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August 1, 2014

The Newsonomics of Pulitzers, Paywalls, and Investing in the Newsroom

First published at Nieman Journalism Lab

Noteworthy in the 2013 Pulitzer announcements are the multiple winners. The New York Times won four and the Star Tribune two. Having just wrapped up a session on paywalls at the NAA mediaXchange conference in Orlando, one that included discussion of both the Times and the Star Tribune, I wondered about a few connections.

Was it a coincidence that two of most successful all-access digital circulation strategies in the country belonged to the multiple winners? What could the relationship be? How could we think about those links between Pulitzers, paywalls, and investing in newsrooms?

The Star Tribune’s two Pulitzers were generated out of a newsroom of 260. That number has stayed fairly steady in the last three years, though it is down from an all-time high of about 400. Amid the kind of expense cutting that swept almost the entire industry, in both the recession years and the aftermath, the Star Tribune is one of a relative few that made a point of keeping its reporting staff as whole as possible. It disproportionately made its newsroom cuts in copy handling and middle management in order to do that.

So while the cuts at the Star Tribune have been significant, its remaining core is stronger than that of many metro dailies. Its reporting capacity tracks very favorably, for instance, compared to the more than 50 percent cuts endured by some Tribune metros. (In fact, as the Tribune sale is set to proceed — as early as this week, according to sources — the task of re-inflating those torn-apart newsrooms will be an early, serious business challenge for buyers.)

“Newsroom costs as a percent of total for us have risen [since its 2010 bankruptcy],” says publisher Mike Klingensmith, a statement that becomes more intriguing as we look at the overall industry’s trends.

Daily circulation is now at 302,000 and Sunday at 510,000, both up three years in a row.

(With the Star Tribune prize wins, we must now cede the Twin Cities title of “Newspaper of the Twin Pulitzers” to the Star Tribune. The St. Paul Pioneer Press, of which I am an alum, proudly claimed that title after two wins, in 1986 and 1988. At that point, Knight Ridder owned the paper. Our newsroom staff total hit about 235 in the next decade. Today it is less than 120.)

Similarly, The New York Times — winners of that quartet of Pulitzers — has persevered through the toughest take-Carlos-Slim’s-money-and-hope-for-the-best times.

Today, it counts 1,150 newsroom employees. While it has regularly, and sometimes painfully, pruned through the last five years, it says the 1,150 number matches its total of 10 years ago. “There have been cuts, yes, but we have also added to our ranks, particularly in the areas of multimedia producers, videographers, graphics editors, etc.,” says Times spokesperson Eileen Murphy. “That hiring has kept the number relatively stable.”

The Times won’t divulge the percentage of overall expense devoted to its newsroom, but you can figure it’s close to 20 percent. That percentage is closely guarded by many newspaper companies, though I’m not sure why. Maybe too many are embarassed by how low it may seem to the public.

How many are in the closer-to-20-percent club? We don’t know, but we can surmise they’re a small number of America’s 1,380 daily newspapers, including some family-controlled papers like The Washington Post. I believe that the Star Tribune is also in that neighborhood.

While winning Pulitzers is great, those wins certainly won’t in and of themselves sustain these companies on the edge of profitability and revenue growth. One thing that is sustaining them for now is reader revenue. The Times now takes in more reader revenue than ad revenue. The Star Tribune sees 44 percent of its revenue coming from readers, as it plies all-access and digital circulation.

Let’s look then at the newsonomics of Pulitzers, paywalls, and investing in newsrooms, and think about whether our intuition has any basis in provable fact.

If even 20 percent of expense devoted to newsroom seems like a low number, consider that the industry average is about 12.7 percent for the largest dailies. That’s the average newsroom expense, of total expenses, for papers above 100,000 circulation, according to Inland Press Association, the industry’s acknowledged leader in much benchmarking work.

Interestingly, those with smaller circulations spend a bit more, and we know their business results over the last 10 years — less decline in ad revenue and in circulation — have been better.

We can also see in the data that newspapers overall are spending a smaller percentage of their overall expenses on their newsrooms than they were 10 years ago. (The comparisons are 2011 to 2001; 2012 data will be out soon. The survey annually samples between a few hundred newspapers “across the circulation size spectrum.”)

Newsroom expense as a percent of total newspaper expenses
Circulation Size 2001 2011
10,000 16.30% 15.54%
25,000 16.91% 14.53%
50,000 15.63% 13.94%
100,000 14.44% 12.70%
250,000 12.75% 12.70%

The downward turn, even as small as it is, is glaring. Given how much less all newspapers spend on printing and newsprint, given circulation declines, one might expect that newsroom expenditures’ share would have risen a bit, as they have in Minneapolis. Instead, they’ve declined.

Simply put, publishers — on average — have cut their newsrooms more deeply than other parts of their operations. They haven’t believed that smart readers will respond positively to better coverage or negatively to cutbacks. (Thirty-one percent of Americans have fled a news outlet that has underserved them, according to Pew.)

For their part, editors and reporters have always wanted to believe their work had value — but they were the last ones to impute financial value, especially since so many over time have flouted their innumeracy.

If the people who are supplying most of your revenue — not yet the case for most dailies, but it likely will be within three to five years — are happy with the product, they’ll keep paying. If they are delighted, they may pay for subscriptions and for new products to be created and sold. If they’re not satisfied, newspaper business fortunes will have squandered their greatest opportunity in a generation.

