READ ALL ABOUT IT

By ELIZABETH GLEICK

As the days passed last year, it was as if some creeping, flesh-eating virus had got hold of the newspaper industry. Nearly every month brought fresh evidence of decay, proof that a major contraction, driven by skyrocketing costs for newsprint, was occurring among papers large and small, famous and obscure. In January the Milwaukee Journal and the Milwaukee Sentinel announced a merger, destroying about 500 jobs--and creating yet another one-newspaper town. In March the Fort Worth Star-Telegram abandoned its all-day edition. In April the Houston Post walked off the field, leaving its rival, the Chronicle, with the run of the city. Knight-Ridder then announced plans to cut 250 jobs at its two Philadelphia newspapers, the Daily News and the Inquirer. In the fall, managers at the Hartford Courant, which had never laid off a worker since its founding in 1764, asked 188 staff members to take voluntary buyouts, citing financial pressure from parent company Times Mirror.

By the end of 1995, obituaries had been written for New York Newsday, the Norfolk Ledger-Star in Virginia, the Baltimore Evening Sun and the 93-year-old Greenville Piedmont of South Carolina, while a grand total of 13,000 newspaper employees, 2.6% of the newspaper work force, lost their jobs or took buyouts. Downsizing, cost cutting, merging, closing: these catchwords not only dominated the papers' business pages but also became the stories of the newspapers themselves. IF YOU THINK THIS WAS A BAD YEAR, warned a headline in a newspaper trade magazine, BETTER GET USED TO IT.

The local newspaper, once an indispensable part of daily life, is becoming just one more piece of information clutter. Readership is declining even as new technologies transform or undermine the role newspapers have traditionally played: that of town crier, bulletin board, community troublemaker and trusted interpreter of the outside world. For years newspaper circulation has in general been on an inexorable slide. Between 1992 and 1995 it fell about 3% nationwide, with some major papers taking even bigger hits. The Los Angeles Times, for example, lost 3.5% of its circulation last year, though it is up slightly this year. The percentage of adults reading daily newspapers has fallen from 78% in 1970 to 64% in 1995. The figure is even lower for young people, ages 16 to 24: only 52% of them read a paper daily. And this year alone, Websites in hundreds of cities across the country are taking aim at newspapers' core business, running listings and classifieds with a mix of local news and entertainment.

Meanwhile, the actual number of daily papers has dropped from 1,570 in 1992 to 1,532 last year, and those that survive are being bought up by large chains. Since 1992 more than 300 dailies have changed hands, the overwhelming majority passing from one chain to another. The 15 largest groups now control more than half the country's daily newspaper circulation, and the trend is for all the papers in a region owned by one group to share photographs and reporters.

"Newspapers are struggling to keep their place as an important source of news for people," says Rem Rieder, editor of the American Journalism Review. "It's easy to write them off as dinosaurs." Yet for all the harbingers of doom, the $48 billion newspaper industry (compared with $12 billion in 1975) is still a pretty good business to be in. In the past, owning papers made families like the Hearsts, the Grahams and the Sulzbergers tremendously wealthy. And even last year, profit margins for the industry as a whole were a respectable 12.5%--nearly twice that of the average Fortune 500 company. (Gannett Co., the country's largest newspaper chain, rang up a 21.7% margin.) Notes John Morton, a Wall Street analyst: "The newspaper industry is sorely besieged, but not from a lack of profits."

The problem, though, is that for many newspaper owners--and their stockholders--12.5% margins are no longer good enough. Tony Ridder, CEO of Knight-Ridder's 17-paper empire, explains that he must answer to many masters. "I've got a number of constituencies: the customers, the communities in which we do business, and I've got the shareholders." And some shareholders remember the boom-boom 1980s, when newspaper profit margins routinely approached 20%. Cold reality hit along with the recession in the early 1990s: retailing, then retail advertising, then newspapers dependent on such advertising suffered, and profits fell. Ridder insists that the financial pressures on all papers tend to be cyclical and that in fact Knight-Ridder has recently upped the percentage of revenue it spends in the newsroom. Journalists who complain about cost cutting, says Ridder, "have very short memories."

