Warren Buffett

Newspapers' only hope? Quality.

May 15, 2013: 1:03 PM ET

Newspaper owners will have to accept lower margins in return for the privilege of serving the public interest. And given the sad rates at which online ads are selling, it's premature to give up on print.

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FORTUNE -- The New Orleans Times-Picayune's decision to return to daily publication, reversing (sort of, in a way) its disastrous move a year ago to print a paper only three days a week, is being described by some observers as a salvo in an escalating newspaper war. The Advocate of Baton Rouge has invested big in covering New Orleans since the Times-Picayune's retreat. That paper is publishing a New Orleans edition, and it has hired a bunch of journalists away from the hometown paper, including some big names.

Meanwhile, the Philadelphia Inquirer has resumed publishing a newsstand edition on Saturdays after halting Saturday publication about two years ago. "This daily newspaper thing may be catching on," wrote David Carr in the New York Times on Sunday.  "The much ballyhooed unmaking of daily newspapering seems to be unmaking itself."

Well, not really. Though the moves are certainly positive ones, it's much too early to conclude that daily newspapers are back, or even a quarter of the way back (of course, Carr knows this, as he makes clear). What some publishers seem to be realizing is that, for now at least, the only way to make any money with local and regional news covered by large staffs is by printing newspapers. Online ads sell for a tiny fraction of what print ads generate. Of course, circulation and print-ad sales are generally falling, too, but it's clear that, at the moment, most newspapers need to stick with print until they can figure out how to make money online, if there is a way.

While there are the predictable arguments from digital theoretician types that newspapers should just bag print altogether and go all-digital, they never seem to have a coherent answer for how papers are supposed to make money that way. The arrival of disruptive technology doesn't mean companies must turn on a dime, it means they have to wisely manage the transition into a largely unknowable future. If "legacy" assets are still making money -- even if much less than before -- there is little wisdom in shedding them all at once. There is equally little wisdom in holding on to those assets as their values shrink while ignoring the fact that your industry is under technological assault.

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The trick -- and it is no easy one -- is to figure out how quickly to make the transition and how best to adapt to the changing world.

As Carr noted on Sunday, the only way newspapers can succeed is by producing quality journalism. Newspapers, particularly corporate-owned ones, started cutting back on staff well before the industry started to sink about a decade ago, and those cutbacks were indeed part of the reason for the industry's troubles. Reducing newsroom staff led naturally to lower quality, which in turn led to falling circulation and sinking ad rates. The Internet of course is the industry's main problem, but as critics of disinvestment have been saying all along, you can't cut your way to success.

"Newspapers that have cut their operations beyond usefulness or quit delivering a daily print presence have suffered," Carr wrote. "The audience has to be earned every day."

Which is just the opposite of what Advance Publications decided to do with the Times-Picayune a year ago. Carr described what has happened since as "a jaw-dropping blunder to watch." Advance emitted platitudes at the time (swallowed whole by the digital-enthusiast set) about how it was forging ahead into the online future, but it apparently hasn't invested much in either technology or staff. Its website is still terrible, fairly typically for a newspaper, and as the Columbia Journalism Review recently noted, the journalism certainly hasn't improved any, while the Advocate's growing presence and investments in staff seem to be paying off.

A couple of decades ago, newspapers were reliably earning margins of about 30%. Some were up near 50%. Such margins are never going to come back. Warren Buffett, who has been acquiring newspapers, recently said margins of 10% would represent a "decent return." It's possible that newspapers might end up somewhere around there, and thereby survive, but only if they pursue their core public-service function: informing citizens about important issues.

The Times-Picayune's failure to adhere to that mission was put into horrific context on Sunday, the day Carr's column was published. Nineteen people were shot during a second-line parade in New Orleans. Many residents of the city who would have liked to learn about what happened from their hometown newspaper were out of luck. Since many of them can't afford computers or mobile devices, they couldn't see what the Times-Picayune reported about the incident on Monday. Or on Tuesday. The first print edition that came out after the shootings was on Wednesday. For those people, the hometown paper was useless.

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The "restored" editions of the paper won't be delivered to homes but available only at newsstands for 75 cents. It will be in a tabloid format and called TPStreet and also available to print subscribers as an "electronic edition." It seems unlikely that this will assuage the city that Advance has essentially abandoned, especially given the presence of a competitor that appears to be taking seriously its mission to cover the city.

Whether this amounts to a "newspaper war" remains to be seen. Carr quoted former Times-Picayune editor Jed Horne as saying it "could end up being two dinosaurs fighting over the last mud hole on an overheated planet."

The only hope for newspapers is that more of them will fall into the hands of owners, like Buffett, who are willing to accept lower profits in return for the opportunity to serve the public interest, which happens to be the only way they can make any money at all.

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