But local television, radio and "pure-play" sites are poised for the biggest gains as newspapers' online growth is slowed by the faltering economy and a reliance on traditional Web ads, the analysis by BIA Financial Network and Borrell Associates concluded.

Overall, the report finds that Internet operations are adding increasing value to local media properties. "Obviously, there are fundamental changes taking place in the value of media properties, with the value of their Web sites becoming more meaningful as a percent of total value," said Mark Fratrik, vice president of BIA, a financial advisory firm. "Given their growth potential, the value multiples of media Web sites may be 2 to 4 times that of the core business."

As the most highly developed of local media sites, newspapers' online arms have naturally become the most highly valued. The media value for newspaper sites in 2008 was $4.2 million compared to $3.7 million for local television sites, $1.2 million for local radio sites, and $2.4 million for Internet-only properties such as Google and Yahoo.

The $300 to $450 million range of the biggest newspaper sites, however, dwarfs the upper range of those of local media rivals. TV sites top out at $30 million to $40 million, radio at $15 million to $20 million, and pure-play at $15 million.

To determine the value of local media sites, BIA and Borrell used an income approach, estimating their revenues, expenses and resulting cash flows for these over a period of about 7½ years. The cash flows were then discounted to present values.

While the report doesn't specify valuations for particular media properties, it's logical to assume the highest valuations go to the largest circulation newspapers such as The New York Times, The Washington Post, the Los Angeles Times and Chicago Tribune.

Newspaper sites on average had revenues of $715,000 and cash flow margins of 37.1% in 2007. Local TV sites had average revenue of $450,000 and margins of 22%; radio, $165,000 and 15.2%; and pure-play sites, $300,000 and 16.7%.

"These local media outlets are very efficient vehicles for cross-promoting those Web sites and having an existing customer base to upsell to the Web site," stated the report. "As a result, the cash flow margins of these associated Web sites are large, and in most cases, much higher than what their traditional outlets are generating." As TV, radio and pure-play sites increase revenues in the coming years, their cash-flow margins are expected to catch up with those of newspapers in the low 40% range.

At the same time, the BIA-Borrell study projects slower growth for newspaper sites in the next few years. Reliance on classified and display ads by newspaper sites will lead to slower growth rates than those they have enjoyed in recent years. Furthermore, one-third of their ad revenues come from the real estate and automotive sectors--two categories hit hard by the economic slowdown.

Since 2002, local TV and radio sites have led in revenue growth--at 70% and 67%, respectively, followed by pure-play (40%) and newspaper sites (33.5%). The report predicts continued strong revenue gains for non-newspaper sites on the strength of growing demand for rich media and video advertising. But the report cautions that strong growth is not a given.

"These operations will have to adapt to the new demands in the interactive advertising arena, providing rich media and digital video products that represent the fastest-growing revenue opportunities," it states. These new ad initiatives in turn will require separate sales forces devoted to the online divisions.

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