Thanks to Clay Shirky for responding to my piece on the financialization of the Washington Post Company, which during the financial crisis has handed more than a billion dollars back to shareholders via dividends and share buybacks while its newspaper crumbles. I’ve got a couple of thoughts in response.

First, it’s seriously good news to see an Internet thinker like Shirky endorse a paywall, which in its current formulation brings in subscription money from core readers while allowing occasional visitors to read without charge. He writes that the Post “should turn to their most loyal readers for income, via a digital subscription service of the sort the Times has implemented.”

The significance of a longtime pay skeptic of Shirky’s prominence crossing over shouldn’t be underestimated. Removing the intellectual justifications for not charging makes it that much more difficult for executives at the Post and, say, The Guardian—much less management-consultant types like Jeff Jarvis—to hold out.

Unfortunately, the industry’s move toward charging online comes at least a decade too late. Newspapers have foregone billions of dollars in subscription revenue buying into the false hope that Web ads would someday pay the bills. And they did so in large part because the industry didn’t innovate quickly enough. Before The Wall Street Journal started letting news leak out from its subscription site half a decade ago, a paywall was an all-or-nothing proposition. The WSJ showed you could hold onto your subscribers while getting links from Digg and Drudge and, later, Google. The Financial Times’s meter model improved on the WSJ’s innovation, and the NYT has since improved on the FT’s.

Digital subscription revenue is no panacea for newspapers, though. It’s something of a parachute slowing their fall: It won’t return newspapers to their peak form, but it could help them land safely. At some point relatively soon, ads will have fallen so far that they have no farther to go and the print paper will disappear . Digital subscriptions will be a second major revenue stream—one that could rival what digital ads bring in.

Shirky’s main contention with my piece is that I don’t acknowledge that profits and great journalism are basically becoming mutually exclusive:

If, as a citizen, he wants investment in journalism, then he doesn’t want more capitalism from owners, especially not the swashbuckling kind. If, as a shareholder, he wants more profit, then the last thing he wants the Washington Post Company to do is spend more on the newsroom. Chittum comes so close to arriving at the obvious conclusion—in its current configuration, the Post is basically screwed—then doesn’t follow his own logic all the way through. If he did, the animating theme of his piece—blame management—would be harder to support.

But I have long come to that conclusion, at least as far as the industry is currently configured, and I wasn’t minimizing the deep structural problems facing nearly all newspapers. That’s implicit in my discussion of the Post’s dismal performance—the “losses in thirteen of the last fifteen quarters” and the “trail of red ink that has led to cumulative losses of $412 million over the period,” to quote from my fifth paragraph.

Maybe I should have made it explicit. So here goes: As is, the Post is screwed. It will need to make radical changes to get to 2022 as anything worth caring about.

Those changes will include stopping the printing presses, perhaps except on Sunday, and transitioning to an all-digital platform that relies on subscriptions for a significant portion of its revenues. It will also require the Post Company to stop forking out hundreds of millions of dollars a year to shareholders and to invest at least some of that money in its news operations.

That brings me to where where we fundamentally differ: I don’t accept the premise—not yet—that great journalism and profits are now all but incompatible. I don’t believe that “investing in the Post would be money down a rathole,” as Shirky says I do. I believe it could be, but that’s a critical distinction. I also believe investing money in, say, Facebook could be sinking money down a rathole. But you know what? I don’t own the thing. If I owned a company, much less a critical institution like the Post, I would invest in it or sell it to someone who would. No single investment is a sure thing and newspaper investments these days are riskier than most. The truth is, we just don’t know what the Post Company could have done by investing part of the $1.1 billion it’s handed shareholders in the last four years. But we do know where it is now.

The New York Times, whose market position is unique but not radically different from the Washington Post’s, has not gutted its newsroom, and it is doing much better as a business. That’s no accident. Had the NYT halved its newsroom like the Post has, it would be doing far worse and it would be having a much more difficult time snaring lucrative digital subscribers. As David Carr writes on Twitter, Shirky “gives WashPo management a pass, failing to point out (dimunition) of asset sped downfall.” The fatalism that there’s nothing to be done, that chainsaws must be taken to the newsroom, that hamster wheels must be spun, that it’s okay to be sad that newspapers are dying but not to the point of actually doing even the minimum about it, like cutting the dividend, is harmful.

Actually, that doesn’t quite accurately characterize Shirky’s position, which calls for the Post Company to stop disgorging the cash to shareholders. It’s unclear to what purpose it should stop propping up shares, though, if there’s no place to invest that money. I suppose the Post could pay down its debt, but that’s an investment of its own sort.

Shirky looks at the admirable work of a DC website called Homicide Watch as an example of how the Post should transform itself. Homicide Watch covers every murder in the District with a staff of two, providing far more coverage of the issue than the Post does with its newsroom of 500-something.

But this is exactly kind of thing I’m talking about. Rather than handing its shareholders a couple hundred million dollars a year, the Post Company could have taken a couple hundred thousand dollars and offered to buy Homicide Watch or partner with it, or it could have built a similar site from scratch for the Post. That kind of investment would have helped increase the Post’s value to readers. Instead, the company has made its paper less valuable to readers and seriously harmed its long-term value.

DC Porcupine puts it this way:

Shirky is working from a pretty tortured false dichotomy here. The Post shouldn’t invest in its business because it’s screwed, he says, but it should create new models for business, which he seems to think wouldn’t be helped with investment money…

Homicide Watch and the Amicos do great work, and the Post should always be trying new stuff, but it’s not clear why Shirky thinks that whole innovative process wouldn’t be helped with some cash that the Post is otherwise throwing away.

Journalism will never again be (and should never have been in the first place) a 30 percent profit-margin business, and those Gannett papers didn’t produce much greatness anyhow. But can good newspaper organizations be at least slightly profitable in the medium to long term? I think so, and largely because digital subscriptions offer the first real possible path for a significant newsroom to a post-print future.

I calculate that the NYT’s paywall has pushed that paper past a critical milestone: Its total digital revenue more than covers the cost of its entire newsroom. That’s not good enough, obviously. News organizations have significant overhead costs like real estate, travel, and ad sales. But the paper’s 800,000 or so print subscribers paying $800 a year for the paper are a rich future source of digital subscriptions, and a good portion of its print advertisers would presumably make the transition with readers to an all-digital platform. Papers need new revenue streams to supplement ads and circulation, and they need investment to find them.

I totally agree that the WaPo must transform to survive. The question, of course, is how should it transform? More precisely: How can it do so while preserving what has made it great?

These are extremely difficult questions, but they’re made that much more so by the Post’s myopic insistence on handing more than a billion dollars to shareholders at a time of crisis.