• by Michael Shields , August 24, 2004

The summer of scandal in the newspaper circulation business has left advertisers and agencies worried about what could possibly be next. Most say they are placing increased scrutiny on audience statements and newspaper ad budgets, though they believe the power of the medium will protect it from any immediate advertiser backlash.

Last week's decision by Belo, the owner of the Dallas Morning News, to pay $23 million in compensation fees to advertisers after acknowledging circulation errors was the latest in a series of high-profile blemishes on the newspaper industry's credibility. Earlier this summer, the Tribune Company's Newsday, Hoy, and the Chicago Sun-Times were censured by the Audit Bureau of Circulations (ABC) for particularly deplorable circulation practices.

Many wonder whether more announcements are around the corner. "The real question is, for the industry, 'Is this the tip of an iceberg or an ice cube?'" said Scott Harding, chairman and CEO of Newspaper Services of America and a member of the ABC board.

"We are all just waiting with baited breath," said George Janson, managing partner and director of print for Mediaedge:cia. "Just when it seemed like it was over."

Harding recognizes the possibility of more bad news. "There has been tremendous pressure on circulation managers to maintain growth," he said. "As we've seen, people under that sort of pressure sometimes do things they would not normally do."

He added "Do I think it's systemic? No. Would it shock me if there were others? No."

However, despite the looming fear of more discrepancies, it appears that newspapers are not yet paying a price in terms of ad dollars. Last week, the Newspaper Association of America (NAA) reported that total newspaper ad expenditures rose 4.1 percent for the second quarter of 2004. In recent weeks, most major newspaper companies, including the beleaguered Tribune Company, have reported modest ad revenue growth for 2004.

"I don't think it has affected people buying newspapers or not [buying newspapers]," said Steve Lanzano, executive vice president and general manager at MPG.

Harding explained that newspapers are all too important for local advertisers, who are faced with few worthy alternatives. "For many categories of retail, it is their core medium," he said. "One thing about retail, when the cash register rings the next day..."

Janson said that if anyone was going to hold back spending, it might be national advertisers. In any case, nearly everyone agrees the reputation of the medium has been severely damaged.

"What's scary is the criminal nature [of the misstatements]," said Janson. "It goes beyond accounting errors. It takes time to rebuild that trust."

"It has tarnished the industry," agreed Lanzano. "It leaves something in the back of your head. Circulation is the currency in the industry."

John P. Murray, vice president of circulation marketing for the Newspaper Association of America, said that most papers have acted quickly to stave off potential problems and remedy advertisers' concerns.

"The majority of newspaper companies are going through some type of self examination," he said. "It has caused papers to say to themselves, 'How are we doing, could we get surprised?'"

To avoid such surprises, Murray said that more auditors are going out into the field to meet with local publications and that most newspapers have put together a list of best practices and potential red flags. "They want to be able to say to advertisers, 'Hey, we did an independent look and we feel pretty good about it.'"

Murray contended that the current climate is not entirely negative. "I don't think people are waiting for another shoe to drop," he said. "You might see some small adjustments come audit time. Not in the category of deception, but in lack of follow-through or flawed execution."

Yet if a particularly scurrilous misstatement were to emerge, most believe it would have major ramifications for the industry.