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

News came on Thursday morning that Berkshire Hathaway Inc. (NYSE: BRK-B) (NYSE: BRK-A) has reached a deal with Media General, Inc. (NYSE: MEG) to buy all of Media General’s newspapers outside of the Tampa paper.  Buffett is joining a sector that has wrecked many private equity firms looking for deals over the last decade in printed news.  The price tag is listed as $142 million in cash, but Berkshire Hathaway will simultaneously issue a $400 million term loan and a $45 million revolving credit line.

Today’s news is likely to bring a focus on other newspaper outfits around the nation.  Some companies with high concentrations in newspapers are Gannett Co., Inc. (NYSE: GCI), The McClatchy Company (NYSE: MNI), Daily Journal Corp. (NASDAQ: DJCO), A. H. Belo Corporation (NYSE: BLC), Lee Enterprises Inc. (NYSE: LEE).

Berkshire Hathaway also owns 1.7 million shares of The Washington Post Company (NYSE: WPO), although Warren Buffett does not hold a board seat any longer.  Does it beg the question, “Does this increase or decrease the value of The New York Times Company (NYSE: NYT)?”…

Media General will also issue Berkshire Hathaway ‘penny warrants’ for approximately 4.6 million Class A shares and that will give Buffett the right to buy 19.9% of Media General’s existing shares outstanding. Berkshire Hathaway also has the option to nominate a director to Media General’s board of directors.

The newspaper sale includes websites and mobile applications and these outfits have commercial printing businesses as well.  These include 63 daily and weekly titles in Virginia, North Carolina, South Carolina and Alabama.

Dare we say Buffett is back to his paper route he had as a teenager?  Mr. Buffett said, “In towns and cities where there is a strong sense of community, there is no more important institution than the local paper.  The many locales served by the newspapers we are acquiring fall firmly in this mold and we are delighted they have found a permanent home with Berkshire Hathaway.”

The move will allow Media General to focus on the broadcast television business, which accounted for some 77% of its 2011 platform cash flow in 2011.

Media General closed at $3.14 on Wednesday and its 52-week range is $1.14 to $6.84.  Its shares are indicated up about 40% around $4.75 in early indications.  With this newspaper and media outfit up so much, it may be safe to expect that other newspaper outfits could be worth more money than their battered shares indicate.

JON C. OGG

It is just as likely that he sees a bottom in the industry. He has had a ring side view of newspapers for some time. He was an investor in the IPO of The Washington Post Company (NYSE: WPO), and sat on its board for years. Buffett can also see that revenue erosion in the industry as slowed, or at some chains, stopped. Cost cuts have made margins at least tolerable. Among the stocks of the largest newspaper chains, several appear to have stopped sliding. This is the case with The New York Times Company (NYSE: NYT), Gannett (NYSE: GCI), and even battered McClatchy (NYSE: MCI) which is heavily burdened with debt.

The impressiveness of Microsoft’s investment cannot be overvalued. The first tranche of capital is $300 million. Redmond also has pledged $180 million over three years in guaranteed revenue-sharing payments for Barnes & Noble e-book sales. In addition, Microsoft has committed to invest $125 million over five years to add funds for international expansion.

But Barnes & Noble has been mentioned too often in the same breath as Borders, which failed, Circuit City, which is gone, and deeply troubled Best Buy (NYSE: BBY). As with Borders, outside investors have attempted to break Barnes & Noble into pieces or force it to return money to shareholders. These institutions have picked over the company’s carcass like vultures. The attacks have been front page news, as has been Barnes & Noble’s efforts to deal with the evaporation of physical book sales.

Barnes & Noble does not have a single advantage over much larger rival Amazon.com. An investment of $300 million is far too small to change its position. The Barnes & Noble Nook has 27% of the U.S. e-reader market to Amazon’s 60%. Those numbers neglect to include Apple (NASDAQ: AAPL), even though its iPad dominates the tablet PC market, which has products that are too close to e-readers for Barnes & Noble’s comfort. To make matters worse, a good deal of evidence indicates that Kindle sales have growth faster than Nook sales recently. That may be helped by the power of the Amazon brand and the massive traffic to its main website. Comscore reported that in March the Amazon sites were the seventh most visited in the United States, with more than 106 million unique visitors. No other e-commerce company came close.

Barnes & Noble lost whatever brand power it had several years ago as it moved into the e-reader business late and analysts said the tardiness doomed it. The company is still considered a store retailer, which is a curse to both customers and investors. It is a curse the company can no longer overcome.

Douglas A. McIntyre

Ron Burkle’s Yucaipa also tried to “increase shareholder value” at the bookseller. As an investor, it has pressed the company to sell or restructure itself, without success. John Malone’s Liberty Media invested $204 million in Barnes & Noble in August 2011. None of these actions have helped the firm’s stock price much. Even after a rise of 18% on the Jana news, shares trade at $13.41, well short of a 52-week high of $18.73.

