Tribune Co., which operates the nation's second-largest newspaper chain, said yesterday that circulation figures for two of its properties -- Newsday and the Spanish-language Hoy -- had been improperly inflated in 2003 and early 2004.
It is the second time in a week that a major daily has admitted its circulation were false. On Tuesday, the Chicago Sun-Times said it had been pumping up its circulation figures "for years," but did not say by how much.
The reports were the latest to suggest that while the industry has been recovering from the bust of 2001, the worst year in advertising in 50 years, publicly traded newspaper chains are under more pressure to perform than ever before. The companies have responded to investor pressure by raising ad rates, cutting newsprint consumption and trying to squeeze out other savings.
Before the circulation announcement yesterday, Tribune was in the process of paring about 200 jobs across its 14-newspaper chain, through buyouts or, if that doesn't work, layoffs. The cuts may hit hardest at the Los Angeles Times, which in April won five Pulitzer Prizes. The chain says it overestimated how much ad revenue it would collect in coming months.
This week, a continuing dispute between reporters at the Wall Street Journal and parent company Dow Jones & Co. -- which says it has not regained enough of its core technology and financial services advertising to offer the kind of contract its employees want -- led many writers to withhold their bylines from Journal articles for two days.
Newsday, based on Long Island, N.Y. was sued in February by four advertisers who accused the paper of inflating circulation to justify higher ad rates. Yesterday, Newsday, which is also under investigation by the Securities and Exchange Commission over its circulation numbers, acknowledged that it sold 7 percent fewer daily papers than the 579,729 it reported to auditors last year, and 9 percent fewer than Sunday's reported circulation of 671,819.
Inflation was higher at Hoy, which overstated its daily circulation figure, 92,604, by 16 percent, Tribune said, and its Sunday figure, 33,198, by 12 percent. At the time, Hoy was published only in New York. Since then, it has added editions in Chicago and Los Angeles.
"We will be taking action to discipline anyone who acted improperly and are instituting new safeguards within the circulation departments of Newsday and Hoy," Jack Fuller, president of Tribune Publishing, said in a written statement. He blamed the overstatement on record-keeping errors. Newsday's vice president of circulation, Robert Brennan, has been put on administrative leave, according to the paper's Web site.
"The internal investigation will continue until we are satisfied that our circulation practices are above reproach," Fuller said.
The circulation scandals in New York and Chicago may trigger a potentially crippling chain reaction of advertisers demanding refunds or suing to get them, one newspaper analyst said. Not to mention a wave of scrupulous circulation-checking at the nation's other papers.
"It's a form of theft," said the analyst, John Morton. "Your ad rates are keyed to your circulation. You can sue to get refunds." Newspapers report their circulation to the Audit Bureau of Circulation, which has been reviewing the Newsday and Hoy figures.
Not all newspaper companies are having a rough year. Gannett Co., the nation's largest newspaper chain, reported that both ad revenue and volume increased last month compared with May 2003. Knight Ridder Inc. reported a 2 percent advertising gain over last year through May at its 31 newspapers.
At the Wall Street Journal, however, management and workers have been trying to reach a new contract for months, and union reporters say their "byline strike" is meant to show their unhappiness with the company's offers. About 1,600 newsroom and business-side employees voted down a three-year contract proposal made by Dow Jones in January, saying the offer increased health care costs and fell short on wage increases. The staff has since engaged in walkouts and protests and requested a mediator because the company threatened to end negotiations and impose a contract, which it can do, said Tom Lauricella, a Journal reporter who covers mutual funds and is the newsroom union representative.
Among major dailies, the Journal was hit hardest by the ad recession and is the last to crawl out. It greatly expanded its staff to cover the tech boom of the late '90s. The tough dealing in the labor negotiations likely reflects management's reserve about the coming ad market.
During Dow Jones's first-quarter earnings report in April, Chief Operating Officer Richard F. Zannino said the Journal's ad growth "provides the strongest evidence yet that the worst of the three-year [business-to-business] advertising depression may be behind us with an emerging recovery at hand. Having said this, monthly lineage comparisons at the Journal remain volatile and overall advertising levels remain well below normal."
Union employees say they understand that.
"When this all started, we recognized that things were not great" with Dow Jones, Lauricella said. "But we also recognized that things would be getting better, as they are. The company is not in that kind of dire straits where they need our subsidies to survive."
Unlike union members at The Washington Post, who staged two byline strikes in 2002, Journal employees do not have the right to remove their bylines; instead, the Journal complied with the writers' request to do so. Writers at Barron's, also owned by Dow Jones, have requested their bylines removed from Saturday's edition.
At Tribune Co., the troubles are due in part to a marriage of corporate cultures. Tribune bought the Times-Mirror chain, which included the Los Angeles Times and Baltimore Sun, in 2000. In the year before the merger, Tribune's profit margin for its newspaper division was 29.2 percent, according to company reports. For Times-Mirror papers, the number was 18.2 percent.
In the year after the acquisition, the combined newspapers delivered a 19.7 percent profit margin, as the Tribune papers absorbed the lower margins of their new Times-Mirror brethren. But recent moves suggest Tribune's tolerance is over.
In the first five months of this year, advertising lineage at all Tribune papers was up 5 percent, with a high of 11 percent at the Chicago Tribune. But at the Los Angeles Times, ad revenue for the period was down 1 percent, for which the company blamed a fall-off in movie ads. Also, Tribune said earlier this month that it had overestimated ad revenue for the coming months and will take a write-down of as much as $15 million in second-quarter for the buyouts.
But that may sidestep the real issue, Morton said. "I think [Tribune] is using the softness in advertising as an excuse, but I think it's part of an ongoing strategy to get Times-Mirror papers up to Tribune profitability standards," he said.
Los Angeles Times Editor John Carroll declined to comment.
The Tribune cuts are being felt in Baltimore, where "voluntary severance" deals are being offered, as the Sun hopes to trim 18 union jobs and some nonunion ones. The paper said it would shrink its news hole -- the amount of space given each day to articles and photographs as opposed to advertising -- by as much as 10 percent, editors told the staff.
The news-hole downsizing may be part of a larger industry trend, another analyst said.
In the first four months of 2004, with advertising lineage up across the industry and with circulation essentially flat, consumption of newsprint was down 2 percent compared with last year, said Ross Hay-Roe, an analyst with Equity Research Association in Canada, where most U.S. newsprint is manufactured.
"If you look at demand, consumption keeps going south and we're struggling to explain why that is," Hay-Roe said. "It sure seems somewhere there is a shrinking news hole." He said he knew of one newspaper publisher, which he would not name, for which that is the case. The Washington Post did not decrease its news hole this year, the company said.
In Chicago, the circulation flap at the Sun-Times is complicating the drama around parent company Hollinger International and its deposed chief executive, Conrad Black. Hollinger said it discovered the circulation overstatement after Black stepped down in November but would not say how much the Sun-Times' reported daily circulation of 486,936 was pumped up. Hollinger stock fell nearly 10 percent Tuesday on the news.
Hollinger is suing Black to recover $380 million of newspaper revenue that the company alleges Black, his wife and three associates pocketed. Black's downfall has caused instability at the company, which may be seeking to sell the Sun-Times and perhaps some of its other papers, such as the Jerusalem Post.
But the Sun-Times' faked circulation figures likely will complicate that, Morton said.
"Theoretically, the Sun-Times is on the market," he said. "This is the last thing you want to happen when you're trying to sell the damn thing."