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Study: Newsroom cuts reduce profitability

Budget-cutting newspaper executives in the Bay Area take note: A University of Missouri study, that looked at 10 years of financial data, found that newspapers which invested in their newsrooms saw their profits grow.

“The most important finding is that newspapers are under-spending in the newsroom and over-spending in circulation and advertising,” said one of the study’s authors, Esther Thorson, an associate dean at Missouri’s J-school. “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 study, which was jointly done by Missouri’s business and journalism schools, developed a mathematical formula that breaks down revenues and expenditures from news, advertising and circulation departments and predicts profitability.

“By looking at the data, investing in news quality does pay off,” said Murali Mantrala, a marketing professor in Missouri’s business school and another author of the study. “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.”

Reuters, in reporting the study, quoted one outplacement tracking firm as saying that the number of planned job cuts in the U.S. media last year surged 88 percent to 17,809.

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