Newspaper Publishers Unite Online

Moving from hard-copy publishing to the Internet is obviously proving difficult for most newspaper companies. In many ways, the movement to the new medium involves starting an entirely new business. Newspapers must retrain editorial personnel to serve different readers. They must also wrestle with the dilemma of charging for the online product vs. providing it free, and address concerns about establishing and maintaining new relationships with traditional advertisers.

Indeed, the latter consideration may be the most daunting for traditional newspaper publishers. Now The Wall Street Journal reports that the three largest U.S. publishers -- Gannett (NYSE: GCI  ) , McClatchy (NYSE: MNI  ) , and Tribune (NYSE: TRB  ) -- are forming an alliance to sell advertising jointly on their websites. The companies apparently believe that their survival depends upon a seamless transition to the generation of meaningful online revenues.

The publishers also believe -- perhaps correctly -- that large national advertisers are loath to engage in the hassle of negotiating with each market. They're hoping to prevent such hassles with their collaborative effort, which they've code-named "Open Network." The companies, known collectively as GMT, will each contribute 10% of their online space to the network.

The GMT group is not alone in its approach. A rival group known as the Seven Amigos -- led by Hearst and MediaNews Group, the publisher of more than 100 newspapers in California, the Rocky Mountains, and New England -- has affiliated with Yahoo! (Nasdaq: YHOO  ) to sell online classifieds. The group is also reportedly finalizing its own national ad-sales network.

Apparently, the Seven Amigos have reached out to GMT in an effort to form an even larger combination. However, the Amigos' deal will probably involve utilizing Yahoo! technology to deliver the advertising, and GMT is concerned about Yahoo! gaining too much information about the relative strengths of newspaper sites and the popularity of certain pages. Instead, GMT is reportedly negotiating with Centro LLC to oversee its ad placements.

These moves highlight newspaper companies' transitional difficulties as they strive to become meaningful Internet companies. Their chances of becoming serious players in online news remain very much in question; that world may already have been staked out by firms such as Yahoo! and Google (Nasdaq: GOOG  ) .

At the same time, Tribune is less than two weeks away from receiving final bids for its acquisition from potential private equity buyers. Late last week, that particular picture was clouded further when The McCormick Tribune Foundation, the company's second-largest stockholder, disclosed that it had retained a financial advisor to begin positioning itself for the support or rejection of a management-led buyout of the company.

As I've written before, I believe that 2007 will be an active year in the media sector, and that newspaper publishers' advertising volumes are too far in the hole to make such firms attractive investments. I haven't changed my mind on either count.

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

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