Newspapers normally relish a crisis. Sliding house prices, soaring fuel bills and the credit crunch all make great headlines. But, for many newspaper bosses, the latest economic crisis is hitting hard. Advertising revenues have tumbled in recent months as companies trim their marketing budgets and circulation figures continue to decline.
In response, many newspaper organisations are pinning their hopes on their online divisions. Across the board, these businesses are showing phenomenal growth in both user numbers and income generated from selling ads.
But can internet advertising really save the nation's favourite broadsheets and tabloids? One thing is clear - display and classified advertising revenues are on the wane. This summer, a number of listed newspaper groups, including Trinity Mirror and the Daily Mail & General Trust, admitted that advertising revenues had fallen sharply.
Financial Times publisher Pearson bucked the trend with a rise of 2% in advertising revenues, but warned that future income from selling ads remained "difficult to predict".
Circulation figures offer little respite. The latest ABC figures (July 2008) show the number of papers sold year on year are down at every single national daily, apart from The Sun - which reported a rise of less than 1%.
Meanwhile, online newspapers are growing fast. In June alone, the Newspaper Marketing Agency's member newspapers attracted 35.5 million UK-based unique users onto their sites, with a further 59.3 million users from around the world.
Impressive growth rates
The growth rates compared to a year ago are impressive. Telegraph.co.uk tops the leader board, with a surge in users of more than 108% year on year. Clearly, online newspaper users represent an important group of consumers, and advertisers have taken notice.
The amount spent by advertisers on all newspaper websites increased 25% to almost £50m in the 11 months to May 2008 (source: Nielsen). Although this is just a fraction of the £1.2bn spent on print advertising in newspapers, it is a much faster-growing medium (see box).
As the Internet Advertising Bureau predicts, total online ad spend, which surged 38% to £2.8bn in 2007, will overtake television advertising revenues by 2009. With such bullish figures in circulation, it is easy to see why newspaper bosses are gunning for their online news divisions. But not many are prepared to divulge exactly how much money these business arms make.
Peter Williams, finance director at DMGT, is one of the few to speak frankly. In 2007, the group's national newspaper division, Associated Newspapers, generated £447m in print advertising and £86m from its digital arm, up 46% on the previous year. However, that figure includes revenue from lucrative sites such as findaproperty.com and jobsite.co.uk. These attract a lot of classified ads "because people are searching for a new car or a new home, so they are much more likely to click through", says Williams.
So does he believe internet advertising will ever make up for the shortfall in print revenues? "In the short term, no, it won't. We are seeing a downturn in advertising across the board," he says. He also argues that the big-selling tabloids, such as The Sun, will always make more money from cover sales than advertising, simply because of the huge number of papers they shift.
Williams is also sceptical as to how much display advertising will ever move online. "Our newspapers deliver five million eyeballs every day - not many websites do that," he adds.
Adam Freeman, commercial director of Guardian News & Media, agrees: "I don't see a future without print display. It is tough. There is no doubt about that. But we still believe we will be selling many more papers for many years to come."
However, like The Telegraph, The Guardian has been investing heavily in its internet operations. It recently unveiled operational changes aimed at boosting its digital activities, integrating the newsrooms of The Guardian, The Observer and guardian.co.uk. Without giving actual figures, Freeman said online ad income accounts for about 15% to 20% of advertising revenues at The Guardian - a share he sees growing to 50% in the next few years.
Newspaper defence
Andy Taylor, associate press director at Carat, is another defender of the printed newspaper. "I'm a traditional man and still believe that print display ads have a future," he says. "You can reach 76% of the adult population with a display ad. There's still a lot of value there."
However, Taylor admits the landscape is changing. He adds: "You might see newspapers with fewer pages and more colour. You will definitely see casualties. By 2010, there won't be the number of newspapers we have today."
For many, the shift from print to online is inevitable. Sue Unerman, chief strategy officer at MediaCom, says: "The answer lies in the consumer. Are consumers going online? Yes." However, Unerman believes advertisers need to create more cross-platform campaigns rather than thinking about the internet in isolation. She adds: "It is very easy to think about the internet through a Google lens, but that is not all that the internet is about."
But Ben Hughes, global commercial director and deputy chief executive of the Financial Times, warns that newspapers rest on their laurels at their peril. "We can't continue to rely on print advertising as we did in the past," he says. "We're constantly trying to think of ways to bring in extra money."
Hughes says online advertising is just one of many new revenue streams - the FT has also increased its cover price, expanded its conference division and invested in its stable of magazines - although the web plays an important part. He reckons it can command between 30% and 40% of all advertising revenues over the next few years, up from 15% currently.
