• by Erik Sass  @eriksass1, July 26, 2007

Two of the nation's largest newspaper publishers reported substantial drops in ad revenue for the second quarter on Wednesday, reflecting the broader downward trend in the industry. Beyond the immediate implications, both The New York Times Company and Tribune have other reasons to be concerned about the weak results.

NYTCO has come under growing shareholder pressure to change its ownership structure, while Tribune is heading into a major buyout by real estate billionaire Sam Zell.

NYTCO's newspaper ad revenues were down 5.7%, as earnings fell from 37 cents a share to 34--an 8% decline, compared to the second quarter of 2006. Once again, the biggest drops came in classified advertising--which tumbled 13.4%, mostly due to continuing declines in real estate and automobile classifieds.

Retail advertising fell 9.9%. The company's New England News Group, which includes The Boston Globe, showed no improvement over previous quarters, posting a 7.6% decline in ad revenue.

Tribune Co. experienced even bigger declines, with overall ad revenue dropping 11% and classified revenue in particular down 18%--including double-digit declines in real estate, auto and job recruitment. Retail revenue was down 5%, and national ad revenues fell 11%. These, in turn, drove a 34% decline in earnings per share--from 28 cents to 18 cents.

As is customary, both companies pointed to strong growth in their interactive revenues as a relative bright spot--with NYTCO enjoying 23.4% growth in online revenues in the second quarter, to almost $81 million, and Tribune up 17%, to $66 million. Tribune's strong results are due largely to its online real estate and automobile classifieds.

NYTCO's online growth held steady with last year's 25% growth rate in the second quarter, but Tribune's figures constitute a slowdown from last year's robust growth. In the second quarter of 2006, Tribune's interactive revenues grew 27% to $57 million. Thus, revenue growth has slowed in terms of both percentage and absolute dollar amounts, from $15.4 million in 2006 to $9 million in 2007.

The weak results from Tribune raised fears that it may miss performance targets that will make or break a proposed buyout offer from Chicago real-estate mogul Sam Zell. The financing for the deal is predicated on Tribune meeting certain minimum operating requirements. However, Tribune CEO Dennis FitzSimons reassured investors that the deal would go through, a forecast that received some support from Deutsche Bank media analyst Paul Ginocchio.

Meantime, NYTCO faces shareholder pressure to revise its ownership structure to give shareholders equal voting rights with the Ochs-Sulzberger family.