• by Erik Sass  @eriksass1, March 14, 2006

In a development that has big implications for the American press, news advertisers are beginning to shift their budgets from traditional print, TV and radio outlets to online news portals. That's the conclusion of "State of the News Media 2006," a new report from Columbia University's Graduate School of Journalism, which finds that with the exception of cable TV news outlets, ad budgets are eroding for traditional news media.

Echoing recent gloomy analyses from Merrill Lynch and Blackfriars' Communications on the state of the newspaper industry, the Columbia University report notes that newspaper revenue rose by 1-2 percent, but largely because of a 30 percent increase in revenue from ads on newspapers' online portals. Without this income, newspaper revenue would have been flat. And the future will likely be gloomier, according to "State of the News," as online sites like Craigslist--and the newspapers' own online portals--eat into revenue from print newspapers' classified ad sections.

Indeed, the cost disparity between free online editions and paid print subscriptions will likely drive more and more readers to online portals, followed by ad revenue. Although online advertising is growing rapidly, this still spells bad news for newspapers' bottom line according to Merrill Lynch analyst Lauren Rich Fine, who notes that newspapers only earn 20 to 30 cents in ad revenue for each online reader, versus a dollar for print. And "State of the News" says the 20-30 percent annual growth rate in online ad revenue is unsustainable in the long run.

It's worth noting that the newspaper industry posted an average 20 percent profit margin in 2005--but according to Merrill Lynch, in the face of declining circulation, much of this continued profitability was due to deep cost cuts. If there is any consolation for newspaper execs, it can be found in the fact that their traditional rivals in newsweeklies also took a beating in 2005. Time's ad pages were down 12 percent and Newsweek's 11 percent matched by dips in revenue. These news magazines fared especially poorly in comparison to entertainment and celebrity glossies like In Touch, which enjoyed a big increase in ad pages and revenue.

Meanwhile, evening news programs on network TV also had a rough year, although 2005 data is incomplete. Drawing on figures from 2004, "State of the News" paints a grim picture for the CBS and NBC evening news, where revenues may have fallen by a further 10 percent in 2005. ABC's evening news saw revenue rise slightly in 2004, but its performance in 2005 is still unclear. There was one bright spot for network news divisions, as morning news programs' revenue rose by 15 percent in 2004.

By contrast, cable TV news networks seem to be doing well moving into 2006, with CNN earning $304 million in pre-tax profits, a 6 percent increase over the previous year, and Fox News raking in $248 million--a 31 percent jump over 2004. Likewise, CNN's total revenues rose 5 percent to $878 million in 2005, but competitor Fox outpaced this with a 20 percent increase to $615 million. This growth is paired with a 25 percent increase in costs, however, as Fox rapidly expands its infrastructure.

Last and maybe least, according to "State of the News" radio news suffered another bad year in 2005, a finding in keeping with a general decline in radio advertising revenue reported by the Radio Advertising Bureau (RAB) and Merrill Lynch. According to a survey from Radio and Television News Directors' Association (RTNDA) and Ball State University cited in "State of the News," the number of programming directors reporting a profit for radio news programs dropped from 22.4 percent in 2004 to 20 percent in 2005.