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Panhandling for Papers

By Rick Munarriz – Updated Apr 6, 2017 at 12:04AM

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Old media is turning to virtual tip jars to stay afloat. Oh no!

Yes, it is that bad.

McClatchy's (NYSE:MNI) Miami Herald began adding a virtual tip jar to its online articles yesterday, in a troubling sign that online advertisement may not be enough to subsidize the web-based version of the daily newspaper.

At the bottom of every article, the Herald's logo is followed by a "Support ongoing news coverage on" link. Readers are then encouraged to tap their credit card for donations: "If you value The Miami Herald's local news reporting and investigations, but prefer the convenience of the Internet, please consider a voluntary payment for the web news that matters to you."

Online media has officially come full circle, hasn't it? Newspapers are now running their sites with the mind-set of a basement blogger.

Allow me to be the first to burst McClatchy's bubble in saying that its panhandling efforts will be wasted. These virtual tip jars rarely work. Wikipedia has been successful in soliciting reader donations, but it's clearly positioned as a nonprofit site that refuses to advertise on its pages. Strumming away in front of an open guitar case won't work for McClatchy.

The move is certainly peculiar timing on McClatchy's part. The company has axed hundreds of Miami Herald employees in recent years. McClatchy also excited investors earlier this month when it announced that its operating cash flow was improving in the current quarter, as it slashed cash operating expenses even more aggressively than its ad and subscription revenue slid.

Online advertising is gradually bouncing back, but we're not exactly there yet. Even the mighty Google (NASDAQ:GOOG) had to deal with advertisers paying less for leads year over year in its latest quarter. But Google's at least manages to make up that shortfall in volume; its 14% uptick in clicks was more than enough to offset a 6% slide in the average per click.

New York Times (NYSE:NYT) seems to understand; it's projecting a 10% increase in online advertising during its latest quarter.

McClatchy just needs to be patient enough to wait for online ad rates to recover, and clever enough to maximize its online monetization. A tip jar isn't the solution. Going the News Corp. (NYSE:NWS) route -- Rupert Murdoch has been discussing installing tollbooths, or licensing content exclusively through Microsoft (NASDAQ:MSFT) -- isn't the answer, either.

Right now, the call for donations appears to be a humbling attempt to create incremental revenue. In an ideal scenario, my fellow Miamians will tap into their inner George Baileys and bail out the newspaper as a community, digging deep into their pockets for virtual coin. Unfortunately, the moment you open yourself up to charity, you're on a slippery slope.

Stay afloat,, but do it the right way.

How would you save the newspaper industry? Submit your lifelines in the comment box below, and I'll be back next week to discuss some of the suggestions.

Google is a Motley Fool Rule Breakers selection. Microsoft is a Motley Fool Inside Value pick. Motley Fool Options has recommended a diagonal call on Microsoft.

Longtime Fool contributor Rick Munarriz doesn't mind getting ink on his hands when he reads the morning paper, but he's starting to wonder why it's yesterday's news. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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