DESPITE DOOMSDAY TALK,
NEWSPAPERS POST STRONG PROFITS

PAPER SPUN INTO GOLD

By CHET BRIDGER

Warren Buffett may be souring on the newspaper business, but the old-line industry is still cranking out cash despite new competition from the Internet.

"Newspapers are a category that is very threatened by the Internet," Buffett said during Berkshire Hathaway’s annual meeting in April, according to the Wall Street Journal.
Internet business models have an advantage over newspapers because they have virtually no delivery cost, Buffett said. The new economy will dramatically alter the newspaper industry in the not too distant future, said the legendary investor who owns The Buffalo News.
But don’t write off the entire industry yet. Buffett’s own paper made $35 million last year and the nation’s largest publishing companies are enjoying higher advertising revenue and profits this year.

Knight-Ridder posted a $325 million profit for the first half of 2000, a healthy 16 percent increase from $281 million during the same period last year. Newspapers, which include the Miami Herald and the Philadelphia Inquirer, carried the company.
Knight-Ridder’s newspaper division earned $357 million from January to June, according to reports filed with the Securities Exchange Commission. The company’s Internet division lost $19 million and its "corporate" division lost $13 million.
The red ink is deepening at Knight-Ridder’s online division, which lost only $9 million during the first six months of 1999.
Ironically, the dot-com world appears to be aiding Knight-Ridder’s newspaper profits. "Continued strong demand from high-tech, dot-com and telecommunications" companies helped general advertising revenue jump nearly 13 percent, the company reported.
Classified revenue was also up 7 percent, primarily because of heavy recruitment advertising at the San Jose Mercury News and other K-R papers.
Gannett has posted similar results this year, with profits soaring through no thanks to the online division. Gannett earned $1.2 billion during the first six months, a 167 percent jump from $455 million during the same period in 1999.
The publisher of USA Today, the Rochester Democrat & Chronicle and numerous other papers did not release its profits by operating division in recent SEC filings. But Gannett also has a very large broadcasting division.
The Arlington, Va.-based corporation did report growing red ink from Internet operations. The company posted 42 percent higher revenue, which reached $11 million, during the six month period.
"But expenses rose faster because of additional employee expenses and development expenses to staff and promote the sites, " Gannett said in its SEC filings.
Online expenses at Gannett rose by 73 percent to $22 million for January through June of this year.
The newspaper industry giants do not have the only content-based Web sites struggling to make hay in the new economy. Space.com, the site founded by former CNN business anchor Lou Dobbs, recently laid off one-fifth of its staff, 22 job cuts, during a restructuring.
MTVi, the online arm of Viacom Inc,’s MTV, recently postponed its plans for an initial public offering and laid off 105 people. Some lesser profile content sites shut down during the third quarter.
The mood of many industry executives was far from gloom and doom when they gathered for the Newspapers 2000 convention this summer. Increased competition from the Internet will force industry consolidation and squeeze profit margins, but newspapers have more immediate problems, according to several publishers quoted by the trade publication Editor & Publisher.
The newspaper business is hurting itself through poor marketing and compensation packages ill suited to attracting and retaining talent in today’s tight labor markets, some industry leaders said.
"I think we have a very well-deserved image of not paying enough," said Alan M. Horton, senior vice president of newspapers at the E. W. Scripps Co.

No public reports indicate Buffett making similar statements.