After years as an afterthought, newspaper Web sites are taking on a bigger role in old media's fight against shrinking circulation and new competition for ad dollars.
It is a shift born partly of necessity. Circulation among the top 20 newspapers dropped 2.6 percent from March to September this year the largest sixth-month drop since 1991, according to the Audit Bureau of Circulations.
That continued a trend in which some major papers have lost 10 percent or more of their readers since 2000.
Publishers have reacted by cutting staff members. All told, more than 1,900 people have been dropped from large and midsized newspaper payrolls in 2005, according to the industry trade journal Editor & Publisher.
But amid all this dour news for the old gray ladies of the media world is a ray of hope, courtesy of the new economy. Newspaper Web sites are attracting visitors in record numbers and have posted double-digit revenue gains in each of the past five years.
Almost one in four U.S. Internet users now reads online versions of newspapers, according to Nielson/NetRatings.
Graphic:
Circulation and ad revenue
More than 39 million unique Internet users visited newspaper Web sites in October 2005, according to Nielson. This is an 11 percent increase from the previous year, and more than three times the year-over-year increase of overall Internet users.
NYTimes.com was tops in the nation with 11.4 million unique visitors in October, followed by USAToday.com and WashingtonPost.com, with 10.4 million and 8.1 million visitors, respectively.
The Union-Tribune's Web site, SignOnSanDiego.com, which is celebrating its 10th anniversary, had 1.62 million unique visitors last month a 12 percent increase over the same period in 2004.
What the online numbers show, experts say, is that newspapers are not losing as many readers as the print circulation figures suggest and that many local newspapers have established a powerful presence on the Internet.
Newspapers remain highly profitable, with the largest companies reporting operating margins of 15 percent or more.
Gannett, the nation's largest newspaper chain, had net income of $1.3 billion last year. The Tribune Co., which owns the Los Angeles Times, earned more than a half billion dollars.
Industry insiders say online operations are helping newspapers preserve those numbers, contributing between 3 and 7 percent of overall revenue, but as much as 15 percent of the profit.
Local online advertising has more than tripled since 2000, going from just over $1 billion to over $4 billion, according to Borrell Associates, a Virginia-based media consulting firm. And the firm estimates that newspapers are capturing 40 to 50 percent of that revenue.
"If you are online and looking for local news in a community, the newspaper Web site is the place you will go," said Chris Jennewein, the Union-Tribune's director of Internet operations. "It has the kind of content that appeals to a local audience breaking local news, classified ads and advertising from local businesses."
SignOnSanDiego will contribute between 6 percent and 7 percent of the Union-Tribune Publishing Co.'s 2005 revenue, said Harold W. Fuson Jr., a vice president with the newspaper's privately owned parent company, The Copley Press Inc.
The Union-Tribune accounts for more than half of the more than $550 million in annual revenue of The Copley Press, Inc., which owns a total of 10 daily newspapers in California, Illinois and Ohio.
"You go to a town where 60 percent of people don't read the (print) newspaper, they still know about the newspaper," said John Morton, an independent newspaper analyst based in Maryland.
"It has a lot of brand-name power."
But even the most venerable newspaper brands are facing stiff competition for eyeballs and ad dollars from a slew of "pure plays," which are companies like Google, Monster.com and eBay that derive all of their revenue from the Internet, and have no ties to traditional media companies.
Even small operations like the Bay Area-based Craigslist, a popular portal for young people that offers free classifieds, are threatening newspaper classified revenues.
Morton and other industry experts say publishers have only recently begun to take full advantage of the Internet.
For several years, newspapers were just taking the print product and "shoveling it online," said Rick Edmonds, a researcher and writer for the Poynter Institute, a journalism think tank in St. Petersburg, Fla.
"I think this really does mark a year where that is changing," Edmonds said. "Your average good-sized newspaper Web site is trying to venture into new areas."
Newspapers nationwide are putting a lot more emphasis on updating their Web sites with breaking news throughout the day, providing a CNN-like service to the local audience.
Some newspapers including the Union-Tribune have established teams of reporters who almost exclusively write for the Web site.
They are also incorporating weblogs, or blogs as they are commonly called, into their sites. A weblog is an online journal that is frequently updated and intended for general public consumption.
However, all the applause for the recent online efforts notwithstanding, few are optimistic that better use of the Internet will turn newspapering into a growth industry.
For evidence, one needs to look no further than Wall Street, which has not been kind to newspaper stocks this year. Stock prices for the parent companies of The New York Times, The Washington Post and Los Angeles Times have all dropped more than 20 percent this year.
While these companies all remain profitable, declines in circulation have led to worries about the future.
Since 2000, circulation has dropped by more than 18 percent at the Los Angeles Times and 17 percent at the Orange County Register, according to the Audit Bureau of Circulations.
The Union-Tribune, which is the nation's 20th largest daily, saw its circulation decline by 15 percent in that period, according to the Audit Bureau.
"The market is telling us that the business model has to change," said Paul Ginocchio, a newspaper industry analyst for Deutsche Bank.
Wall Street's dissatisfaction is best illustrated through recent news involving Knight Ridder, which owns papers including the San Jose Mercury News, Miami Herald and Philadelphia Inquirer. In recent weeks, frustrated shareholders successfully lobbied the company to put itself up for sale.
Investors worry that the online business, even under the most optimistic scenario, won't make up for the loss in print revenues.
"We still haven't answered the basic question," said Dan Gillmor, author of "We the Media: Grassroots Journalism by the People for the People."
"Is the newspaper business model coming apart at a greater velocity than can be made up for with online content? Right now, the answer is probably."
Although local online advertising will more than double over the next five years to $8.6 billion, it will still only represent about 6 percent of all local ad spending, said Gordon Borrell, president of Borrell Associates.
And, Borrell says, newspapers will struggle to maintain market share in both mediums as they battle television and radio on the one hand, and the Googles and Yahoos of the world on the other.
He says many publishers are making a mistake by focusing too heavily on "up selling" to current advertisers.
Up selling, a tried and true strategy in almost all businesses, is the idea that a company can increase revenue by selling new products to existing customers. It only works if the customer has a clear idea of the added value, Borrell said.
"Because they bundle the online with the print, the advertiser's perception is that his print bill is going up," Borrell said.
Deutsche Bank's Ginocchio says newspapers have still not been able to figure out a way to "monetize" their audience on the Web.
In recent years, large newspaper Web sites have made $20 to $25 of annual advertising revenue per unique user, he said. Print advertising generates $360 per reader.
"The newspaper is still massively weighted to print readers," Ginocchio said. "How do you create unique content, with a much different revenue stream than you are used to?"
It's possible, say industry watchers, if newspapers look beyond their old markets, better embrace citizen input, and continue to branch out into audio and video on their Web sites.
"They need to be focused on going after a completely new set of advertisers," Borrell said. "Go after businesses that have traditionally just advertised in television, think beyond their circulation boundaries."
David Washburn: (619) 542-4582; david.washburn@uniontrib.com