Beyond the Inland numbers, we have some data on the financial value of newsroom investment.

Since the 1990s, Esther Thorson has been studying the linkage between investment in newsrooms and advertising and circulation results. “Money in, money out,” she calls it, suggesting that considering the newsroom as a simple “cost center” is short-sighted.

With credentials in both psychology and mathematics, she’s now associate dean of graduate studies at the University of Missouri’s School of Journalism. Along with her colleague, marketing professor Murali Mantrala, she has long worked with the Inland data and with individual newspaper companies as well.

Her conclusion: “Input into the newsroom in dollars had far and away the greatest impact on all sources of revenues — both advertising and circulation.” Citing a case history that Thorson says is more widely indicative: “For every dollar invested in the newsroom, you create 21 cents of direct impact on circulation revenues, plus 56 cents of indirect impact from print ad revenues, plus 32 cents of indirect effect online ad revenue.” Investments in ad sales and circulation sales directly yield less, she says.

Her econometric models may find new life in the all-access circulation age.

Press+ cofounder Steve Brill has made this plain-spoken point: “If you want to sell journalism, you have to do journalism.” It’s colorful — and his company is building data behind it. Press+ is beginning to track the correlation between content volume and sales.

A mid-2012 study, soon to be updated and broadened by Press+, shows a wide variation, depending on news volume: “One newspaper site with an average of 82 stories posted to the site each day had first month subscription sales of approximately $36,000, while a site with similar traffic but only an average of 21 stories had first month sales of less than $400. A third, similarly-trafficked site with an average of 50 stories had first month sales of approximately $3,000. A fourth site, with an average of 55 stories had sales of slightly more than $3,000.Over time, the site with 82 daily stories sold 10 times as many subscriptions per month as the site with 50 stories a day and sold 15 times as many subscriptions as the newspaper with 20 stories a day.

It must be noted that the initial survey only used four papers. But it’s another useful datapoint and one to watch as it is expanded. Further, it gets to the major connection everyone in the news industry — whether in newspapers or sites like The Daily Beast, considering a paywall — should be talking about: How does content itself best maximize the revenue coming from readers in the paywall age?

Further, Brill tells me that the company is beginning to track the linkage between “engagement and actual content quality.”

Is 20 percent the magic number? No, but it sure is a great plateau.

If we look at the fledgling success of the dedicated enterprise/investigative online startups — California Watch, ProPublica, Texas Tribune, MinnPost, and The Lens, for instance — we find a different kind of arithmetic. Pro Publica’s Dick Tofel says 85 percent of the site’s cost go to “program,” essentially content creation. Evan Smith reports that 73 percent of his Texas Tribune expenditures go to content creation. For all of the new companies, it’s by far their largest expense.

The surprise national reporting Pulitzer winner, InsideClimate News, pays out 80 percent of its total expense, to its seven full-time staffers.

Of course, these digital-only startups have neither the legacy costs — printing, distribution, etc. — of newspapers, nor their billions of dollars in print ad revenue. Their model, though, is instructive.

These newbies paint a picture of the modern news company in 2023. All publishers, as they work toward their mainly digital businesses ten years in the future, will focus on two big expenses: content creation and commerce development, including but not restricted to advertising. Many of the other expenses that consume newspaper companies — Big Iron, trucks, massive office buildings — will be memories. (The Mercury News decision to sell its San Jose-iconic offices is indicative.) The big challenge for the legacy news companies, broadcasters included, is how much they can move to that kind of cost structure in the interim.

To be sure, there’s not a straight line between newsroom size and editorial quality; the role of active, challenging newsroom management is key in how to use resources, no matter how large or small.

But it certainly looks like one of the best predictors of it, and not just because of the numbers. It’s taken a real commitment, through the budget traumas of the past decade, to preserve as much newsroom capacity as possible. Those companies that have striven to do that tend to place more value on the editorial quality overall.

Further, newsroom size is a proxy to community commitment, thinks Orange County Register publisher Aaron Kushner. “When you cut newsrooms, when you cut days of the week, these are symptoms that you are not woven into the fabric of the community,” he told the NAA Orlando crowd this week. In his on-stage conversation with Ken Auletta and Terry Kroeger of Berkshire Hathaway’s media group, Kushner won a strong round of applause as a trailblazer in the industry.

For Kushner, you can’t create business success — getting readers to pay a dollar a day (“The Newsonomics of  the Register’s Contrarian Paywall“) for all-access — if you’re not meaningfully part of the community.

For all news companies, it’s time to change the tired conversation of editors fighting for every last FTE against a tired-of-hearing-it business side. If we can start to understand how editorial quality and quantity play into the very revival of the newspaper business, we can break new ground.

Which brings us back to content — call it journalism if you like — as a businessimperative.

We’ve got big experiments, such as the Orange County Register’s hiring of 108 new newsroom staffers since the new owners hit town last year. We have a number of smaller, less public, ones. Some newspapers have held on to more newsroom capacity than others — how will their fledgling paywall plans fare? What further correlations can we draw now that we increasingly have lots of numbers at our fingertips? How do the new ways to present news, like the Pulitzer-winning Times feature Snow Fall, spark or reinforce sales?

Whodathunkit? The age of Big Data may actually support old-fashioned (and newfangled) journalism excellence.

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