Nevertheless, newspapers are facing a unique challenge. Although the economy has rebounded--and with it, according to third-quarter reports released last week, profit growth for many newspaper chains--the face of retailing has irrevocably changed, with fewer mom-and-pop stores eager to advertise in the Anytown Daily Bugle and with large discounters not using newspaper ads as heavily. The rise of other ad outlets, such as cable television, direct mail, niche publications and online services, means that newspaper executives may never see such rich margins again--but that does not stop them from squeezing. Many newspaper veterans feel they are living through an invasion of the bean counters--nonjournalists terrified by the loss of readers and the new forms of competition, who are willing to sacrifice long-term quality for short-term goals. "The industry is at a crossroads, and a lot of people are going to make the wrong decision," says Leonard Downie Jr., executive editor of the Washington Post. "The conclusion they are drawing is to batten down the hatches, drastically downsize and become something other than a newspaper." Downie, admittedly at the helm of a profitable, family-controlled business, is keeping the faith. "I think the future of newspapers is in being newspapers."

In many newsrooms, however, morale is hitting an all-time low--though journalists are famously cranky. For example, at the Philadelphia Inquirer, which is under pressure from parent company Knight-Ridder to boost profit margins from 8% to 12% this year and 15% the next, staff members cite with dismay the collapse of the time-honored wall between "church" and "state"--the editorial side and the business side--which is meant to ensure journalistic integrity. The head of circulation now sits in on story meetings, while reporters and editors must take "business literacy" classes to learn how the publishing side works.

At the Los Angeles Times, employees entering the building are greeted by an LED display of parent company Times Mirror's stock price--an irksome reminder that their CEO, Mark H. Willes, is wielding one of the sharpest axes in the industry. In 1995, his first year on the job, Willes slashed a grand total of 3,000 jobs, including almost 800 that died along with the New York edition of Newsday--which hemorrhaged some $100 million in its 10 years of life--and 140 newsgathering positions at the once fabulously profitable L.A. paper.

The great worry, according to Bill Kovach, a former Atlanta Journal-Constitution editor who heads the Nieman Foundation in Cambridge, Massachusetts, is that "newspapers are trying to save money in the newsrooms, but they are undercutting the quality of their news reports. It's taking the life right out of them." The San Francisco Examiner, for instance, still runs foreign news, but without a single overseas correspondent on staff. Under instructions from parent company Knight-Ridder to boost its margins from 16% to 18%, the Miami Herald will cut 300 jobs by the end of this year. Once considered a competitor of the New York Times and the Washington Post and famed for winning seven Pulitzers in the 1980s alone, the Herald has responded by shifting its focus to regional coverage and "news you can use."

And while there is fat to be trimmed in many news organizations--and it is worth pointing out that journalists' salaries have increased in recent years--sometimes the cuts reflect a lack of understanding of newspapers' unique needs. At the Inquirer, which won 17 Pulitzer Prizes in 18 years under its former editor, Eugene Roberts Jr., staff members cite attempted cost-reducing measures that range from ridiculous to troubling: last year reporters were told they could not dial directory assistance, and at one brief point all long-distance calls were banned, as was travel to New York City, all of two hours away. "Morale has been low, there's no denying that," says the paper's executive editor, Robert Rosenthal.

Yet editor Maxwell King insists that the Inquirer has "managed to stay whole in all the important ways." This fall, for instance, the paper ran a series, "America: Who Stole the Dream?," for which two reporters spent more than two years, beginning before the 1995 cutbacks, researching the loss of decent jobs for blue-collar workers. King does not object to the demand for double-digit profitability, but he does wonder what further compromises may be necessary to achieve it. "We have stuck stubbornly to substance, and we've lost a lot of circulation," he says. "What makes a newspaper successful? Does this high-end stuff sell?"

Many papers are deciding it does not. While cutting their investigative or foreign staffs, they are beefing up entertainment and sports coverage. Many journalists are worried that USA Today and its children will take over the world. Derided as "McPaper" when it was founded in 1982 by Gannett chairman Al Neuharth, USA Today pioneered the delivery of news in light, bright, four-color bites. The paper now has a national circulation of 1.6 million, second only to the Wall Street Journal, and has announced a jump in ad pages and revenue over last year.

