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.