What newspaper corporations ARE doing well?

Problem is, what a paper should do when they have the 25 percent margin is save some for a rainy day. Putting 5 percent of the 25 away will mean that the 7 percent margin they get the next year will only feel like 12 percent. Or, they should have invested some of that 25 percent into making a better product. Instead, when the margin went from 25 to 24, they chopped jobs.

It's a poor example since I'm citing a movie, I know, but I'll give it anyways. It reminds me of that scene in "Secret of My Success" when the CEO of Pimrose is afraid of a hostile takeover, so he orders jobs cut left and right to build up cash. The Michael J. Fox character points out that is telling investors in the company that the company is panicking, and instead, the company should invest MORE money into the business to make it stronger, and more valuable to investors.

What Tribune should have done is sink more money into making their products better, which would create more profits so that investors would want to continue to put money into it. Instead, like every other newspaper company, they cut jobs, which lessens the quality of the product. Profit margins go down, investors, who were being absolutely spoiled with their 25 percent margins, get scared and start selling out, instead of being satisfied with 20 percent.

 

He was so sharp he hooked up with two women, one of whom was his aunt, at the same time.

Like I said, I know citing a movie is a poor example. But to me, the principle of the segment still stands. Show people you're willing to invest, and more people will want to invest.

 

Exactly. Operating margins mean nothing. You've got to look at net profit--the bottom line.

And another factor beyond strictly individual company bottom line profits (or losses) from the investment community's view is can I, as a shareholder, earn better investment returns elsewhere, in other companies or industries than I can in this one.

There's a fascinating graph in the McClatchy 10K report (page 13) that shows how investors have done in McClatchy, their peer group, and the S&P Midcap index as a whole since 2003:

http://www.sec.gov/Archives/edgar/data/1056087/000119312508041770/d10k.htm

For a $100 investment in 2003, it's worth anywhere from $25 to $50 now in McClatchy or their peer group. If you put that hundy in the Midcap index, you've doubled your investment to $200.

So which way do the big investors go? They follow the money. And it takes investors' money to run a big company. If they're pulling their funds out, then companies are forced to take on additional debt to finance the business, which eats away at bottom line profits in a spiralling financial vortex.