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Newspaper boxes in Toronto

Louie Palu/The Globe and Mail

The classic business model for many newspapers was a dependence on advertising for about 80 per cent of their revenues. One needs only to look at what happened to advertisers' spending habits during the economic downturn (see graphs) to appreciate the white-knuckle descent of those revenues in the last year and a half.

But the recession is only partly to blame. Other factors contributed to plummeting ad sales; and make total recovery unlikely.

The Internet

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It's simply cheaper - and depending on what you're selling, it can be more efficient - to advertise online. Newspaper companies have seen a bump in automotive ads in the past couple of months. But if you are buying or selling a used car, more comprehensive, and often free, listings are on the Web. The same is true for lots of smaller sales. The classifieds, which were the bread and butter of newspaper ad sales, will likely never be the same.

"We view the loss of classifieds to be a permanent shift, and classifieds were extremely profitable," Mike Simonton said. "They will generally have to continue to extract costs to try to return to an equivalent profit margin on the remaining business."

For hire

Employment ads were a particularly important driver of the profitability of the classified section. They are also a particularly illustrative example of how the Internet challenges the old print model.

It goes beyond Workopolis: employers often now choose to place job postings on niche sites that are specific to their industry and attract the best candidates. Many have HR sections of their own sites where job seekers can apply directly.

Combined, it means the cliché image of an aspiring worker circling ads in the newspaper with a red pen, is a thing of the past.

Penny pinchers

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Even if newspapers do innovate (and many are selling more online ads these days), advertising on the Web simply is not as lucrative as the ink and paper variety.

"Digital advertising, on balance, nets pennies, where newspaper print advertising netted dollars," Alan Mutter explained.

In that new reality, said Mike Simonton, newspapers will have to continue to cut costs. And if newspapers try to make up for the tighter ad market by raising prices, it could make things worse.

"It ... could tend to minimize the audience, which then would start to have an effect on their ability to aggregate the local market and attract advertisers," he said. "It's all tied together."

Susan Krashinsky

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