At least as long as companies insist on free apps.

As if current economic conditions weren’t dire enough, several forces conspire to push the media sector’s financial performance further downward. These factors are an obsession with market share, price wars, and first movers’ ability to set the tone, often for the worse.

Take the iPhone application market as an example. At first, publishers were elated—at last, a content distribution platform with an embedded transaction system. They saw it as the first step to making customers pay for content. Then, another idea took over: market share. Like “eyeballs,” the old Internet Bubble metric, market share is today’s mirage: Once you get it, profit is (almost) sure to follow. Never mind there are zillions of companies that have once and for all severed the connection between market share and profit (Apple [AAPL] for computers, BMW in the auto industry, Nucor in steel production, to name but a few).

Unfortunately, the first one who shoots for market share sets the standard, sometimes with surprising twists and turns. Consider the Wall Street Journal: first-rate Web site, highly successful businesswise with 1 million paid subscriptions (about $100 per year). When it came to the iPhone opportunity, guess what? They went for a free application loaded with pathetic ads—apparently locked on the saturation mode, since the same banner kept showing endlessly. Just a few weeks ago, seeing a steep drop in profits, WSJ.com reversed itself and restricted access to its app.

The same thing happened in France with Le Monde: The paper launched a free iPhone app even though some parts of its Web site are paid for. As a result, no one in the French market is considering a paid application.

Even if the media industry calls it a “game changer,” it appears the iPhone will be slow to strengthen bottom lines. Look at this chart produced by the consulting firm Medialets. As it indicates, the news category is the second largest for free apps (73 percent of the total), the first being the social networks (94 percent free, understandable considering the younger demographic). As a comparison, only 12 percent of games are free, for two reasons: 1) It’s hard to put advertising on a game, and 2) the gamers are used to paying.

How wrong are online newspapers not to charge for their iPhone App? Quite wrong, actually, for several reasons.