Newspapers are still profitable! In a seasonally small third quarter, McClatchy Co. (NYSE: MNI), against all odds, still reported positive net income. Ad revenues down 19 percent, enormous interest expense on $2.1 billion of debt, but STILL PROFITABLE. Admittedly, I am a little more removed than I used to be from the newspaper business but I was surprised. As Alan Mutter recently noted on his blog, newspaper margins are coming down, fast. However, despite the decline, newspapers still enjoy respectable margins. Maybe the industry is overreacting and should just get used to lower margins.

Unfortunately, continued ad revenue declines will further erode margins to the point that profitability isn’t assured. Yet, if Gary Pruitt, CEO of McClatchy, is as confident as he sounds that newspapers aren’t going out of business and really believes that the majority of the ad declines are cyclical, why isn’t he investing rather than cutting? Presumably, even when there is some form of cyclical recovery, margins for the industry will be dramatically lower than they were during the heyday. I, for one, just hope they are positive, as that is good enough for an industry that matters quite a bit beyond just its economics. For an industry that well understands it serves the greater good, come to terms with lower margins. And then go private!