2005 Annual Report - Newspaper Newsroom Investment

The story of newsroom investment in 2004 was not one of unrelieved gloom but rather of diverging strategies. The big five national papers, top regionals like The Boston Globe, several major chains and various independent operations seem to follow the theory that quality will build circulation and reader involvement, which constitute a net business plus for advertising performance and the long-term health of the franchise.

The McClatchy Company highlights a "Good Journalism = Good Business" banner in all its presentations to analysts and investors. "Keeping our newspapers compelling to readers," CEO Gary Pruitt told the Mid-Year Media Review in June, is integral to the company's 19 consecutive years of circulation gains. That - and strong markets like Minneapolis, Sacramento and Raleigh-Durham - in turn has led to a 50% better ad growth rate at McClatchy in the new century, compared to industry averages.⁷

The New York Times, even after Jayson Blair and related embarrassments, prides itself on running the Rolls Royce of news operations, and is priced accordingly. The Times realizes annual circulation revenue per customer of $474 a year, by far the highest in the industry. (Its ad revenue per average number sold is $905 a year, also the highest).⁸

Another newspaper that probably should be cited as a stalwart on news investment is The Wall Street Journal. Despite the worst ad losses and stock performance in the industry over the last five years, the company has reinvested in the product with enhanced color reproduction and the successful launch of a Weekend section and a reformatted Personal Journal daily section (all ad-friendly as well). In the same vein, The Journal has announced the September 2005 launch of a Saturday edition, a vehicle for yet more ad sales and daily reporting of breaking Friday business news that will require 150 additional editorial and business-side employees.⁹

Some analysts and academics also offered new support for this "virtuous cycle" approach to news investments:

• Paul Ginocchio of Deutsche Bank Securities applied a fresh mathematical analysis to 150 large markets. He found that papers recognized for superior news performance, like The Washington Post, the Lexington Herald Leader and the Arkansas Democrat-Gazette had superior "brand power" - defined as circulation numbers and ad rates above expectations for their markets.

• Coming as "a new kid on the block" to the newspaper industry, Ginocchio broke with the Wall Street tradition of considering the news department mainly an expense to be controlled. Instead, he hypothesized that it was the heart of any paper's value. "At their core, newspapers 'own' the news," he wrote. "They are the only media with the organizational and cultural structure capable of generating the volume, depth and quality of original news (and analysis) demanded by the public on a daily basis." Those who do the news/editorial job with distinction will be rewarded with a stronger franchise in their market; those who short news quality will be more vulnerable to competing media. He concludes, again in a break from the Wall Street norm, that brand power merits consideration alongside earnings and profit margins in assessing a company's future prospects.¹⁰

• The Duke economist and political scientist James Hamilton explored the reverse side of the same idea, that short-term business thinking drives companies to maximize profits at the expense of public service and high-end reporting. His book, "All the News That's Fit to Sell," recommended that nonprofits take up the slack by producing quality journalism themselves or subsidizing it in mainstream commercial media.¹¹

• Phil Meyer of the University of North Carolina, a longtime scholar of the connection between news quality and business success, published his most recent work on the subject, "The Vanishing Newspaper: Saving Journalism in the Information Age," in December. He concluded that real-world managers are largely numb to the evidence of the benefits of larger news investments, and that many are managing for profits as if newspapers were on an inevitable slide to obsolescence and thus should be milked while they can. Much larger news investments would be needed to reverse course at the typical regional newspaper, Meyer concludes, and like Hamilton, he suggests that the non-profit sector may provide some of the support for serious journalism that is falling by the way.¹²

• Northwestern University's Readership Institute continued studies showing that broadened content targeted to tested reader preference and strong promotion can reverse the slide. But it cautioned that half-measures do not appear to be effective and that newsrooms need to change tradition-bound work cultures.¹³
• Stephen Lacy of Michigan State University, a longtime scholar of newspaper competition, published a new study showing that high-margin public-company operations attracted stronger competition from weeklies than did privately owned dailies.¹⁴
• Rick Edmonds (co-author of this chapter) published a study of news expenditures per subscriber, which he called news EPS, showing that in any circulation range, the top papers are typically spending twice as much for each reader as the least generous are.¹⁵ The Project for Excellence in Journalism has also continued work with the University of Missouri on an econometric model of newsroom investment. The model, based on data from the Inland Newspaper Association, shows that papers that invest more in news derive significant long-term payoff, and those that do not will see their business atrophy. The team is now working with some newspaper groups to refine and test the model in individual markets.

