09/15/2014 01:42 pm ET Updated Nov 15, 2014

Newspapers' Going-Public Problem

There's been much incomplete reporting on the implosion of the newspaper business, whose crisis poses grave threats to the knowledge and civic engagement of citizenry. Indeed, the general level of ignorance and confusion seems to rise every year commensurate with the accelerating move of life onto the Internet.

The Internet has long and glibly been cited as virtually the only reason for the sector's decline. But in fact, business reporters (they fear antagonizing their bosses) generally fail to note the huge and destructive impact (to journalism anyway) of public ownership.

Most newspapers used to be closely held, often family-held, enterprises. Their owners, of course, wanted to make a good profit, and in fact dominant newspapers in their areas generally made a very good profit. Historically, the best metropolitan papers, with high journalistic ambitions, made about a 10-15 percent profit margin -- more than the average of the margins of companies listed on the S&P 500 Index. But the owners tended to want more than just money (unlike, mostly, now). They wanted influence and many even had altruistic aims -- improving their communities, etc.

But, accelerating in the '90s, came the sale of these companies at big prices to publicly held enterprises listed on stock exchanges. Wall Street took over from civic concerns. With the pressure to please the stock analysts, and enrich themselves, senior execs (who also had a lot of stock in their companies) of the new owning companies pushed for ever-higher profit margins -- to astronomical levels of 30 percent or more. Meanwhile, they had to worry about paying off the debt incurred to buy the newspaper companies.

So for years they did not reinvest in their properties, but rather laid off as many employees as they could, and made other cuts, to keep the profit margin (and thus capital gains, dividends and senior execs' salaries) as high as possible. The emphasis was on meeting targets for the next quarter, and not on building for the long term. Take the money and run. The idea was to get as much money as possible as soon as possible - then get out.

As always in business, there were some notable exceptions to this money-only culture and I was fortunate to work for a couple of them.

Since a lot of these newspapers were well entrenched as virtual monopolies in their areas, this worked for a while -- until the papers were so hollowed out that their decline was probably irreversible (though the senior execs and their pals on their boards continued to pay themselves gargantuan compensation for many years as all this went on).

Indeed, the intensity of shareowners'/execs' thirst for huge and immediate payouts seems to swell every year. I am as greedy as the next fellow, and firmly believe in capitalism and its creativity, but I've been astonished by the surge in senior executive pay since I worked in Lower Manhattan at The Wall Street Journal in the '70s.

Meanwhile, in the early and '90s, the execs made the catastrophic decision as the World Wide Web got rolling to put the journalism on papers' websites for free, thus encouraging many readers to cancel their paid subscriptions to the paper version (whence came and still comes most of the revenue). The magical thinking was that the new ad revenue on their websites would make up for the loss of revenue from readers' subscriptions.

In fact, websites are generally lousy places for most ads, especially display ads. Those reading news media on screens, unlike folks browsing through a newspaper, are generally irritated by ads. (The "X" button to close the ads gets intense use!)

There was no display-ad bonanza. And the likes of craigslist swiped the vast and easy money from classified ads. The Internet is great for classified ads.

And by offering all this information, collected by hardworking reporters and processed by hardworking editors, for free, the newspapers were in effect telling their readers what they thought the stuff was worth. Bad marketing!

The Internet has posed big challenges to newspapers, but that's only part of the story. Meanwhile, those old-fashioned press lords of family-owned companies look good. They were in it for the money, but most were in it for other things, too.

Robert Whitcomb ( is a Providence-based writer and editor and a partner of Cambridge Management Group. He is a former vice president and editorial-page editor of The Providence Journal, former finance editor of the International Herald Tribune, a former editor at The Wall Street Journal and currently a Fellow of the Pell Center.