Barnes & Noble made only $52 million in the quarter that ended January 28. That was down from $61 million in the same quarter a year ago. Revenue was up 2% to $2.4 billion. B&N.com has revenue of only $420 million and a loss of $102 million. It is impossible to claim that the Internet is a good business for the company now, particularly when the online numbers are put against Amazon’s.

In a disclosure about its online business, Barnes & Noble reported:

B&N.com selling and administrative expenses increased as a percentage of sales to 34.1% from 25.3% during the same period one year ago. This increase was primarily attributable to an increase in advertising costs, higher legal fees and additional resources hired over the past year to support digital growth.

That is hardly what investors want to read.

Barnes & Noble management has suggested that it might spin out its Nook and e-book businesses. Somehow this is supposed to improve prospects for the company’s shareholders. But the Nook has only 27% of the e-reader market, to the Kindle’s 60%. That calculation does not include the effects of tablet PCs like the iPad, which increasingly are attached to their own e-book stores.

There is a reason that Barnes & Noble trades well below its 52-week high despite interest by raiders. Barnes & Noble is not worth more than the stock market believes it is.

Douglas A. McIntyre

Video Metrix service showing that 181 million U.S. Internet users watched nearly 37 billion online content videos in March, while video ads topped 8 billion for the first time on record.

The ability to make profit in the online video and advertising business remains the Holy Grail for the industry. Video ads bring in much more based on CPMs than display ads do. And there is evidence that how much marketers will pay for Internet display has fallen, which makes the improvement of video revenue all the more important.

By far the most watched video site is YouTube, the viewership of which makes up most of the traffic for Google’s (NASDAQ: GOOG) video. Total unique visitors to Google video sites numbered more than 146 million in March. Those visitors watched nearly 16 billion videos during the month, and each visitor spent an average of 426 minutes on the Google sites over the course of March. But Google’s revenue from YouTube is so small that it is not even broken out in quarterly earnings figures. Google is still a company that makes its money from search dollars and not video views.

The same problem of low video ad volume is present among the next tier of sites based on traffic. Yahoo! (NASDAQ: YHOO) sites had 60 million unique visitors in March. Yahoo! management often says that video ads are essential to the company’s future, but, again, the portal firm will not say how much revenue this represents. That is probably because the figure is comparatively small. The same holds for Facebook, Viacom (NASDAQ: VIA) and Aol (NYSE: AOL). The management of each touts the importance of video ads. None gives concrete evidence that these ads are a large part of their revenues.

As a contrast, CBS (NYSE: CBS) had over $14 billion in revenue in 2011. Most of that came from its television business. Wall St. has pushed the company’s shares to all-time highs. Investors understand that broadcast and, to a growing extent, cable programs are the favored environment for video ads. So far, the size of online video activity has barely changed that.

Douglas A. McIntyre

Suddenly, the media has reverse its field.

CNBC reports:

The e-mail, sent by an executive in MF Global’s Chicago office, showed that the company had transferred $175 million to replenish an overdrawn account at JPMorgan Chase in London. The transfer, the e-mail said, was a “House Wire,” meaning that it came from the firm’s own money.

The incident is another example of how media editors will jump to conclusions in the name of getting a scoop

Pruitt became the CEO of McClatchy in 1996. The chain took on about $2 billion in debt, a great deal of it to buy rival Knight Ridder for $4.6 billion in 2006. In 2009, it teetered close to bankruptcy. A restructuring of obligations saved it, for a while at least. McClatchy is in financial trouble again. Pruitt leaves for the AP just in time to avoid leading McClatchy as it heads toward a new crisis.

McClatchy suffered the fate of many other chains. Its revenue, adjusted for the KR deal and the sale of one of its large papers, was almost $2.6 billion in 2007. Last year, the figure fell to just over $1.3 billion. The company had a tiny profit of $54 million in 2011. But the interest expense on its long-term debt load was $139 million. McClatchy’s long-term debt is still nearly $1.6 billion. Among the firm’s risk factors, according to its 10-K, is this: “This level of debt increases the Company’s vulnerability to general adverse economic and industry conditions.”

All newspaper stocks have fallen over the past five years as the industry has struggled with costs and a decline in print advertising. That drop has not been offset by a rise in digital revenue. But the market has been more disappointed with management at McClatchy than at other large chains. Its shares are down much more sharply than those of The New York Times (NYSE: NYT) or Gannett (NYSE: GCI). Pruitt’s poor decisions have badly hurt shareholders.

The biggest surprise about Pruitt’s appointment is that the AP board should be more aware of his shortcomings than anyone else. The board includes Michael Golden of the New York Times, Katharine Weymouth of the Washington Post (NYSE: WPO) and Craig A. Dubow of Gannett.

