NEWSPAPERS BULK UP UNDER NEW ABC RULES

By: Robert Neuwirth

Paid Circulation Gets a New Definition


It’s spring, and the circulation is rising.

April is often the cruelest month, as newspapers try to dig out from the winter doldrums, but new regulations from the Audit Bureau of Circulations (ABC) could put spring in their step. The rules – allowing newspapers to sell copies at deep discounts and to claim high-quantity bulk sales as paid circulation – may give newspapers a lift as they face increasingly ominous economic stress and warnings about steep falloffs in advertising revenue.

“Just about everything counts in the top line now,” says Jack Klunder, vice president for circulation of the Los Angeles Newspaper Group, a subsidiary of William Dean Singleton’s MediaNews Group Inc. The new rules, which took effect April 1, will not apply to March circulation reports, soon to be released by ABC. But industry insiders will be closely watching September’s numbers, which will be the first under the new requirements.

Even if they do nothing to exploit the new rules, many papers will get a modest circulation boost. The New York Times, for example, would pad its daily circulation by more than 14,000 copies that it currently reports as bulk sales. The Los Angeles Times could experience a 6,600-circulation gain (based on recent figures). The Oregonian in Portland would see its circ swell by 2,100 copies. The Chicago Tribune’s circulation gain would be a rather slim 1,600 copies. And the New York Post, the Minneapolis Star Tribune, and The Sacramento (Calif.) Bee would add only a few hundred copies to their paid circulation totals – if they basically ignore the new rules.

With a little creativity, newspaper executives suggest, they could use the bulk category to make big circulation strides. “It certainly creates some opportunities for us,” says Dennis Carletta, director of circulation for The Star-Ledger, the Newark paper that is New Jersey’s largest. “I think you’ll see lots of new initiatives, particularly in third-party bulk sales.”

C?sar Mendoza, vice president for circulation at The Miami Herald, also is optimistic. “We have a very aggressive hotel program,” he explains, “and this will give us the opportunity to penetrate the market and extend our reach.”

The newspaper industry, however, seems divided over the impact of the new rules. Larger papers generally favor the changes, while smaller papers cringe.

Stephen C. Johnson, vice president for circulation at the San Francisco Chronicle, says the move toward deeper discounting will give newspapers the chance to roll out some creative sales plans. “The opportunity we see is that we can use more of a marketing mix,” says Johnson. “The ability for everyone to market differently has got to be good for the industry.”

But across the bay, Scott McKibben, publisher of the Alameda Newspaper Group in Oakland, Calif., isn’t so sure.

He decries the deeper discounting, arguing that it will allow big papers to squeeze little ones. “It’s a resource issue,” McKibben says. “The big papers have longer, deeper pockets. They can go in and essentially dry up the smaller papers.”

Others think that continuing economic woes combined with higher newsprint prices make it unlikely that many papers will do the discount. “On the surface, it gives more opportunities to show growth, but I would expect most papers not to take advantage of these rules,” says Klunder, who spent two decades in the circulation department of the rival L.A. Times before joining the MediaNews cluster. “This economy is starting off worse than it did in the early ’90s. If you grow in this kind of market, you suffer on the bottom line.”

But what if papers can’t resist the temptation to use the new rules to essentially cook the books, adding discounted sales and bulk sales to make their circulation numbers look more robust – but possibly less credible? Klunder is diplomatic. “I think each paper,” he says, “has to evaluate whether there’s value to the advertiser in that kind of circulation.”

This year’s model

In essence, ABC, which is controlled jointly by publishers and advertisers, redefined what it means for a customer to pay for a newspaper. There are three major changes that will most likely be felt immediately in the industry:

o Newspapers will be able to sell copies at up to 75% off basic prices and still count those papers as paid. In the past, discounting was limited to 50%.
o Newspapers also will be allowed to count bulk sales as paid circulation. In the past, bulk sales were listed in ABC reports but not included in paid circ totals.
o Finally, for the first time, ABC’s reports will include estimates of a newspaper’s readership, thus measuring the pass-along rate of each copy a paper sells or distributes.

The industry is slowly digesting the new rules, trying to determine if they are mainly beneficial or onerous. But there’s one immediate winner, at least in terms of
bragging rights: USA Today.

