Tribune Fesses Up

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Something stinks in Chicago, and it's not just the city's river.

Media watchers have enjoyed a steady diet of controversy from Hollinger International (NYSE: HLR) related to questionable payments to that company's former chief executive, Conrad Black. On Wednesday, Hollinger added to the feast by revealing that its Chicago Sun-Times has long overstated circulation by an unspecified amount, a practice that potentially bilked advertisers out of a lot of money.

Now, Chicago-based Tribune (NYSE: TRB) is dishing out a little scandal of its own. The company reported today that two of its publications, New York's Newsday and Hoy, a Spanish-language paper distributed in Chicago, New York, and Los Angeles, both inflated numbers in September 2003. In Newsday's case, papers that were given away were recorded as paid copies, bumping up daily circulation by 40,000 issues and Sunday editions by 60,000 papers.

The news will probably add more uncertainty to expectations of a recovery for newspaper groups. Tribune is already wrestling with difficulties at the Los Angeles Times, which despite winning five Pulitzer Prizes, is having trouble meeting targets. One significant problem hitting that paper and other outlets is the entertainment industry's move away from print ads toward Internet promotions. Both Yahoo! (Nasdaq: YHOO) and TimeWarner's (NYSE: TWX) AOL have seen their movie advertising business boom, a trend that is likely coming at the expense of the traditional publications.

For now, it looks like the upswing in the newspaper business won't be that dramatic, despite the broad recovery in the economy. That's a story newspaper companies would rather not see in the headlines.

Fool contributor Brian Gorman is a freelance writer living in Chicago, Ill. He does not own shares of any companies mentioned here.