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News Investment

News Investment

Over the last two decades, a series of problematic trends in newsroom investment have developed. During hard times, many newspapers have made sharp cutbacks in newsroom staffing and expenditures. And during good times, while there are modest expansions, many have not made up for what was lost, particularly in staffing. The lion’s share of the growing revenues has been turned instead into higher profit margins.

The effect, all evidence suggests, is that newspapers have seen a net drop in the overall number of people and a squeeze on resources devoted to covering the news. The cuts coincide, moreover, with the sharper decline in circulation that began in 1990.

The cycle of deep cutbacks followed by only modest expansion goes back about 15 years. Between 1990 and 1992, for instance, the number of full-time professional news-editorial employees shrank by 3,300. It rose gradually through the rest of the 1990s. But then the number fell again in 2001 by 2,000 – about 4 percent of the total news-editorial workforce at American dailies. During 2002, about 300 net jobs returned, only 15 percent of those lost the previous year. Totals for all of 2003 are not available, but the job gains will likely again be small.1 But as of 2002, newspapers have about 2,200 fewer newsroom employees than in 1990.2

Newspaper Newsroom Work Force
1978 to 2003
Design Your Own Chart
Source: American Society of Newspaper Editors

Hard numbers on newsroom budgets are not available, but indirect evidence paints a similarly bleak picture. From the trough of the last recession in 1991, through the peak year of 2000, newspaper ad revenues rose 60 percent. Operating profit margins, meanwhile, nearly doubled, from 14 to 27 percent, according to estimates by Lauren Rich Fine, a Merrill Lynch analyst.3

Profits jumped by 207 percent during the period. That reflects continued improvements on the cost side of the business as well. New production technology, in particular, has facilitated reductions in total industry employment for 15 years.4

But with these eight years of soaring revenues and sharp reductions on the cost side, newsroom jobs saw only a 3 percent gain, most of which then got wiped away during the 2001 downturn.5 Newsroom budgets surely rose much more than that, but, according to the annual Inland Cost and Revenue Study, fell as a percentage of revenue.6 The net effect is that the cutbacks in hard times are not being fully recouped in the good times.

Often, as in 2001, job reductions are achieved to a substantial degree by buyouts. The effect, then, has been extra savings by shedding experienced, higher-salaried reporters and editors. And the budget cuts hit hardest in areas like training, travel and resources for investigative and in-depth reporting, the areas some deem most critical in providing quality news content.

Some argue the real cuts and lagging investment in the newsroom may be even greater than the numbers suggest. A key reason is that the workload of the newsroom is actually bigger than it was two decades ago. Pagination – the electronic replacement of hot type or page paste-up – swept through the industry in the late 80s and early 90s. It was a huge net efficiency, but it also moved work out of the composing and into the newsroom. Prof. John Russial, a copy editor turned academic, demonstrated in his doctoral dissertation more than a decade ago that the newsroom got more extra work than extra people.7 The time available for top-level copy-editing has been pinched ever since.

There has also been a trend in recent years toward zoned editions and to more specialized coverage for many interest groups, like the fast-rising Hispanic and other immigrant populations. Both are staff-intensive. Feeding content to Internet or television affiliates is another new part of the newsroom routine.

It all adds up to a mission creep with a reduced work force, and possibly less time for artful storytelling and high-level reporting and analysis.

Prof. Phil Meyer at the University of North Carolina, has variously described all this as an industry on a slippery slope, or essentially liquidating itself. Others, such as the stock analyst John Morton and the press critic Alex Jones, have described what they considered the excessive profits of newspapers as an industry eating its seed corn.

Their argument is that such cost cutting is short-sighted. The benefit of a higher profit margin is immediate – it satisfies Wall Street or bottom-line-oriented private investors – but the benefits of an investment in news quality inevitably take longer. The industry should maintain quality during the hard times, and an industry that does not invest cannot possibly grow, create new products and reach new audiences. If the industry is losing readers, lack of innovation and investment-especially in the last 15 years – is part of the reason.

On the other side, various industry and financial professionals argue that matters are not so simple. For one thing, the cuts and rising profit margins, some argue, make long-term strategic sense. As a “mature” industry rather than a growing one, newspapers should focus on efficiency and cost cutting to provide investors a competitive return. After 60 years of declining circulation penetration, the case for growth is hard to prove, they argue. These industry analysts and news executives believe that only in a few unusual circumstances would investing more in the newsroom pay for itself in new readers and higher revenues.

Others argue that the drop in newsroom staffing and investment may not be as serious as it appears. After all, there were 154 fewer papers in 2002 than in 1990. The drop in the number of employees (4 percent from 1990) is not nearly as steep as the drop in circulation of 11 percent.8 Also, given the cyclical nature of the business, there is some managing around the ups and downs. Cost and the size of news staffs are controlled during good times and, with a few exceptions like Knight Ridder, cuts are not as deep as the decline in revenues and profits in a down year like 2001.9

On top of that, even if newsroom budgets and staffs were lagging during the good times of the 90s, most companies did invest in the development of an online presence. Some – The Tribune Company and Media General, particularly – have extended the investment in so-called convergence, to television stations they own. What’s more, in the last three years some companies are launching their own youth-oriented or Spanish-language papers.

