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By the Project for Excellence in Journalism

If the audience numbers for news tell an uneven narrative, the economics of the news business are more complicated. The reason has to do with the thinking on Madison Avenue about the difference among different kinds of advertising.

The revenue base for newspapers was built around ads that provided detail — this product on sale for this price — and this included classifieds. Discount retailers and then non-journalism competitors on the Internet have eroded that kind of advertising, and the print industry has not found a replacement.

In television, in contrast, advertising is about image and emotion and need, and no other medium has emerged that can rival it as a place where an advertiser can persuade consumers to want something they otherwise didn’t know they craved. “Television is the only medium where a mediocre commercial can sell a lot of product,” says Gene DeWitt, a long-time media agency executive and founder of DeWitt Media Strategies.

The figures for 2007 show another rough year for newspapers, and an even worse one expected in 2008. Advertising revenues fell by an average of more than 5%. Hardest hit has been classified, most of all employment. In 2007 alone, job ads were down 20%.

Earnings before taxes were down again, this time to the high teens, from last year. That profit margin, though, is still almost double most other U.S. industries.

Margins are also part of the tension. Should newspapers drop their expectations for high profitability to roll more money into developing their digital product? Or will that money be wasted, failing to translate into enough readers to justify the cost?

The stock prices for newspapers for the year fell 42%, after drops of 11% and 20% the two previous years. The markets are not bullish on the industry’s future.

On newspaper Web sites, online advertising growth slowed, and already the business is lagging other online categories. For the year, the industry’s online advertising grew a little less than 20%, lower than online advertising generally, and down from 30% growth a year earlier. In some markets, newspaper sites even experienced declines, mainly because their losses in classified advertising share were so great.

The other print medium, magazines, fared a little better, but that depended on where you looked. Over all, the magazine industry was down only slightly in 2007, with ad pages off less than 1%.

But the Big Three traditional news magazines did not fare as well. All three lost ad pages in 2007, from 4% at U.S. News to 18% at Time. Three alternative or niche titles in the news category — The Economist, The Week and the New Yorker — managed to buck the downward trend, adding both ad pages and revenue, while also blending focus on both their print and online products.

When it came to the online media over all, ad spending is still growing, but not as quickly as in recent years. Through the first nine months of 2007, online ad revenue grew by 26% to $15.2 billion, according to Interactive Advertising Bureau. But that rate of increase was down from the 36% through the same period a year earlier.

Despite the slowdown, as ad strategies become more and more directed toward the Web, most analysts see the Web’s piece of the pie growing sharply. By 2011, Veronis Suhler Stevenson predicts total online advertising will reach $62 billion, an average annual rate of growth of 15%. That would be enough to surpass both broadcast television ($53 billion) and newspapers ($60 billion) in just four years, though not all analysts are as bullish.

News Web sites are not expected to grow as much, and in 2007 slowing growth had already begun. As for video advertising online, it is growing exponentially. But that growth is also a function of the fact that, in sheer dollars, it remains a small category.

The television industry seems to offer some of the strongest financial promise heading into 2008.

At the head of that class is cable. Analysts projected operating profits to rise 20% in 2007. Fox News was expected to see the biggest jump (30%), with MSNBC close behind (28%) and CNN to maintain the same growth rate as in 2006 (10%).

And 2008 could be even better. So far, the campaign for president has proven a boon for cable news, with debates and election nights setting records in ratings.

In local television, 2007 saw a traditional non-election year slowdown in revenues – down 3% — to $25.8 billion. (In odd years revenues tend to drop, while in even years, with both winter and summer Olympics and politics in the mix, they tend to rise.)

Yet that 3% drop was less than in most non-election years. Early political advertising heading into the 2008 elections helped stem the decline. And 2008 is likely to be a banner year.

News remains a major factor in local television economics. According to local news directors, news provides an average of 42% of total station revenue. And the majority of news directors (56%) say their newsrooms are profitable. The numbers are even higher for network affiliates and for those in bigger markets.

For network news, getting firm numbers is difficult. The estimates suggest, however, that even with audience numbers at their lowest point since 1999, the three network evening newscasts still generate considerable ad revenue – revenue that was estimated to have grown around 4% in 2007, at least according to one estimate.

This was even more evident among the morning news shows, which according to one estimate collect more than a half a billion dollars a year in ad revenue.

In radio, business picked up some after a few difficult years. In 2006, the last year for which there is complete data, total radio revenue (including broadcast, satellite and digital) increased 3.7% to $21.77 billion. The lion’s share (92.5%) of 2006 revenue – $20.14 billion – came from traditional AM/FM advertising revenue. Year-end figures for 2007 show that overall advertising revenue was down 2% for traditional radio. But the economic diagnosis is much more complex .

Other parts of radio are still small, but growing. Total advertising revenue for online radio was $106 million in 2006, up 77% from 2005. Another component – paid content in the form of subscriptions and podcasts – accounted for an additional $45 million.

It is unclear how much the news sector has contributed to that growth. But there is a chance that news, talk and information content may gain more traction, thanks to a major roadblock that online music stations faced in 2007. In June 2007, the Copyright Royalty Board approved a new structure that imposed stricter copyright fees on Internet radio stations. The royalty fee structure would charge online music stations (including both AM/FM webcasters and online-only stations) on a per-song, per-listener basis, instead of as a percentage of revenue.

Ethnic media, on the other hand, continues to look strong. In 2006, the last year for which numbers are available, ad revenues for Spanish-language papers broke the $1 billion mark for the first time, hitting $1.12 billion, a 13% increase. Weeklies were responsible for the biggest jump — 25%, to $434 million, from $346 million in 2005. In broadcast, Univision’s revenues increased 8% in 2007, to $2.5 billion.