Should newspaper companies set up stand-alone new-media operations?   

EVER SINCE THE New York Times Co. announced in late January it would attempt to cash in on the Web investment craze by offering stock in Times Digital Media in an initial public offering, it has been the talk of the industry.

The Times, according to Reuters, could raise up to $100 million from new stockholders by creating a "tracking stock" for Times Digital Media. A tracking stock is one that trades separately from shares of the parent company, reflecting the performance of a particular division or set of assets.

The move has lots of people in the industry watching closely, not to mention wondering whether they should follow suit and spin off and go public with their new-media divisions. The potential influx of cash is so attractive that some people are calling it "dotcom fever."

"There are advantages and disadvantages," says Vin Crosbie, president of Digital Deliverance LLC, a Greenwich, Connecticut, consulting firm. "People are asking themselves, ŒIf new media is to be the future, why shouldn't we spin off an IPO and fund it the way it needs to be funded? Then we can compete' " with other Internet companies.

Bruce Koon, interim director of Mercury Center, the online unit of the San Jose Mercury News, sees potential in newspaper IPOs. "Those of us in Silicon Valley face enormous challenges," he says, "in retaining talent, in recruiting good people and in moving quickly" to compete. "We're losing our best and brightest talent" to new-media companies that offer handsome stock options. If newspapers offer the same options for their new-media spin-offs, he says, perhaps the talent will stay.

Some, however, see considerable risk in spinning off what may be the most interesting part of newspaper stocks in the current market.

IPOs "pose a great risk to a traditional media company," says Peter M. Zollman, principal of Advanced Interactive Media Group LLC, an Altamonte Springs, Florida, consulting firm. "They have the potential to unlock a tremendous new source of capital and growth potential, but they also may backfire by damaging the stock of the parent."

"It's definitely a risk," adds Crosbie.

"When you link the newspaper company and the new-media venture together, you add some energy to the stock. What's going to happen to the old oneÐthe dead-tree stockÐwhen you separate them? You can't win a chariot race if you decide to cut loose your fastest horse."

The dead-tree stock could go in the dumpster, Crosbie says, and if that happens, "what fiduciary benefit are you bringing to your original stockholders?"

Koon disagrees. "I think investors recognize that newspapers are a mature business, but we return good profits. As long as we do that, they'll continue to invest."

Michael Romaner, director of online services at Morris Communications of Augusta, Georgia, is wrestling with "dotcom fever" at his company. It's a privately held group of 40 newspapers, various Web sites, several Internet service provider businesses and 24 radio properties. He sees the primary risk of splitting newspapers and their online operations as a resource issue.

"Can we really afford, I mean really long-term afford, to create two separate businessesÐone that does new things and one that doesn't?" he asks. Or one that offers employees stock options and one that doesn't? "What happens to your [newspaper] staff in that environment? What does that do to the morale? They want to get Œit,' too. They want to go where [the business] is going."

Crosbie agrees. Keeping the new-media and newspaper operations integrated makes much more sense, he says. Most believe the issue is going to depend largely on what type of company a newspaper is and what kind of company it wants to be.

"The real answer...is 'it depends,' " says Zollman. "It depends on the size of the market and the newspaper or group. It depends on the direction of the newspaper company and whether it wants to develop entirely new businesses or just promote and extend its existing newspaper business. It depends on the financial structure of the company, and whether it's privately held or publicly traded. It depends on the vision of the executives, and it depends on how quickly the company is prepared to move."

You can bet a lot of newspaper company CEOs will be watching the Times' IPO closely.

For my part, I'll happily line up to buy some Times Digital Media stock at the initial public offering. But as an existing New York Times stockholder, I can't say I like the idea of splitting the stocks apart. I can't say I like it as a journalist, either.

But it seems that journalism isn't a motivating factor in dotcom fever.

gigabit@ufl.edu) spent 20 years in newspapers before joining the University of Florida College of Journalism and Communications. He has been involved in online news services since 1990.