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By the Project for Excellence in Journalism

The most important issue facing journalism is whether the Web will ever deliver the kind of revenue that legacy platforms once did.

If there were doubts before, 2008 made it all but certain that the traditional advertising revenue model — retail, display and classified from print, and traditional image video ads from television — would not come close to being enough.

Even before the recession hit full force in the fall, indeed as far back as 2007, online advertising for news sites was already slowing down. The deteriorating economy only made a difficult situation worse.

It is now obvious that if the news business is to survive in any recognizable form it must invent a new economic model in which traditional advertising is at best only part of the revenue equation.

“The notion that the enormous cost of real newsgathering might be supported by the ad load of display advertising down the side of the page, or by the revenue share from having a Google search box in the corner of the page, or even by a 15-second teaser from Geico prior to a news clip, is idiotic on its face,” a 2008 research report from Sanford C. Bernstein & Company concluded.

Yet by all signs, only marginal progress seemed to have been made in developing any new ways to monetize the Web. Much of industry was simply trying to keep its head above water.

And the evidence suggested that new forms of advertising and new platforms of delivery offered little hope of reaching adequate scale anytime soon. Video advertising, for instance, grew rapidly early in the year, but the numbers are still quite small and they slowed considerably as the year ended. Advertising on mobile devices, where distribution and use are growing rapidly, is also small and projected to remain so.

Online Ad Revenue Growth Slows in 2008
(updated April 1, 2009)1

Over all, online ad spending for all websites, news and otherwise, rose in 2008, but the rate of growth slowed.

Ad revenues online totaled $23.4 billion in 2008, up 10.6% from the $21.2 billion posted in 2007.2

The rate of growth in 2008 was less than half the rate recorded in 2007, when revenues were up 26%. “A weakening economy will continue to be a challenge to all forms of advertising-supported media, said David Silverman, a partner at PricewaterhouseCoopers.3

And 2009 is expected to be the first year since the start of the decade in which some components of interactive advertising will show little or no growth, according to an outlook report from Borrell Associates, the media research firm.4

For news, the prospects are even dimmer. While search advertising was expected to grow, the category that news sites depend on most, display (which includes graphical banner and pop-up ads), was projected to decline. Even if the nation’s economy improves, the Borrell report said, advertisers are likely now to opt for search over display, with display having already seen its most lucrative days.5 “No form of advertising yet invented has grown forever,” it said. “Interactive ad spending is no different.”6

The result is that online ad growth for legacy media like newspapers is not coming anywhere close to making up for the losses in the old media platforms.   In its newest report, Veronis Suhler Stevenson, the private equity investment company, estimates  that newspaper ad revenue — both print and online combined — declined by 15.6% in 2008 and would fall another 19.1% in 2009.7

The long-term problem here becomes obvious. Print is shrinking. The Internet  is not coming anywhere near those old newspaper levels, especially for news sites. (eMarketer projections put newspaper ad revenue from online and print both in 2012 at $28.4 billion. That would be roughly 40% less than the industry took in during 2006).

The math seems increasingly inescapable. Advertising on the Internet, at current rates projected out, will never resemble the kind of economic foundation newspapers enjoyed in print, or that flowed to news on television.

Ad Revenue and the News

How much of this Internet advertising does go to news?

One research group tries to isolate this. TNS Media Intelligence develops an estimate of the top 25 websites in the United States based on display advertising, not including search or video. It then breaks those sites down by category.8

Its analysis suggests news represents only a minority of the display ad revenue attracted online.

Its two categories of news sites, local news and guides and national news and current events sites, together made up 19% of the revenue among these top websites in 2007, the latest year available.9 And that is the area of online advertising where they have the biggest presence.

If that number is at all representative, it suggests that display advertising online would have a long, long way to go to make up for declining ad revenue in print and television. Even before the financial credit crisis hit in September, Veronis Suhler Stevenson projected that for the two online ad categories most oriented to news, display and classified, spending would reach $16 billion by 2012. If news sites represented 20% of that, it would amount to roughly $3 billion, or less than one tenth of what newspapers alone took in during 2008.

