Rupert Murdoch’s dirty little secret is out, his News Corp, like several other US newspaper publishers, is fudging its circulation figures, for a very good reason — they are desperate to stop the rot.

The rot is more like a train wreck: as we reported yesterday in Crikey, US newspaper ad revenues plunged by almost 28% in the third quarter. Couple that with the record 10.6% fall in circulations in the six months to September and it’s no wonder US publishers will try anything, except facing reality.

So Murdoch is lashing at anyone (but himself). He has to blame someone for what could be the onset of a near-death experience. It helps explain the desperation of his moves, such as giving the plagiarists (read Google) a whack for draining revenues (claimed) from his newspaper websites and wants to force them to pay for access to these sites.

But when the going gets tough, the tough get spinning, anything to delay the inevitable. One of the best (an old standby actually), is to muddy the waters or change the basis for comparison, or fiddle the rules to allow the same to become more.

Circulation figures are the new fiddle. But that, has been overshadowed by Murdoch’s latest meanderings: talking to Microsoft about the software giant paying news to “de-index” News’ websites from Google to advantage Microsoft’s Bing search engine.

But while he’s off haggling with the likes of Steve Ballmer, of Microsoft, trying to raise peanuts, US media reports have revealed how Murdoch and other US publishers have fiddled their newspaper circulation figures for the September 30 half year, which made them look much better than they actually were, especially for Murdoch’s Wall Street Journal.

By newspaper circulations we crazy believers think print, actual sales of printed newspapers (They are news-papers after all). But that’s old-fashioned. Now in the US, there are print editions, electronic editions and if the same person gets both, they can be counted twice in the newspaper circulation figures audited by the ABC (the Audit Bureau of Circulations). It’s a bit of accounting sleight of hand that if someone else did it, the papers would be down on them like a tonne of bricks.

The reports, which first surfaced in a story from the Associated Press, say that since April 1, new auditing rules have made it easier for newspapers to count a reader as a paying customer. The AP says the ABC said it changed the rules to reduce its auditing costs and “provide greater pricing and marketing flexibility” for publishers.

So the new rules make it much easier for an American newspaper if it sells an “electronic edition” on top of the paper editions.

“That can include a subscriber-only website, such as what The Wall Street Journal has, or it can be a digital replica of a newspaper’s printed product. Several dozen publications, including USA Today, sell access to these daily e-editions that show how the news was laid out in print,” the AP reported.

“Under the new auditing standards, if a newspaper sells a “bundled” subscription to both the print and electronic editions, the publication is often allowed to count that subscriber twice.

“It’s not clear what the numbers would have been under the old auditing standards. But the effects of the new rules were widespread. There were 59 newspapers that listed at least 5000 electronic editions in their weekday circulations, according to an Associated Press review of the figures filed with the ABC for the April-September period. In all but a few instances, the number of electronic subscribers was substantially higher than a year ago.”

The AP said that in the change made last April, the ABC  “let newspapers define their paying readers as anyone who spends at least a penny for a copy. Previously, a newspaper copy had to sell for at least 25% of the basic price to qualify as paid circulation”.

“In most cases, the electronic edition is a replica of the printed product, right down to the ads. The technology even makes it possible to simulate the act of turning the pages of a paper edition. Most electronic editions are sold at a small fraction of the price for the printed edition, partly because publishers don’t have to pay for newsprint or fuel to deliver the copy.

“Web subscriptions were pivotal in The Wall Street Journal‘s growth over the past decade. The digital sales are the main reason that the Journal surpassed USA Today as the top-selling US newspaper in the April-September period. USA Today, owned by Gannett Co, still holds the edge in print circulation.

“The Journal charges its print subscribers an additional 40 cents per week for unrestricted access to its website. Journal spokesman Robert Christie wouldn’t comment on whether the new rules for counting subscribers contributed to a 14% increase in the newspaper’s 407,002 digital subscribers. Including the print side, the Journal’s total circulation edged up by just 0.6% to 2.02 million.”

So at a time when newspaper sales are falling (the 10.6% record fall clearly understates the true plunge in print sales) media groups such as News Corp are fiddling their circs through a convenient rule change that makes their sales look a lot better than they actually are.

But its no wonder publishers have been driven to do this. If you extrapolate the 28% fall in third quarter ad revenues reported in yesterday’s Crikey, to a full-year figure, you get a horrifying outcome. Full-year revenue for 2009 will come in around $US24 billion-$US25 billion.

US newspapers collected $US2.5 billion less in advertising revenue during the quarter than they did at the same time last year. For the first nine months, total ad sales were off by $US7.9 billion. For the full year, the fall will be nearer $US10 billion.

And that means that in revenue terms, the American newspaper industry has shrunk by nearly half since 2006, when it reported $US49.2 billion in revenue. No wonder the ABC in the US laid down and agreed to the rule change made last April. Everyone is in the same lifeboat, bailing desperately, with Megaphone Murdoch hectoring everyone in sight as he tries to find dry land.