Defending his company's $6.5 billion purchase of the Knight-Ridder newspaper chain, McClatchy Co. Chief Executive Gary Pruitt last Thursday took to the opinion pages of The Wall Street Journal, where he argued (in "Brave News World") that all those skittish investors who think newspapers are a dying industry are, in fact, dead wrong.

"Far from shrinking," Pruitt wrote, "our audiences are growing steadily. Simply put, more people want our products today than wanted them yesterday."

From Pruitt's vantage point, newspapers are indeed a growth industry. But this is only because the McClatchy Co. has pursued a strategy of operating papers exclusively in growth regions. The average McClatchy market is projected to experience almost 12-percent population growth in the next five years. That's why, of the 32 Knight-Ridder papers that McClatchy bought, McClatchy intends to keep only the 20 in the faster-growing regions (average five-year projected growth: 11.1 percent), and ditch the 12 in the slower-growing regions (average five-year projected growth: 4.8 percent).

But what happens to those papers in the slower-growth regions?

Take The Philadelphia Inquirer, a paper with a great tradition that has fallen on hard times. In the 1980s, The Inquirer had half a million daily and a million Sunday subscribers, and was regularly winning Pulitzer prizes. Now the subscription rate is down to 357,000 daily, 715,000 on Sunday, and still falling.

When I worked there as a staff writer, in 2000-01, I watched in disbelief as the paper let many of its best people go, to appease the cost-conscious Wall Street investors. Space for local coverage kept disappearing, and the suburban newsroom where I worked took on a graveyard-like atmosphere, with three or four abandoned desks for every one that was occupied.

Occasionally, cheerful e-mails from Knight-Ridder CEO Tony Ridder would come across my in box, telling me about the company's stock price. I was puzzled then, and I'm puzzled today.

Over the last 25 years, the average profit margin for corporate America has been 8.3 percent. But last year the 13 largest newspaper chains turned an average profit margin of 20 percent. The most profitable, such as McClatchy and Gannett, turned a profit margin of 30 percent; Knight-Ridder, 19 percent.

By contrast, last year ExxonMobil -- whose record profits have drawn angry calls for a windfall-profits tax on the oil industry -- turned only a 10-percent profit margin.

Yet even with these fat newspaper profit margins, newspaper stocks are tumbling. On average, newspaper-company share prices last year fell 20 percent. As a result, newspapers cut and cut; last year, another 1,500 full-time newsroom jobs vanished.

Apparently, Wall Street investors think that newspapers will shrivel up and die in the age of the Internet, making them a poor investment. True, newspaper circulation continues to slip (in 2005, daily circulation was down 2.6 percent; Sunday, down 3.1 percent), and print ad-revenue growth is slow (in 2005, up about 1 percent). Nevertheless, by any standard, newspapers are still ridiculously profitable.

So what if newspapers are not a growth industry? Isn't that okay?

Perhaps, in the buyout and promised breakup of Knight-Ridder, there is finally an opportunity to accept newspapers for what they are -- and not what Wall Street thinks they should be.

Consider that McClatchy wants to unload the 12 papers in the slower-growth markets; given Wall Street's pessimism about the industry, these papers can probably be had relatively cheaply. Surely there are investors out there who care enough about the future of journalism to snap up these papers, make them private, and be happy with a 10-percent profit margin -- which would allow plenty of room and resources for solid journalism, free from the destructive pressure of quarterly-earnings reports.

The Newspaper Guild has discussed buying the 12 papers, and making them employee-owned. There is also the notable model of The St. Petersburg (Fla.) Times, a highly regarded paper owned by a nonprofit foundation, the Poynter Institute. And most national opinion magazines, such as The Nation, are also run as nonprofits.

In many ways, what happens to these 12 papers portends the future of the whole newspaper industry. If another big chain buys them, we will probably see more cost cutting, less meaningful reporting, and more self-fulfilling prophecies of newspapers' becoming irrelevant. But what if a new-old model of newspaper ownership emerges: one that values journalism as a public service and is content with a profit margin that matches the rest of corporate America -- or, better yet, considers newspapers treasures, to be treated as nonprofits?

Who knows? We may even see a newspaper revival.

Lee Drutman, a former reporter at The Philadelphia Inquirer and The Providence Journal, is a frequent Journal contributor and co-author of "The People's Business: Controlling Corporations and Restoring Democracy."

© 2006 The Providence Journal Co.

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