Update: On July 14, 2011, Journal Register Company announced that it had been purchased by Alden Global Capital for an undisclosed amount. Lauren Kirchner’s article below describes what exactly Alden bought.

“We’re no good at this,” John Paton says, sitting in a midtown Manhattan conference room on a gray, rainy spring day. “We” is the news business, and “this” is designing a viable future for it. “We have to figure it out.” He leans forward in his chair and adjusts his blue Hermès tie. “If this business model’s not fixed, the amount of American daily newspapers that won’t be here in five years will stagger you. They won’t make it.” The reporters and editors at Journal Register Company—a chain of eighteen daily newspapers and 176 non-daily newspapers, magazines, and websites in small markets throughout the Midwest and Northeast—should know. Paton took over as CEO of the company in February 2010 when the previously public company emerged out of bankruptcy as a private one.

Since then, Paton has engineered a radical makeover of JRC’s previous image as an old-fashioned, bottom-of-the-barrel corporate chain. He’s attracted industry attention for hiring digital big-thinkers like Columbia University’s Emily Bell, CUNY’s Jeff Jarvis, and NYU’s Jay Rosen to his advisory board. He’s stressed a culture of transparency, community engagement, slashing costs without any layoffs in editorial or sales, and, above all, an upending of the daily news production process that he says is a byproduct of a print schedule that is irrelevant by now.

“Digital first, print last” is the new JRC motto—that’s the order in which readers want the news, and so that should be the order in which outlets publish it. Paton hopes this culture change won’t just revitalize newspapers’ relationships with their readers; it’s his bet to push digital income high enough to replace the print revenue that he says will inevitably disappear.

The newspaper industry’s print ad revenue reached a peak in 2000, after climbing for most of its history. Weighed down in part by a recession, it has plummeted since 2007. By 2010, print ad revenue was half what it was five years earlier. Digital ad sales, meanwhile, have not filled the gap; industry-wide, digital ads still only account for a mere 15 percent of ad revenue overall, according to the Newspaper Association of America.

In the first quarter of 2011, following a year of dramatic reinvention at JRC, unique visitors were up 58 percent and page views up 31 percent from the first quarter of 2010. Although he will not disclose dollar figures, Paton admits that JRC’s print ad revenue was down 7 percent for that period, but points to a 67 percent increase in digital ad revenue. He also says digital sales accounted for 15 percent of all ad revenue, bringing that ratio up to the industry average. Before Paton’s takeover, ad sales had been only 6 percent digital. Shortly after taking charge, Paton told his staff that he wanted digital ad revenue to account for 25 percent of the company’s cash flow, expressed as EBITDA—an accounting measure of earnings that excludes taxes, interest costs, and other expenses—by 2013. Two years after that, the goal is 50 percent. This June, Paton said it stood at about 10 percent.

Given the rate of plummeting print revenues generally, Paton argues it’s a matter of simple math to predict when any newspaper may have to close its doors if that revenue is not replaced. “Digital First” is Paton’s gamble that his papers will be among the ones that make it. “The sense of urgency at JRC is profound. I might run out of time. I mean, that’s an honest and obvious question,” he admits. But to his colleagues at newspapers who aren’t trying something like “Digital First,” he offers a wager: “I bet you my time is longer than yours.”

A Company Transformed

Paton hardly could have picked a less likely company in which to play out his—or anyone’s—experiments in news innovation. From the beginning, JRC had a reputation in the business for being a penny-pinching corporate chain, headed up by a bunch of bankers who, starting in 1990, bought clusters of family-owned, small-town newspapers and made huge profits by cutting costs. And those cuts tended to come in the newsroom. When print ads took a nosedive in 2007 and 2008, there was nothing left to cut. JRC went into bankruptcy in 2009 with $692 million in debt.

Lauren Kirchner is a freelance writer covering digital security for CJR. Find her on Twitter at @lkirchner