Gannett Co. Inc.’s national paper professes to be disinterested in the rule changes. But USA Today has long been running neck and neck with The Wall Street Journal for the honor of being dubbed the largest-selling newspaper in America. The new rules will likely pad the Gannett paper’s paid circulation by almost half a million copies. That’s because, come September, Gannett will be able to add its hefty bulk sales – nearly 500,000 copies, mostly distributed to hotels and airlines – into its paid-circulation total.

Unless the Journal starts its own bulk-sales campaign, this change will almost certainly anoint the Gannett broadsheet, once derided as “McPaper,” as clearly the best-selling newspaper in America. But Larry Lindquist, senior vice president of USA Today, declares, “It doesn’t alter any relationships we have with our customers.”

Other large papers may benefit from another rule change. They have been fighting for years to get ABC to accept discounting beyond the 50% level. To get the discount through, they agreed to a trade-off requiring them to adhere to stringent reporting requirements about their discounting.

And to get the bulk sales included in paid-circulation totals, newspapers accepted a phased-in requirement that by 2003 newspapers must persuade hotels to include the cost of the newspaper on each patron’s bill or the circulation cannot be reported as single-copy sales and must instead appear in a new category called “other paid circulation.” But even if the hotels refuse to put the price of the paper on their bills, all copies sold in hotels, hospitals, airports, and other institutional venues will count as paid and be included in the total circulation number.

“The issue is really where that circulation will be positioned” on the report form, and not whether it will be counted in the total circulation number, says Mike Moran, ABC’s senior vice president for print auditing services.

Several major hotel companies reached by E&P said they were uncomfortable with the idea of breaking out the cost of papers distributed to their guests on their bills. “We’re not here to build [newspaper] advertising dollars and circulation numbers,” says Jeanne Datz, director of brand communications for the Hilton Hotel Corp., with 2,000 hotels worldwide. “We’re here to provide a very important amenity for our customers.”

Hilton buys papers in bulk (mostly USA Today, but its hotels feature local papers on weekends), and though it will reduce its room bill by 25 cents should a customer request to not receive a newspaper, Datz says the company does not want to put the price of the paper on the bill. “We do not charge customers for the papers,” she says firmly.

Hyatt Hotels Corp. informs guests, on their registration cards, that they can decline their papers and that their room prices will be reduced accordingly.

Advertisers, by and large, endorse the detailing in the new rules.

“To have more pricing flexibility, you have to have more disclosure,” says S. Scott Harding, CEO of Newspaper Services of America (NSA), which buys more than $1.6 billion a year in newspaper advertising for clients such as Sears, Roebuck & Co., The Home Depot, and Toys “R” Us Inc. “That was the only reason we agreed to it.”

Savvy advertisers, says Harding, have little interest in a newspaper’s total circulation. They look at more sophisticated numbers, showing how newspapers circulate in their target markets. “What is important is not the total number,” Harding notes. “It’s what is the impact in your trade area. If a given newspaper seems to have a high quantity of papers selling for below 50% [that is, greater than a 50% discount], you as an advertiser have to make a judgment. If a newspaper goes off the deep end on bulk sales, as buyers, we’re going to look at that and say, ‘This may not be circulation we’re interested in.'”

The new ABC rules, Harding says, will give advertisers more knowledge – and therefore more power in negotiating ad rates with newspapers.

Buy the numbers?

That said, no matter whether it’s boom or bust on the business cycle, newspapers have long struggled to prop up circulation numbers – in both legit and dubious ways. And now there are new rules to study, bend, and possibly skirt.

One tried-and-true method that is still proper under ABC rules is declaring “bonus days” when the paper sends additional papers free of charge to home-delivery customers who only have partial-week subscriptions. Newspapers can add up to five extra days onto a Sunday-only subscription and all of those copies can be counted as paid.

Bonus days can be a very useful tool in a competitive market. For instance, in 1998, during the height of the Denver circulation war, the E.W. Scripps Co.’s Rocky Mountain News sold papers for as little as a penny a day. Dean Singleton of The Denver Post scorned the discounting, arguing that the News’ circulation gains were worthless because they simply proved people weren’t willing to pay more than a penny for the paper.

But behind the scenes, the Post was doing an even greater discounting dance.