There are also strategies in place to maintain or improve quality within a context of cost constraints. Many chains are using the findings of the Readership Institute (which doesn't bill its recommendations as cost-free) to produce more of the material and presentation found to be most engaging to readers, using existing staff and budget. This approach has taken root in two companies frequently faulted for putting profits ahead of maintaining a strong level of news investment. It may be more accurate to say they have become prescriptive about what they want the tightened staff to do:

• Gannett is pushing an idea it calls "Real Life, Real News," mandating much heavier coverage of ordinary shared experiences like high-school graduation or holiday observances and increased efforts to draw story ideas from meetings with readers.

• Knight-Ridder now partly bases editors' bonuses on whether their papers improve, as measured by reader surveys in categories like watchdog journalism and news about "people like me."¹⁶

Critics of both companies might consider those efforts modest at best. The purpose of this chapter is not to make such evaluations company by company. But we think it fair to note that both have decided in the current context to take such actions, and to communicate them to the investment community.¹⁷

Some also might find modestly encouraging the fact that so many newspapers are venturing into new youth publications and foreign-language papers or supplements, together with other kinds of niche publications. But many of these are small-stakes bets. Turning to the main event of developing an online report, the national publications have strong sites. Regional newspaper sites typically have the highest traffic in their markets.

Some degree of interactive discussions is typical of all sites. But there are serious questions still about whether the level of investment online represents real innovation adequate to the long term or whether the industry is being tight-fisted and perhaps shortsighted. Rob Burnett, the Newspaper Association of America's own analyst, faulted the industry for a lopsided emphasis on developing online advertising, with little exciting to show yet in content or display. A July 2004 study from the University of Texas showed that of 30 newspaper sites monitored, only 12 made any substantial changes during the course of the day. The rest were stocked with so-called "shovel-ware" from the once-a-day print edition.¹⁸

While newspapers cling to the mantra that they own the local news franchise in their communities, this cautious, defensive posture could leave them vulnerable the day (and it's coming soon) when Google, Yahoo and others roll out more sophisticated, tailored-to-the-individual information products with a local mix.¹⁹

An international comparison also suggests a relative complacency in American newspapers. England is a very different sort of market: predominantly national, highly competitive among a dozen titles and reliant on single-copy sales. Starting in late 2003 and continuing through 2004, all three of the high-end papers - The Times, The Independent and The Guardian - have begun conversion to tabloid format. Especially at The Independent, first to convert, there was strong reader preference for the tabs, a surge in circulation, and little or no diminution of the paper's serious tone.

But the change involves enormous capital expense and a range of complicated issues with advertisers. The Miami Herald included a tab-shaped two-page news summary in its 2003 redesign. The Fort Worth Star-Telegram and the St. Paul Pioneer Press (Knight-Ridder papers, like the Herald) began experiments in 2004 with prominent summaries in place of a conventional front page or page two. But no U.S. paper of any size has changed over entirely; the free youth papers are the closest to a test, and senior executives have indicated little interest in the tabloid option.

A somber assessment of the state of news investment and public service reporting also came during the joint portion of the annual conventions of the ASNE and NAA in April 2004 in Washington. The ethicist Matthew Josephson kicked off a panel discussion pegged to the Jayson Blair and Jack Kelley controversies by asking whether inadequate news-side resources were partly at the root of a broader problem for newsrooms.

"That is a reality," replied Greg Moore, editor of The Denver Post. "Either through attrition or budget cuts, we don't have the resources as an industry to do the job that we used to do or that we expect to do. Quite frankly, when you talk about the potential for calamities, one of the reasons for that …is that the supervisory level has suffered the most."

Asked how he would grade the industry on its public service, Moore said, "I'm a tough grader. I would say that we are probably about a C+."

John Carroll, editor of the Los Angeles Times, said he was fortunate to have a lot of resources (though like any editor he could do more with more), but agreed with the C+. When operations are bled for profit, he said, "they just squeeze the life out of a paper, and it really is impossible for the editor to make much headway….You are not paying salaries or the people are turning over, and it is just a struggle to get the thing out."

Jack Fuller, then running Tribune Company's newspapers and Carroll's boss, took a more politic line. He was focused, he said, on Tribune's own 12 papers and would give them a B+.

"How would you grade your papers?" Josephson next asked Tony Ridder, CEO of Knight Ridder and outgoing president of the NAA.

"Well, I think it varies," Ridder said. "I think it varies with the size of the newspaper. Some of our larger papers have the resources to do a lot more. But I would say it wouldn't be any higher than probably a C."²⁰