Newspaper Economics

Some companies come close to executing the difficult trick of striking a consistent balance among shareholder-friendly financial response to changing times, core competency and growth strategy. Others are perceived as flailing — cost-cutting Tribune and Knight Ridder are the obvious examples. That is how, after four years in which newspaper stocks outperformed the market, we came to a pass in 2005 where one of those companies lost more than a third of its value in 18 months and the other was being floated as an acquisition target.

Newspapers will continue a transition to new business models and try to stabilize basics of readership and advertising in 2006. Battered, the industry still has the advantages of generating lots of cash and holding leading local-market franchises both in print and online. The situation amounts, as one senior executive put it, to a race against time. Can newspapers keep pace with changing media consumption patterns and some formidable competitors? Or will disinvestment and cost-cutting undermine their credibility with Wall Street and the public even as they move now to innovate?