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By the Project for Excellence in Journalism

The economics of journalism continues to be robust.

The ability to reap big profits, however, can also be a crutch. If older media sectors focus on profit-taking and stock price, they may do so at the expense of building the new technologies that are vital to the future. There are signs that that may be occurring.

Newspapers in 2004, for instance, increased their profits at double the rate (8%) that their revenues grew (less than 4%), according to the Newspaper Association of America, a distinct sign of profit-taking. The industry remains highly profitable. Margins averaged 22.9% in 2004, according to the analyst Lauren Fine, and are expected to rise in 2005. The investment in online publications, though, where the size of the profits is still fairly modest, remains by most evidence cautious.

There were also signs in other media that some efforts to raise revenues might be hurting brands as they begin to face more competition. In radio, all but one of the top five owners saw revenue increases from their news stations in 2004. But several owners saw their stocks downgraded during the year because of a sense that there were too many commercials, and in mid-July, Clear Channel Radio announced it would be reducing the number of promotional and commercial time on its stations, a signal that advertisers felt the environment was being eroded.

But even though troubles are looming, journalism remains an enormous engine for generating cash. Local TV news, for instance, is generally twice as profitable as newspapers. Profit margins of 45% to 50% are common, and in 2004 station revenues rose in the first nine months by roughly 10%, also higher than for print.

On network news, the morning shows carried the ball in 2004. Despite flat audience numbers, they were on pace to exceed the 5%-to-10% revenue growth of the year before, according to partial-year data from TNS Media Intelligence. At the same time, nightly newscasts continue to shrink in importance financially, with revenues in 2004 appearing to be declining.

Magazines also appeared to enjoy a robust 2004, with ad pages up 4% and revenues up 11%, and each of the news magazines themselves saw dollar increases.

The biggest question for 2005 involves the economics of the Internet. Ad revenue there continued to explode, with growth projections for 2004 around 30%, to roughly $10 billion.

That total, however, is still well behind other media. It is only a fourth of what went to broadcast television and a fifth of what newspapers took in. It even lags cable, a more limited universe of outlets.

The question is not whether online advertising will continue to grow, but whether it will ever be big enough to supply the resources to newsrooms we have come to think of as sufficient for quality journalism – and whether it will flow to the organizations that produce journalism, or to those that simply aggregate and pass it on. Will newsgathering organizations that produce what is on the Web benefit, or will processors like Google or Yahoo?

For online journalism to thrive ultimately, some people believe a combined subscription and advertising model for the medium will be necessary. A few outlets are beginning to explore the possibility of bundling sources, as occurs in cable, so that consumers would pay a fee to both the Internet provider for access and to those who create the content.

Consumers are still resistant to paying for Internet journalism, and experiments in 2004 were not promising. If no model is found to monetize the Web to approach the kinds of profit levels of older sectors, the impact could drastically affect the resources available for newsgathering.