To Calculate News EPS

News-editorial budget is defined as all direct compensation, payment to non-staff contributors, wire service, newsroom training, travel, etc. It does not include online operations or payroll taxes and benefits. Average daily circulation is calculated by taking each day's audited total paid circulation (many papers now have different and higher totals for Friday and Saturday than for other weekdays) and dividing by seven. Locating a point on the horizontal circulation scale of the graph yields a better comparison than to the broad averages.  For instance, the largest of the mid-sized papers typically score a little above $70 while the smallest in the range are in the low $60s. Trend lines for the high and low even out some scattered individual scores. This is a good-sized sample –- 116 papers over 50,000 and more than 200 smaller ones –- but not all inclusive. So an individual newspaper might score above the top trend line. At this stage, we don't want to suggest a false precision to the indicator. A $78 result for a large paper may not be meaningfully different from the average of $75.  The comparison figures are for 2002 budgets and average circulation. Because of inflation and the industry's gradual erosion of circulation, average scores will tend to increase over time (i.e the top figure will increase and the divisor decrease). So one would assume the norms here are a little low if you are using 2003 or 2004 figures for an individual newspaper in a comparison.

Even casual readers are quick to notice that some American newspapers seem to have more of everything –- detailed, well-written local coverage, vigorous editorials, and a strong and varied national/international report –- than do others.

But is there a common-denominator statistical indicator to differentiate those who are putting more tomatoes in the soup from those who are watering it down (to borrow a homely aphorism of Abe Rosenthal's, recently cited by my Poynter Online colleague Geneva Overholser)?

Here is a proposal for one. Simply divide a paper's news budget for the year by average daily circulation. That gives you a dollar figure that represents news expenditures per subscriber (understanding that subscriber, in this instance, is shorthand for the awkward-sounding average unit of daily circulation, and includes single copy and paid bulk circulation).

With a nod to those Wall Street financial ratios that so influence our industry, I'm suggesting that the indicator be called News EPS.

Actually this ratio is one of literally hundreds that have been gathered for years in the annual Inland Press Association Cost and Revenue Study. What is new (and certainly my interpretation, not Inland's) is that it can be used as a rough index of a newspaper's financial commitment to its daily news-editorial report.

One complication for any news metric is that averages most often will vary, sometimes drastically, with the size of the newspaper. Spending per subscriber increases, but quite gradually, with circulation. Large papers have economies of scale, but pay levels are higher in big cities.

For 2002, the most recent year for which data are available, the Inland Press Association Cost and Revenue Study shows these rough averages:

• Small (under 50,000 circulation) -- $55 per subscriber
• Medium (50,000 to 200,000) -- $65 per subscriber
• Large (over 200,000) -- $75 per subscriber

Inland has also provided data on the high and low values for 28 circulation groups, each with 12 papers, except the largest, which has eight. The range is great. 

The highest typically spend twice per subscriber what the low-end papers do. So the $75 average is a range of roughly $50 to $100. The extremes are even greater among smaller papers, from a high of $145 to a low of under $30 per year.

Though we cannot identify papers by name, some of the same factors associated in our earlier study with higher-than-normal staffing would logically apply here too: competition, fast-growth markets, and extensive zoning. 

A few of the highest values could be a statistical quirk for papers with an unusually low circulation for their market (for instance, the second paper in a Joint Operating Agreement.). 

All that said, the data provide strong statistical evidence that some companies do indeed put a lot more tomatoes into the news-editorial soup.

Coincidentally, Howell Raines' Atlantic article reveals a newsroom budget for The New York Times (not an Inland participant) of $180 million. Even with a huge average circulation base of nearly 1.2 million, it is investing about $150 per subscriber. (Advertising and circulation revenues at the Times are so high that this works out to a fairly typical 10 percent of revenues.)

This chart, compiled by Leslie Pelley, Poynter's Business and Finance Director, shows trend lines of high, average, and low values for papers of varying circulation size. Any editor (who knows his or her newsroom budget) can do the math and find out where his or her paper stands. 

With a couple of anonymous test-case volunteers, we got plausible results. A respected mid-sized paper, the flagship of its chain, scored a notable $92 per subscriber. A big-city paper, run tightly under successive corporate ownership, was in the $55-60 range.

I am not able yet to relate high News EPS to long-term business success. But, an ongoing project of the Pew Project for Excellence in Journalism and researchers at the University of Missouri, analyzing years of Inland data to generate a Newspaper Econometric Model, has found that news expenditures per subscriber is one of three editorial indicators most strongly associated with circulation and revenue results.

An advantage of this indicator over some other more familiar rules of thumb (1.3 FTEs per 1,000; news-edit budget 11 percent of revenues) is that it translates directly into a value proposition for readers and evidence of a company's financial commitment to news capacity and quality. Of course it is all about money and doesn't say how effectively those resources are managed.

In suggesting this standard, I would also offer an important caution. In light of the cuts of recent years and evidence of lagging news investment in good times as well, average or slightly above may not be an especially good result. Some would argue that only the top quarter or 10 percent of papers these days have a generous level of news resources.