Measuring Newspapers Profits: Developing a Standard of Comparison

By Martin, Hugh J. | Journalism and Mass Communication Quarterly, Autumn 1998 | Go to article overview
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Measuring Newspapers Profits: Developing a Standard of Comparison


Martin, Hugh J., Journalism and Mass Communication Quarterly


Debate over newspaper profits centers on whether earnings are emphasized at the expense of journalistic quality. However, studies of newspaper profitability have used varying measures. This study uses economic theory to develop a long-run standard for comparison of newspaper profits. Profits earned by fifteen publicly-owned newspaper companies during an eleven-year period are compared to publishing company profits and to yields from government and corporate bonds. The comparisons show that average newspaper company profits could be considered excessive. Suggestions are made for refinement of the measures developed here.

Introduction

Newspapers in the United States are profit-oriented businesses given special legal protection to perform the public service of disseminating information and ideas. Journalists expect newspaper owners to resolve the inherent tension in these roles by accepting lower profits as the cost of providing quality news coverage.1

However, some journalists contend the balance between conflicting goals is shifting in favor of economic interests.2 For example, Paterno detailed conflicts over profits and quality at the country's second-largest newspaper company, Knight-Ridder. The chief executive officer of the publicly-owned company acknowledged pressure from Wall Street to improve financial performance, but insisted this could be done without sacrificing journalistic quality. Critics, including journalists working for Knight-Ridder, said profits had become more important than covering the news.3

Meyer argued that newspaper companies have historically enjoyed profit margins of 20 percent to 40 percent because many newspapers are monopolies. As readership declined and competition for advertising increased, newspapers tried to maintain those profits. Meyer suggested that newspapers adjust to profit margins that are closer to other retail products around 6 percent to 7 percent. Newspapers that cut costs by reducing news coverage or by cutting circulation in low-income areas eventually will lose their most important asset - the trust of the community.4

Lacy and Simon argue the relationship between newspaper profits, competition, and quality is more complex. Most U.S. metropolitan dailies have a degree of monopoly power, which gives them some discretion when setting prices for advertising and subscriptions. However, metropolitan newspapers face competition from other advertising media and from newspapers in nearby cities and suburbs.5

Newspaper managers, who must balance financial and journalistic concerns, can easily evaluate profitability because it represents a quantifiable, short-term goal. However, evaluating a newspaper's quality or its contributions to public discussion requires qualitative judgments about long-term goals. Some newspapers cut editorial quality to increase profit, but managers may also disagree about what makes a quality newspaper. Lacy and Simon add that larger companies find it easier to maintain quality because they have enough financial resources to balance conflicting goals.6 The complex demands of managing newspapers imply that simply noting the level of profit is not enough to determine whether newspaper companies earn more than can be justified by economic conditions. This study develops a more objective standard of comparison for newspaper profits. The standard compares profits earned by newspaper companies with long-run returns from alternative investments because short-term comparisons cannot be used to establish trends. This comparison does not directly address differences between profits and spending devoted to news coverage, but it does take a step toward a better understanding of newspaper profitability.

Defining Profit

Importance of Industry Structure. Profit is measured by accountants as revenue minus expenses. However, economists define profit differently. Nicholson explains that economic profit is any return to a business owner that exceeds the amount that could be earned from alternative investments.

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