McAdams On: People and Profitability, July 8, 2011

OTHEHUMANITY: “TV news profitability soared in 2010, up 10 points from the year before and reaching the highest level since 2006. The bigger the staff, the more likely to show a profit.”

Well slap me silly and call me a broker. I sure didn’t make that up. It’s in the annual broadcast news survey done by the Radio and Television Digital News Association and Hofstra University. Right there on page three: “The bigger the staff, the more likely to show a profit.”

Why is that? The survey doesn’t tell us. This year’s RTDNA/Hofstra survey was all Callooh! Callay! mainly because news organizations hired up in 2010 after two years of scorched earth layoffs.

“Total local television news employment is now 26,522. That’s an increase of 2.9 percent in the last year, [but] still 1,295 behind the 2007 peak of 27,817… anticipated hiring in 2011 could bring the industry back to its pre- crash peak by the start of 2012.”

So regarding the correlation of staff size and profitability, we are left to our own devices, which in my case involves caffeine, multitasking distractions and a Nobel Prize in symbolic logic. Good. Stay with me.

There are three possible explanations for the staff size-profitability relationship that adhere to Ockham’s razor:

1. Larger news organizations are more profitable.
2. Larger markets are more profitable.
3. Larger staffs are able to yield a higher-quality product that’s more profitable.

Assuming larger operations are in larger markets, profitability does not correlate linearly. In fact, more mid-sized operations logged profit than any other. The ratio for operations in markets 1-25 was about 56 percent. In Nos. 51-100, it was nearly 70 percent, the highest of any category. Notwithstanding other factors such as competition, the yappy dog outside my window and my keen awareness of the pending weekend, this would suggest that larger markets are not necessarily the most profitable for TV news.

This highly scientific method of exclusion leaves us with the third hypothesis; that larger staffs yield a more profitable product. In this case as well, there was a linear divergence: 72.4 percent of stations employing 51 or more people in the news department showed a profit, while 76.1 percent employing 31 to 50 people did so. The ratio fell to 55 percent for stations with 21-30 employees in the news department, and continued to plummet as fewer people were involved.

Contributory factors may be manifold, it’s true, but the numbers could just as well imply a threshold of diminishing returns for cutting stuff. Wall Street has long rewarded companies for cutting payroll because it’s the easiest, quickest route to reducing operational expenditures. The relationship of staff size to product quality, and product quality to profitability, has not been systematically quantified such that it’s factored into operational models. Or maybe it is initially on paper, and then dispensed with over time as people are cut and multiple positions are imposed upon those who remain.

I suspect the staff size-profitability relationship is more complex than a simple presumptive analysis of a small data set, according to my unusually large brain. But I think it’s worth looking at, even if just empirically though systematically. Local news is major profit center for TV stations, comprising around 47 percent of revenues across all markets. And all people appreciate quality work, including what they get from media.

People may be the best investment after all.