Outside the Beltway

Wall Street Journal Circulation Scam

Rupert Murdoch's publishing empire is being rocked by a second scandal, this one a scheme to inflate the circulation figures of the Wall Street Journal.

James Joyner · Thursday, October 13, 2011 · 5 comments

Rupert Murdoch’s publishing empire is being rocked by a second scandal, this one a scheme to inflate the circulation figures of the Wall Street Journal.

The Guardian (“Wall Street Journal circulation scam claims senior Murdoch executive“):

One of Rupert Murdoch’s most senior European executives has resigned following Guardian inquiries about a circulation scam at News Corporation’s flagship newspaper, the Wall Street Journal.

The Guardian found evidence that the Journal had been channelling money through European companies in order to secretly buy thousands of copies of its own paper at a knock-down rate, misleading readers and advertisers about the Journal’s true circulation.

The bizarre scheme included a formal, written contract in which the Journal persuaded one company to co-operate by agreeing to publish articles that promoted its activities, a move which led some staff to accuse the paper’s management of violating journalistic ethics and jeopardising its treasured reputation for editorial quality.

Internal emails and documents suggest the scam was promoted by Andrew Langhoff, the European managing director of the Journal’s parent company, Dow Jones and Co, which was bought by Rupert Murdoch’s News Corporation in July 2007. Langhoff resigned on Tuesday.

The highly controversial activities were organised in London and focused on the Journal’s European edition, which circulates in the EU, Russia, and Africa. Senior executives in New York, including Murdoch’s right-hand man, Les Hinton, were alerted to the problems last year by an internal whistleblower and apparently chose to take no action. The whistleblower was then made redundant.

In what appears to have been a damage limitation exercise following the Guardian’s inquiries, Langhoff resigned on Tuesday, citing only the complaints of unethical interference in editorial coverage. Neither he nor an article published last night in the Wall Street Journal made any reference to the circulation scam nor to the fact that the senior management of Dow Jones in New York failed to act when they were alerted last year.

The affair will add weight to the fears of shareholders in Murdoch’s parent company, NewsCorp, that the business has become a ‘rogue corporation’, operating outside normal rules. Some shareholders have launched a legal action in the US, attacking the Murdoch family after the phone-hacking scandal at the News of the World and following lawsuits in which NewsCorp subsidiaries have been accused of hacking into competitors’ computers and stealing their customers.

The Journal’s decision to secretly purchase its own papers began with an unusual scheme to boost circulation, known as the Future Leadership Institute. Starting in January 2008, the Journal linked up with European companies who sponsored seminars for university students who were likely to be future leaders. The Journal rewarded the sponsors by publishing their names in a special panel published in the paper. The sponsors paid for that publicity by buying copies of the Journal at a knock-down rate of no more than 5¢ each. Those papers were then distributed to university students. At the bottom line, the sponsors enjoyed a prestigious link to the Journal, and the Journal boosted its circulation figures.

The scheme was controversial. The sponsoring companies were not reading the papers they were paying for; they were never even seeing them; and they were buying at highly reduced rates. The students to whom they were distributed may or may not have read them; none of the students paid for the papers they were being offered. But the Audit Bureau of Circulation ruled that the scheme was legitimate and by 2010, it was responsible for 41% of the European edition’s daily sales – 31,000 copies out of a total of 75,000.

Truly shameful activity of a completely different sort than the scandal that brought down News of the World. In that case, as you will recall, reporters and editors countenanced shady and even illegal methods to obtain information on high profile subjects, apparently in conjunction with London police and prominent politicians. Here, they’re simply scamming the advertisers who are the lifeblood of their business.

Rupert Murdoch hasn’t personally been connected to either scheme. But it’s his empire and he’s expected to know what’s going on.