Newspapers nationwide struggle to adapt

The newspaper is not an endangered species, but sometimes it seems that way.

The industry's overall profit margins are still in double digits. Newspapers have loyal readers and deep ties to communities, and their Web sites are getting more viewers every year.

But many key segments of the business are spiraling down, with little relief in sight. Circulation declines are so bad that a newspaper with flat-line growth is considered healthy. Sales of classified advertising have tanked. Some newspapers are in the red, and others no longer see the revenue and profits they once did. In Seattle, both papers have seen circulation decline in recent years.

Newspapering is a complex business, made more so by the myriad contracts and operating agreements that companies have set up to try to survive. The joint-operating agreement between The Seattle Times Co. and The Hearst Corp., owner of the Seattle Post-Intelligencer, has been central to a legal dispute between the two sides.

Hearst and The Times said Monday they have settled the litigation and that both newspapers will continue to publish. But Frank Blethen, the Times' publisher and chief executive, was not optimistic about the industry's future.

"We're faced with what every newspaper in the country is faced with, and that's a broken economic model," he said at a news conference Monday.

According to one analyst, the newspaper industry in 2006 had its weakest performance since 2001, a year in which a recession affected results.

"Unfortunately, our early read points to more of the same in 2007," the analyst, Goldman Sachs' Peter Appert, wrote in December. Revenue trends are "painfully soft," he wrote, and industry fundamentals are deteriorating.

Peter Horvitz, former publisher of the King County Journal, described the industry as one in "total disruption." The Journal closed in January because its new owners, Black Press, couldn't find a business model to support it.

"Today, daily newspapers are faced with the greatest business challenge we've ever had to face," Horvitz said last week at a Bellevue reception hosted by the Washington News Council.

One sign of the industry's problems comes in the stock market. Shares of publicly traded newspaper companies fell 20 percent in 2005 and 14 percent in 2006, according to a report by the Project for Excellence in Journalism, a research organization in Washington, D.C.

Some of those companies are seeing drastic changes. The Tribune Co., which publishes the Los Angeles Times, Newsday and the Chicago Tribune, is moving off the public markets to private ownership through an acquisition by real-estate investor Sam Zell. Knight Ridder, once the No. 2 newspaper publisher in the country, was sold to McClatchy last year.

Why did the industry change? The Internet, though not the only cause, is an obvious one: Readers are getting news from the Web, and classified advertising that once went to newspapers has shifted to Craigslist and other sites.

"I don't think this decline of interest in a traditional newspaper product is going to turn around," said Joel Waldfogel, a business professor at the University of Pennsylvania who has studied the industry. "It's a continuation of a trend that began with television."

Many newspapers, including The Times and P-I, are responding by placing more emphasis on their online operations. Some are assigning teams of reporters to produce news for Web sites. They're also revving up their online-advertising sales, although Web ads generally sell for less than a newspaper print ad.

Newspaper Web sites are seeing increases in viewers. About 58 million people viewed a newspaper Web site in November last year, according to Nielsen//NetRatings and the Newspaper Association of America. That compares with 55 million in November 2005.

Michele Weldon, an assistant professor at Northwestern University's journalism school, said many freshmen in her journalism classes don't read newspapers.

"It's generational," she said. Students prefer to read on their laptops. Newspapers need to keep content a priority over delivery mode, she said.

"Web sites shouldn't be that shocking an option, but for some newspapers they are," Weldon added.

Waldfogel said newspapers should focus on local news. It used to be a status symbol for a newspaper to have bureaus in Washington, D.C., and in other countries, he said, adding that now it's hard to understand why a local news organization would compete with a wire service or national newspaper.

Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com. Seattle Times staff reporter Eric Pryne contributed to this report.