Friday, October 14, 2011


October 13, 2011 By AMY CHOZICK and TANZINA VEGA
The European edition of The Wall Street Journal accounts for less than 1 percent of total business at its parent company, the News Corporation. But the controversy this week over an unorthodox circulation deal that resulted in the resignation of the newspaper’s publisher could carry outsize influence among investors already concerned about ethical practices at the company, analysts said Thursday. The revelation of another journalistic lapse at News Corporation — though minor compared with the phone hacking scandal in Britain — further complicates matters for the leadership at News Corporation as it prepares for its annual shareholder meeting next Friday. “No news of impropriety at News Corporation is a blip when they’re under such scrutiny,” said Doug Creutz, a senior research analyst at the Cowen Group. “This adds to the general question of how the company is being run.” He pointed to several independent investor advisory groups that have recently recommended that shareholders vote against some members of the News Corporation board, “especially those whose name ends in Murdoch,” he said. Rupert Murdoch is the chairman and chief executive of News Corporation, and his sons James and Lachlan, have large roles in the company. The scrutiny on the company increased on Thursday when the bureau that audits newspaper sales in Britain said it was reviewing new information about The Wall Street Journal Europe’s circulation arrangement that could lead to further investigation. Under the deal, The Journal used a third party to channel money to a Dutch consulting firm, which bought thousands of copies of The Journal each day for as little as one euro cent (1.37 American cents). The practice helped bolster The Journal’s subscription rate in Europe. The publisher of The Wall Street Journal Europe, Andrew Langhoff, resigned on Tuesday after an internal investigation revealed that the circulation deal also led to an agreement that provided the Dutch company, Executive Learning Partnership, with two positive articles in exchange for its financial support. “We have always been transparent with the A.B.C., and they have certified this program over recent reporting periods,” Dow Jones & Company, which owns The Journal, said in a statement, using an acronym to refer to the circulation auditing agency in Britain. “We plan to meet with them soon and review all the details with them again.” The incident at The Wall Street Journal Europe also puts the spotlight on how newspapers report circulation numbers, which are crucial to determining how much publications can charge for advertisements. At a time when the industry is struggling, many newspapers rely on heavily discounted copies to prop up circulation numbers. Last year, the Audit Bureau of Circulations, the regulatory agency in the United States, added a new category on how publications should report copies that are sold to schools, bought by businesses for their employees, or bought in bulk by third parties, like advertisers, which include promotional inserts or wraps and distribute the copies free. The new category, called “verified,” is separate from paid circulation totals that include home delivery and newsstand sales. Michael J. Lavery, the president and managing director of the Audit Bureau, said the popularity of the third party bulk sales that are considered verified had waned over the last several reporting cycles. He said the bureau no longer included third-party sales as a paid category that could determine advertising rates. “There are other distribution channels that helped media buyers and advertisers get their message to their target audiences,” Mr. Lavery said, citing new programs, like Sunday Select by the Gannett newspaper division, where nonsubscribers could opt to have advertising circulars delivered to them directly. The New York Times does have third-party agreements but does not include those sales in its report to the bureau, the company said Thursday. Around 9 percent of The New York Times’s print and digital circulation of 917,000 comes from verified subscriptions, though that figure does not include Web site subscriptions. Dow Jones said that in the six months that ended in March, 26,687 of The Wall Street Journal’s print and digital United States circulation of 2.1 million — which does include Web subscribers — came from verified papers or copies distributed inexpensively at places like universities. News Corporation has invested in The Journal’s foreign editions in Europe and Asia with the hopes of gaining a stronger international presence. But expanding The Wall Street Journal Europe has proved tough, and the paper’s circulation, even with tens of thousands of papers sold cheaply in bulk, has remained flat at around 75,000 since 2008, according to the British audit bureau. The New York Times Company’s overseas edition, The International Herald Tribune, distributed globally, had a daily circulation last year of 217,700, according to a Times spokeswoman, Eileen Murphy. She did not immediately have information on third-party agreements by the I.H.T. The paper, based in Paris and audited by the French circulation bureau, accounts for 28 percent of its circulation through subscriptions, 16.5 percent on newsstands and sells heavily to hotels and airlines. “The I.H.T. does not engage in unethical practices with regard to our circulation or any other part of our business,” said Stephen Dunbar-Johnson, the paper’s publisher. “We would never enter any commercial contract that puts our journalistic integrity at risk.” Mr. Langhoff took over at The Wall Street Journal Europe in 2009. During his tenure the paper engaged in aggressive marketing tie-ins. In 2008, it established “Future Leadership Institute” seminars for students. The Dutch firm, Executive Learning Partnership, sponsored the events through which thousands of copies of the Journal were given out. “Any suggestion that E.L.P. was involved in a scheme to artificially boost the circulation of W.S.J.E. is not based on facts, not in line with the ethical standards of E.L.P.,” Nick Van Heck, a partner at Executive Learning Partnership., wrote Thursday in an e-mail. Still, comparing circulation practices to phone-hacking is “apples to oranges,” said Barton Crockett, director and senior media analyst at Lazard Capital Markets. “All sorts of magazines and newspapers boost circulation,” Mr. Crockett said. “You can’t expect that the board of directors would be auditing circulation practices at The Wall Street Journal Europe at a company the size of News Corporation.” Eric Pfanner contributed reporting. This article has been revised to reflect the following correction: Correction: October 13, 2011 An earlier version of this article misstated the price of the discounted papers. It was one euro cent, or 1.37 American cents, not $1.37.

No comments:

Post a Comment