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June 22, 2004

IS IT A MEDIA INDUSTRY ENRON?

NEW YORK Troubled by last week's circulation scandals at Hollinger International's Chicago Sun-Times and the Tribune Co.'s Newsday and Hoy, Merrill Lynch's Lauren Rich Fine released a report today calling into question the reliability of circulation figures for the entire industry. "Our biggest fear," the report said, "is that these two announcements may not be isolated incidents." . . .

The report also takes to task the Audit Bureau of Circulations, saying that the overstatement of circ figures seems to "suggest that there may be loopholes in the ABC audit system" and "at the very minimum, it suggests that ABC's audits need to be completed much sooner." Many newspapers use the ABC publisher's statements to sell advertising because there is a lag in the ABC audited reports.

Hmm. Overstated sales? Shaky financial disclosures? Unreliable audits? Bilked customers? Why isn't this frontpage news? Because the front page is the news?

You just can't trust those corporate types! Sadly, these kinds of problems aren't limited to print media. As I've noted before, transparency in readership numbers is another thing that bloggers -- at least those of us with open sitemeter counters -- have over Big Media. (And read this, too).

UPDATE: Steve Antler: "When it comes to circulation figures the blogosphere is the very embodiment of transparency."

ANOTHER UPDATE: More here. Antler has a letter from a guy (who says he sent the same email to me, but I don't seem to have it) distinguishing between counters like Sitemeter and third-party audits. Well, sitemeter is a third-party item, and while I suppose it could be fooled it's more reliable than a self-report, and anyone who cares to browse the information it offers can learn a lot. As for the reliability of audits, that depends on how much you trust the auditors.

Meanwhile, another reader sent me an email that's long enough I'm going to put it in the "extended entry" area. Click "more" to read it. I have no idea whether his assessment of the advertising industry is true, but perhaps this will spur those in a position to investigate to look further and see what they can find out.

YET ANOTHER UPDATE: Click more for an additional email from David Barlin, in favor of audited blog circulation numbers.

Email follows:

First off, I'm a huge fan of your blog. Second, please no identifying information re: email address) as I am a media buy-side executive wishing to still remain employable. Third, please solicit input from others to broaden your enquiries as I have often believed, and I may be biased but I've had my beliefs confirmed by others in the know, that advertising people are the most overpaid and overrated professional workforce I have encountered. Fourth, I firmly believe that the entire advertising industry is a huge scam operation perpetrated upon the ad buyers and the public (see the June 28, 2004 Fortune magazine feature article titled "Nightmare on Madison Avenue" for a look at the whining and backward thinking of media darling Donnie Deutsch).

This was the reason for the resistance to Internet advertising -- not because of the ineffectiveness of the medium (reach, media effectiveness, quality of impressions, etc.) or the lack of interest from buyers, it was because it was so accountable relative to other media. Think about it: since when did they attach as much demands from radio listening or tv viewership (Nielsons, GRPs, basic demos) as they did to Internet advertising measurement (1:1 consumption not survey sampling, click through rates, cost per action, refined demo's)? You didn't hear Madison Avenue demand from networks that a specific Ford commercial during a specific episode of Friends require viewers to go to a Ford dealership, ask for more information about Ford, or buy a Ford. They didn't do it because they knew they could not justify the mass -- and highly lucrative, advertising methods (creative and buying) of the past because clients, if they cottoned onto the accountability of the Internet or other direct advertising, would now be demanding improved tracking and demo's for all of their ad spend. And, funnily enough, that is what buyers are starting to do now to the childish protestations of the High Priesthood.

Finally, although I have often questioned the circulation figures at daily newspapers, radio and television (yes, there are cooked), the circulation scandal is much more prominent and outrageous for magazines. Here, publishers use a "pass through rate", or readership multiplier, on rate cards that is laughably justified based upon incredibly naive survey methods (do they have people with clipboards in each dentist office in America?). According to the Magazine Publishers Association, major magazines have an industry average readership multiplier of 5 readers per copy (I have been quoted as high as 8 times for individual titles). This means that each magazine in circulation is read by 5 individual readers, an individual reader 5 times, or some combination of both to reach a total of 5 total reads. This multiplier is either explicitly or implicitly (I've had both) folded into the CPM. Therefore, if the magazine has an audited circulation of 100,000 readers, it is "sold" as though you are getting 500,000 impressions. The CPM is "cost per thousand" impressions. Therefore, if you were to back out the numbers, the CPM should be 1/5 of the rate card quote. Try doing this in front of ad sellers -- they look at you like you should be back in accounting or purchasing because you don't understand the uniqueness of their product. It is simply a figure out of the air to try to increase your cost by an average factor of 5!! Try doing this in any other aspect of business and you'll be laughed out of the room, but advertising people just sit there and justify it to the end. I wonder why?

If you wish to carry this forward and invite your readership to add to this thread, I think it would be greatly beneficial to your readership, business people, as well as consumers as a whole. Either way, I am confident that there are plenty of other "scandals" to be discovered in this highly dubious industry.

I don't know, but I'm happy to pass this along in the hope that someone will pick up the ball. Then again, what media outlet would expose this kind of thing?

MORE: Now, an email from David Barlin:

While sitemeter is, indeed, a third party, there are a couple of issues about why audits are important for those who sell advertising (even if you use a third party for your measurement):

a) Sitemeter is one of over 50 different site analysis systems out there, each of which has its own accounting methodology

- It's as if some firms reported their financials according to Generally accepted Accounting Principles, but then there are another 49 different standards out there (imagine different accounting standards for all 50 states, and what that would do to the investing community)

b) Sitemeter is not in the business of checking to make sure that you are implementing their technology correctly

- That's not a criticism... they provide a tool for you to use internally
- Audits (at least media audits) are a tool for publishers to communicate
with media buyers in a format they can trust

c) You are exactly right that the value of an audit is directly proportional to how much the auditing firm is trusted by the consumer of the audited information

- I'm happy to prattle on about I/PRO and our relationships with advertisers for the past 10 years, and why we, with our partner BPA, are the trusted name in auditing online, but I suspect we're already below the level of depth of relevance.

Well, sitemeter is kind of a standard, because a lot of people use it. Some people say it undercounts, but at least it's presumably consistent from blog to blog.

I'd like to see open counters on all the Big Media web publications. Will we?