Online news professionals point out that even these numbers may inflate the potential for newsgathering, as opposed to news aggregating. David Payne, former senior vice president and general manager of, warned that news organizations will be disappointed if they are expecting online ad revenues to make up for the traditional sources of revenue they have long counted on. Payne wrote in a column for Media Week:   “it should be no secret that news organizations — even those with the most successful online properties — are in for some serious adjustments in the future. Most have the vast majority of their budgets tied up in headcount and newsgathering. When there is pressure on those budgets in a declining revenue state, heads roll and newsgathering is slashed, initiating an ugly spiral.”10

Top 25 Website Categories by Display Ad Revenue, 2007
Dollars, in Millions

Type of Site U.S. Ad Spending % Change ’06 to ’07 % Share 2007
1 Multi-purpose Portals, search engines, ISPs 1,290.4 17.4 12
2 Business, finance, investing 1,065.7 18.4 10
3 Local news, guides 1,056.5 50.5 10
4 News, current events 946.8 22.2 9
5 General interest/general entertainment 769.8 42.8 7
6 Sports 697.1 -0.5 7
7 Computing, technology 613.6 13.6 6
8 Movies, videos, TV, cable 440.5 17.8 4
9 TV stations 395.8 35.2 4
10 Travel 343.3 15.7 3
11 Shopping 284.6 23.3 3
12 Games 284.5 -9.7 3
13 Portals, search engines 275.8 -5 3
14 Health and fitness 263.9 -6.4 3
15 Music, broadcasts,  radio 253.5 70.3 2
16 Internet service providers 237.3 3.3 2
17 Automotive 231.2 11.7 2
18 Cards, screen savers 210.0 5.5 2
19 Real estate 151.8 30.4 1
20 Food 127.4 18.3 1
21 Special interests/hobbies 125.2 0.3 1
22 Common cultures/communities 121.5 -6.9 1
23 Hispanic 117.2 44 1
24 Men 96.4 5.2 1
25 Teens 87.2 34.2 1
Total 10,487.0

Source: Data from TNS Media Intelligence on more than 2,800 sites.
Note: Dollars are in millions for calendar 2007 and represent only display advertising; excludes search and broadband video. Percent change computed vs. 2006 data, not shown. No 1 is multiservice such as MSN, Yahoo and AOL and No. 10 is just portals and search engines such as Ask .com and Categories are from TNS.

Display Advertising

Another problem, already noted, is that display advertising, the category flowing more to news, has already begun to slow down, and now the industry expects that trend to continue.

This bears a little more detail.

Even before the economic meltdown in the fall, Veronis Suhler Stevenson projected that the growth rate of display advertising revenue online would slow to 13.9%, down from growth rates of 15.6% in 2007 and 38% in 2006.11

Later in 2008, the market research firm eMarketer projected an even steeper drop in the growth rate. In December, it estimated that by year’s end online display advertising would have grown by only 3.9%.12

Display advertising online comprises two categories, national and local. In 2008 national display was hurting most. According to Borrell Associates, by the end of 2008, national display advertising revenue was expected to fall by 13% from a year earlier. And the firm predicted that trend was expected to worsen, falling 14% more in 2009.13

Local display, by contrast, was expected to remain healthier in 2008 before falling in 2009. It was projected to rise in 2008 by 23% and then decline by 4% in 2009.14

And the growth rate is expected to slow even further in the years ahead. Veronis Suhler Stevenson estimates that display advertising will grow at an annual compound average of 10.6% between 2007 and 2012, half of the 20.3% annual growth rate it had between 2002 and 2007.

“The sparkle of banner advertising has dimmed,” Borrell Associates said in its 2009 outlook report. “Advertisers are turning their attention toward newly sparkling formats that may hold greater efficiency” like search and streaming video.15

One reason that online display revenue is slowing is falling prices. Average display ad rates slid during the third quarter of 2008, according to PubMatic, an ad consulting firm for online publishers.16 Measured as the cost of reaching 1,000 website users, the rate fell from 50 cents at the end of 2007 to 26 cents at the end of 2008.17

“It’s not surprising that [the rate charged for display ads has] been trending down, but what is surprising is the size of the drop,” rather than the rate charged for ads said Rajeev Goel, president and co-founder of PubMatic.18

Rick Edmonds of the Poynter Institute cites two factors for the declines. First, the oversupply of space online, including blogs, YouTube and social networks had already begun driving rates down. Then the economic downturn of 2008 cut ad budgets further across all platforms.

