Report: Newspaper Sites Will Bring In $1.52B in 2005

By: Jennifer Saba Newspapers' online operations grew to a $1.19 billion industry in 2004, according to a new report from Borrell Associates.

While online sites represented about 3% of a newspaper company's revenue, the segment accounted for 45% of advertising growth. Newspaper sites are expected to reap $1.52 billion overall in 2005.

Borrell Associates surveyed 719 daily and weekly newspapers (out of 2,177 media properties total) via telephone and e-mail in late January and early February.

The report spotted two key indicators that suggest growth will continue at a fast clip driven by local advertisers. First, although more than three-fourths of consumers use the Internet, local advertisers spent a scant 2.1% of their ad budgets online. Those advertisers will boost their spend to reach their targets. That means that ratio between national and local online advertising will continue to balance out. "The traditional spend split between nationally placed and locally placed advertising is roughly 50-50. Of the $11 billion spent on online ads in 2004, the split was 77-23," the report said.

Newspaper Web sites dominated the local online advertising marketplace, with a 44% share in 2004. However, those sites relied heavily on the traditional advertising category of classifieds.

In 2004, newspaper sites reaped 69.8% of their ad revenue from real estate, automotive, and recruitment classifieds -- unchanged from 2003, the report noted. "An average of 42% of the industry's Internet revenues come from [recruitment]. Automotive comprised 15% of their web revenues, and real estate 12%."

Newspapers are reporting high profit margins from their online arms as well. On average, newspapers reported an average profit margin of 68% from their web operations. Only 10% of the sites surveyed were unprofitable. Two public companies, Belo and Media General Interactive, reported negative margins, the report said. Belo had a loss of $4.7 million on revenues of $31.1 million and Media General Interactive reported a loss of $6.3 million on revenues of $13.9 million.

The report expects small newspapers, "which are playing catch-up after years of lagging behind the metros" will have the most growth this year at 46%, compared with 19.8% growth budgeted for metro newspapers.