11/13/2008 05:12 am ET Updated May 25, 2011

Newspapers' Web Revenue Down

recast, are digesting another piece of bad news: the growth in online advertising they saw as their salvation has slowed to a crawl.

In the last few years, newspaper companies have been rapidly expanding their Web presence -- adding blogs, photo slide shows and podcasts -- in the belief that more features would bring more advertisers. But now, after 17 quarters of ballooning growth, online revenue at newspaper sites is falling. In the second quarter, it was down 2.4 percent compared with last year, to $777 million, according to the Newspaper Association of America. It was the only year-over-year drop since the group began measuring online revenue in 2003.

Overall online advertising, however, is strong. Display advertising, the graphics-rich ads that newspaper sites carry, grew 7.6 percent in the second quarter, TNS Media Intelligence reported.

Newspaper executives say the new features have drawn bigger, more engaged audiences, which they hope will translate to more advertisers. Unique readers in August were 17 percent higher than a year earlier, at 69.3 million, according to a Nielsen Online analysis of newspaper sites for the newspaper association. They also point to other factors for the decline, including the economic downturn and the continued flight of classified advertisers away from papers and their sites.

But the advertising glut, particularly in display advertising, on which companies had based their optimistic projections, has shrunk. As newspapers keep adding pages, they are forced to sell ads at cut-rate prices.

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