Certainly some of the industries that use display advertising most heavily – auto and retail for example – cut their ad budgets after the financial crisis in September.

Top 10 U.S. Internet Display Advertisers, 2007
Dollars, in millions

Advertiser U.S. Ad Spending % Change from 2006
1 IAC/InterActiveCorp 314.4 155.6
2 General Motors Corp. 212.0 79.4
3 Experian Group 193.1 49.3
4 Apollo Group 192.4 55.8
5 Verizon Communications 189.1 69.7
6 E-Trade Group 186.9 74.8
7 Ford Motor Co. 163.5 65.0
8 FMR Corp. (Fidelity Investments) 142.8 46.6
9 Scottrade 142.5 35.8
10 Microsoft Corp. 142.2 73.4
Source: TNS Media Intelligence

Search Advertising

The advertising category growing most online is search, which to date has not substantially benefited news.

In this form of advertising, the consumer is presented with ads based on the search term he or she types into Google or another search provider. It commands most of the revenue in online advertising, and it was expected to weather financial storms and remain strong in 2009.

Before the credit crunch hit in September, eMarketer projected paid search advertising would increase by 40% during 2008. After the crisis, they revised that downward, to 21.4%.19

Even the reduced rates will be difficult to sustain as the Internet matures. Between 2007 and 2012, for instance, Veronis Suhler Stevenson projected revenue from search to grow at a compound annual rate of 16%, to $26.2 billion. The preceding five years it had grown at a compound annual rate of 42%.20

News sites receive some revenue from search advertising, although PEJ was unable to locate anyone in the industry with specific estimates. Search engines such as Google and Yahoo share some ad revenue with a news website that uses their search technology. Presumably, a news website may also benefit indirectly when a Google search drives traffic to its story, where a user is exposed to display ads.

As growth slows, search is also expected to lose some of its total share of online ad spending.  According to estimates from Veronis Suhler Stevenson, search’s share of online advertising revenue is expected to fall from an estimated 42% in 2008 to 37% in 2012.21 Two smaller categories — social networking and online video — are expected to grow more strongly.22

Still, that is a much higher growth rate and share of ad spending than projected for display.

The estimates from eMarketer, which are much lower, are in the table below.

Projected Growth for Online Advertising Spending, by Category
Dollars, in billions

U.S. Ad Spending, 2008
(Dollars, in billions)
Growth 2008-2012
Search 10.7 65%
Display 4.6 57%
Video 0.6 400%
Rich media 1.9 58%
Classifieds 3.1 -3%
Lead generation 1.6 25%
Sponsorships 0.6 0%
Email 0.5 20%
Total Internet Advertising 23.6 57%
Source: eMarketer

Video Advertising

As growth in display advertising slowed, experts wondered whether video ads had the potential to inject new life into revenue for news websites.

The answer, offered in 2008, is that despite rapid growth, video is still a small revenue source and has yet to show real promise for the future.

Advertising in online video and rich media — which refers to any moving or dynamic web content such as a news ticker that scrolls across a web page or streaming video — was projected to grow by 44% in 2008, to $3.6 billion, from $2.5 billion a year earlier. The good news is that the rate of growth here is expanding.  In the preceding five years video ad revenue grew by an annual compounded rate of 33%.

The bad news is that the figure of $3.6 billion represents only 10% of Internet advertising, which itself is not as large in 2008 as people expected.

Veronis Suhler analysts forecast that online video would grow by annual compound rate of 39% by 2012 to $12.7 billion, a significant amount. By then, they estimate, it would represent 18% of total Internet ad spending. Only ads on social networking sites, which represented about 7% of Internet advertising in 2008, were expected to grow faster.

The effectiveness of video ads, however, is still largely an unknown, and growth could be slowed by the recession. “It’s harder to prove that ads … embedded in a video are effective in luring Web surfers to a site or enticing them to make a purchase,” said Russell Fradin, president of Adify, a company that helps firms set up online advertising networks.

