It’s conventional wisdom these days that in order for newspapers to survive they need to trim costs wherever possible, usually starting in the newsroom. But a new study from the University of Missouri-Columbia shows that this is actually the worst place to scrimp and save, since it has the greatest impact on the bottom line.

Murali Mantrala, who is the Sam Walton professor of marketing in the College of Business, and Esther Thorson, director of research for the Donald W. Reynolds Journalism Institute and associate dean for graduate studies in the Missouri School of Journalism, recently examined the profitability of newspapers. They collaborated with marketing doctoral students Hari Sridhar and Prasad Naik, who is now a professor at the University of California-Davis. The team of researchers focused on three areas of operation - news quality; distribution and circulation; and advertising - by analyzing financial data of small- to medium-sized newspapers with circulations of 85,000 or less. Research revealed that news quality most directly affects the bottom line.

“The most important finding is that newspapers are under-spending in the newsroom and over-spending in circulation and advertising,” Thorson said. “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.”

Who would have guessed it, eh? The study used a complex mathematical formula to model financial data from the past 10 years for a variety of newspapers. According to the results, investing in news gathering can substantially offset losses in ad revenue and actually boost circulation, two key crises facing the industry. The full article will appear in the April issue of the Journal of Marketing.

(via editorsweblog.org)