It's impossible to see into the future, of course--and Ken Doctor, an analyst with Outsell, Inc., steered clear of hard-and-fast predictions, but he did say "the points for revenue are all pointing down"--adding that the situation appears especially ominous because of a couple of new, emerging trends.

First and most importantly, online revenue growth has sputtered, stalled, and in some cases even swung into reverse in 2008. Comparing the second quarter of 2008 to the same period last year, online revenues declined 9.1% at Lee Enterprises, 12% at A.H. Belo, and 8% at E.W. Scripps. Meanwhile, online revenue growth slowed to a snail's pace for newspaper divisions at Gannett--up 3%--and the Washington Post Company, up 4%. Online growth was more robust at the New York Times Company, up 12.8%, and McClatchy, up 12.5%-- but still looked positively anemic next to the quarterly growth rates of pure-play Internet companies like Google, up 39% in the same period.

The slowdown in online revenue growth "is absolutely terrible news," Doctor said, removing the one source of good news in previous quarters. The slowdown could have been foreseen: "Newspapers got addicted to online upsells from the print classifieds," Doctor recalled, relying on combined print-online sales to sustain double-digit growth in online classified revenues for several years. Meanwhile, the volume of print classifieds was shrinking, a process accelerated by the economic slowdown. With fewer print classifieds being placed, there are fewer opportunities for online upsells.

By contrast, revenue from online display advertising is still growing by double digits at most newspaper publishers. Although most companies still don't release separate figures for "Internet-only" revenues, McClatchy CEO Gary Pruitt, discussing second-quarter results, remarked: "Excluding employment advertising, which is the category most tied to print upsell advertising and which has declined nationally both in print and online, our online advertising grew 58.5% in the second quarter of this year. We were pleased to note that nearly 50% of our online advertising came from ads placed only online; they were not tied to a print upsell."

Online display ad revenue is up 26% at E.W. Scripps, and local ads (mostly display) rose 45.7% at Media General. Finally, although she did not cite specific figures, NYTCO CEO Janet L. Robinson attributed the 13% increase in the company's online revenues to "strong display advertising."

Nonetheless, the proportion of total revenues derived from online display advertising remains quite small, and potential sources of new online revenues are a long way off. "For those that are participating in the Yahoo ad consortium, it doesn't even go into effect until fourth quarter this year," Doctor noted, adding: "It remains to be seen how much of a bump it will give them anyway."

Many newspaper publishers were pushed to join the Yahoo consortium by investors demanding more online growth, but ironically they may have hitched their wagons to a hobbled horse: Yahoo's own investors are up in arms, castigating top executives for failing to monetize its large audience and losing market share to Google.

Yahoo may yet get its house in order, but for now, Doctor said, newspapers' "number one story for future growth is tied to a company that's highly unstable at the moment. No one has any idea who's going to be leading Yahoo, or what their commitment to newspapers will be in 2009."

And it gets worse. If the economy is still on the skids during the fourth-quarter holiday season--which seems likely--newspapers may see the bottom fall out of national and retail ad revenues, which are already suffering. Overall, Doctor agreed with other analysts who predicted that during an economic downturn, digital media will prosper at the expense of print, as marketers seek greater accountability for their advertising dollars. The holiday season--in years past a bonanza for newspapers as for other businesses--may be a cold, bleak time for newspapers in 2008.

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