It was using “bonus days” to give its papers away, delivering more than 100,000 free papers a day on 74 different days to home-delivery customers with partial subscriptions. All of those papers counted as paid in the semiannual reports to the audit bureau.

And the practice is not limited to competitive markets. Last year, The Oakland (Calif.) Tribune, another Singleton paper, issued bonus copies on more than 100 days, at times bolstering Saturday sales by almost 20,000 copies. All of these free papers counted toward the Tribune’s paid circulation numbers.

Other questionable practices circulation insiders say have long been used to prop up slipping circulation:

o Returns from rack sales. If a newspaper has fewer returns, it can report a higher circulation. “You send papers out every day, and returns are a big area of question,” notes Rick Kautz, circulation director for The Bradford (Pa.) Era, an independently owned 11,406-circulation daily. “You don’t always get all your returns back.”
o Pushing carriers to add fictitious subscriptions on their routes. Carriers who travel long distances or over rough terrain are commonly subsidized for their troubles. Subsidies are kosher under ABC rules – but not when the carriers are expected to direct some of that money to what one longtime newspaper executive (who has worked at papers large and small) calls “ghost subscriptions.”
o Rack theft. ABC rules provide an allowance of 25% of the papers in each rack that can be lost or stolen but claimed as paid.
o Sample subscriptions. ABC allows newspapers up to a 4% allowance for unpaid subscriptions that can be counted as paid circulation.

These practices can be extremely difficult for auditors to detect, says an executive who has worked for a variety of newspapers. Still, ABC catches a dozen or more newspapers inflating their circulation numbers every year (accidentally or on purpose). The audit bureau issues quarterly reports notifying members of all newspapers that have been forced to reduce their circulation claims by at least 2%.

These circulation “sinners” lists, copies of which have been obtained by E&P, make interesting reading. They show that since 1997, ABC has fingered 50 newspapers with inflated circulation numbers and forced them to make significant cuts. Some have been repeat offenders. Not surprisingly, few of them acknowledge anything but clerical error as an explanation for their inflated numbers.

A churning experience

Under its new rules, ABC’s reports on newspaper circulation will also now include numbers for total readership. While this is new for ABC, it’s old hat for many newspapers.

Most papers already commission readership studies. So, rather than compete with their efforts, ABC has simply offered to validate that those studies have been conducted with the same objective criteria.

Papers can opt into having their readership numbers reviewed and certified by ABC, or they can continue to report them separately. The benefit of having readership numbers on the ABC form, says the NSA’s Harding, is that it provides a standardized measure of readership and offers advertisers one-stop shopping for data on both circulation and total reach of local papers.

Harding hopes the industry will agree to further disclosures of circulation and readership patterns. “In an ideal world, we would like to see circulation broken out by day of the week and we’d like to know readership information for each section of the paper,” he says.

Still, Harding accepts the incremental change. “It wasn’t that many years ago when circulation wasn’t broken out by ZIP code,” he notes, while today such breakdowns are standard for even the smallest newspapers.

For now, however, circulation executives suggest that as we move into difficult economic times, and as newspapers continue to be pinched by the reach of the Internet, circulation will become tougher to hold. If newspapers discount too much under the new rules, some of these execs suggest, they create churn – picking up fickle subscribers who will almost certainly drop the paper once the price goes up. And if newspapers throw in too many bonus days, they become addicted to the practice, because if they cease the bonus program, circulation will fall.

“Everyone’s struggling to hold their circulation,” says a newspaper executive who asks to remain anonymous. In that environment, he adds, the pressure mounts for circulation executives to become “creative.”

In that spirit, some executives who criticize the new rules say they’ll probably be forced to pump up circulation numbers with discounted subscriptions and bulk sales simply to keep up with the Joneses.

“Will we play the game?” asks Andy Kniceley, publisher of the Fairmont-based Times West Virginian, part of the Community Newspapers Holdings Inc. empire. “Probably. Because when you don’t, you’ll be compared to people who do, and you will suffer.”

To boost sagging circulation, says one circulation executive, “I’ll just go in there and give the papers to the hotels for a while.”



Robert Neuwirth is a frequent contributor to E&P.



Related story:
WHEN CIRCULATION NUMBERS DON’T ADD UP (04/17/01)



Copyright 2001, Editor & Publisher.

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