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Speakers and Presentations

"Newspaper Budgeting and Allocating: An Econometric Approach"

Researchers presented a resource optimization model that publishers can use to measure whether they are investing too much, too little, or the right amount among news, advertising, and distribution departments for maximum revenue and profits.

Many newspapers lack a clear picture based on quantitative data, according to Sridhar, Mantrala, and Thorson. In fact, the authors found, many newspaper managers assume they are over-investing in their operations when in fact they are under-investing.

The authors presented quantitative models of how a newspaper’s dual revenues – circulation and advertising sales – respond to investments or cutbacks in news, circulation, and advertising departments. The goal is to reach the “sweet spot” of investment mix among departments that leads to optimal profitability.

The model can be developed for any individual newspaper and has been estimated and validated using annual compilations of hundreds of newspapers’ financial and operations data collected by the Inland Press Association. The model has also been applied to the revenue-investment relationships of single newspapers using Inland-type data collected over a number of years.

Among the findings:

1. Increased investment in the newsroom not only increases circulation revenues, it also adds to advertising revenues. In fact, at one newspaper company studied, investing an additional 1 percent in newsrooms was found to increase revenues one and one half times as much as a 1 percent investment in the ad salesforce. “Greater investment in the newsroom not only has a direct positive impact on circulation, it also has a positive impact on advertising revenues,” the authors said. Indeed, the indirect effect of newsroom investment on advertising revenues appears to be somewhat stronger than its direct effect on circulation, and is found to be as much if not more important than investment in ad selling in promoting ad revenues for daily newspapers.
2. Investment in circulation also has significant direct effects on circulation and indirect effects on advertising revenues, although the strengths of these effects are not as high as those of news investments.
3. U.S. newspaper subscriptions and advertising revenues are positively interrelated. That is, when a newspaper has increasing advertisements, circulation tends to grow; and when a newspaper has a circulation increase, advertising tends to rise. Thus, the model clearly supports the Newspaper Association of America’s contention that newspapers in the U.S. are read as much for the advertising as for the news content.

The findings demonstrate that there is considerable opportunity for newspaper profit enhancement using quantitative models. They invited newspaper companies interested in applying this approach to their newspapers to contact them directly.

Contact Dean Esther Thorson at 573-882-9590 or thorsone@missouri.edu, Professor Murali Mantrala at 573-882-2734 or mantralam@missouri.edu, or Professor Hari Sridhar at sridhar@bus.msu.edu

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