Newspaper Industry Gets Torn Up Again

Warren Buffett may be the only newspaper owner in American who wants to support the business. In addition to his ownership of daily newspapers in Omaha and Buffalo, he recently bought a portfolio of Media General (NYSE: MEG) newspapers. But the rest of the industry is in a retreat unlike any since the depth of the recession. It is a sign that the line newspaper companies hoped to hold as they cuts costs and moved to the Internet has buckled.

The Times-Picayune of New Orleans is owned by Advance Publications, which in turn is owned by the uber-rich Newhouse family. Advance announced it would cut back printing and delivery of the paper to three days a week — Wednesday, Friday and Sunday. Advance also will gut three other papers — the Birmingham News, the Press-Register of Mobile and the Huntsville Times. Advance has practice in “downsizing” papers. It made a similar move in 2009 in Ann Arbor, Michigan. The daily was cut in favor of AnnArbor.com.

The next move by the Newhouse family likely will be to take similar steps with three other big city dailies it owns — the Plain Dealer of Cleveland, the Star-Ledger of Newark and the Oregonian. In a little more than one wave of a hand, four large cities will be without dailies.

The notion that Internet versions of papers can tip the industry back toward success is a flawed. An examination of the financial results of the Washington Post Company (NYSE: WPO), the New York Times Company (NYSE: NYT), Gannett (NYSE: GCI) and deeply troubled McClatchy (NYSE: MNI) shows that online revenue remains a tiny part of overall sales. The New York Times newspaper operation announced a drop in digital sales of 2.3% last quarter. Digital advertising is now 22.5% of the group’s revenue. That is not nearly enough to stanch the sharp erosion of print ad revenue that has dropped sharply for a decade. And it is worth noting that the New York Times sites have by far the largest audience of any newspaper group in the country.

The impression that analysts who follow the industry have for now is that the biggest newspaper chains will not cut back the number of days they print their largest daily papers. Newspapers that are more than 100 years old can be maintained by plans to lower circulations and charge loyal customers more for their subscriptions. That is only a delaying tactic. Nothing can entirely offset disappearing print advertising.

It is inevitable that large dailies in more and more cities will cut the number of days that they print newspapers, except in metropolitan areas where Warren Buffett owns the properties.

Douglas A. McIntyre