And while newsgathering is inescapably labor-intensive, a gain in efficiency or productivity – “working smarter,” as it is known – is certainly possible. In the current presidential campaign, for example, many regional papers have decided that there are better and less expensive forms of coverage than assigning reporters to trek with the major candidates by bus or by plane to every campaign stop.

So which side of the argument has more merit?

In part, it depends on geography and demographics. Some markets are growing and have more potential. Other cities have stagnant populations and economies as well as lower levels of education and other likely indicators of potential readers.

Also, both arguments are, in part, theoretical and impossible to prove conclusively. Still, there is some growing evidence on Meyer’s side of the analysis – that the industry can only dodge the bullet of the rapid circulation losses for so long.

Recently, for instance, Fine, the Wall Street analyst, said that Knight Ridder and Gannett (not counting USA Today) had lost more than 20 percent in circulation at a group of their larger papers she tracked over a period of just 10 years.10 After a Knight Ridder presentation to investors in December 2001, an analyst asked pointedly how the company could justify ad rate increases of 2 to 3 percent when circulation had fallen that much in the last year at some of its papers. In the two years since, Knight Ridder has re-emphasized circulation growth, in some markets dropping the price of the newspaper, and has shown some gains.11

At the other extreme, Fine found that the McClatchy newspapers, whose owners believe it is possible to gain new readers in their markets, have increased circulation by 7.6 percent in the same 10-year period.12 McClatchy has had one of the best records of advertising growth and stock appreciation for the last two years, not to mention the intangible for attracting and retaining editorial talent by gaining a reputation as a good place for journalists to work.

The argument for newsroom investment is also reinforced by some new academic work by Meyer and others.

Recent studies by Meyer found that papers with larger staffs relative to their circulation retained more of their household penetration over a period of years. So did papers whose readers rated them higher for credibility. The more credible papers also charged higher stated ad rates.

Meyer’s research is further supported by an extensive review of decades of academic research supervised by Prof. Esther Thorson at the University of Missouri. That literature review showed a clear pattern that investing more in the newsroom is correlated to higher quality, higher circulation, higher ad rates, and higher profits. The best way to build circulation, the research suggested, is to diversify content. And this is further reinforced by work by the Readership Institute at Northwestern, which finds that diversifying content will also get readers to spend more time with the newspaper.

The industry will not embrace the most alarmist rhetoric, but it lately does appear concerned about circulation/readership erosion. In just the last year or two, the prevailing strategy appears to be at least to slow the losses at the newspaper proper and build audience with a family of news products, including online and specialty publications, such as those aimed at younger readers or Spanish language editions.

But the possible economic recovery of 2004 and resumption of good times in years to follow will pose a test. After rebuilding revenues and profits to pre-recession levels, will the industry reinvest in improving the core news product and reaching new audiences, the newsroom, or again choose to focus on growing profit margins?

Footnotes

1. American Society of Newspaper Editors, “Newsroom Employment Survey.” 2003, Table A, http://www.asne.org/index.cfm?id=1138, (Data as of the end of 2002).

2. American Society of Newspaper Editors, “Newsroom Employment Survey.” 2003, Table A, http://www.asne.org/index.cfm?id=1138, (Data as of the end of 2002).

3. Lauren Rich Fine, Newspaper Industry Primer, 7th Ed, Merrill Lynch, July 2003

4. Rick Edmonds, “Good Times Coming? Watch Out,” Poynter Online, December 8, 2003, http://www.poynter.org/content/content_view.asp?id=56948

5. American Society of Newspaper Editors, “Newsroom Employment Survey.” 2003, Table A, http://www.asne.org/index.cfm?id=1138, (Data as of the end of 2002).

6. Lou Ureneck first spotted news-editorial’s falling share of revenue, using data from the Inland Press Association National Cost and Revenue Study, in Nieman Reports, Summer 1999. The share remained reduced through 2000.

7.John Russial, “Pagination in the Newsroom: A Question of Time,” Newspaper Research Journal, Winter 1994, p. 91-101

8. American Society of Newspaper Editors, “Newsroom Employment Survey.” 2003, Table A, http://www.asne.org/index.cfm?id=1138, (Data as of the end of 2002).; Editor and Publisher Yearbook

9. McClatchy and Gannett specifically talked about smoothing out the bumps in staffing during presentations to analysts in 2001 and 2002.

10. Lauren Rich Fine, “The Newspaper Industry: Circulation Stalling But Efforts Continue to Improve Readership,” Merrill Lynch, May 29, 2003. p.4

11. Knight Ridder increased its daily and Sunday circulation in 2002 and the first months of 2003. It fell back some in the six months ending September 2003.

12. Lauren Rich Fine, “The Newspaper Industry: Circulation Stalling But Efforts Continue to Improve Readership,” Merrill Lynch, May 29, 2003. p.4