The Missing Link Between Quality and Profits

By: Lucia Moses

Back in mid-2001, journalists were mad as hell, and they weren’t going to take it anymore. With the flow of advertising revenue severely restricted, newspapers were shedding editorial and other staff, trimming training budgets, and folding editions. Not just journalism but the future of democracy was at stake, critics cried. Saving their harshest words for publicly owned companies, these critics called for CEOs to appoint editors to their boards and stand up to Wall Street and its insatiable thirst for ever-higher profits.

This continued for a while, but there were no takers. Some media observers started thinking about the once-unthinkable: We realize a newspaper is, at bottom, a business, so what if we could prove that good journalism can make a newspaper more money than bad journalism? Then maybe Wall Street would reward companies based on quality!

One of the people asking the question was Dale Peskin, the executive director of New Directions for News (NDN), a journalism think tank. A former assistant managing editor of The Dallas Morning News and a founding executive of Belo Interactive, Peskin looked at the issue through both editorial and business lenses. “We found the discussion to be mostly circular,” he recalls.

Newsies have long felt uneasy with the idea that news organizations are businesses. Indeed, concerns about the effect of profits on the news goes back at least 100 years to the time of yellow journalism. But as cutbacks mounted, a new pragmatism started to take over. Journalism groups that once stuck to their knitting are collaborating as never before. And editors and publishers are speaking more civilly, even if they often talk past each other.

“As we get greater orientation to satisfying shareholders and less on public-service journalism, researchers are realizing that appeals to good journalism [aren’t] going to work,” says John H. McManus, author of the book, Market-Driven Journalism: Let the Citizen Beware? (Sage Publications).

Peskin’s musings led in October of 2001 to a Harvard University workshop, co-sponsored by NDN and the Nieman Foundation, to discuss, among other things, different business models for news. But one major question reared its head early on among analysts, academics, publishers, and journalists: What is quality — and, whatever it is, how can it be encouraged amid profit pressures?

The John S. and James L. Knight Foundation gave NDN $218,000 to keep the conversation going and research the link between quality and profits. The think tank’s neutrality on the issue made it ideal to pursue the question, says Eric Newton, director of journalism initiatives for the foundation, which has put a total of $1 million over the past 18 months into news-economics projects. “NDN is trying to raise the level of conversation so we’re not arguing about good and evil but rather talking about how good business and good journalism can go hand in hand,” he says.

Others are moving in similar directions. In mid-2002, Geneva Overholser invited academics to a journalism conference at the Poynter Institute in St. Petersburg, Fla. “One of my goals has been to bridge the famous gap between academics and the practice of journalism,” says the former editor of The Des Moines (Iowa) Register and current professor at the University of Missouri School of Journalism. Last month, she met with leading j-schoolers and newspaper people to brainstorm about how the academy, through selection of graduate students and their research topics, can better serve the practice of journalism.

Other related Knight-funded projects were born: an analysis of existing research on news economics to identify where more work is needed and a Web site under development by the Media Management Center at Northwestern University to share information about media economics.

Quality by the numbers

Meanwhile, the Poynter Institute began collaborating with Tom Rosenstiel, a Columbia University professor who heads its Graduate School of Journalism’s Project on Excellence in Journalism, an initiative aimed at raising the standards of the craft. Almost everyone talks about the need for quality journalism, but Rosenstiel was interested, as was Poynter, in figuring out a way to identify it. Using newspaper financial data provided by the Inland Press Association, they’re trying to devise a set of measures of “journalism capacity” that will give newspapers a way of measuring themselves editorially, a sort of Inland/International Newspaper Financial Executives cost-and-revenue study for the news side.

“People worry it’ll impose a numerical burden on newsrooms,” says Poynter President James M. Naughton, “but I think we’re past the point of being able to work with the business side without doing so.”

The American Society of Newspaper Editors also got on board. ASNE plans to include at its spring convention a panel on the latest journalism-economics research, as well as a panel discussion with editors and CEOs. “Investing in journalism is an agonizing issue for everyone in the industry right now,” says ASNE President Diane McFarlin, also publisher at the Sarasota (Fla.) Herald-Tribune. She applauds the search for data, saying, “It’s very difficult when it’s purely an emotional issue.”

Most anticipated is the work on the link between quality and profits, for which NDN tapped University of North Carolina researcher and former Knight Ridder news-and-circulation executive Philip Meyer. The timing seems ripe for this kind of inquiry. As the economy improves, papers are starting to think about investing in their products again. But producing research the industry will pay attention to, much less embrace, faces tremendous hurdles.

Author McManus says that while he’s a great admirer of Meyer, he’s “hopeful but not confident” his work will have an impact. “I think these executives are so focused on [short-term results], they’re reluctant to make the investment in long-term profitability. And, to be fair to them, they face pressures.”

“To change [Wall Street’s] engrained attitudes, there’s going to have to be pretty persuasive research,” chimes in Gilbert Cranberg, co-author of Taking Stock: Journalism and the Publicly Traded Newspaper Company (Iowa State University Press).

Was it good for you?

Researchers know in their guts that investing in the product will pay off financially, even if they haven’t proved it to everyone’s satisfaction. Half a dozen studies have sought to make the connection, but the biggest difficulty is defining quality.

“I know it when I see it” would seem to be the only accepted criterion. Research has shown that readers and editors agree only half the time on what quality journalism is. And there are many threads in a paper’s financial success besides editorial excellence, from service to price to competition, to name a few.

