The newspaper industry is reacting to the fallout of the McClatchy deal to purchase Knight Ridder, specifically the intent of McClatchy to spin off as soon as possible at least 12 of the 32 Knight Ridder papers (LA Times), notably those in markets that don't match the dynamics that McClatchy seeks for long-term profits and growth. McClatchy tends to focus on small- and mid-market papers in growing markets, so it's not surprising that it's candidates for resale include papers in problematic major markets - including Tony Ridder's beloved flagship San Jose Mercury News. The New York Times captures the glee of Bruce Sherman, a major newspaper investor via Private Capital Management, who sees the deal as a plus in a fairly pessimistic market that he still sees as a solid investment. While there is a lot of drama and angst in this deal, when the dust settles it's likely that McClatchy will have done their very best to carve out a set of properties that are both profitable and demonstrating good growth dynamics in markets where there are fewer pressures than those faced by papers in major markets, where online substitutes for global and local news and advertising services are larger threats.

In spite of the push towards more local online content many small and mid-size markets are still decent niches for newspapers, small enough that it's difficult for full-service competitors to be funded and draw allegiance from local retail advertisers but large enough to leverage profits via outlets with little strong competition. This formula is starting to change as online substitutes get more sophisticated and classified ads via Craigslist and other online services draw upon many of those same markets. But most all of these lack the combination of both strong local editorial resources and a sophisticated advertising and marketing infrastructure for local advertisers to succeed. User-generated media will help to tip these scales somewhat (one can imagine a player like Gather learning how to attack local markets with a higher grade of editorial content than most blog plays and both their own ads and Craigslist) but for the time being McClatchy is off to a promising if noisy start to as good a strategy as any one could come up with to manage the most promising and profitable Knight Ridder properties. For those left out in the cold from this deal our true sympathies, but sentiment will not take the place of good business sense oftentimes lacking in forging a solid future for news organizations in major markets.