Due to sluggish advertising, fourth– quarter profit at Knight Ridder fell 10.1%. The company publishes 32 daily newspapers with a readership of 8.5 million daily and 11 million Sunday. The company earned $1.24 a share, down from last year’s quarterly profit of $1.38 a share. Net income from continuing operations was $83.3 million for the fourth quarter, down 14.1% from $97 million the previous year.

For the year, total operating revenue was $3 billion, up 2.1% from 2004. Income from continuing operations was $255 million, down 14.6% from $298.7 million.

Knight Ridder’s stock price gained 8% for the fourth quarter but finished the year down 4%.

Daily newspapers have been losing young people to the Internet, which has hurt advertising sales. One bright newspaper spot was national advertising at the Charlotte Observer , which was up 10.6%. For the quarter, advertising linage at The State was down 9.6% compared with the same time a year earlier.

“If you can’t beat ’em, join ’em,” Knight Ridder must have noted as it started going digital. Knight Ridder Digital revenue of $45.5 million was up 55.4% for the quarter, and its annual revenue of $164.5 was up 54.5% for the year.

During the year the company launched 18 targeted publications and acquired 24 others.

Two Knight Ridder competitors also saw lower earnings. Last Friday, Gannett Co., the nation’s largest newspaper company and publisher of USA Today , reported a 9% drop in earnings for the fourth quarter. Tribune Co., publisher of the Chicago Tribune and the Los Angeles Times , disclosed December’s monthly revenue as being down 6.1%. Tribune Co.’s quarterly report is due later in the week.

The Columbia concern over the welfare of Knight Ridder is really about the future of The State . Knight Ridder is for sale – has been since November 14. Knight Ridder could be bought by Gannett or Tribune. Or Knight Ridder could be bought by McClatchy Co., another major American newspaper publisher. The Sacramento Bee is a McClatchy product. Both Gannett and McClatchy have ex-pressed interest in Knight Ridder. Tribune so far has not. Outside of newspaper publishing there are plenty of suitors, mostly private equity firms in a buyout mode.

The presumed price for Knight Ridder is the market capitalization value of its outstanding shares of stock, now around $4.3 billion. It could go as high as 12 or 13 times 2006 cash flows, which was how a newspaper chain sold in the recent past. That would boost the price over $6 billion.

After the latest unexciting financials from Knight Ridder, however, the value of the company is probably closer to the value of the stock. If a shareholder–owned newspaper publisher takes over Knight Ridder, there would be a reduction in resources and a shift in journalism quality.

Gannett achieves an annual operating profit margin of about 29%, while Knight Ridder reports maybe 19%. If Gannett takes over Knight Ridder, there will be cuts in overhead and personnel to bring the former Knight Ridder publications up to Gannett’s level of performance. Cuts in journalism staff renders cuts in journalism quality, all of which renders less product for the benefit of a dwindling readership. Fewer readers lowers the sale of advertising, which lowers revenues, and a death spiral follows.

A non–publisher buyer of Knight Ridder would act accordingly, but maybe cuts could be even more severe. Also, a second sale would be in the works because a non–publisher is not interested in newspaper publishing for the long haul. A non–publisher such as a private equity firm wants an exit strategy for a five–year plan. Another sale would occur presumably for a profit to the five–year owners.

A quicker sale by the Knight Ridder buyer is possible around here. The State could be spun off early on because the buyer has no use for a smaller regional property in the comparatively slower growth pattern of the Midlands. And that could be the good news. The State could end up in private hands, local hands that keep all the journalists on board but still manage to make a pile of money. It has happened here before.

Knight Ridder

Fast facts

• Knight Ridder’s stock

finished down 4% for the

year.

• Knight Ridder Digital annual

revenue was $165.5 million,

up 54.5% for the year.

• For the quarter, Charlotte

Observer national advertising

was up 10.6%, while The

State was down 9.6%.

• For the year, Knight Ridder’s

total operation revenue was

$3 billion, up 2.1% from

2004.