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"Newspapers are struggling to keep their place as an important source of news for people," says Rem Rieder, editor of the American Journalism Review. "It's easy to write them off as dinosaurs." Yet for all the harbingers of doom, the $48 billion newspaper industry (compared with $12 billion in 1975) is still a pretty good business to be in. In the past, owning papers made families like the Hearsts, the Grahams and the Sulzbergers tremendously wealthy. And even last year, profit margins for the industry as a whole were a respectable 12.5%--nearly twice that of the average Fortune 500 company. (Gannett Co., the country's largest newspaper chain, rang up a 21.7% margin.) Notes John Morton, a Wall Street analyst: "The newspaper industry is sorely besieged, but not from a lack of profits."

The problem, though, is that for many newspaper owners--and their stockholders--12.5% margins are no longer good enough. Tony Ridder, CEO of Knight-Ridder's 17-paper empire, explains that he must answer to many masters. "I've got a number of constituencies: the customers, the communities in which we do business, and I've got the shareholders." And some shareholders remember the boom-boom 1980s, when newspaper profit margins routinely approached 20%. Cold reality hit along with the recession in the early 1990s: retailing, then retail advertising, then newspapers dependent on such advertising suffered, and profits fell. Ridder insists that the financial pressures on all papers tend to be cyclical and that in fact Knight-Ridder has recently upped the percentage of revenue it spends in the newsroom. Journalists who complain about cost cutting, says Ridder, "have very short memories."

Nevertheless, newspapers are facing a unique challenge. Although the economy has rebounded--and with it, according to third-quarter reports released last week, profit growth for many newspaper chains--the face of retailing has irrevocably changed, with fewer mom-and-pop stores eager to advertise in the Anytown Daily Bugle and with large discounters not using newspaper ads as heavily. The rise of other ad outlets, such as cable television, direct mail, niche publications and online services, means that newspaper executives may never see such rich margins again--but that does not stop them from squeezing. Many newspaper veterans feel they are living through an invasion of the bean counters--nonjournalists terrified by the loss of readers and the new forms of competition, who are willing to sacrifice long-term quality for short-term goals. "The industry is at a crossroads, and a lot of people are going to make the wrong decision," says Leonard Downie Jr., executive editor of the Washington Post. "The conclusion they are drawing is to batten down the hatches, drastically downsize and become something other than a newspaper." Downie, admittedly at the helm of a profitable, family-controlled business, is keeping the faith. "I think the future of newspapers is in being newspapers."