Newspaper Study: Investing in the Newsroom is Good for Business

Journalism and Marketing Researchers Determine News Quality Directly Impacts Profitability

Esther Thorson Strategic Communication Acting Dean

Links

Donald W. Reynolds Journalism Institute Inland Press Association Journal of Marketing

By Bryan Daniels
MU News Bureau

Columbia, Mo. (Feb. 15, 2007) -- In recent years, the newspaper industry has experienced a variety of changes. None have been more noticeable than declining profit margins. Researchers at the University of Missouri-Columbia now have valuable information that could help publishers reverse the downward trend.

Murali Mantrala, who is the Sam Walton professor of marketing in the College of Business, and Esther Thorson, director of research for the Donald W. Reynolds Journalism Institute and associate dean for graduate studies in the Missouri School of Journalism, recently examined the profitability of newspapers. They collaborated with marketing doctoral students Hari Sridhar and Prasad Naik, who is 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 analyzing financial data of small- to medium-sized newspapers with circulations of 85,000 or less. Research revealed that news quality most directly affects the bottom line.

"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 consists 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 organization 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 specialized Web sites, 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 isn't as reliable because readers now search online for jobs, houses and various niche items. As societal norms and preferences change, Thorson said that "newspaper revenues are increasingly threatened."

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."

The study, "Uphill or Downhill? Locating Your Firm on a Profit Function," will be published in the April issue of the Journal of Marketing.

Related

April 27, 2005: New Research Shows Americans' Love-Hate Relationship with Journalism A new study shows that Americans have a more positive, more complicated set of attitudes toward journalism than the recent wave of media criticism implies. George Kennedy co-authored the study with design help from Glen Cameron. [More]

Nov. 11, 2004: Media's Attitude Significantly Affects Individual's Social Connectedness, MU Researcher Finds This week, U.S. citizens throughout the country had the opportunity to vote for the President of the United States. However, some people decided not to vote because they were upset by the media's negative coverage of the campaign. Their lack of interest could have been caused by the lack of social connectedness, or social capital, they felt toward their country, which may have been brought on by the media. The media's effect on a person's social capital was the focus of a new study by a Missouri School of Journalism researcher. [More]

June 2, 2004: Esther Thorson Named 2004 Distinguished Educator by American Advertising Federation Esther Thorson, associate dean of graduate studies at the Missouri School of Journalism, will receive the 2004 Distinguished Educator Award from the American Advertising Federation for her outstanding contributions to advertising education. The Distinguished Educator winner was first awarded in 1987. The second award winner was S. Watson Dunn, also a professor at the Missouri School of Journalism. Thorson is only the second woman to receive the award. [More]

April 13, 2003: Esther Thorson Receives Prestigious AAA Award Esther Thorson, PhD, associate dean for research and graduate studies at the Missouri School of Journalism at the University of Missouri-Columbia, has received an Outstanding Contribution to Research Award from the American Academy of Advertising (AAA) for her 20 years of contributions to the field of advertising research. She is the 11th person to win the award since it began being given in 1992 and the second woman to win it. [More]