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Lesson from Thomson Co. : Bad Journalism Hurts Readership

With each day I continue to be befuddled why the Thomson Co. buyout of Reuters gets so little critical coverage and Rupert Murdoch gets scolded, as he should, repeatedly for trying to take over the Wall Street Journal.

For those who are interested, here is another look back to when the Thomson family was in the news business. The lesson here is about Thomson but also about the newspaper business in general. It can be found in the 1998 scholarly paper “Profits up, circulation down for Thomson papers in 80s” by Stephen Lacy and Hugh Martin. They picked the Thomson papers because their profits margins in the 1980s were in the 30 to 40 percent range compared to comparable papers which were producing profits at half that rate. Here is more from the paper:

… in 1993 a new Thomson CEO told Editor & Publisher that during the previous decade the chain’s dailies enjoyed profit margins that consistently “approached 40 percent.” The high profits resulted from a strategy that combined price increases with cost cuts. However, there was a side-effect. Thomson CEO Michael Brown said the emphasis on profits resulted in “cruddy” newspapers, and by 1992 profit margins had decreased to 17 percent.

Lacy and Martin hypothesized that cutting quality for profits, was not such a good idea. Here is more from the paper’s conclusion:

the results have implications for the newspaper industry. Several commentators have warned that cutting costs to obtain high profits will have negative long-run effects on newspapers. This study supports those warnings. If newspapers expect to compete successfully with emerging technologies, they must retain as many readers as possible. Trying to maintain above normal profits in the face of growing competition will only lead to reductions in newsroom expenditures and lower quality. The long-run result will be a loss of readers. The accumulation of lost circulation revenue and the impact on the value of advertising (cost per thousand) for businesses can have serious effects on a company’s future profits and even its viability in a rapidly changing media environment.

Research, theory and anecdotes increasingly support the existence of a connection between newspaper company expenditures on newsrooms, product quality and circulation. This study is consistent in supporting that connection. However, additional research that directly examines the links from lower expenditures to lower quality and from lower quality to lower circulation would strengthen the understanding of how profit goals affect long-run newspaper company performance.

By about 2000 the Thomson family had sold all their cruddy newspapers, now the Thomson family is back. Question is, and I wish some journalism organization with some reporting depth would answer it, are the Thomsons going again to aim for maximum profits without worrying about the quality of the product? Is the past a good predictor of the future? What’s your guess. I know mine.

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