Summary:

There are fresh rumors that Rupert Murdoch wants to buy the flagship newspapers of America’s second and third biggest cities. This would give him a giant footprint in the country’s three biggest markets — but it still doesn’t make business sense.

Media types are buzzing over reports that News Corp CEO Rupert Murdoch is in talks to buy the LA Times and the Chicago Tribune. News Corp poured cold water on the claims today but there is enough evidence to suggest the plan is a possibility — here’s a look at what that might mean.

First, some background: Reuters and the LA Times on Friday cited two senior News Corp executives to say that Tribune Corporation will soon exit bankruptcy and that CEO Rupert Murdoch is in “preliminary talks” to acquire its two flagship properties, the Times and the Chicago Tribune. News Corp today said this was “wholly inaccurate.”

Despite the denial,the reports are consistent with earlier credible reports that “Mr. Murdoch has long eyed titles such as the Los Angeles” ties. There is also Murdoch’s recent travel schedule:

Putting aside the “will he or won’t he” question, there is the more basic question of whether such a deal would make business sense. Frankly, it’s hard to see how it does.

News Corp, recall, is in the process of spinning off its publishing assets from the cable and entertainment empire that brings in most of its cash. The company has yet to disclose the degree that it will capitalize the new publishing company but it’s safe to assume that the future corporation’s newspaper budgets will be scrutinized like never before. The challenge seems especially daunting given that the new company’s biggest asset will be Australian newspapers — which are still squeezing out strong earnings from print ads but otherwise seem on borrowed time.

If Murdoch plans to add flagship papers in Chicago and Los Angeles, he will have to come up with a quick plan to monetize them. While News Corp’s Wall Street Journal has been a model for paywall success, a lot of this success derives from its role as a business brand. If the LA Times and Chicago Tribune brands are to survive in the long run, they will likely need additional revenue streams beyond advertising and subscriptions.

It’s possible that Murdoch could use a flagship news presence in America’s three biggest cities to find new efficiencies of scale — a task that would be easier if regulators loosen restrictions to permit direct partnerships with the cities’ Fox affiliates.

All of this is speculative, of course, until Murdoch reveals his true intentions. But if he makes a play for Chicago and LA, he will have to act quickly to persuade investors that the plan isn’t simply the swan song of the last of the great newspaper barons.

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