Newspaper quality, Pulitzer Prizes, and newspaper circulation.

Introduction

The news media play an indispensable role in democracy, transmitting the information that voters require to control government. The potential for government manipulation of the press has been recognized for centuries and freedom of the press was enshrined in the First Amendment to the U.S. Constitution. However, the First Amendment merely restrains government and does not address the organization of the news media most conducive to fulfilling its role in a democracy. Traditionally, the U.S. has relied on commercial news media, for-profit news organizations supported almost entirely through the market (advertising, subscriptions, and gifts from patrons). In recent decades, publicly traded corporations have acquired major commercial media in the U.S. Many journalists and journalism scholars question whether for-profit news organizations will provide the type of news citizens require as voters in a democracy [Croteau and Hoynes, 2001]. Cranberg, Bezanson, and Soloski [2001, p. 11] contend that:

"Stock-market pressures have exacerbated the emphasis on revenue,

margins, profits, and stock-price performance, forcing the companies

to emphasize the aspects of newspaper operation that directly

produce those results: lean staffing, low salaries, efficiency,

orientation to advertiser preferences, definition of market and

audience in terms of advertising-revenue yield, de-emphasis on mass

audiences, de-emphasis on circulation revenues, and increased

emphasis on advertising revenues."

Examples of the alleged clash between profit and journalism abound. Jay Harris resigned in 2001 as publisher of the San Jose Mercury News instead of imposing budget and staff cuts demanded by the Knight Ridder company. As one commentator noted, budget cuts such as this are demanded "not to meet payroll, not to pay debt service, not to purchase needed new equipment, but to meet Wall Street's relentless pressure" [Laventhol, 2001, p. 19]. Gannett reduced the news staff of the Asbury Park (NJ) Press by nearly 25 percent within a year of acquiring the paper [Roberts, Kunkel, and Layton, 2001, p. 8]. Rowse [2000, p. 32] notes of budget cuts, "It was all part of today's marching orders for the news business: spare nothing, even our most sacred public obligations, in order to fatten the bottom line."

Economics provides two possible reasons why the profit motive might conflict with the supply of quality news. The first is the low instrumental value of political information to voters, the theory of rational ignorance from public choice [Downs, 1957]. In an electorate of any size, any one citizen's vote has almost no chance of being decisive in an election, so the instrumental value of information on politics and current events is almost zero and less than the social value. Rational ignorance suggests for-profit media will supply less than the socially optimal quantity of news. (1) Yet the critics of for-profit news seem more concerned with the quality of the news supplied by commercial media than the quantity of news:

"But the main concern of the media giants is to make journalism

directly profitable, and there are a couple of proven ways to do

that. First, lay off as many reporters as possible. Second,

concentrate on stories that are inexpensive and easy to cover, like

celebrity lifestyle pieces, court cases, plane crashes, crime

stories, and shootouts" [McChesney, 1999, p. 54].

Consumers cannot easily observe the quality of news, which is a second challenge for the provision of quality news. News has the character of an experience good--where consumers do not observe quality before consuming the good--or a credence good--where the quality is not discernible even after consumption [Nelson, 1970]. Consumers cannot tell if a report has been confirmed from multiple sources, evaluate the reliability of unnamed sources, or know what stories have not been reported. The supply by the market of high quality experience or credence goods is difficult [Akerlof, 1970; Darby and Karni, 1973]. Yet repeat sales [Klein and Leffler, 1981] and reputation [Homer, 2002] can provide firms an incentive to supply high quality even when consumers cannot easily observe quality. Reputation generates brand name capital which depreciates if firms supply lower quality than expected. Stock price declines following product recalls [Jarrell and Peltzman, 1985] or plane crashes [Chalk, 1986; Mitchell and Maloney, 1989] provide evidence of reputation effects. Managers concerned with maintaining the price of their company's stock will ensure that their firm incurs the cost necessary to supply the expected quality.

News organizations may not supply news which meets journalists' definition of high quality if news consumers do not value the aspects of quality valued by journalists. Scientists, engineers, and artists often care greatly about attributes of products or art which matter little to consumers. Politics and current events fascinate many journalists who may assume that most people share these tastes. Indeed, journalists might even impose their preferences for news coverage over a format that would be more valuable to consumers. Al Neuhearth, former CEO of Gannett, one of the nation's largest newspaper groups, has criticized newspaper editors who "edited the newspaper for themselves rather than the general public" [Roberts, Kunkel, and Layton, 2001, p. 180]. Gannett has stressed shorter stories and other reader-friendly designs in its many daily papers and its national daily USA Today, based on research that people simply do not read longer stories and stories which jump from the front page to the inside of the paper [Pritchard, 1987]. Yet journalists roundly criticize Gannett and deride USA Today as McPaper. Journalists additionally exhibit considerable hubris regarding their definition of newsworthy against the audience's preferences [Fallows, 1996].

Pulitzer Prizes are a measure of quality as judged by journalists which consumers can easily observe and thus, provide an opportunity to determine whether news consumers value what journalists consider high quality journalism. This paper tests whether papers which have recently won Pulitzers have higher circulations, ceteris paribus. These prestigious awards are highly publicized and provide an easily observed signal of quality. (2)

Several papers have examined the supply of quality journalism by the news media using event studies. McChesney [1987] found that Watergate coverage did not raise the stock price of the Washington Post company, while Anderson [2002] found that revelation of Janet Cooke's fabricated "Jimmy's World" stories in the Washington Post (which had won a Pulitzer Prize) lowered the value of the Post's stock. Anderson and Sutter [2003] find that the mistaken calls by television networks of the 2000 Presidential vote in Florida on election night reduced the stock prices of the parent companies of the television network. Market forces seem to punish news organizations whose quality of journalism is perceived to fall, but whether high quality reporting builds brand name capital remains an open question.

The authors examine the determinants of Daily and Sunday circulation in 1997 for a cross-section of U.S. newspapers. Papers which had recently won a Pulitzer Prize (within the preceding decade) have significantly higher circulation, even when controlling for the economic and demographic characteristics and media competition of the metropolitan area. The effect is quantitatively large as well. Daily circulation is about 55 percent higher and Sunday circulation is 45 percent higher for papers which won a Pulitzer. Multiple prizes also increase circulation, with the first prize increasing Daily circulation by 17 percent and Sunday circulation by 16 percent, although the marginal impact of a prize on circulation declines. To examine whether the resources available to large market papers explain both the winning of Pulitzers and circulation, a model is re-estimated using a restricted sample of the 80 largest circulation papers. Pulitzer Prizes remain significant determinants of circulation even among the largest papers, although the magnitude of the effect is diminished. Nonetheless, the first Pulitzer won by a large circulation paper still increases Daily circulation by 11 percent and Sunday circulation by 12 percent. The results suggest that consumers do value quality and that news organizations could find establishing and maintaining a reputation for high quality profitable over time, as Kovach and Rosenstiel [2001] suggest.

The remainder of this paper is organized as follows. The next section describes the data set and offers definitions and sources for the variables used in this study. The following section contains the econometric results. The last section offers a brief conclusion.

Variable Definitions and Variable Sources