Newspaper Stocks Quickly Need a New Story

Recessions do the most damage to those companies that are weakest going in, and that is why the newspaper industry will need a miracle in 2008.

Even if the U.S. housing mess doesn't bring on the "r-word", almost no one really expects economic conditions for newspapers to improve next year. Media execs and Wall Street analysts may say the industry's "cyclical factors" will stabilize and even improve in "late 2008."

But they said the same thing last year, and everyone knows how "late 2007" turned out.

"I think we are in for a recession, probably," said media tycoon Rupert Murdoch recently on Fox News, the cable network owned by his global media empire, News Corp. (NWS Quote). "How bad it will be, I don't know. But I think there's a lot more bad news to come."

As the new owner of Dow Jones and its flagship newspaper, The Wall Street Journal, Murdoch hopes to lead the industry in reporting that news to investors. But as far as modern-day newspaper owners go, he can probably be more candid than most with his economic outlook, since his money-losing newspapers have long been sheltered by his vast portfolio of businesses in safer territory.

The question for investors is whether all this pessimism has caused stock prices of publishing companies with a brighter future beyond 2008 to hit bottom. In some cases, that may well be true, but the newspaper industry's woes are more than cyclical, and 2007's turmoil could just be the beginning.