The Sun Times overstated circulation

[southsider2k5]

The Chicago Sun-Times revealed Tuesday that it had significantly overstated its circulation in recent years, boosting its profits while overcharging advertisers.

 

Executives at the newspaper wouldn't comment on specific findings of its internal investigation. But sources close to the paper said the Sun-Times had overstated its daily newsstand sales by at least 25 percent, or more than 78,000 copies a day, for at least two years and possibly longer.

 

That would mean that the Sun-Times' reported 481,798 average Monday-Friday circulation actually should be about 403,000 copies.

 

If so, the Sun-Times, the area's No. 2 newspaper by circulation, behind the Chicago Tribune, has misled its advertisers, whose prices are based on the number of copies the newspaper says it sells.

 

The Sun-Times now may have to pay refunds to those advertisers, industry experts said, and the newspaper's parent company, Hollinger International Inc., may have to restate financial results.

 

After Tuesday's announcement, surprised investors sent Hollinger International's stock down more than 6 percent in after-hours trading.

 

The situation at the Sun-Times was so serious that the audit committee of Hollinger International's board of directors felt it had no choice but to disclose what the investigation had found so far.

 

"The audit committee had reached a point in the review they knew the circulation figures were materially overstated dating back several years at the Chicago Sun-Times and felt that disclosure was appropriate," said Hollinger International spokeswoman Molly Morse.

 

It couldn't have come at a worse time for Hollinger International. For nearly a year, the company has been rocked by a scandal over unauthorized payments to former top executives, including former Chief Executive Conrad Black and former Sun-Times Publisher David Radler.

 

The scandal led to a decision by Hollinger International's board to sell some of its newspapers, including London's Daily Telegraph. The company is expected to announce a deal for the Telegraph within days.

 

Last month, the company announced that it would keep the Sun-Times and dozens of suburban Chicago newspapers after it was disappointed by bids offered by potential buyers.

 

Newspaper analyst John Morton said the disclosure of circulation problems at the Sun-Times "casts a cloud over what's for sale at the company." Inflating circulation, he said, "is theft. Ad rates are based on those numbers."

 

One frequent Sun-Times advertiser expressed outrage Tuesday after hearing the news.

 

"I want a refund," said Tony Nanfria, general manager for Olympic Carpet Inc. "We're a major player with them."

 

The flooring retailer, which has three Chicago-area locations, advertises in the Sun-Times seven days a week.

 

"I'm not too happy. I'm disappointed," Nanfria said.

 

The circulation problems were discovered by Sun-Times Publisher John Cruickshank shortly after the Sun-Times raised its newsstand price to 50 cents from 35 cents April 1, Hollinger International said.

 

Newspapers report their circulation twice a year to the Schaumburg-based Audit Bureau of Circulations, which is supposed to verify the numbers so they can be trusted by advertisers. Bureau officials said Tuesday that they are launching their own investigation into the Sun-Times.

 

Though some manipulation of circulation numbers is fairly common and underpoliced in the industry, it is rare for a newspaper company to admit inflating circulation before an investigation is complete.

 

Earlier this year, Newsday, a newspaper on New York's Long Island, was sued by several advertisers, alleging that the paper inflated circulation figures. Chicago-based Tribune Co. owns Newsday, the Chicago Tribune and 12 other daily newspapers.

 

At the Sun-Times, the circulation scheme involved counting as sold papers that never got into readers' hands, one source said.

 

"Tens of thousands of papers were going out in the morning and coming back at night," said the source, a former top executive at the Sun-Times.

 

Morse, the Hollinger International spokeswoman, said the company wouldn't act against any executives until the internal investigation was complete.

 

The Sun-Times circulation scandal fell under the watch of Radler, the former publisher who is accused of taking millions of dollars in unauthorized payments. Radler, Black and other executives stepped down in November when the payments scandal became public.

 

"Circulation figures are audited on a regular basis by the Audit Bureau of Circulations," a Radler spokesman said. "We are not aware of any problems with the circulation figures provided to the ABC during Mr. Radler's tenure."

 

Sources close to Black said Hollinger International's very public disclosure was simply an attempt by the audit committee to further discredit Radler and Black.

 

A Black spokesman said Black and his Toronto-based holding company, which controls Hollinger International, "has no knowledge of any circulation practices at the Sun-Times that are outside industry norms employed by most competitive newspapers in the Western world for promoting circulation."

 

The spokesman added that Black had argued against raising the Sun-Times' cover price.

 

"The circulation of the Sun-Times is now suffering from that price increase," he said.

 

Cruickshank, who has been credited with easing tensions at the paper since becoming publisher late last year, spent 20 minutes Tuesday afternoon answering questions in the newsroom from the Sun-Times staff.

 

In a memo to the staff, Cruickshank said, "We have already discontinued all the practices believed to have led to this issue. We will take whatever action is necessary or appropriate based upon the Audit Committee's conclusions. And we will redouble our efforts to maintain the trust of all our advertisers."

[IlliniKrush]

Somehow Mariotti is responsible for this.

[mreye]

I'll bet Daley is involved.

[EvilMonkey]

No, it's a vast right-wing conspiracy orchestrated by Karl Rove behind the back of President Bush, so he has verifiable denyability!