• by Erik Sass , April 22, 2008

As the latest round of quarterly results shows, newspaper publishers are seeing a significant slowdown in the growth rate of online revenue. That's bad news, since print revenues continue to plummet, with declines almost reaching double digits in the first three months of 2008. But newspapers' online business is really two businesses, whose fortunes differ dramatically: Classifieds, which are flagging, and display advertising, which is booming.

The general outlook for online revenues is not nearly as rosy as it was even a year ago. While industry-wide figures aren't yet available, two industry leaders have released quarterly results. At the New York Times Company, first-quarter online revenues grew 11.6%, or $8.6 million, to $82.9 million--down from 21.6% or $13.2 million in the first quarter of 2007.

Gannett's online revenues grew 6.5% in the first quarter of 2008, down from 16% during the same period last year (Gannett didn't release dollar figures).

The slowdown in online revenue growth is due almost entirely to weakness in online classifieds, which drag down online overall. Newspapers' online classifieds are particularly vulnerable because most newspaper publishers still get the bulk of their online classified revenues from "up-sells" on the print side, offering online ad placement to people placing print classifieds.

With print classifieds in free fall--down 16.5% for the industry overall in 2007--there are simply fewer opportunities for "up-sells" to online. This is compounded by the downturn in the real estate market and declines in recruitment due to economic insecurity.

At the same time, however, online display advertising is booming for newspapers. Most newspaper publishers don't release specific details about their online operations, for fear of revealing how badly their online classifieds are faring. But one company, Media General, recently gave a revealing look at its first-quarter results.

Overall, Media General's interactive division saw revenues fall 3.3% in the first quarter due to lower online classified revenues, according to Marshall N. Morton, the company's president and chief executive officer. Specifically, Media General said online "classified advertising was down 15.4% as lower newspaper advertising volumes, especially help-wanted, had an unfavorable impact on the company's Web sites."

Local revenues grew 28.5% because of banner ads and sponsorships, and national was up 43.2%, due largely to Media General's participation in national ad networks.