Big Media Blues

David Westin, president of ABC News, penned an editorial in The Wall Street Journal on Monday lamenting the decline of big media's "traditional news organizations." He cited figures showing readership drops at several large-market newspapers, including The Washington Post (NYSE: WPO) and Tribune's (NYSE: TRB) Los Angeles Times, and anecdotal evidence about faltering viewership for his own Disney-owned (NYSE: DIS) network newscast. But unlike many traditional media types, he does not blame the blog bogeyman or the dumbing down of America. His reason is refreshingly candid: because the quality of product sold by traditional media no longer measures up to "traditions of journalistic excellence."

Interesting theory.

A number of what Westin called "notorious examples" have fueled disaffection with the media across the political spectrum: plagiarism, a perceived failure to challenge assumptions behind Operation Iraqi Freedom, and CBS's use of dubious documents in a report on President Bush, among others. Now Washington Post-owned Newsweek has been caught publishing an account of U.S. soldiers destroying the Koran -- triggering deadly riots in some parts of the Middle East -- that cannot be substantiated.

To adapt to this environment, The New York Times (NYSE: NYT) hired Daniel Okrent as a "readers' representative," and on May 9, the company announced additional steps to build credibility. Proposals included making editors and reporters available via e-mail, using the Internet to provide more content, considering the creation of a blog, soliciting more feedback, and establishing a rapid-response team. The company seems to have recognized the challenge it faces and apparently wants to go head-to-head with the Internet upstarts.

During the press conference at the recent Berkshire Hathaway (NYSE: BRKa) (NYSE: BRKb) shareholders meeting in Omaha, Neb., Warren Buffett and Charlie Munger also recognized this challenge with respect to their investment in The Washington Post. Both admitted that newspapers are no longer "bulletproof" monopolies. In Buffett's words, "All the newspapers are trying to establish themselves on the Internet, but there is always an alternative source."

That alternative source means that newspapers are losing their moats in addition to their readers. According to the Pew Internet & American Life Project, 66% of males, 88% of college graduates, and 92% of households with income above $75,000 use the Internet. Those are the folks who traditionally subscribed to daily newspapers and who are targeted by the top-dollar advertisers that newspapers covet. Instead of being forced to subscribe to their local rag, these information-hungry folks can now choose from millions of news sources, including blogs, newswires, streaming radio, and publications on the other side of the world.

To date, the New York Times and Tribune companies have watched revenue and net income slide. The always Foolish Alyce Lomax reported on Tuesday about the Times' plans to start charging for some of its Internet content. This could be a bad move for the Times, particularly if, as Westin asserts, the company fails to achieve a level of excellence -- to differentiate itself from the virtually constant stream of free news content available via, you guessed it, the Internet.

Unlike those companies, Washington Post has seen revenue grow at a solid clip. In an attempt to explain this performance, Charlie Munger noted, "TheWashington Post is in a better position because government employees virtually have to read it to know what's going on."

Beware, Charlie. Government employees might figure out the Internet eventually.

Philip Durell's notes on the Berkshire Hathaway press conference and interview with Borsheim CEO Susan Jacques are available by taking a 30-day free trial of his Motley Fool Inside Value newsletter.

Tim Hanson is happy to trade blog recommendations if you email him. He owns shares of none of the companies mentioned in this article.