A leading researcher in this area, Stephen Lacy, director of Michigan State University’s School of Journalism, published a study in 1991 of 114 papers based on eight measures of quality, such as content analysis and newsroom staffing. Circulation correlated with quality a third of the time, suggesting other factors were at play. He also found that once quality hits a certain level, the circulation return starts to fade. As for credibility, it’s “abstract and tough to measure,” he says. “This is something that could take years.”

On top of the myriad factors affecting profitability, newspaper economist Robert Picard writes via e-mail: “The other problem with linking quality and content is that advertisers provide about 85% of the income to the U.S. newspaper industry and they don’t worry much about the quality of the content. … Acceptable quality is OK for them, not excellent quality.”

Meyer’s approach differs because he’s defining quality as credibility. He is testing a theory held by Hal Jurgensmeyer, a now-deceased Knight Ridder executive who argued in the 1970s that a newspaper’s product is not news and information but influence. The bulk of the work involves asking sources quoted by the test papers over a two-year period about the papers’ accuracy. The results will be married with circulation-penetration data of the papers and previously published work. He plans to have a study ready to publish by the end of the year.

But Meyer admits his task won’t be easy or quickly carried out. Again, the problem is how to define a newspaper’s credibility.

A paper’s trust may be the result of its relationship with readers over time, and it’s not clear “tweaking editorial” can change that. At this point, his list of criteria is open-ended, and he hopes to stimulate follow-up research. “This is a fairly radical theory,” he says, “and my evidence is fairly flimsy.”

What he’s already found is encouraging: that papers with high credibility scores have higher circulation penetration and charge higher ad rates. Though he gave up the “real world” of journalism for academia about 20 years ago, Meyer feels strongly about making his research relevant to those who are still in it. “I know in my heart credibility has economic value,” he says. “What I need is to find evidence that will convince people who think of the newspaper business as an economic entity.”

Show me the money

Journalists are merely skeptical that Meyer’s project will produce key findings, but CEOs dismiss such inquiries as naive, exposing the disconnect between the two camps. While they believe industry dialogues about good journalism are valuable — the Tribune Co., for one, has set up internal processes to educate the news side about the business and vice versa — they believe a news organization should be the judge of its quality.

“I don’t think there’s any question quality journalism is good business,” says William Dean Singleton, vice chairman and CEO of MediaNews Group Inc. “When I have circulation growth, my ad revenue grows faster. … Where it gets murky is [how] you define quality journalism. … It’s all in the eye of the beholder.” Singleton, also chairman of the Newspaper Association of America, says talk won’t change the economic reality that led to newsroom cuts over the past two years.

With papers increasingly coming under public ownership, shareholders loom ever larger. As Peter Appert, an analyst for Goldman Sachs & Co., wrote in a Dec. 20 report, the “long-term uptrend in operating margins” is a “key driver of the sector’s investment appeal.” Despite exceptions such as the Washington Post Co. and the Coca-Cola Co., which de-emphasize quarterly earnings estimates, Wall Street is demanding more, not less, information from companies. No wonder, then, that CEOs dismiss as unrealistic the goal of changing Wall Street’s view.

“We’re not going to convince Wall Street that they should treat our industry different,” says Robert W. Decherd, Belo’s chairman, CEO, and president. “I don’t think we should spend a lot of time worrying about it and how we should change it.” Over time, though, he says, he believes if Belo invests in quality news, it should grow faster and be rewarded by investors. Still, Belo pays a short-term price for its approach, despite owning journalistic jewels such as The Dallas Morning News. When Decherd tells Wall Street about Belo’s great properties, says Blaylock & Partners analyst Edward J. Atorino, “People say, ‘So? Give me some numbers.'”

Every publishing company has to deal with the Street’s short-term focus, says Tribune CEO and President Dennis J. FitzSimons, “but it’s really up to management to articulate the long-term values that balance the short-term.” Publishers had to convince investors, for example, that spending on the Net would pay off, he adds, and “There’s still somewhat of a cloud hanging over the investment community in terms of prospects for growth.”

Not all calls for change are coming from the news side. Public companies are “probably scared” to talk about it, says Mike Reed, CEO of Community Newspaper Holdings Inc., based in Birmingham, Ala., but profit margins “are going to have to come down to capture market-share growth, because competition out there is so much greater today. But I ultimately think by doing that, profitability is going to be that much greater.”

Reed, happily, says he doesn’t face great margin pressure from CNHI’s backer, the Retirement Systems of Alabama, which is why he also was able to spend more on training and readership initiatives the past couple of years.

Talking over the wall

News and business folks still view each other with distrust, and after years of being beat up, some CEOs are sick of talking about quality. Indeed, some execs contacted for this story dismissed it as a tired issue. But, assuming a link between quality and profits can be found, then what?

Researcher Meyer dreams of a day when newspaper employment is stable through ups and downs in the business cycle. NDN’s Peskin imagines different business models for newspapers. The Knight Foundation’s Newton wants papers to spend more on training. Others just want more communication between the business and news sides. But one-size-fits-all solutions are neither desired nor feasible.

Still, the discussion is worthwhile, especially now. With news available everywhere and all the time — and more of it offered for free — unique and quality content becomes an increasingly important distinguisher for paid dailies. Readers are demanding greater sophistication and expertise in reporting, which requires that newsrooms put up more money for training and development.

Still, when Geneva Overholser and her peers sent a letter to 14 media CEOs suggesting they do away with stock-option grants to news executives, among other reforms, one responded, “Are you guys crazy?”

“When you have a bunch of editors and CEOs, it’s pretty hard to move it off the old debate,” she concedes. That said, Overholser, who’s been warning about profit pressures for years, senses some change, however small: “I feel more hopeful than I have in a long time.”

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