Shareholders of

New York Times

(NYT) - Get Report

are deep in the red for the last several years, but if, during that time, someone had been handing out pennies every time the newspaper publisher's reporting was cited on television or in the blogosphere, they would be sitting on a fortune by now.

With the rise of the Internet, the

Times

, along with the rest of the newspaper industry, is losing touch with consumers. As people increasingly turn to television, online news aggregators, video sites and like-minded bloggers to digest the news of the day, many forward-looking investors are predicting the demise of the printed page and looking elsewhere for good investments.

But it's much harder to make the argument that the information purveyed by newspapers, particularly the

Times

, has lost its relevance. That's why the biggest threat to long-term shareholders of the company may be the test of wills that's unfolding on Wall Street over its dual-class share structure.

Last week, the ongoing feud between the Times and Morgan Stanley Investments was thrust into the spotlight when

The Wall Street Journal

published a front-page chronicle of fund manager Hassan Elmasry's publicity campaign to dislodge the company's corporate structure, which preserves control in the hands of the newspaper's ruling family -- the Ochs-Sulzbergers.

New York Times fired back the following day by hiking its annual dividend payments by 31%. Though the Times typically increases its dividend once a year, the boost was much larger than usual, sending a message that the company takes its shareholders seriously despite their lack of voting power.

The move was also a sign that pressure from Elmasry's efforts is being felt in the company's boardroom, but those familiar with its owning family say there's little chance that chairman and publisher Arthur Sulzberger Jr. will ever give in to his demands.

"It will be a cold day in hell before the Sulzbergers open the door to giving up control of the business," says Susan Tifft, co-author of

The Trust: The Private and Powerful Family Behind The New York Times

and a professor of journalism and public policy at Duke University. "The family members in Arthur's generation will do whatever is in their power to protect and preserve the essence of the New York Times, which is really the newsgathering operations."

The Ochs-Sulzberger family trust controls the company by holding its Class B shares, which make up only 0.6% of its total shares outstanding. Meanwhile, they control 70% of the company's voting rights, while the vast majority of shareholders control just 30% of the votes.

The arrangement allows outside investors to partake in the fortunes of a company when times are good, but it gives them little recourse to effect change when things go awry. And right now, things are certainly going awry for newspapers.

With audiences turning to the Internet for information, the historical advertising model for the media industry is being destroyed. People who read the

Times

online spend much less time on it than those who still sit down and read the physical newspaper everyday. In turn, companies pay less for ads, and a chunk of the ad spending goes to news aggregators and online portals like

Google

(GOOG) - Get Report

and

Yahoo!

(YHOO)

.

Meanwhile, the Times has focused its efforts on its digital products, acquiring businesses such as About.com, merging its online and print news operations and redesigning its flagship Web site.

NYTimes.com

is now the most heavily trafficked newspaper site in the world.

The problem is that while the company is posting impressive gains in Internet revenue, that growth is slowing and it still comes nowhere close to supporting the almost $3 billion in expenses recorded by its News Media Group last year. New York Times expects online revenue growth will slow this year from 41% to 30% for a total of about $350 million.

How does that compare with the cost of the company's news operations, factoring out the expenses of producing and delivering printed pages? New York Times doesn't make those figures public, but a source familiar with the business estimates the cost of newsgathering at the flagship paper to be just $200 million. That suggests at least the possibility of a solution for the company's business model in a digital future.

Still, that digital future isn't here yet. Online revenue made up only 8% of the Gray Lady's total revenue last year. The company achieved $120 million in cost savings over the last two years by cutting staff and consolidating its printing operations, and it expects to cut $65 million to $75 million in costs this year. But it has to move carefully.

Priced just above $23, shares of New York Times have lost half their value over the last three years, indicating the low expectations that investors have for the company. With the U.S. auto industry and the real estate market in a deep slump, things are bound to get worse as the industry's painful transformation accelerates.

But if the Times were to give in to short-term pressures and take an axe to its newsgathering operations, it could quickly destroy its place as the leading source of the kind of fact-based, original reporting on world events that still drives the daily news cycle. Losing that dominance could be disastrous for the company.

"There aren't many places in this country that actually generate that kind of reporting anymore," says Tifft. "Everybody in the media still feeds on what quality newspapers produce. They set the agenda everyday for everyone else, so why would they give that up? From a business point of view, it doesn't make any sense to cut back on that for the Times, because there will always be a demand for it, whether it's on paper or on the Web."

In this respect, the Sulzbergers stand out from the rest of the industry. As impatient shareholders have created turmoil at other places like

Knight-Ridder

and

Tribune

(TRB)

, the Times has kept its organization, including its foreign news bureaus, largely intact. While large editorial cuts were recently made at the

Globe

, New York Times spokeswoman Catherine Mathis says editorial staffing levels at the flagship newspaper are right where they were two years ago.

"You have to cut to some degree in this climate, but there are points at which the more you cut, the faster you're going to lose the print audience and then you're going to lose your ability to monetize an online audience in the future at the same time," says Ken Doctor, a media analyst with Outsell.

That's why Elmasry's efforts to end the Sulzbergers' control over the company amount to a threat to its brand. The fund manager points to a laundry list of mistakes the Times has made in allocating capital over the years, from its ill-fated acquisition of the

Globe

to its spending on a new midtown Manhattan headquarters and excessive executive compensation.

All these are legitimate complaints, but it's hard to argue that those decisions account for the poor stock performance.

"Everywhere you look, the valuation of newspapers has declined under the latest assessments of their economic future," says Eli Noam, professor of finance with Columbia School of Business. "In this climate, New York Times is doing better than others and they have a better future than most."

Elmasry declined to comment for this story. While his complaints are not without merit, his endgame of eliminating the dual-class structure would likely result in some sort of takeover play or buyout transaction for New York Times. That may result in a quick payout for weary shareholders, but it would also remove their stake in the long-term value of the brand, and it could also destroy that value.

Doctor says there is a place in the future for some newspapers, and few publishers are as well positioned as the Times to get to that place. He sees publishers morphing into companies whose core competence is serving other businesses with content rather than serving consumers directly.

"They're syndicating their content," he says. "They're syndicating their advertising. They're partnering in all kinds of ways. That will supply certain levels of revenue. How much or how quickly they'll be able to ramp it up no one really knows."

Given the uncertainty, the Times' focus should be on preserving its relevance while things play out.

"It could take three to five years for things to shake out, and in Wall Street's quarterly culture, that's an eternity, but the newspaper industry, and really the industry of journalism, is demanding a different kind of courage of its leaders right now," says Doctor. "They have to communicate to shareholders that the way to navigate from here to there is going to be painful, but there's no way around it if they want to create value in the future."