In part one of this article, inspired by media writer Michael Wolff's piece in February's Vanity Fair, we reviewed the worsening plight of the American daily newspaper, and the apparently increasing desire of select American billionaires to take a swing at newspaper ownership. In Wolff's opinion, this seemingly goofy impulse may owe to ego, to age, to a sense of self-importance, or simply from a desire to bask in the clout and respect derived from merely expressing a desire to buy a newspaper. Wolff argues that these billionaires, like the journalists working for struggling papers, simply can't recognize that newspapers are becoming extinct.

For Fools interested in investing in media stocks in general, or newspaper articles in particular, Wolff's article has more to offer than a bleak outlook. He takes a spirited look at how different publishers are trying to deal with dwindling circulation, falling ad revenues, and sliding share prices.

As Wolff notes, even in their current condition, major metropolitan newspapers still generate bales of cash. "Margins of more than 20 percent have been, until recently, the norm (even in this terrible year, the industry average is still 17 percent)," he writes. That well will eventually run dry, Wolff adds, but until it does, smart billionaire owners can still make a hefty profit on their investments.

So how do you make the most money off a failing enterprise? For starters, there's the "cut-and-gut strategy," a.k.a managing for cash -- putting out the paper as cheaply as possible when conditions are bad. Since most of its papers are in smaller markets, Wolff notes that Gannett (NYSE:GCI) has done well with this approach

Fish or cut bait
Tribune (NYSE:TRB), however, has used the free cash flow from newspapers to buy other local media, thereby attempting to balance the newspapers' declining market share with contributions from cable, VHF, and radio. But since the returns from this approach have been less than overwhelming -- even less than those from newspapers alone, in many cases -- Wolff believes that Tribune has moved to cutting-and-gutting.

"It's harder to cut in top-tier markets than in mid-tier: You hear the fuss," Wolff writes. "This fall, both the editor and publisher of the L.A. Times effectively went on strike when asked to make newsroom cuts -- bad press that's helped push the Tribune Company toward its dissolution."

Next, according to Wolff, comes the "most gentlemanly version of the cut-and-gut," which he says is practiced at the namesake papers of New York Times (NYSE:NYT) and Washington Post (NYSE:WPO), and Dow Jones' (NYSE:DJ) Wall Street Journal. This apparently involves snipping inches from the paper and its available space for news content while "slashing budgets and staff." While I can't quite see a major difference in the degree of cut-and-gut respectively practiced by Times and Gannett, I agree with Wolff that "ever more increments will need to be sacrificed to maintain stability."

Finally, Wolff mentions the strategy that perplexes me the most, "the Hail Mary Internet pass." This hopeful and iffy approach is practiced most avidly by New York Times, but Gannett and Tribune are attempting it as well. As I noted during Gannett's presentation to the Credit Suisse Media and Telecom Week conference last month, these companies' current conditions don't always seem to match up to their shining expectations for a vaguely defined future.

A magic transformation
The premise of the Hail Mary approach, Wolff writes, "is that technology (for which newspapers have no natural disposition) and good intentions will help create a new digital form for news and a new-news business. Since no clear form or adequate business model exists for online news delivery, it is almost impossible to handicap the chances for who might succeed here (given the uncertainty, the odds objectively, are not good for anyone)." I can't argue with that conclusion.

For now, whether or not their status is terminal, newspapers are newspapers, not intermediaries transporting their owners to an inevitably successful digital reality. Rather than dreaming up dazzling but risky plays, these corporate QBs should be concentrating on simple blocking and tackling. Unlike Wolff, I think trimming inches from a newspaper's format is both necessary and appropriate.

The newspaper format hasn't changed much from the days of Ben Franklin, Adolph Ochs, or Horace Greeley. Since that outmoded format may be contributing further to the newspaper's demise, shouldn't the publishing companies experiment with their product even more imaginatively, and perhaps more ruthlessly, than they have? Both Tribune and Belo (NYSE:BLC) have created small, rapidly readable newspaper products, respectively dubbed Red Eye and Quick. They require far less reading time than traditionally formatted rags, but they may still be too little, too late for publishers.

Where do Michael Wolff's article and related considerations about newspaper publishing leave us? As sociologists or historians, we might reflect on the shrinking -- or perhaps sinking -- of an American institution. As Foolish investors, our takeaway is far simpler: Avoid this group of investments at all costs.

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Fool contributor David Lee Smith does not own shares in any of the companies mentioned. He welcomes your questions or comments. The Fool has a disclosure policy.