Is Circ Outlook Half-Full or Half-Empty?

By: Jennifer Saba The recent rash of circulation scandals has had the positive effect of making everyone ? publisher, advertiser and analyst alike ? take a harder look at trends in numbers. And what some are finding isn't terribly reassuring.

This past August, Deutsche Bank (DB) released detailed research which drilled down into circulation trends. Analyst Paul Ginocchio broke out circulation at 40 large U.S. newspapers and found that while the overall figure may be only gently declining ? in the vicinity of 1% ? paid circulation at more than 50% of base price is slipping faster than previously projected.

Ginocchio wrote that focusing on the long-running slight decrease in overall circulation is "misleading, and that underlying trends need to be understood."

What's noteworthy in the report "Circulation Uncensored" is just how rapidly the decline is occurring, which Ginocchio called "somewhat hair-raising."

Circulation that represents less than 50% of the rate price, which includes third party, education, hotel, and employee copies, now accounts for 10% of total circulation (for the period ending March 2004) compared with two years ago when it only accounted for 4%, according to the report.

That's not to say that the industry is pulling a fast one. Counting circulation less than 50% paid is completely acceptable. John Sturm, CEO of the Newspaper Association of America, responded to the DB report by saying, "I've got a succinct answer to that: Newspapers on a whole are reporting accurately. Yes, there may be two or three exceptions. The industry is very up-front with its numbers. This is legitimate circulation under ABC rules."

The question isn't about legitimacy. It's no secret that paid circulation has been dropping, says Scott Stawski, vice president and client executive at Inforte, a management consulting firm in Chicago. And all that less-than-50% paid circ is hardly useless. The sticking point is that newspapers have historically demanded more on a CPM basis than other media because readers are paying for copies, Stawski explains. Concern is growing that while newspapers are working within the rules, they may be pushing the limits in terms of ad rates.

Scott Harding, chairman and CEO of the Chicago-based print planning and buying agency Newspaper Services of America (NSA) and who served a term as chairman of the board at the Audit Bureau of Circulations, said of the report: "We've done the same analysis at NSA, and this to me is far more relevant to the long-term impact of the industry than a few cases of circulation fraud. This is a bigger issue that impacts many newspapers ? I'd go so far as to say most.

"In my opinion, all circulation is not created equal. While it is within the rules, it's giving the false impression to the advertiser that the top-line number is all quality paid circulation. That is not the case," says Harding. "We are making this a significant issue with our clients. This, we find, is unacceptable." Newspapers, he adds, "need to find ways to grow [quality], not just produce numbers."

Harding isn't the only one taking a closer look. John G. Miller, managing partner and director of out-of-home and newspaper communications at Mediaedge:cia in New York, finds the slip in quality circulation "unnerving."

For his part, Sturm feels that the sudden close scrutiny of newspaper circulation has been equally unnerving. "What I worry about is the pendulum swinging too far, and unfairly so: The rules are the rules, and newspapers that have been in compliance for 20 years should not suddenly be questioned for being in compliance ? and in a sense, that's what DB did."

Potential drops in ad rates aside, pursuing lesser-quality circulation isn't a bad thing. Magazines, for one, have been at this for years. Merrill Lynch's Lauren Rich Fine says that newspapers are doing everything they can to retain their status as a mass-media product while at the same time developing niche products.

"I've never seen the industry be so aggressive," she says. "Even if someone buys the paper at a lower price, you can't prove they're not really a buyer. Every other industry does it and [newspapers] should be better at it. They have to become as scrappy as their competitors, and that's a welcome change."