Phantom subscribers at the New York Times

By Thomas Lifson

Pity the poor New York Times Company! In addition to all its other woes, one of the company's newspaper distributors has been accused of defrauding the company with thousands of phantom subscriptions, recycling the papers supposed to have been delivered to the nonexistent subscribers, and collecting about $227k in fraudulent delivery fees. Dan Slater of the Wall Street Journal Law Blog brought this case to our attention.

The alleged fraud took place in La Crosse, WI, a pleasant small city on the Mississippi River that is home to a campus of the University of Wisconsin. Whereas the Times formerly averaged about 65 daily subscribers, and 110 on Sunday, after defendant Marton T. Hotlet began his alleged scheme about a year ago, it grew to about 2800 daily and Sunday, between January and March of this year. Hotlet received a total of $4.40 per week for delivering the papers.

Late in 2007, the company's circulation officials noticed that the volume of new subscriptions was unusual, and began investigating. It seems that delivery began immediately, even though subscribers are billed and do not pay right away. In fact, almost nobody was paying for the new subscriptions after being billed in La Crosse, and many bills were being returned to sender.

Assuming all the facts are correct and complete, Mr. Hotlet must be a rather dim bulb. Even the New York Times can pick up on the danger signs after half a year. People notice unpaid bills coming back with addressee unknown on them. As long as there is no way the GOP could benefit, the Times could be counted on to investigate looking for scandal.

The complaint makes for interesting reading, if you want to understand the costs and mechanics of the struggle to make a buck out of publishing a daily nationally-circulated newspaper. Based on the cost data, it is clear that the New York Times makes little if any money on circulation itself in La Crosse. The costs of delivering and printing a week's worth of papers would be $6.29 a week, while the company is offering subscriptions in zip code 54601 at $6.70 a week. And that figure is the rack rate, not accounting for promotional offers, such as the free copies offered to teachers who get their classes to subscribe, or discounts for hotels and others. Or the substantial discounts for readers who let their subscriptions expire.

If Hotlet had been a more skillful con man, he might have found a way to actually purchase subscriptions for less than $4.40 a week on average, taking advantage of the sort of remarkable offers I regularly receive from newspapers to entice me to re-subscibe to the three papers I used to read before the internet made them obsolete. It would still be fraud, and he would still face the multiple counts of mail fraud, wire fraud, and any other possible federal offenses that the Southern District of Manhattan US Attorney's office can justify. But it might have taken longer than half a year for the Times to figure out it has been had.

Hat tip: David Paulin