Wednesday, October 13, 2004

Newspaper Circulation Investigation Widens

October 13, 2004
S.E.C. Inquiry on Circulation at Newspapers Said to Widen

More than half a dozen newspaper companies have received letters from the Securities and Exchange Commission seeking information about their circulation practices as part of an inquiry prompted by disclosures of inflated sales at other chains, people involved in the inquiry said yesterday.
Among the companies that have received requests for documents from the commission over the last two months are Dow Jones, Gannett, Knight Ridder, McClatchy, The New York Times Company and the Washington Post Company, these people said. Representatives of those companies declined to comment yesterday, as did a spokesman for the S.E.C.
One organization that did confirm that it had been contacted by the S.E.C. was the Audit Bureau of Circulations, which collects and monitors circulation data for newspapers and magazines.
One person involved in the inquiry emphasized that none of the companies contacted were considered to have done anything wrong or to be a target. Instead, the commission was seeking, at least initially, to mount a fact-finding effort on behalf of investors who use circulation figures as one measure of the relative health of publicly held newspaper companies. Such figures are also used to set advertising rates.
Confidence in the accuracy of those figures has been shaken in recent months, after Newsday, Hoy, The Dallas Morning News and The Chicago Sun-Times revealed that they had overstated their circulations by tens of thousands of copies each day. The parent companies of these papers have since set aside more than $130 million to reimburse advertisers.
When Tribune announced in June that the circulations of Newsday and the Spanish-language paper Hoy were inflated, the company said it was cooperating with an S.E.C. inquiry. A spokesman for the Belo Corporation, which owns The Morning News, said yesterday that it, too, had received a request for information from the commission.
Hollinger International, which owns The Sun-Times, entered into a consent decree with the commission in January, nearly half a year before it disclosed its circulation irregularities, as part of an investigation into several hundred million dollars in disputed payments to executives.
But with its letters to the other companies, the commission is apparently casting a wider net to gauge whether the practices acknowledged by Tribune, Belo and Hollinger are widespread.
"We received under confidential terms from the S.E.C. a letter saying the S.E.C. was reviewing industry practices on circulation,'' said one newspaper executive, who insisted on anonymity. "We think others received that letter. It stated very clearly we were not a target and was not intended to suggest any wrongdoing. At the same time, it is confidential.''
For the newspaper industry, which has struggled for years with stagnant readership levels, the S.E.C.'s scrutiny has the potential to undermine further the confidence of advertisers and investors, who have driven down the stock prices of several newspaper companies in recent months. But should the commission's inquiry find that the practices of Newsday, Hoy, The Sun-Times and The Morning News were anomalies, the industry might be able to put the circulation scandal behind it.
The efforts by the S.E.C.'s enforcement division to get a fix on the circulation practices of publicly held newspaper companies are in keeping with the commission's stepped-up scrutiny in recent years of other industries' accounting practices. Last year, for example, the commission sent out letters to food suppliers to determine whether an accounting scandal at the Dutch food retailer Royal Ahold was a symptom of more systemic problems involved marketing and promotional practices within the supermarket industry.
Those informed of the questions that the commission has been asking of newspaper companies said that they related to the specific practices acknowledged by Newsday, The Sun-Times and The Morning News.
In July, for example, a team of four Newsday reporters found that the paper, which is based in Melville, N.Y., had long increased its readership numbers by delivering free (and at times unsolicited) papers to homes, which the company then counted as paid.
Last month, Belo reported the results of an independent investigation that found that senior managers at The Morning News pressured their subordinates to achieve ambitious increases in readership and dangled trips and cash before outside contractors as inducements to refrain from returning unsold copies of the paper, thus giving the appearance they had been sold.
And Hollinger International said last week that it had uncovered numerous schemes by former managers that were intended to hide returns of The Sun-Times, including payments to distributors similar to those made at The Morning News.