'Quality' Circulation is on the Rise

By: Jennifer Saba Newspaper circulation may have taken one of its steepest falls this past spring, but it looks like executives are making good on the promise to increase "quality" copies.

On Wednesday, Prudential Equity Research issued an 80-page report analyzing publisher's statements from the Audit Bureau of Circulations for 50 newspapers -- many of them the largest in the country -- for the six-month period ending March 2005. It does not include The Dallas Morning News, Newsday, or the Chicago Sun-Times.

This report is the "second edition" of an earlier study Prudential published in March. In both analyses, the research firm takes a close look at circulation, breaking it down by categories determined by the analysts.

The reason for the microscope: In the wake of the circulation scandals, Prudential wondered if newspapers were "padding" their circulation by distributing more copies at hotels or giving thousands of papers to elementary schools, for example. "Although this action isn't outright fraud, as the misstatements were, we feel that aggressive use of some of these lower-quality techniques would signal a problem with circulation and would therefore pose future risk to advertising rate stability."

When the first report came out this spring, some newspaper companies disputed Prudential's methodology and the benchmarks the firm applied.

In the most recent study, Prudential found that other paid circulation, which is comprised of hotel, newspapers-in-education (NIE), employee, and third-party sales copies, was up 6.9%. As a contrast, for the period ending September 2004, other-paid circulation was up 34.2%.

However, the report notes that even though there's a reduction in the reliance in other paid circ, the category is still "stemming the losses in home delivery and single-copy sales."

Overall, total daily circ decreased 2.7% in March when compared to the same period last year. Home delivered copies dropped 2.7%. Discounted copies were up 85%. Single-copy sales slipped 7.1%. This category acts as a barometer for the health of the industry because "it's the most basic example of a consumer actively seeking out the newspaper," the report said.

Prudential applied the same "circulation quality screener" used in the March analysis to flag newspapers. The benchmark is based on 10 equally weighted criteria: 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% of more of total circulation and have increased 5% or more; other paid circulation represents more than 10% of total circulation; other-paid circulation increased 20% or more; employee copies comprise 1% or more of total circulation; NIE represents more than 4% of total circulation; NIE increased 20% or more, and 10 or more days were omitted from daily circulation averages.

If a newspaper meets one of the criteria they receive one point. A higher circulation-quality (CQ) score equates to a more severe decline in quality circulation compared with that of its peers.

According to Prudential, The Star-Ledger in Newark, N.J., the Daily News in New York, The Wall Street Journal, The San Diego Union-Tribune, and The Detroit News and Free Press have the highest CQ score of 6.

The two papers with the lowest CQ score of 0: The Sacramento Bee, and the St. Louis Post-Dispatch.

Prudential selected the 10 largest papers in its coverage universe to illustrate trends in the industry. For example, the report notes that quality circ at USA Today (CQ2) "seems to have held steady." Full-paid home delivery increased 8.5%. Full paid single copy sales fell 16.5% but the report notes the period reflects the impact of an increase in the cover price.