BOB GARFIELD:
While the year is still new, we thought we'd review the unmitigated string of bad news stories about the newspaper industry in 2006. Over the past two years, newspaper stocks lost 20 percent of their value. That's thirteen and a half billion dollars up in smoke, more than the value of the Tribune Company, owner of 11 daily papers, including The Chicago Tribune and The Los Angeles Times.

Downsizing is everywhere, from wholesale layoffs at The Philadelphia Inquirer to the physical trimming down of The Wall Street Journal's famously broad broadsheet. And questions remain how long there will be any news paper in the newspaper business.

We asked Dan Grech, with the daily business show, Marketplace, to survey the year past and predict what's to come.

DAN GRECH:
In 2006 newspapers themselves were big news. And, as industry expert Dan Gilmore points out, it was all bad news.

DAN GILMORE:
The demolition of the classified advertising model, the sale of Knight Ridder for the low end of what anyone had expected, the imploding stock prices, the pretty dramatic drop in circulation, the fact that people in their 20s and younger, for the most part, never pick up a newspaper; they hardly know what it is.

DAN GRECH:
Add to that the job cuts, the rising price of paper and ink, the gutting of The Philadelphia Inquirer and The Los Angeles Times on the auction block, and the fact that The Wall Street Journal started printing ads on page one.

But probably the least-covered newspaper story last year was the toll all this bad news was taking on ink-stained wretches everywhere.

JIM VANDEHEI:
People should be nervous.

DAN GRECH:
Jim VandeHei is the former national political correspondent at The Washington Post.

JIM VANDEHEI:
Newspapers are losing big chunks of their readership. Their ad revenue is shrinking, and a lot of them have been slow to adapt to the new journalism world order, which is web first. And that should cause a lot of anxiety.

And then you look around and you see people, you know, selling the Minneapolis paper for, you know, half of what the folks bought it for eight years ago.

DAN GRECH:
The deal for The Minneapolis Star-Tribune was particularly scary. That was last month, when McClatchy sold its former flagship paper to a partnership of former investment bankers from New York. It was the first time a private equity firm bought a major daily paper.

Private equity firms have a frightening reputation. They're known to gut companies to increase profits, then resell the companies after a few years.

JIM RUTHERFORD:
I'm Jim Rutherford. I'm executive vice-president of Veronis Suhler Stevenson.

DAN GRECH:
That's a Manhattan private equity firm that specializes in buying media companies. Rutherford argues that private equity firms may be better owners than public newspaper companies.

JIM RUTHERFORD:
If you're a private equity owner and you've totally gutted the business and there's nothing left, nobody's going to buy it from you.

DAN GRECH:
Equity firms like his are freed from Wall Street's demand for rising quarterly profits. Instead, they work on five-year time frames. Rutherford says that gives their papers more time to adapt to the new media landscape while preserving the quality of their journalism.

JIM RUTHERFORD:
Are there instances where costs are cut? Yes. But, again, you're not going to succeed in the long term if that's all that happens.

DAN GRECH:
Some say newspapers are due for a come-uppance. For years, they've been monopoly businesses, bilking advertisers, creating mediocre content and raking in huge profits. So even if their bottom line eroded, newspaper executives remained resistant to change, as were their reporters, who've seen their own monopoly on the news erode as well.

ERIC NEWTON:
Newsroom cultures are one of the most defensive cultures there are.

DAN GRECH:
Eric Newton is the vice-president at the Knight Foundation, a grant-giving nonprofit that outlived its namesake corporation, the Knight Ridder newspaper chain.

ERIC NEWTON:
You've got hospital emergency rooms, you've got the military, you've got nuclear power plants and you've got newsrooms. Three of those are life-and-death operations and one of them just thinks it is.

DAN GRECH:
Newspapers themselves face a life-and-death situation. The scariest end game is what's called the "death spiral." Newspapers continue to lose readers, which drives away advertisers, which cuts into revenue. That forces job cuts, which erodes the quality of the paper, which chases away more readers and advertisers - on and on until the paper collapses. As reporters recognize the dire situation, their defensiveness has given way to fear.

Investment banker Robert Garrett is with AdMedia Partners. He says that fear is slowly turning into a willingness to try something new.

ROBERT GARRETT:
What we're talking about today is radically different than we would have talked about 12 months ago, yes. There's an “Oh my God” here – what are we going to do - that realization something must be done.

DAN GRECH:
So what can be done? Jim VandeHei, The Washington Post reporter, has one answer. He and editor John Harris left The Post to start a political news website called The Politico. It goes live on January 23rd, the day of President Bush's State of the Union address.

JIM VANDEHEI:
I laugh, because I think about, like, bringing people over here, and I'm, like, well, this is a risky venture. What would happen if it didn't work, and how does that play into your conscience?

And then I think, well, what if I let them stay at The L.A. Times? What if they stay at The Philadelphia Inquirer? What's riskier, staying there or coming here?

DAN GRECH:
The truth is, no one in the newspaper industry is sure how to respond to the Internet revolution. Michael Skoler is with American Public Media – my employer – at its Center for Innovation in Journalism.

MICHAEL SKOLER:
There'll be an economic model. I'm not sure we're seeing it yet, but there will be one. The big question in my mind is, in this churning kind of media landscape, whether or not news organizations will retain the trust with the public. As newspapers, in particular, try to cut staff in order to get better profit margins, and they're doing less of a good job at reporting in their communities, if the trust between them and the readers breaks, they won't have anything to bring to a new economic model when they find it.

DAN GRECH:
Newspapers are entering a brave new world where the old model has to be abandoned but a new one is still over the horizon. The Knight Foundation's Eric Newton.

ERIC NEWTON:
Fifty years from now we'll look back on this as the Wild West period and the crazy pioneering era in which nobody knew what was going to happen and everything seemed possible, and opportunity flowed from every street corner. It is a wildly exciting time, as long as you're not pining for what was.

DAN GRECH:
The biggest names on the Internet are entering the industry. Yahoo and Google are now working with papers to sell ads. But, strangely enough, Newton says the company in the best position for this new era is the world's oldest newsgathering operation. It's a not-for-profit with 3,700 employees and 240 bureaus worldwide – and, most importantly, it doesn't use paper. If Eric Newton were a betting man, he'd put his money on The Associated Press.

For On the Media, I'm Dan Grech.

BOB GARFIELD:
That's it for this week’s show. On the Media was produced by Megan Ryan, Tony Field, Jamie York, Mike Vuolo, Alicia Rebensdorf and Michael McLaughlin. Dylan Keefe is our technical director and Jennifer Munson our engineer. Our webmaster is Amy Pearl.

BETH FERTIG:
Katya Rogers is our senior producer and John Keefe our executive producer. Brooke Gladstone is our managing editor. Bassist/composer Ben Allison wrote our theme. You can listen to the program and find free transcripts, MP3 downloads and our podcasts, as well as our newsletter, at onthemedia.org, and email us at onthemedia@wync.org. This is On the Media from WNYC. I'm Beth Fertig.

BOB GARFIELD:
And I'm Bob Garfield.