While the paper's quality has improved dramatically over the years, with recent investigative reports on air bags, for instance--as its publisher, Thomas Curley, puts it, "we've had breadth; now we're trying to add depth"--USA Today is also seen as a bad influence on many big-city newsrooms. The Atlanta Journal-Constitution, for example, now bans front-page stories that jump to another page, which means major news events must be covered in a paltry 150 words or so. Many papers have shifted to civic, or public, journalism, an increasingly popular but controversial editorial policy in which newspapers attempt to respond more closely to the needs and interests of the communities they cover, using focus groups and reader polls. "To the extent that public journalism weans reporters from political insiders and forces them to talk to ordinary people, it's an incredibly healthy development," says Washington Post media critic Howard Kurtz. "But you can push it too far and become a player instead of a chronicler of the news." A player--or even a booster: the Miami Herald has been criticized, for instance, for running more of what Jim Mullin, editor of the New Times, a Miami weekly, calls "upbeat coverage of the joys of life in Miami."

The papers that are succeeding in these difficult times are those that have targeted an easily definable market or figured out ways to extend their brand name. USA Today, for instance, is what Kovach calls a great "second read" for the business traveler and for the many Americans displaced from their hometowns. "If you have moved from Dallas to Washington, you can't read about the Dallas Cowboys in the Washington Post," says Curley, "but you can get some of it in USA Today."

There has been a boom in ethnic papers, according to the New York Times, with some 20 journals for Russian readers and more than 60 for Vietnamese immigrants. And the San Jose Mercury News has positioned itself as the voice of Silicon Valley, a community defined not only by geography but by technology as well. The Mercury News reported a circulation increase in the past year of 1.5%.

Then, too, a number of alternative weeklies are stepping in where older papers, sensitive to charges of negativity, have let their role as community watchdog slide. New Times Publications, for instance, claims some 700,000 readers of its seven increasingly successful papers in Phoenix, Denver, Houston, Dallas, Miami, San Francisco and Los Angeles. New Times's Westword kept dogged watch over the start-up problems at the Denver International Airport last year, while the dailies, the Denver Post and the Rocky Mountain News, were less critical. And the Phoenix New Times beat that city's dailies on the corruption scandals of Governor Fife Symington III.

Jim Weeks, who runs the New York Times Co.'s 21 regional newspapers in six states, is bullish on his business and is looking to expand his stable. "The future is local, local, local, and nobody is going to out-local us," he says. Whether this local news ends up being on actual paper in the future, though, is anybody's guess. "We are the primary source of news in our markets," says Weeks. "If we have to do that with Web pages, we'll do that. If we have to do it with video feeds, we'll do that."

Virtually every big paper has made a foray into the online world. "The name of our business is how many eyeballs look at our content," says Howard Tyner, editor of the Chicago Tribune. "If you look just at ink on paper, the number of eyeballs is going down. But to all the people thumping their breast about the end of the daily newspaper, I say, 'Phooey.'" He whips out plans for a $7 million renovation of the Tribune building that will bring the company's print, Internet and cable operations into close contact with one another. Nine companies, including Hearst, the New York Times Co. and the Washington Post Co., are participating in the New Century Network, a project that connects local papers. The privately held Newhouse chain, which owns 26 daily papers, while pouring money into its newsroom operations at New Jersey's Star-Ledger, in Newark, and the Cleveland Plain Dealer, is also giving its online services a push. "What we are trying to do is reinvent the paper to the extent it is necessary to come up with a product that people in the '90s think is valuable and essential," says Star-Ledger editor Jim Willse.

Valuable and essential are ever shifting concepts. As more people spend their time sitting in front of screens, be they computer or television, the argument that newspapers are indispensable becomes harder to make. But industry analysts caution against undue pessimism. "More than 50% of households still receive a newspaper," says Michael Wolf, top media analyst at Booz, Allen & Hamilton. "A lot of people still want to know not just what happened but why it happened." In other words, editors need to worry not about things they cannot control--such as being faster than cnn, splashier than Entertainment Tonight or more interactive than Suck. "Where we are still unchallenged," notes Inquirer editor Maxwell King, "is being the best explainer of the news."

--Reported by Ann Blackman/Washington, Jordan Bonfante/Los Angeles, Mubarak Dahir/Philadelphia, Tammerlin Drummond/Miami, James L. Graff/Chicago and Elaine Rivera/New York

With reporting by ANN BLACKMAN/WASHINGTON, JORDAN BONFANTE/ LOS ANGELES, MUBARAK DAHIR/PHILADELPHIA, TAMMERLIN DRUMMOND/MIAMI, JAMES L. GRAFF/CHICAGO AND ELAINE RIVERA/NEW YORK