Prudential Study Notes Steep Declines in 'Quality' Circ

By: Jennifer Saba The Prudential Equity Group issued a biting 72-page report this morning on the state of circulation, asserting that both quality and quantity continue to decline.

Among other findings, the report said that "other paid" circulation was up 34% in the last reporting period, which it labled "troubling."

On its new "quality" circ scale, Prudential ranked The Boston Globe and The Denver Post most poorly and USA Today among the top group, heading in the right direction.

The report compared figures for the September 2004 and September 2003 publisher's statements from the Audit Bureau of Circulations for 50 of the top daily papers in the country (and in Prudential's coverage universe). It does not include the three papers -- Newsday, the Chicago Sun-Times, and The Dallas Morning News -- censured by the audit bureau for circulation fraud. All three misstated circulation by thousands of copies.

"Decline in both quality and quantity of circulation at several key newspapers owned by the New York Times Co. and Tribune, points to the potential for further pricing pressure from advertisers in future quarters," the report observed. "In particular when ABC guidelines move to a strict limit on days omitted allowance, the New York Times' newspapers may suffer further circulation declines."

The Globe omitted 27 days of circ during the covered period, and the Times nixed 20 days, "compared to an average of 2 days omitted" at other papers, the report said.

The Prudential report found that total average daily circulation across the 50 papers was down 0.7%. (If the three censured papers were included, that average would be lower.) Though the overall drop seems slight, the firm looked at other aspects of circulation, mainly full-paid home delivery and full-paid single-copy sales, and found the declines to be more dramatic, at 2.5% and 6.8% respectively.

Prudential said it compiled the report at this time because of the industry's "very difficult year" in circulation and because circulation "is a key metric in setting advertising rates."

The report ranks the papers from worst to best based on quality circulation, defined as "consumers seeking and paying for the paper." Low-quality circulation is defined as "copies not paid for by the individual recipient ... the reader is most likely less engaged in the newspaper."

The firm used 10 criteria to create a "circulation quality screener" to measure and score the papers. The criteria include: Decline in total average paid circulation; decline of 5% or greater in full-paid home delivery; full-paid single copies have declined 10% or more; discounted copies represent 5% or more of total circulation and have increased 5% or more; other-paid circulation represents more than 10% of total circulation; and 10 or more days were omitted from daily circulation averages.

A paper received a point for every one of the ten criteria it qualified for. The more points, the more troubling the circulation trend, in Prudential's view.

The report found The Boston Globe, The Denver Post, and The Star-Ledger of Newark, N.J., racked up the most (negative) points with a CQ score of 7, by their measure. The Houston Chronicle and Denver's Rocky Mountain News followed with 6.

At the other end of the "quality" scale, scoring 1 point (which by this measure is a good thing), were: USA Today, The Washington Post, St. Louis Post-Dispatch, The Press-Enterprise in Riverside, Calif., and The Knoxville (Tenn.) News-Sentinel.

The report cherry-picked three papers to study in depth, "in order to highlight different trends in circulation, and different degrees of quality as defined by the criteria."

The top performer chosen: USA Today. The one that scored below average was the Los Angeles Times, and the example that scored poorly was the Boston Globe.

USA Today experienced a 7.2% rise in circulation while performing well in the CQ screener. "Though USA Today is unique in its heavy use of hotel guest copies and airport copies, which fall under other paid circulation, the paper looked strong in other categories," the report noted.

Full-paid single-copy sales at USA Today were up 7.5% in the period measured, ahead of the 5.8% average for the 50 papers. Full-paid single-copy sales represent 39% of USA Today's circulation, ahead of the 20% group average. The report notes that USA Today instituted a price increase from $.50 to $.75 in September. The next FAS-FAX should tell if the increase impacted single copy sales.

In the below-average category, the L.A. Times experienced an overall circulation decline of 5.6%. Full-paid home delivery was down 10.8%, much worse than the 2.4% national average, the report said. Home-delivered copies through third party sales decreased "significantly," said the report.

The report noted a curious trend at the Times regarding other-paid circulation, calling the fluctuations and changes "peculiar." As one category drops another gains, with the rough total remaining constant. "A 158% increase in discounted copies also signals to us more trouble with circulation and selling at the cover price," the report said.

The Globe was on the list as a poor performer because it qualified for most of the criteria (seven out of 10), including a 6% decline in full-paid home delivery and a 40.5% increase in other-paid circulation. That whopping jump is due mostly to almost 15,000 copies distributed under the hotel/guest and home-delivered third-party column.

Beginning with the next publisher's statement, papers can only take a total of 10 week days under this rule for a 12-month audit period. In the Globe's last audit report for the 12-month period ending March 2004, the paper omitted those 27 days.

"If the 10 day limit had been in place, they would have had to include 17 of these days, which are considerably lower circulation days," the report noted.

In the Globe's last publisher's statement it omitted 13 days, "already three ahead of what would be allowable for a full year, under the new rules. Had only 5 days been omitted, total circulation would have actually declined 0.3% versus the reported 0.2% increase."

CORRECTION, March 23: Due to incorrect information provided by Prudential, an earlier version of this story incorrectly excluded The Star-Ledger from the list of newspapers with a CQ score of 7 and incorrectly listed CQ scores of 1 for the Contra-Costa Times and Akron Beacon-Journal. Additionally, we incorrected listed The Wall Street Journal's CQ score as 5; in fact it is 4.