World: Stuart Elliott in America

Just as the millionaire shocked Auntie Mame by leaving a cab with the meter running in the middle of the Depression, a major US newspaper has shocked Madison Avenue by turning away advertisers in the middle of the shaky economic recovery.

The newspaper, Newsday, is among those owned by the Tribune Company in markets from Los Angeles to Chicago to New York. It's rejecting ad revenues, to the tune of as much as $500,000 a week, as a result of one of the messiest scandals ever to hit the US media industry.

The trouble started in February, when a small group of advertisers sued Newsday, which circulates mostly in the New York suburbs on Long Island, though also on some city newsstands. The advertisers charged Newsday with falsely reporting its circulation - inflating the figures by surreptitiously disposing of unsold copies - in an effort to prop up its high ad rates. The claims of a dump-and-pump scheme were puzzled over until June, when the paper acknowledged it overstated the numbers for this year. An internal probe then found additional discrepancies dating to 2001. The suing advertisers claim the problem goes back as far as at least 1995.

Much like a crusading board of directors seeking to get on with corporate life after the chief executive is indicted, Newsday is taking drastic measures to restore confidence among advertisers and agency space-buyers.

The paper fired a circulation vice-president and has earmarked $35 million for settlements it expects to make to advertisers that should have been charged lower rates because they were reaching fewer readers than they thought. In addition, Newsday will trim ad rates from 30 August through the end of next year.

And, in a step analysts termed unprecedented, it offered to guarantee minimum circulation figures of 525,000 copies for the daily editions and 575,000 for the Sunday editions and pay rebates if sales fell below those tallies. Such rate bases are often promised by publishers of US magazines but not their newspaper counterparts, even though both come under the scrutiny of the Audit Bureau of Circulations (and, in fact, Newsday was recently condemned and sanctioned by the bureau).

"I am not aware of any newspaper with a rate base," Dan Capell, the editor of Capell's Circulation Report, told The New York Post, which, like its tabloid rival the Daily News, has been covering the Newsday debacle with all the lip-licking usually reserved for the fall from grace of a pop star with an angelic image.

As Newsday was making its fixes, a group of about 50 auto dealers sued for allegedly being overcharged for the ads they bought. The dealers were shocked to get letters from the paper revealing their ads would no longer be accepted for publication on the grounds running them would put Newsday at the risk of further liability.

Not only will that cost Newsday an estimated $500,000 a week in lost revenues, the Post reported the dealers are mulling plans to launch their own paper or to ask the New York dailies to publish special Long Island editions. Newsday may emerge from this weakened financially as well as competitively, surrendering turf it has successfully defended for decades against the encroachments of its Big Apple-based counterparts.

Oh what a tangled tale we weave when first we practice to throw away unsold papers in landfills.


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