Even if these ads prove effective, the question remains: how many of these news sites will succeed in capturing enough ad revenue to stay in business?

Advertising on the Cellphone

One other potential source of expanding the universe of digital advertising is mobile.

The jump in mobile technology with the advent of faster 3G networks raised expectations about rapid growth in advertising. Apple released the 3G iPhone and Google the Android operating system, which allows smartphones to operate much like an iPhone. The Google operating system can be run on almost any mobile phone, permits free wireless use and allows for the easy addition of applications from anyone who takes the time to create one.

There are about 40 million active users of the mobile Web, according to Nielsen Mobile.23 As that number increases, there will be an increasing demand for information on mobile devices.

Advertisers have taken note of these increases and have shifted spending to mobile devices. They were expected to spend $1.3 billion in 2008, up 59% from a year earlier, according to data from Veronis Suhler Stevenson.

The rate was expected to slow somewhat, to a compound annual rate of 34% between 2007 and 2012. That would put mobile ad revenue $3.6 billion at the end of the period.

Local vs. National Advertising

One other concern for news online is what has happened with local advertising.
Online advertising buys have tended to be aimed at national audiences through large national websites and portals such as Yahoo. In recent years, those national websites have taken aim at the billions of dollars spent on local advertising, a direct threat to regional and local media that hoped to lure their most important advertisers to their Web sites.

A decade ago, 80% percent of Internet advertising was national and 20% was local.  By the end of 2008, Veronis Suhler Stevenson estimated the gap had narrowed to 70-30 as local merchants grew more comfortable advertising on Google, Yahoo and Monster and other “pure play,” or Internet-only, sites.  Projections call for that same ratio to continue through 2012.24 Another estimate, in the chart below, estimated the gap reached closer to a 60-40 ratio in 2008.

Local vs. National Online Ad Spending
Design Your Own Chart

Source: Borrell Associates, Inc.

But as local advertisers have become more comfortable with the Web, they increasingly are spending their money on these national sites and away from local news. In 2007, for instance, the share of local online ads spent on newspaper sites fell to 25%, down from 36% the year before. Meanwhile, the share of local ads going to pure play Internet sites such as Google jumped to 57% from 33% the year before.25

Local Online Ad Share by Medium, 2008
Design Your Own Chart

Source: Borrell Associates, Inc.

Other Models

The most obvious question is if advertising, the foundation of the news industry for much of the last century, won’t work online, how much progress has the industry made in developing an alternative?

In 2008, our sense is very little. The industry has toyed with some other ownership models, particularly nonprofit ones. We discuss these in the New Ventures Section.

But existing news organizations by and large have little history innovating new economic alternatives. The industry has seen a host of opportunities slip over the last decade and a half. In 2008, it was preoccupied with the economic slowdown. Many, if not most, traditional news operations, professionals told us, operated at what has been described as a straight line model. If revenues declined by 10%, costs needed to be cut by 10%. That cost cutting, rather than invention, commanded everyone’s attention in the last year.

“Frankly, when I have been at meetings about innovation, what I have heard has mostly been hand wringing,” said one news executive at a private meeting with potential nonprofit funders.

In the end, the economics of the Web seemed to be moving even farther away from news in 2008, and the recession is only making that problem harder. It seems increasingly clear that news sites need to move further into search, but it is not clear they are succeeding, and the shift of local advertising to national portals may be especially ominous. The prospects of new technology, such as mobile and video, are promising, but the scale is not yet there, and there is no certainty that news will capture these either.

The solution, increasingly, seems to point to new models. But the innovations here seem small and experimental. There is, in short, a long way to go for news economics online, and abundant reasons for concern about whether it will ever happen.


1. The updated figures in this section are for total online advertising revenues as reported by the Interactive Advertising Bureau (IAB). At the time of original release of the State of the News Media, IAB had data for online advertising for just the first three quarters of 2008. Through that time, IAB was reporting about 14% growth for that time period. On March 31, 2009 IAB released year-end estimates of 10.6% growth for the entire year. We have updated the narrative and charts to reflect the year-end figure.

