Study raises questions about profit/circ link

By: Jennifer Saba Last month's release of the Pro-ject for Excellence in Journalism (PEJ) "State of the News Media" report caused a bit of a stir in the journalism community. The study, funded by Pew Charitable Trusts, is perhaps the first attempt to amass disparate information about all media in one place. Book-like in scope, it supplies expected data (newspaper circulation is down) and unexpected analysis (the future of the industry doesn't look as grim as it did a decade ago, and young people actually do like to read).

One aspect of the report sure to spark the interest of analysts, executives and ink-stained wretches alike is that despite years of decline and recession, the industry is, by and large, still very profitable. In fact, the study found that between 1991 and 2000, newspaper ad revenues rose 60%, according to estimates by Merrill Lynch, and profits jumped 207%. But newsroom jobs, for that same period, increased by only 3%.

"This is clearly not a long-term scenario for success," says Tom Rosenstiel, director of PEJ. "You can't continue to raise ad rates on a declining circulation and maintain profits. At some point, your advertisers will begin to revolt, and so will audiences who will see a drop in content."

The fear is that once the good times return, newsroom investment will remain stagnant. Newspaper companies must invest in their newsrooms or risk eroding future profits, Rosenstiel says. But is that really in the cards?

It's a complicated matter, depending on the company, the market and economic conditions. "I think it's an individualized process by newspaper company. It's hard to generalize," says Peter Bhatia, outgoing president of the American Society of Newspaper Editors and executive editor of The Oregonian. "It's been a difficult last three years. Everybody feels stress from that." But it's important to remember, he points out, that even though staffing is tighter "the quality of work has been as high as it's ever been."

For sure, some newspaper companies are investing in online products, youth editions and ethnic media, all of which require additional staff. And the report cites that these are promising areas of growth.

Still, concerns remain. Bob Giles, curator of the Nieman Foundation for Journalism at Harvard University, says it's hard to tell if most newsrooms are understaffed, but admits there's "something out of balance" with that 3% growth rate. He points to the decline in international news coverage (see chart) as one possible explanation. "Local news is very important, but not at the expense of international news. The news hole in total has to be expanded," he says. "If your newspaper happens to be a thin product day after day, eventually people will be inclined to say 'I can do without this.'" Giles says that Wall Street often sends mixed messages, rewarding companies that invest in the long term, while also demanding quarter-to-quarter growth.