)espite 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,” noted
Slate’s Jack Shafer.
Glass houses and all, you know.
The newspaper industry has gotten away with inflated
circulations until recently thanks to the Audit Bureau of
Circulation, the industry’s main counter. Despite its
official-sounding name, it’s a not-for-profit company that serves
the newspaper industry itself. Just like Arthur Andersen, it
appears to have lowered standards to please its patrons.
The newspaper industry was suffering because older readers were
dying off, so the ABC simply changed how it counted
circulation.
“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,” said Shafer. “But in
2001 the ABC changed the rules to allow newspapers to consider
circulation that was discounted by 75 percent ‘paid
circulation.’”
From there, it was a slippery slope downward until the scandal
came to light this summer.
Meanwhile, other papers are reviewing their circulation figures
in order to calm their advertisers — and might also end up eating
crow.
Despite all this, there’s no Sarbanes-Oxley-type bill being
discussed to regulate circulation auditing. No lawmaker appears to
have even raised the subject, a stark contrast to the Enron
scandal. There’s no clamor for it from the op-ed pages either.
(If somebody did push to regulate circulation auditing, how long
do you think it would be before the first editorial boards started
muttering aloud about First Amendment concerns and the muzzling of
the press?)
No, big media is a special case, unlike well, everything
else.
In this case the free market will be allowed to work. Newspapers
are now on notice that inflated circulation figures could mean
trouble. Advertisers have grown more skeptical. And business
practices will evolve without the need for federal
intervention.
It’s already happening. Advertisers have filed suit. To repay
them the papers have put millions aside. Several heads have already
rolled.
The Tribune Company, which owns Newsday and
Hoy, has seen its stock fall 20% this year, thanks in part
to the scandal. They’ll learn not to do it again.
Now, what would really be interesting is if newspapers ever
decide to apply this lesson about how the free market corrects
itself to any industry other than their own.
