# McClatchy Fails To Escape Downward Trends; Pruitt Reverses View On Paywalls

While the advertising recovery continues to hold on despite remaining economic weakness, the newspaper industry appears to be in danger of falling further beyond even after reducing years-long declines in 2010. Following the recent difficulties seen in Q1 earnings from newspaper publishing peers Gannett (NYSE: GCI) and the New York Times Company (NYSE: NYT) last week, The McClatchy Company (NYSE: MNI) posted falling revenue and a significant loss as digital advertising grew a meager 2.2 percent.

Recent eMarketer numbers put the industry’s situation in context: Digital newspaper revenues are expected to grow 8.6 percent to $3.3 billion in 2011, up from$3 billion in 2010, while print newspaper revenues will fall 6 percent to $21.4 billion in 2011, down from$22.8 billion last year.

One thing McClatchy’s results do seem to bear out is that moving away from print upsells is the only way to grow the digital business.

As Gary Pruitt, chairman and CEO, said in a statement, the publisher of the Sacramento Bee and Miami Herald saw digital-only advertising rise 10.2 percent year-over-year. Total digital advertising represented 20.1 of Sacramento-based McClatchy’s ad dollars in Q1, up from 17.5 percent in the same period last year.

Updated: During the earnings call, Pruitt said McClatchy would start planning for a paywall for some of its larger newspapers. Just over a year ago, Pruitt repeatedly said that the ad-supported model was the best one for newspapers.

At the time, he said, “I get that newspapers are very used to a subscription model.’It works for print. Why not insist that people pay online?’ The reason is, the internet is based on a broadcast model of ad support and it’s hard to buck that system. We’re not ideological about paywalls. We’ll continue to experiment and will try paid models. We will copy the success of those who crack the code. But the current model is working for us right now.”

When pressed on his view of paywalls , he answered by citing a quote from philosopher Bertrand Russell. “When Russell was asked, ‘Would you die for your beliefs? ever the pragmatist, the philosopher answered, ‘No, I might be wrong.’ That sums my view up pretty well.”