The sale of Knight Ridder Newspapers to McClatchy Co. — and McClatchy’s determination to unload at least 12 of those 32 papers as quickly as possible — Is an appropriate time to ponder the dog-eats-own-tail school of management that has prevailed in the newspaper business for the past 15 years.


As anyone with even a passing interest in the daily press knows, newspapers in general have reacted to falling circulation — and, let’s face it, overall circulation has been falling like a rock — by offering customers less. Certainly that has been the strategy employed by Knight Ridder in Philadelphia, in Miami, in San Jose, and in all of its markets.


At first glance, that would seem to be a counterintuitive response — “They don’t like our product, fine, we’ll give them even less of it.” (Imagine, say, that a cereal company employed that same idea: “Sales are falling, let’s take out the wheat germ, but leave the sugar in.”) But, perversely, it is exactly that strategy — “No one is buying the paper, we gotta cut costs” — that has served for a long while to artificially prop up profit margins (profits as a percentage of revenue) in a business that reaches fewer customers each year.


That anomaly — fewer customers, yet more profits — pretty much prevailed in the news biz from 1990 through 2004. But it was an end-game from the start, and it stopped working sometime last year. Consider: Knight Ridder’s profit margin in 2004 — profits as a percentage of revenue — was a handsome 19.7 percent, even as most of its newspapers recorded circulation losses. But in 2005, earnings slumped to around 16 percent of revenues


That’s still a healthy profit — the average profit margin for the 500 biggest corporations in the world (the Fortune 500) is 11 percent. But Wall Street is not impressed. And there is a surprising reason for that. Analysts are most commonly castigated for caring only about the most recent quarterly earnings report. That’s actually a bum rap. The reason The Street is hammering newspaper stocks has nothing to do with current margins; it has everything to do with the fact that analysts perceive that readers are fleeing to the online version of newspapers far faster than ad dollars are.


Some newspapers these days have three to four times the web traffic than they have print sales. Yet their advertisers remain primarily wed to print, even though print ads cost far more per eyeball reached than web ads. And even those ad dollars that do go to the Internet are dispersed across cyberspace instead of landing exclusively at newspaper websites.


And there is the heart of the dilemma. The majority of readers are in one place — online — yet the great majority of ad dollars are still spent at another place: the paper product. That is the fundamental disconnect that has left all of us watching as members of a bewildered industry struggle like fish in an aquarium in which the water level drops each year.


But the thought also occurs: Many newspaper editors and publishers, far from being the lumbering dinosaurs they are so often described, and dismissed as, have actually responded with alacrity to both new technology and a new economy. (See, for one example, washingtonpost.com.)


It is advertisers, not publishers, who are still funneling the money to a destination that readers have long since abandoned. But it is the publishers, not the advertisers, who take it on the chin from Wall Street.


Your mother wasn’t kidding when she told you life is unfair.

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Steve Lovelady was editor of CJR Daily.