Over the past month, Crikey has published a
steady stream of information from readers and industry insiders about
how newspapers and magazines artificially inflate their audited “paid”
circulation figures to deceive advertisers who pay for their ads based
on the official circulation figures. Today, we explain how they do it.

The
stories about circulation rorts began when an anonymous Crikey reader,
who had worked in the circulation department of a major newspaper
publisher, sent us his account of how that company cooked its
circulation figures. On 7 April we published his allegations, which can
be summarised like this:

  • The “audited” circulations of many major Australian
    newspapers and magazines are inflated by tens of thousands of copies –
    vastly more than the 1% leeway allowed under Audit Bureau of
    Circulation rules.

  • This is achieved by a range of measures. It’s done by
    including hundreds of thousands of copies that are given away free or
    at ridiculous discounts – but included as fully “paid” circulation on
    the audit – through schools, hotels, airports, museums, sporting
    events, conferences and cafés under arrangements where an “invoice” is
    supplied to satisfy the scrutiny of audtors. It’s done by dumping
    copies in foreign countries and providing auditors with an invoice.
    It’s done by hiding or slowing down returns from newsagents so they’re
    not debited against the circulation figure. It’s done by amending or
    witholding printers’ invoices. It’s done in dozens of inventive ways by
    the circulation departments of media companies.

  • The audit reports are signed off by auditors who inspect
    the publisher’s records – but the fraud takes place before the auditors
    see the records, through the exclusion or massaging of information.

  • The practice is widespread, it occurs at most of the largest print media companies, and it has been quietly condoned for years.

It’s a practice that has been going on in the print media industry for
decades. And while it is not as outrageous as it was a few years ago,
it is still fraud and it is still rampant. And the reason it is fraud
is that every six months the circulation figures are signed off by
professional auditors, validated by senior company executives and
publicly released as “audited paid circulation” by the industry
auditing body the Audit Bureau of Circulations. Advertisers and media
buying agencies buy advertising space in newspapers and magazines based
on the belief that the audited figures are accurate, reliable and
legally binding.

So
how does a newspaper or magazine company inflate its official audited
circulation figure? Crikey has now collated the information sent by
readers and industry insiders with our own research to quantify and
explain how the practice works. The result, as you can see, shows how a
major daily newspaper could inflate its audited circulation by 15% or
more.

Translated into dollars that would have to be rebated to
advertisers if this level of circulation rorting was ever proved, it
constitutes more than $210 million of the $1.4 billion spent on
newspaper and magazine advertising in 2003. Of course, we’re not
suggesting it’s happening at every print media company or that the
figure would be anything like that.

Before you dismiss either
the allegations themselves or the scale of the rorting, just think
about this: within the past year several major American newspaper
companies have been investigated and found guilty of precisely the same
kind of audited circulation fraud – using the same techniques – and
those companies have been forced to pay back more than $250 million to
advertisers to compensate for overstating their ABC circulations.

To
illustrate how circulation fraud works, we have constructed a
hypothetical example of a Sydney or Melbourne daily newspaper with an
audited daily circulation of 200,000. Under ABC rules, no more than 1%
of that circulation can be made up of bulk sales (defined as “sales
made as part of another transaction; for example, comprising part of
the cost of admission to an event”) ie: 2,000 copies per day.

That
means the audited paid circulation – which under ABC rules means “net
paid sales” – must be no less than 198,000 copies. For the rules of the
Audit Bureau of Circulations, click here.

Here’s how that newspaper is able to inflate its audited circulation:

HOTELS:
Free newspapers are placed outside all rooms and in bulk in public
areas: 25 three-star, four-star and five-star hotels at an average of
120 rooms per hotel = 3,000 copies. 50 smaller hotels and motels
throughout the state at an average of 40 rooms per hotel = 2,000
copies. Total hotel copies per day = 5,000 copies. Contra advertising
is the most common deal between publisher and hotel: an invoice is
issued to the hotel or hotel chain by the newspaper; the hotel pays the
invoice (or doesn’t pay and is not made to pay) and is given
advertising in the newspaper to the value of a much greater amount –
ie: a deep discount on advertising.

SCHOOLS: Free or deeply-discounted copies are supplied to schools
via the local newsagent. This serves two purposes: beefing up “sales”
figures and exposing children and teachers to newspapers. Number of
government and non-government schools in NSW: 3,144. Number of
government and non-government schools in Victoria: 2,320. Average of
the two states: 2,731. If the newspaper has a deal with 50% of schools
in its state, and supplies 10 copies per school = 13,650 copies per day.

UNIVERSITIES:
Over the past five years, newspapers have stepped up promotional
activities in Universities, TAFEs and colleges. Students are getting
their news more than ever from TV and the internet, and publishers are
investing in campuses as loss-leaders by offering students and staff
copies for a significant discount off the retail price at the 20 major
Sydney and Melbourne University campuses. Students and staff can get a
full year’s subscription to The Australian (including weekend delivery) for as little as $15. University of Sydney students can get an academic year subscription to the SMH for
$20. Papers are collected from campus during the week, but for the
extra $5 they offer home delivery on weekend. If just 5% of the 230,000
students at Victorian universities took a discount offer, this would
account for 11,500 copies per day.

AIRLINES: Copies are
given away in bulk to passengers boarding Qantas domestic flights at
major airports. Passengers pick up their free copies from stands at the
departure gates. If the newspaper gives away 50 copies per Qantas
flight in the morning peak period from 6am to 11am, in either Sydney or
Melbourne, this would cover an estimated 30 flights = 1,500 copies per
day. Add airline lounge and business class copies (say 500 per day) =
2,000 copies per day.

EVENTS: Sporting and cultural
events are beacons for promotional giveaways by newspapers. At last
month’s Kangaroos vs Sydney match at Manuka, The Canberra Times
gave away copies of its Saturday edition to the crowd of 13,000. On a
smaller scale, similar deals occur daily and involve most metro papers
giving away bulk copies in return for contra advertising. Museums,
sporting events, conferences and cafés all receive bulk copies that
could easily account for 200,000 copies over six months (130 weekdays)
= 1,500 copies per day.

TOTAL BULK COPIES PER DAY = 33,000 = 16.5% of the audited circulation

Check out our reports on site on the rorts here and in the US here. And send your comments or insights to boss@crikey.com.au