Online newspapers are clearly a force to be reckoned with. But the idea that online advertising will soon overtake cover sales - a theory known in publishing circles as the Rusbridger Cross, even though Guardian editor Alan Rusbridger never made that claim - remains a pipe dream.
Log onto the recently relaunched Mirror.co.uk and you will find a news site that is totally different to its competitors. Bright, garish fonts, lots of pictures and an unusual layout have been used to ensure it stands out.
According to Richard Webb, managing director of UK nationals at Trinity Mirror, online advertising revenue has more than doubled over the past year, although he won't divulge figures. It is likely to be a fairly small percentage of the £159.4m generated from advertising in Trinity Mirror's national newspapers in the financial year 2007.
Even so, Webb believes the potential for Mirror.co.uk is promising. The site is attracting 5.4 million unique users, up 80% on last year. "The percentage (of advertising revenue) that we take out of digital is still very small compared to print," he says. "But there is huge potential to grow digital because it is coming from such a low base."
However, Webb believes online advertising will only be effective if the industry gets a handle on how to measure web traffic and how to better understand users' behaviour. "The industry really needs to decide on some clearly defined metrics," he says. "At the moment, there are too many in use, they don't reflect what is important, and it is easy to cheat and to inflate some of the figures, which renders the whole thing meaningless."
And while Webb admits times are tough for newspapers, he argues they are "incredibly resilient" products. He adds: "Newspapers are still very useful and valuable. They are not suddenly going to disappear."
He is proud of what has been achieved with Mirror.co.uk: "The Mirror pioneered the concept of tabloid newspapers and we are taking a similar approach online, with a distinctive picture-led design and diverse content that reflects the Mirror's integrity, compassion and intelligent wit."
Telegraph Media Group's efforts to become a multimedia company appear to have had a major effect on the number of people logging onto Telegraph.co.uk.
In the past 12 months, the site's monthly unique users have ballooned 180% to 19.7 million, of which 6.4 million come from the UK. It generates about 73 million page impressions per month and its users spend an average of about eight minutes exploring the site. About 20% of total ad revenues come from online, although the company does not publish exact figures.
Dave King, executive director at TMG, reckons the success of the site is down to the firm's "hub and spoke" strategy. Journalists are trained to write and produce stories for the website, the newspaper and for podcasts and video streams broadcast on the internet. Readers of the paper are encouraged to go online and vice versa. Meanwhile, costs can be slashed and news content is more streamlined.
"We're not just a newspaper anymore. We have readers, listeners and viewers now," explains King. He claims this multimedia platform offers great value for advertisers, as campaigns can be launched across many different channels.
Telegraph.co.uk is clearly a key part of the group. But King doesn't believe it would stand on its own two feet without the help of the "mothership", the printed newspaper. "It is not one or the other - the combination works for us and for the consumer," says King.
King also believes newspapers are here to stay: "As a nation, we love newspapers. They say something about who we are. People like the physical product - they have a very intimate relationship with newspapers." The Telegraph was the first newspaper to go online in 1994 and it is clearly not giving up on its heritage just yet.
FT.com has signed up almost half a million registered users since November 2007, when it took the giant leap of becoming a subscription-based website. This was seen as a bold move at a time when most of its peers are providing hard-hitting news for free.
But Rob Grimshaw, publisher and managing director of FT.com, is ecstatic. "We're up 20% in terms of unique users and 50% in terms of page views," he says. "The growth is way beyond our expectations."
Grimshaw says people are happy to pay for news content online as long as there is "no hassle" and the information is of the highest quality. Anyone can log onto FT.com free of charge and look at up to five articles a month. If readers want to use the site more often, they have to register (for free) in order to access up to 30 articles a month. More than that, and the reader must subscribe at a cost of £100 a year.
The strategy means occasional readers are not penalised by having to pay for something they rarely use. And advertisers are content because they have much more information about their target market. Other changes on the site include greater use of interactive graphics to illustrate complicated economic stories. The FT has also linked up with Maven Networks, the technology firm, to provide more video content online.
But there is still more to come - Grimshaw reveals that the FT "will be completely revamping the site by the end of the year".
Parent company Pearson does not break out ad revenues for the FT or FT.com. However, its FT Group division, which includes The Economist and Interactive Data as well as the FT among other businesses, generated £206.4m from print advertising last year - 30% of total FT Group revenues. About 15% of that, or £30.9m, came from online.