As Online Revs Slow, And A Downturn Begins, Newspaper JVs Expected To Rise: Report

This story was written by David Kaplan.
The spate of online media acquisitions over the past few years have so far failed on a number of levels, according to the annual State of The News Media report. Issued by the Project for Excellence in Journalism, a non-profit group affiliated with Pew Research Center, the report's online section identifies a number of warning signs - along with one or two bright spots - for the new industry and its ability to successfully adjust to the dictates of the digital era. For traditional news organizations, the hope lies in strengthening ties with hyperlocal sites and even with each other, such as the Yahoo (NSDQ: YHOO) Newspaper Consortium and its new challenger, quadrantOne, which is backed by the New York Times Company (NYSE: NYT). and others. Online section highlights of the PEJ report after the jump:

-- Audience growth, finances fall: While the number of users accessing news sites continues to grow, along with the audience for major news sites in particular, news sites are falling behind financially compared to other online categories. As nearly every publicly traded newspaper publisher has shown over the past few years, print and circulation revenues have declined, while online ad revenues have been typically rising. But news site ad revs haven't been rising as quickly as other kinds of online destinations. Furthermore, these figures do not include the most important revenue source, search, where news is a relatively small player. Overall, news is the third-largest category of online advertising, behind portals and search engines, as well as business/finance/investing sites.

-- Walled gardens: It's becoming more common for online news publishers to direct readers outside of the "walled gardens" of their own branded sites. By linking to once-taboo outside sources or even inviting in third-party content, allowing hunting-and-gathering consumers to act more directly on their preferences rather than being led to them. It's a difficult adjustment for most news organizations, but this could be their best chance of growing their revenue. The PEJ cites the rise of citizen journalism as a healthy one for the industry. The view marks a shift from the suspicion and condescension major news organs tended to harbor towards independent sites. The number of citizen-journalism sites are multiplying rapidly approaching 1,500 heading into 2008, the report said. That said, the questions of who will pay and how they will do it seem more pressing than ever.

-- Ad model will continue to dominate: Revenue from media companies' digital operations are still just a fraction of total gross revenues. According to Borrell Associates, newspaper online revenues account for roughly 3- to 8 percent of total dollars; TV and radio sites bring in even less, from 1.5- to 3.5 percent on average. As ad growth has begun to slow over recently - the five-year compound annual growth rate at 13 major newspaper companies was 35 percent, according to Borrell Associates; in Q107, those growth rates fell to 18 percent - the subscription model has looked more attractive. For instance, News Corp (NYSE: NWS). CEO Rupert Murdoch opted to keep charging online WSJ readers, dropping an earlier plan to free most of the site's content after acquiring Dow Jones in December. But for most papers, subscriptions for online access are likely to remain highly impractical.

-- Online partnerships grow: One trend that began in 2006, joint ventures between news organizations and online companies, including former competitors,grew in 2007 and is expected to continue this year. The most notable example: NYTCo, The Tribune Company, Gannett (NYSE: GCI) and Hearst forming an ad JV in February called quadrantONE, as an alternative to the Yahoo Newspaper Consortium, which now has over 630 members. Yahoo doesn't disclose the details of its revenue split with its members but a look at some consortium members shows some corresponding gains: for example, Lee newspapers' online revenue grew 49 percent in the eight months before its deal with Yahoo, but then averaged 62 percent growth in the first five months after the deal.

By David Kaplan