More after the jump…

As ad revenues continue to plummet mostly because of weakness in the economy, more cost containment efforts are likely to follow, although new revenue streams would be preferred. The industry is finally acting quickly but from such an extreme position of defense that we have to presume more obituaries will be forthcoming. While it’s tempting to be supportive and suggest no one could have seen this coming, it really isn’t the case. More than three years ago, I asked newspaper companies to imagine a future without classified ad revenues; even though it was an extreme suggestion, directionally I knew it was the right way to think. How the industry is getting there–market-share declines exacerbated by a devastating economic downturn–is different than I might have imagined. But just the same, no one has a plan. Self-denial has flourished throughout the industry.

I worry that the industry will cut off its nose to spite its face. Rampant headcount reductions generally sever the wrong heads. True, there probably isn’t a lot of fat left, but I would venture to guess that an objective outsider could walk into most newspapers and question editorial processes, numbers of reporters and range of content–and come up with some good suggestions. Something dramatic has to be done. After enough hinting, I am again receiving the iPD, a PDF-like version of the Cleveland Plain Dealer (owned by Newhouse’s Advance Publications); it certainly isn’t perfect, but it is a step in the right direction as papers try to figure out how to do away with the burden of production and costly newsprint. I prefer a print version of the paper, but if I can’t have one, this version will do. It preserves the editorial integrity of the paper, the serendipity, the ability to predictably find content, and, by the way, the ads.

I wish the industry had felt this same pressure before it became real financial pressure. I am frequently asked whether most newspapers are profitable. Forgetting the vagaries of seasonality, the answer is yes. The problem with that answer is that it is a snapshot; newspapers used to be a lot more profitable and many will become money losers at the rate revenues are declining. The bottom line is clear; more announcements are coming.

Photo Credit: a_kartha

The general news and political sites have enjoyed a run-up in traffic (with questions as to its sustainability post election) that created enormous ad inventory. Economic theory will tell you that an increase in supply (i.e. ad inventory) coupled with unchanged, or even lessened demand (i.e. advertisers) can only be cleared by lower pricing. While I’m not feeling particularly optimistic about anything right now, I would caution the market to hold back on drawing any conclusions about online ad pricing or ad trends until we get past the election season. While trends are likely still weakening, the bottom is far from falling out.

Lauren Rich Fine is ContentNext’s research director

The bad news is pretty obvious: Advertising is down in just about every medium and major ad category. While circulation and subscriptions might also be down, they are less critical to the near-term economics although symptomatic of the longer-term challenges the print news industry faces.

The good news? Some powerful national brands are trying to push consumers online. If the goal is to preserve quality journalism, diversity of views, investigative reporting and the like, something radical has to happen. Eliminating distribution, production and paper costs virtually reduces the costs to what is essential, the voice. However, while traffic is up at most news sites and newspapers can claim their fair share, something is still getting lost in the translation. The amount of time spent on these sites is well below the time believed to have been spent in the print counterpart. If major brands push consumers online more heavily — i.e. it’s this or nothing — there might really be a business there. Increased time spent on a site should result in more ad impressions. If enough publications really push, maybe others will be brave enough to follow. Maybe more advertisers will take notice and join them. This could be good. It could add years to papers’ respective lives.

Lauren has also written two briefing notes, which you can request here: Latest Online Ad Forecasts | Online Fantasy Sports

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Much more in our second briefing note from our research director, Lauren Rich Fine, CFA.

In addition to Lauren Rich Fine’s role as research director at ContentNext, she serves as a practitioner in residence at Kent State University’s College of Communication and Information. Until recently she was a managing director at Merrill Lynch in Equity Research..

To get your full copy of the briefing note, register for either of tomorrow’s conferences, EconSports or EconWomen. Be sure to use the code, LRFsports.

If you can’t make it to either of these events, click here to request Lauren’s analysis on the online sports sector

Lauren has just written two briefing notes on the industry, which you can sign up to receive: Online Fantasy Sports | Problem with Latest Online Ads Forecasts

There will likely be some bragging rights in some cities. For example, the Chicago Sun-Times was down 3.94 percent but Zell’s Chicago Tribune was down 7.75 percent. Cablevision (NYSE: CVC) can crow with its recent acquisition of Newsday that circulation was only down 2.58 percent while the Daily News was down 7.16 percent and Murdoch’s (NWS) was down 6.25 percent. Newhouse’s papers in the top 25 — Newark and Cleveland — were down 10.4 and 8.58 percent respectively. NYT’s Boston Globe was down 10.18 percent. Other big city papers suffered similarly as Philly (owned by Brian Tierney’s group) was down 11 percent, Atlanta down 13.6 percent, Houston down 11.7 percent and Dallas Morning News (BLC) was down 9.3 percent. Zell should feel good that the LA Times was only down percent.

Unfortunately, continued ad revenue declines will further erode margins to the point that profitability isn’t assured. Yet, if Gary Pruitt, CEO of McClatchy, is as confident as he sounds that newspapers aren’t going out of business and really believes that the majority of the ad declines are cyclical, why isn’t he investing rather than cutting? Presumably, even when there is some form of cyclical recovery, margins for the industry will be dramatically lower than they were during the heyday. I, for one, just hope they are positive, as that is good enough for an industry that matters quite a bit beyond just its economics. For an industry that well understands it serves the greater good, come to terms with lower margins. And then go private!