• by Erik Sass , September 1, 2006

Newspapers' online ad revenue topped $667 million in the second quarter, marking a 33 percent increase from last year's $501 million, according to industry organization the Newspaper Association of America.

But the Web's contribution to publishers' bottom line was dwarfed by contractions in the print ad market. Print revenues dropped .2 percent to $11.7 billion, and combined revenues were almost flat, growing just 1.1 percent to end at $12.4 billion.

The NAA doesn't break out online ads by categories--but Ken Doctor, a newspaper industry analyst with Outsell, Inc., says that a large portion of newspapers' total online ad dollars comes from classified ads--especially help wanted ads and real estate.

But Doctor also warned that reliance on recruitment and real estate leaves online papers especially vulnerable to an economic downturn. "The greatest concern going forward is that the economy appears to be slowing, and publishers should be thinking about what will happen cyclically to those two areas," Doctor said. "It looks like hiring is softening, and that could have a serious impact on recruitment revenues."

Doctor said that the real estate slowdown hasn't yet hurt newspapers because homeowners are continuing to sell their houses--even if it takes slightly longer than in the past. But a downturn that spurs sellers to pull houses off the market could put a big dent in classified revenue, he added.

Newspapers would do well to beef up their contextual pay-per-click ads, he said, adding: "They've been too reliant on Google and Yahoo." And newspapers should make more of an effort to target visitors based on the pages they view, according to Doctor. Currently, Tacoda and Revenue Science have deals with many newspapers to target online readers based on their on-site behavior. "Now that you have tracking mechanisms in place, advertisers, merchants and national brands will pay more money to sites that deliver more paying customers," he says.