Mizzou researchers figure out how to rescue the newspaper industry

Murali-Mantrala

Professor Murali Mantrala showed how one newspaper could raise profits through data analysis. (Photo courtesy of the University of Missouri News Bureau)

If you’re wondering whether the newspaper industry can avoid colliding with irrelevance, there may be a way to change course, according to two University of Missouri researchers.

Murali Mantrala, the Sam M. Walton Distinguished Professor of Marketing and chair of the Department of Marketing at MU, and Vamsi Kanuri, a former doctoral student at MU’s Trulaske College of Business, surveyed more than 1,000 readers of a West Coast daily paper to determine not what news they read, but how they got the paper in the first place. The researchers presented the survey participants with a range of purchase options much wider than what the newspaper already offered.

These options ranged from print-only subscriptions to combinations of print, online and mobile subscriptions. The options also varied in price based on the mix of channels, the frequency of distribution, and whether or not they were advertisement-free.

Mantrala and Kanuri combined that information with data on advertiser spending across the variety of channels to create an algorithm that determines what precise menu of subscription options a newspaper should offer to maximize total revenues from subscriptions and advertising.

Given the customizable options for readers and advertisers, the potential benefit of a subscription menu to the West Coast newspaper equaled a 17 percent increase in the publication’s profits.

“Newspapers are in a quandary; they need to find ways to increase revenues without raising prices or creating barriers that will cause them to lose readers,” Kanuri said in an MU news release. “In developing this algorithm, it was important to determine readers’ preferences for how they wanted to receive their news, as well as to determine readers’ willingness to pay for different types of subscription plans. Once we gathered that data, we were able to streamline a process for making decisions about which subscription and advertising plans to offer in order to maximize profits without losing readers.”

And readers will buy news as long as they know the content they receive is unique, convenient, and relevant to their needs. For proof, look at the way members of the Millennial Generation – ages 18 to 34 – consume content. As a group, almost 90 percent of them purchase music, movies, television, and video games. Other research has determined that people willing to pay for entertainment are also willing to pay for news.

Mantrala and Kanuri said their model works for any newspaper or subscription service, including Hulu, Pandora, or Spotify. Publishers and broadcasters must first conduct audience and advertiser surveys, then organize the collected data by audience segment to determine the optimal subscription menu algorithm.

“Any subscription-based service can use this model if they do the requisite research to determine subscriber interest and willingness to pay for various tiers of service,” Mantrala said. “Using this model, as opposed to years of costly trial and error, can help newspapers and other online businesses greatly improve their profits.”

The study by Mantrala and Kanuri is titled, “Optimizing a Menu of Multi-format Subscription Plans for Ad-Supported Media Platforms,” and is scheduled for publication in the Journal of Marketing.

Kanuri is now an assistant professor at the University of Miami. Esther Thorson, a former professor at the MU School of Journalism now at Michigan State University, also coauthored the study.

4 indicators worth watching in quarterly earnings reports

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Four times a year, a downpour of quarterly earnings reports drops from the executive boards and financial offices of public companies around the country.

So, grab an umbrella, because the latest storm has started.

Earnings reports announce the revenue, income, and profit or losses of publicly held companies. The companies are obligated to issue them quarterly to current and potential investors and as a 10-Q filing with the Securities and Exchange Commission, the federal agency responsible for enforcing federal securities laws. Second-quarter summaries for the three-month period ending June 30 are going out from tens of thousands of companies right now.

Most of those will contain good news as the Dow, Nasdaq, and S&P have reported consistent gains over the past month, fears of a big Brexit backlash are subsiding, and prospects for the next business quarter are guardedly optimistic – November’s general election outcome notwithstanding.

But finding the important information in a quarterly report amid line after line of corporate vernacular can be dizzying. Having tackled these reports from two sides – first as a newspaper journalist, then at the corporate level – I can tell you that some of the mystery can be difficult for even experienced eyes to unravel. In some instances, only the reports’ authors have the clearest sense of what’s written. That’s because these people must put polish on what could be a dull or dreary three months, while still meeting an obligation to set the record straight.

You can strain your patience and eyesight pouring through these documents. So, skip past the disorienting argot to focus on these key performance indicators:

Cash flow – As in “free cash flow,” or the cash generated from operations minus capital expenditures and dividend payments. This is distinct from EBITDA – earnings before interest, taxes, depreciation, and amortization – which often appears in the bottom third of the report. From a company’s standpoint, EBITDA is fascinating reading, but the real news lies in the cash flow. If it’s positive, that’s a good sign the company can cover its debts and operating expenses.

Earnings per share, net income, and revenue – Combined, these reflect the overall financial health of a company. The EPS reflects how much of a company’s profit is allocated to each outstanding share of stock, net income reflects total earnings, and revenue refers to total earnings from normal business activities. Of course, positive numbers are preferred, but it’s telling whether these numbers fluctuate widely between quarters. The gap between these numbers attests to variations in the …

Margins – These show how much out of every dollar a company keeps. In formula form, two of the most important ones look like this:

  • Gross profit margin = (Sales – Cost of goods sold) / Sales
  • Operating profit margin = Earnings before interest and taxes (EBIT) / Sales

Size matters for both. If the gross margin is high, a company has extra cash to spend on product development and building the business. Rapid decreases from one quarter to the next, caused by such things as higher labor or material costs, may indicate trouble, which the company can mitigate by raising its prices. As for operating profits, a decrease here suggests the company is struggling to control costs.

Earnings per share vs. expectations – Earnings reports reveal not just how a company performed the previous business quarter. Corporate leadership also devotes space to prospects for the next quarter and punctuates them with a quote or comment usually from the chief executive officer or top financial officer. These prospects shape market and media expectations. If the expectations fall short, the company needs to explain why. A deal closing late or a missed order delivery rarely warrant concern. But revenues that buckle under the weight of changing trends, technology, lawsuits, market turmoil, or new technology can prompt investors to scamper away.