US newspapers that spend more money on their newsrooms will be able to make more money, according to a study released Wednesday, which also questioned the wisdom of the media industry's trend of cutting jobs to save costs.
Researchers at the University of Missouri-Columbia, who based their study on 10 years of financial data, said news quality affects profit more than spending on circulation, advertising and other parts of the business.
Murali Mantrala, who is the Sam Walton professor of marketing in the College of Business, and Esther Thorson, a professor of advertising and associate dean for graduate studies in the School of Journalism, recently examined the profitability of newspapers.
The study, "Uphill or Downhill? Locating Your Firm on a Profit Function," will be published in the April issue of the Journal of Marketing.
Mantrala and Thorson collaborated with marketing doctoral students Hari Sridhar and Prasad Naik, now a professor at the University of California-Davis. The team of researchers focused on three areas of operation – news quality; distribution and circulation; and advertising – by analysing financial data of small to medium-sized newspapers with circulations of 85,000 or less. Research revealed that news quality most directly affects bottomline.
"The most important finding is that newspapers are under spending in the newsroom and over spending in circulation and advertising," Thorson said. "If you invest more in the newsroom, do you make more money? The answer is yes. If you lower the amount of money spent in the newsroom, then pretty soon the news product becomes so bad that you begin to lose money."
The assessment was made using a diagnostic tool developed by the researchers. It consisted of a mathematical formula that breaks down revenues and expenditures from news, advertising and circulation departments and predicts profitability. The financial data, which covers a 10-year period, was provided by Inland Press Association, a trade organisation of more than 900 daily and weekly newspapers. The identities of the newspapers were anonymous.
What they discovered is that during down cycles, newspapers generally focus more on increasing advertising sales and boosting circulation. With the popularity of the Internet and specialised websites, Thorson said newspapers have lost some of their advertising appeal with high-dollar advertisers, such as automobile dealerships and major retail establishments. She said classified advertising also is not as reliable because readers now search online for jobs, houses and various niche items. As societal norms and preferences change, Thorson said "newspaper revenues are increasingly threatened."
"I am delighted to see them post proof that quality precedes profit," Philip Meyer, a professor at the University of North Carolina and author of the book The Vanishing Newspaper, said of the study, according to a Reuters report. "I don't share the authors' confidence that the industry will appreciate the importance of their result and act on it," he added. "Too many owners are more interested in harvesting than investing."
Mantrala and Thorson are confident that industry leaders and publishers will appreciate the value of their research and utilize the information when attempting to rebound from negative cycles. Thorson said the findings, and equally importantly, their solution, can be applied to any newspaper – regardless of circulation.
"By looking at the data, investing in news quality does pay off," Mantrala said. "It improves circulation and advertising revenues, which are the bulk of a newspaper's revenues. Better news quality drives circulation and circulation drives advertising revenues."
US publishers have been eliminating jobs at many newspapers as part of larger efforts to trim expenses amid falling profit margins and, in the case of publicly traded chains, declining stock prices, the Reuters report said. According to job outplacement tracking firm Challenger, Gray & Christmas, the number of planned job cuts in the US media sector surged 88 per cent to 17,809 last year.
At the Los Angeles Times, the former publisher and editor were ousted last year after resisting parent company Tribune Co's demands to find more jobs to cut. The new publishers of the Philadelphia Inquirer and Akron Beacon Journal also said they would have to cut newsroom staff after they bought the papers from McClatchy Co.
Publishers have focused on reviving circulation, which is declining, and renewing interest among advertisers who are moving their money to the Internet and other media.
