Although I have primarily been a reporter the past fifty years, I have also been a close observer of the financial side of the media business. In my college days, I bought stock in The New Yorker. I was an initial investor when Clay Felker started New York magazine, and when The New York Review of Books began. In 1970, I spent a couple of years unsuccessfully trying to start a national newspaper to be produced in Washington and printed on local presses in college cities across the country. From 1971 through 1975, I was executive editor of The New Republic, and put together a group that was to purchase the magazine after the 1976 presidential election, though we were outbid. I returned to The Washington Post in 1975 and today am a consultant to the company as well as a reporter for the newspaper.

I describe this background to justify talking about the finances of the newspaper business. In the early 1960s, Phillip Graham, at the time the president of The Washington Post Company, told me that the Post had just begun to turn a profit, but that he and Eugene Meyer, his father-in-law, who had originally purchased the paper, considered it a business much like a public utility. And as such, they thought making a profit of 7 percent would be a more than fair return on investment. This philosophy has guided me ever since.

Family-owned newspapers were the foundation of American journalism in the 1960s. Like the Post, most were started by businessmen who wanted a voice in their communities. Few were begun as the way to make a fortune. That began to change with the arrival of radio, and then television. The electronic media involved government licenses, which carried with them the requirement for delivery of public-affairs programming, starting with news. Newspapers became the obvious applicants, and many publishers suddenly became owners of local broadcast stations who stood to make a lot of money as network affiliates.

In the 1950s and 1960s, when newspapers made single-digit profits, radio and television affiliates could make up from 40 to 50 percent. Newspapers large and small started being swallowed by publicly owned corporations. With that trend came monopoly ownership. Gannett became the biggest. In 1977, as its purchasing of family papers moved into high gear, Gannett stock was around $8 a share. By 1990, it was at $75, and in 2004, it hit $90. At its height, Gannett produced earnings of more than 22 percent on its gross income, and set a standard that other newspaper corporations tried to emulate. When Knight-Ridder showed only a 14 percent profit, its major investors demanded it be sold.

I believe most corporate owners of newspapers made terrible business decisions over the past decade, thinking that the growing profits of the 1980s and early 1990s would continue. Chains paid excessive prices for family-owned papers and went deep into debt. The New York Times Company finds itself in trouble after paying $1 billion for The Boston Globe, over $2 billion to buy back its own stock at the height of its price, and another $600 million for a new building.

And now there is the economic downturn. In this environment, the Web has become both the threat and, to some, the savior. But I look at this differently than some in my profession. The Web has certainly taken an important chunk of classified advertising, but the broader threat seen by many is to me another sign of our own self-involvement. Journalists, probably more than any other group outside the financial community, are mesmerized by the Web. They closely watch it, so they believe others are doing the same.

Let me clarify that I am talking primarily about mass media—newspapers, television, and radio that traditionally have reached more than 80 percent of the American public. I am not talking about the thousands of Web sites and blogs that aggregate other people’s stories or present their own editorial material. They talk of thousands of unique visitors, but remember that these totals, often inferred rather than accurately measured, reflect monthly figures. When divided by thirty days in a month, they become smaller than individual newspaper circulations, which cumulatively sit at 110 million daily readers, even with recent losses.

Walter Pincus is a reporter for The Washington Post, and a consultant to The Washington Post Company. This article is adapted from a lecture he gave in February in Berlin to The American Academy.