2. “IAB Internet Advertising Revenue Report,” Interactive Advertising Bureau, March 2009. By PricewaterhouseCoopers.

3.“Internet Advertising Revenues in Q3 ’08 at Nearly $5.9 Billion,” press release, PricewaterhouseCoopers, November. 20, 2008

4. Gavin O’Malley, “Interactive Ad Spending Will Top Out in 2009: Report,” Online Media Daily, November 6, 2008

5. Gavin O’Malley, “Interactive Ad Spending Will Top Out in 2009: Report,” Online Media Daily, November 6, 2008

6. Gavin O’Malley, “Interactive Ad Spending Will Top Out in 2009: Report,” Online Media Daily, November 6, 2008

7. Veronis Suhler Stevenson, Communications Industry Forecast, 2008-2012

8. Data from TNS Media Intelligence, Top 25 Web Site Categories by Display Ad Revenue

9. This category includes 32 news websites with a national focus, including Yahoo! News,, AOL News, and However, it does not include CNN, one of the most-visited news websites. Local news attracted up to 10% of online ad revenue in 2007 (up from 8% in 2006). The national news & current events category held steady with 9% of the revenue.

10. David Payne, “Doing the ugly math: without changes, news operations will suffer in digital times,” Media Week, November 10, 2008

11. “Communications Industry Forecast 2008-2012,”  Internet & Mobile Services, Veronis Suhler Stevenson, 2008

12. “eMarketer Revises Online Spending Predictions,” eMarketer, December 1, 2008

13. “2009 Outlook: Big Slowdown Begins for Local Advertising,” Borrell Associates, November 8, 2008

14. “2009 Outlook: Big Slowdown Begins for Local Advertising,” Borrell Associates, November 8, 2008

15. “2009 Outlook: Big Slowdown Begins for Local Advertising,” Borrell Associates, November 8, 2008

16. Michael Learmonth, “Online Ad Network Display Ad Rates Take a Dive,” Advertising Age, October 14, 2008.

17. Douglas Quenqua, “Display Ad Prices Fell 50 Percent in Q4,” ClickZ, January 15, 2009

18. Joe Mandese, “Online Display Ad Prices Fall To Lowest Point This Year,” Online Media Daily, October 14, 2008

19. The early projection is from “February 2008: Search Marketing, the Behemoth Online Advertising Format,” eMarketer, accessed February 5, 2009. The revised projection is from “eMarketer Revises Online Spending Predictions,” eMarketer, December 1, 2008.

20. “Communications Industry Forecast 2008-2012,” Internet & Mobile Services, Veronis Suhler Stevenson, 2008

21. “Communications Industry Forecast 2008-2012,” Internet & Mobile Services, Veronis Suhler Stevenson, 2008

22. One worry among search advertisers is “click fraud,” in which they pay for hits to their ads that are not from legitimate consumers. One study found that the rate of click fraud fell slightly in 2008 but remained a serious problem The report, by Click Forensics, estimated that the rate of click fraud stayed basically at 16 percent of all clicks, industry-wide.  “The overall rate continues to dip, as advertisers continue to take more initiative [in monitoring click fraud] and as search engines are starting to take things a bit more seriously,” said Tom Cuthbert, president of Click Forensics, which provides services to monitor ad campaigns for click fraud. “That’s favorable, but 16 percent is still a very high number, still something to be concerned about.” Click fraud occurs when someone, often using automated software, causes clicks to be made on sponsored ads. Rivals may do this to drive up a competitor’s ad costs. More often, Web publishers who employ links by search companies such as Google or Yahoo do it in order to receive more income in revenue-sharing from the search companies.

23. “Moving to Mobile,” Newspaper Association of America, press release, accessed October 10, 2008

24. “Communications Industry Forecast 2008-2012,”  Internet & Mobile Services, Veronis Suhler Stevenson, 2008

25. “What Local Media Websites Earn: 2008 Survey,” May 2008. Directories such as the Yellow Pages garnered 8% in 2007, broadcast TV got 7%, and radio and other print (such as local magazines), drew a combined 3%.