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Finding Revenue in The Classifieds

Newspapers are doomed. Or so it may seem.

The young, the hip and the Web-savvy are going online for their classifieds, and ad dollars are following.

So if classified ad revenue, old media's mainstay tributary, is drying up, one question remains: With what will we line the birdcages of the future?

At least, so goes the conventional wisdom.

But others say traditional media is in line to gain as much as anybody from the online consumer. And they say the growth of online classifieds won't kill print newspapers, but rather will help them thrive.

This contrarian view is not accepted on Wall Street and in some advertising circles.

Share prices at large newspaper companies, such as the Tribune Company and Knight-Ridder , continue to slide or remain stagnant as profits drop and jobs are cut.

Don't underestimate the online threat, said Ari Jacoby, traditional media advocate and president of advertising firm Voicestar.

"Traditional media is losing advertisers right and left to online advertisers like Google and Craigslist," Jacoby told internetnews.com.

Craigslist.org, for the not-so-young, hip or Web-savvy, is a popular community-based Web site that lists classified ads for free. It began making headway into print's revenue two years ago.

According to Jim Townsend, the principal and editorial director of consulting firm Classified Intelligence, "free" is hard to compete against.

"Free isn't exactly a good business model for newspapers," Townsend told internetnews.com.

"[Newspapers] have been struggling for quite a while now against a model that would give away what they would charge for," Townsend said.

In February, Craigslist had more page views than the top 20 newspaper sites combined, according to Nielsen//NetRatings.

Struggling, but not failing, some would argue. Experts like Jacoby, though wary, are still optimistic about the future of old media.

"Traditional media is being unfairly devalued by the marketplace," he said.

While Craigslist and other online-only media have seen tremendous growth over the past few years, online newspaper sites have, as well.

The top 20 newspapers boast five times more unique viewers than Craigslist, despite trailing the site in combined Web page views, according to Nielsen//NetRatings.

And that number grew by 21 percent from December 2004 to December 2005.

That kind of growth, Jacoby said, is due to traditional media's "critical assets: long-term customer relationships, brand equity, real readership, real editorial."

So while there's been a new-media explosion, newspapers have been every bit a part of it. And it's been because of their traditional strengths.

The trick, Townsend said, is to leverage that new growth to protect those long-term strengths.

"By far, the online growth, while still a much smaller slice of the pie, is growing exponentially," he said. "The issue for traditional ad publishers is how to convert that kind of revenue."

AdStar CEO Leslie Bernhard thinks the solution requires counter-intuitive thinking. AdStar is a software company that provides an online marketplace for publishers and advertisers.

For a long time, she said, classified and major advertisers thought "print first." Online advertising was an afterthought. If advertisers utilized the Web at all, it was only by repurposing print ads into online banners.

But now there's an industry of companies specializing in repurposing print ads into more online-friendly formats.

Bernhard said that ubiquity is a sign of how many advertisers now think Web first, second and only. Newspapers would do well to remind their many new online advertisers of print's viability.

"Newspapers all put up their Web sites and then neglected to realize the potential of the space," Bernhard told internetnews.com. "Offering an online ad and not offering an offline component is absurd."

Its absurd because, as Townsend noted, newspapers are growing exponentially online, but even in growth, online advertising is only a "small piece of the pie."

Online classified advertising is not enough to save newspapers. Online growth is only useful in the long-term if it's leveraged to protect the industry's primary revenue: print advertising.

Bernhard said online advertisers are ready to be reminded.

She said that when the Atlanta Journal-Constitution included a checkbox in their online advertising forms that read, "Do you want this also to go into the paper, click here," 45 percent of the online advertisers chose to run a print ad, too.

Nearly half of all advertisers who thought online first, second and only, agreed to pay a little more to publish their ad in print. That's a large chunk of that exponential online growth.

And Bernhard says it's plenty to keep print viable.

"If you really think about it, as opposed to taking revenue away, it appears as if [new media] is bringing new revenue from Web-oriented buyers to print publishers."