The New York Times Company (NYT) isnt just reporting the news – its making the news. At yesterdays annual meeting, shareholders withheld 28% of their votes for the four directors elected by holders of the companys common stock. Nine other directors are elected by holders of the Class B shares, effectively granting control of the company to a group holding less than a 1% economic interest in the business.

Most of the large newspaper companies have not done a great job of earning the best returns for their shareholders. Some of these companies overdid acquisitions. The New York Times Company illustrates the danger of adding to the empire – you dilute the crown jewel.

In 1993, the company bought The Boston Globe. Unfortunately, this is exactly the kind of paper that will be hurt by online news sources. Second-tier major city dailies are not in a strong position, because they try to be all things to all people.

A newspaper can thrive by dominating a specific niche. That niche can be geographical or topical. Community newspapers can thrive, because they still have no real competition. The news they report is unique. It is very important to a very small group of people.

A company that owns clusters of these papers in wealthy suburbs will do fine. By reporting on local schools, sports, and events these publications set themselves apart from all other news sources. They have a mini-monopoly both on the news they provide and on the ads they run.

There are places in states like New York, New Jersey, Connecticut, and Pennsylvannia where advertisers benefit from targeting specific communities, because the demographics of the next town over are not nearly as attractive. A lot of this has to do with public schools. I dont see that system changing anytime soon. So, I imagine these properties will fare much better than big city newspapers.

The New York Times Company has one great asset – its brand. The New York Times and The Wall Street Journal each have a very valuable national brand. People all over the country have been exposed to them through other media outlets. The value isnt really in the size of the circulation. If you think of the entire country as their potential market, their circulations are tiny (the news business is very fragmented).

A few years ago, it would have been crazy to think of the entire country as a potential market for these publications. But, I dont think thats the case today. These papers could earn a lot of money online. Of course, they have to figure out how to earn money online.

Long-term, I dont like the idea of expensive online subscriptions. It looks like a great idea now, but it could limit future ad revenue. Becoming a dominant online news destination would prove extraordinarily profitable. Unfortunately, no one is going to capture more than a tiny sliver of the online news market by charging a lot of money for their content.

It isnt just an issue of people not wanting to pay. Its also an issue of exclusivity. The less exclusive an online news source is the more often it will be cited. People who dont visit your site are far less likely to reference it. Just as importantly, no writer wants to exclude any part of his own readership. So, many writers simply wont cite a subscription service.