Pruitt has decided to leave his company, and its shareholders, at a time when they are in great peril, again. After his AP appointment, Pruitt said, “The Associated Press is the most important news organization in the world and an essential force in democracy.’ That it true. As such, it deserves a better leader.

Douglas A. McIntyre

Pew points out that an increasing number of people receive news from desktops, laptops and smartphones. The study singles out in particular Apple (NASDAQ: AAPL), Google (NASDAQ: AAPL), Facebook and Amazon (NASDAQ: AMZN) as the dominant conduits for traditional news. News organizations that once controlled the airwaves and the newsstands face more attrition of those methods of distribution. The ongoing rise of the smartphone eventually may eliminate those means of distribution altogether.

It would make sense that, as new means of distribution rise, news organizations would take advantage of them and migrate their revenue models. Subscribers would pay for their news via electronic payment systems. Advertising revenue would come from online media instead of print and broadcast versions.

Pew offers a little hope for the future of traditional news media — but not much:

In sum, the news industry is not much closer to a new revenue model than a year earlier and has lost more ground to rivals in the technology industry. But growing evidence also suggests that news is becoming a more important and pervasive part of people’s lives. That, in the end, could prove a saving factor for the future of journalism.

Pew’s conclusions are not new. As a matter of fact, they are quite old for anyone who watches the media industry, even casually. The most readily identified sector of the news industry in real trouble is newspapers. Online revenue for papers rose some in 2010, but that increase died last year. There seems to be little hope that this revenue will recover. Print revenue has dropped so much that major newspapers now look more like pamphlets because they have so few pages. Magazines are not much better off. An average copy of Time is half the size it was a decade ago.

Pew’s argument is that people consume news online because devices like smartphones are one more place to locate their favorite news media. That is not the entire story, however. Facebook and Twitter have started to become news distribution hubs:

Some 133 million Americans, or 54% of the online U.S. population, are now active users on Facebook (out of 850 million monthly active users globally). They also spend an average of seven hours there a month, 14 times the amount of time people spend on average on the most popular news sites.

A “medium” that is used as often as Facebook is bound to become a huge source of distribution for traditional news.

Facebook is almost entirely a platform of “recommendation.” “Friends” share with “friends” their likes and dislikes and tell others how they spend their time. As news becomes more a part of this process, it will become “pushed” to Facebook users by other users, instead being sought as people seek news today. News media not only will have lost its normal distribution systems, it will have lost its appeal as people move from active news seekers to those who receive it passively.

The ability of the news industry to make money online will be further undermined as people no longer look for information but get it as part of a recommendation process. This new model will make it even harder for traditional media to target audiences. As that problem grows, so will the chance that media can support the news organizations that are at the heart of their appeal.

Douglas A. McIntyre

A new study by the Pew Research Center’s Project for Excellence in Journalism shows that excellence in journalism in the news business is terribly threatened. News organizations have been unable to keep up with much of the rest of the content industry online in terms of growth, because their sites fail to provide good targeting for advertisers who spend the most money — brand marketers. As Pew puts it:

Yet how much of that growth will go to underwrite news remains in doubt and throws into question the financial future of journalism as audience continue to migrate online. What will happen pivots in part on whether the news industry can move into the more lucrative areas of digital advertising, particularly using consumer data to target ads, persuading major legacy advertisers to also advertise online and moving into new revenue areas.

Gannett (NYSE: GCI), the largest newspaper company in the U.S., recently said it will seek to buy out 665 employees. That does not seem like many people, but it is one more hit in a long line of layoffs. The Washington Post (NYSE: WPO) said it will offer another round of buyouts. If two of the most well-financed newspapers in the U.S. cannot afford to keep staff at current levels, what will happen to the rest of the industry?

Many newspapers and broadcasters that are part of public companies posted weak online figures in 2011. Internet revenue was supposed to cover the drop in traditional revenue. It has not. Even The New York Times (NYSE: NYT) has managed only very modest growth in its internet operations, and it is owns the largest news sites in America, based on number of visitors.

Perhaps the most troubling sign for any online site is the presence of “house ads.” These are ads for a news site’s own services, whether they are subscriptions or T-shirts with the content firm’s logo. Pew reports that 21% of online ads on major news sites fall into this category. Finance industry advertising is not far behind. Mortgage and credit card companies usually pay low rates for their marketing messages.

The news media considers its content more valuable than entertainment or social media content. That makes sense. News is essential to the public’s understanding of the world, but it is expensive to collect. The trouble is, advertisers do not care about the future of news media, no matter how important it might be.

Methodology: The study examined advertisements on the homepage and key inside landing pages (from the top five stories on the homepage) for a cross-section of 22 different news operations. Researchers analyzed 5,381 ads. They examined the industry placing the ad, the style of ad and the relevant importance of discount programs.

Douglas A. McIntyre