As Knight Ridder Goes, So May News Industry

Like other chains, Knight Ridder has responded to readers and advertisers migrating to the Internet by investing in Web versions of the print product, cutting costs and experimenting with free papers.

But as industrywide circulation figures released Monday made clear, the most traditional form of journalism is losing ground at an accelerating pace. Of the country's 20 largest daily newspapers, only two sold more copies in the six months through September than they did in the same period a year before, and the overall 2.6% drop in weekday circulation was the biggest since 1991.

"Those who are responsible for running these companies have not been able to make the kind of adaptive changes they need to in order to stay competitive," said Bob Giles, curator of Harvard University's Nieman Foundation for Journalism.

Although newspaper companies still are more profitable than many other industries -- operating margins of more than 20% are common -- revenue is growing slowly and corporate owners are tending to funnel earnings into other areas rather than pay them out as dividends.

Last week, investors owning more than 35% of San Jose-based Knight Ridder said they were tired of waiting for management to turn around a share price that had tumbled from almost $80 a year and a half ago to a recent three-year low of $52.58.

In public filings, they urged the board to consider putting the company up for sale. The biggest investor, Private Capital Management, said it would even support a hostile takeover of the company that owns the San Jose Mercury News, the Miami Herald, the Philadelphia Inquirer and 29 other daily papers. Knight Ridder has declined to comment.

Investors are betting on a profitable resolution. The stock has climbed 18% since Nov. 1, when talk of a sale surfaced, closing Monday at $62.99, up $1.51.

Knight Ridder's situation illustrates a larger predicament for newspaper executives, who are under pressure to improve their product at the same time that they are being urged to cut expenses to increase profits.