Yahoo Expands Partnership With Newspapers

The publishers of more than 260 U.S. newspapers are hitching their online aspirations to Internet powerhouse Yahoo Inc. in an expanded partnership that underscores the battle lines being drawn as the media grapple for ad revenue shifting to the Web.

The alliance announced Monday builds upon a consortium announced nearly five months ago. Since then, the alliance has recruited five more companies, including McClatchy Co., the nation's third-largest newspaper publisher based on circulation. With the latest additions, the group now spans 264 newspapers in 44 states, up from 176 papers in 38 states in November.

In another significant change, the partnership's scope will now cover all major forms of online advertising instead of focusing primarily on help-wanted ads, as had been the case until now.

The newspapers also will funnel more of their stories through Yahoo's heavily trafficked news, finance and sports sections in an effort to lure more readers to their Web sites.

The financial terms and the length of the newspaper consortium's contract with Yahoo weren't disclosed. In a Monday conference call, newspaper executives predicted Yahoo will help their companies recoup some of their recent losses to the Internet. Without providing specifics, the newspaper executives indicated the anticipated revenue gains from the Yahoo partnership would become evident next year.

The amount spent on the Internet by local advertisers, a major source of newspaper revenue, is expected to total $12.4 billion in 2010, up from $3.4 billion last year.

Meanwhile, advertisers aren't spending as much on print. That trend became even more apparent last year when overall print advertising at newspapers fell 1.7 percent while online advertising increased 31.5 percent, according to the Newspaper Association of America, an industry group. Total newspaper revenue dipped by 0.3 percent.

Sacramento-based McClatchy joined the Yahoo alliance after turning down a chance to participate in another online advertising network being cobbled together by the nation's two largest newspaper publishers, Gannett Co. and Tribune Co. The three publishers are already joint owners of CareerBuilder, an online employment ad service that competes with Yahoo's HotJobs.

"McClatchy looked a various options and concluded this is the industry play," McClatchy Co. Chairman Gary Pruitt said during Monday's conference call. "This is where the momentum is. Our message to other newspaper players is, 'Come on board."'

Both Gannett and Tribune have expressed serious reservations about the structure of the Yahoo partnership, concerns that they reiterated Monday.

"We are open to talking with anyone but are interested in crafting the right solution, not the quickest solution," Gannett said in a statement.

In a separate statement, a Tribune executive said the Chicago-based company is determined to build on a more democratic network. "In essence and by design we seek to create, a truly 'open network,' " said Timothy Landon, who runs Tribune's interactive division.

Newspaper industry analyst John Morton said he believes even some of the publishers participating in the Yahoo alliance may still have misgivings about entering into a deal that could potentially weaken their own brands and push even more advertising to the Internet.

"There are probably some lingering suspicions about how this will all work out," he said.

While the newspaper industry splinters in different directions, Sunnyvale-based Yahoo has been scrambling to gain ground on Google Inc., whose Internet-leading search engine has become the hub of the Web's largest advertising network.

The newspaper alliance helps Yahoo on two fronts by widening the audience for its own search-driven ads while also undermining Google's just-announced $3.1 billion acquisition of DoubleClick Inc., a major distributor of display ads.

New York-based DoubleClick currently serves ads to many of the newspapers aligned with Yahoo, but that will change under the deal announced Monday. The switch to Yahoo is expected to occur as the DoubleClick contracts expire.

"We have strong partnerships with many leading newspapers and we remain committed to working with them as they grow their businesses online and offline," Google said in a statement.

Mountain View-based Google already has been working with some of the nation's largest newspapers in an effort to sell more print advertising.

Yahoo shares gained 20 cents to close at $31.61 on the Nasdaq Stock Market, where Google shares rose by $7.98 to finish at $474.27.

Newspapers need all the help they try to recapture some of the advertising that has been diverted to the Internet, said Greg Sterling, who runs market research firm Sterling Market Intelligence.

"I don't think there are many other good options out there for (the newspapers)," Sterling said. "Many of these papers are under enormous pressure to have a story to tell Wall Street and other investors, to show they have an Internet strategy that has some traction."

Wall Street's skepticism about the newspaper industry's growth prospects already has contributed to the sales of Tribune Co. and Knight Ridder Inc., which was the nation's second-largest newspaper publisher when it was forced on to the auction block by dissident shareholders.

McClatchy wound up buying Knight Ridder for $4 billion in a deal that hasn't helped the company much so far. Since McClatchy announced the Knight Ridder acquisition in March 2006, the company's stock price has plunged by 41 percent. McClatchy shares fell 27 cents Monday to close at $31.19 on the New York Stock Exchange.

Monday's announcement provided a lift to the other publicly traded newspaper publishers involved in the consortium.

Belo Corp. shares gained 35 cents to finish at $19.42 on the New York Stock Exchange, where shares of The E.W. Scripps Co. rose 24 cents to close at $45.08. Trading on the same exchange, Lee Enterprise Inc.'s stock price climbed 43 cents to close at $30.60, Journal Register Co.'s shares added 8 cents to finish at $5.89 and Media General Inc.'s shares increased 62 cents to close at $39.34.

The privately held publishers working with Yahoo are: MediaNews Group Inc., Hearst Newspapers, Cox Newspapers Inc., Calkins Media, Morris Communications Co. and Paddock Publications Inc.