The New York Times is slimming down to bulk up. It is no longer a newspaper company, with a strong national newspaper, a Boston cousin in the Globe and regional newspaper interests. It is a global news company whose future is mostly digital, and it will live or die on that adventure. It is a company that now sees 63% of its revenues (last from the third quarter) coming from the Times print and digital operations. Over the past several years, the Times — despite its many trials (selling its flagship building, participating in Carlos Slim usury, before paying back the 14% $250 million loan to the Mexican magnate) — has outperformed financially both the regional group and the Globe .

That only makes sense. Borrowing lessons from Google, Microsoft, Yahoo and many others, the global Times is about scale. You can pay a Times reporter to write a story that can reach some of the Times ‘ 50 million global monthly unique visitors, three-fifths of them in the U.S. Or you can pay a Gainesville or Tuscaloosa reporter a little less to write a story that can reach a hundreth of that total. Do the math, and the future bet is on the company with the big global news brand and the reach.

The regional news companies, important as they are to their communities, have been but a business distraction. The Times has tried to sell them before, pulling back as market conditions forced it to do. Now Halifax Media Group seems set to complete its deal, which we’d have to believe is in final form given its inclusion of the NYTRNG papers on its website (courtesy of Romenesko), now taken down. Halifax is part of new generation of newspaper property buyers, believing they can make a go of these distressed properties, through more consolidation of jobs and other efficiencies. (“Now at Fire Sale Prices, a Few Newspapers…and Maybe More,” Newsonomics, Dec. 2, 2011)

For the Times now, and going forward, the competition is CNN, the BBC, News Corp, ABC, NBC, the Guardian, Bloomberg, Reuters and several others. Who indeed will be among the most trusted names in the (digital) news business?

The spasms of change at the Times come ironically after one of the most relatively successful years for the company. Yes, profits are still tough to come by — a measly $33 million in the last quarter — but the company pulled off a digital pay scheme that has established a modest beachhead. It begins to provide the Times a second digital revenue stream, in addition to advertising. Circulation revenues grew 3.4% for the last period, as the Times’ new digital All-Access push circulation had netted 324,000 “digital” subscribers of one kind or another and enabled the first Sunday home delivery print increase since 2006. It has positioned itself well with apps for emerging tablet and smartphone platforms, moving quickly into the Apple Newsstand, for instance. It is aiming for ubiquity and is in the lead of the newspaper pack, with the Journal nipping and biting along the way.

Yet, ominously, print advertising revenues decreased 10.4 percent and digital advertising revenues decreased 4.5 percent in the last quarter. 2012 looks like another down year, in high single digits. In fact, there’s an array of numbers that offer a quite uneven path to success next year, as I described in the Newsonomics of 2012′s Magic Formula, last week.

Consequently, the company is barely keeping even, and will likely have to accelerate cuts next year to stay profitable. So the plow must be sped. With less than a quarter of its revenues now driven by digital, the Times has to move quicker. It may balance (smartly as its done with its Sunday print/digital pricing) package print and digital, but it is has to grab mind share and market share in all the emerging digital spaces, tablet, smartphone, connected TV and web.

Expect the new CEO, most likely from the outside to be focused on three A’s: audience, advertising and analytics. Arrange those three in a virtuous circle, and you have an efficient spinning of the new digital economy. That’s clearly what Time Inc has in mind as it hired Laura Lang from the ad world.

The new CEO must also drive a faster kind of decision-making at the Times Company, a company now seeing both CEO Robinson and digital head Martin Nisenholtz leaving at the same time, the latter by retirement. Famously balkanized, with numerous power centers, the company has been both innovative and plodding. That’s an odd combo, but one fitting its prudent-above-all news culture. With one distraction removed (and now we wonder about the Boston Globe, its own pay scheme innovation underway, and how long it will remain a Times Company property), the new CEO aces a tough terrain. Given that the company, even post NYTRNG sale, is 90%+ newspaper-based, it suffers in its ability to grow. News Corp, CNN, Reuters and Bloomberg all are part of large, diversified companies that can buffer them from the permanent print ad downturn. As Janet Robinson found, the path forward is an extremely narrow one.

We’ll all familiar with the chaos of the moment. Publishers and broadcasters, readers and viewers, search giants and software midgets — they all see that we’re on the verge of the next news and information revolution, as the built-out Internet really begins to power human access to content on an array of digital devices, anytime, anywhere. But it’s not just the media dealing with that revolution. The same chaos of choice that alternatively delights and befuddles envelops businesses as well.

For old-fashioned sellers of newspaper space and broadcast time, it’s been a fitful education, and a reminder that merchants don’t want to buy advertising — they want to find customers, as cheaply and efficiently as possible. The First Amendment didn’t tie merchants to media in a constitutional permanence; it just seemed that way.

Marketing spend — email marketing, social media commerce, search engine marketing and optimization, building and operation of brands’ own websites, events and conferences, among others — is increasing worldwide, while “advertising” stagnates, and that’s due mainly to the increase in digital, increasingly measurable, marketing alternatives for businesses of all kind.

Yet, it’s also clear that we’re at the beginning of this digital marketing revolution, with two numbers convincing me we’re maybe not even a tenth of the way there. I’ll call that the Newsonomics of eight-percent reach, and explain those eight percent in a moment.

Consider first the big picture of marketing spend. Chuck Richard, a fellow information industry analyst at Outsell, has done work showing that marketing ad spend in the U.S. now totals $368 billion, of which 32.5 percent is going to digital and 30.3 percent to print.

It decreased at the rate of only 4.5 percent in the recession-wracked 2009, and should rise about 4.2 percent this year. Spending on advertising alone was down 8.5 percent in 2009 and is forecast to be down 0.8 percent in 2010.

So against those numbers, let’s look at a couple of numbers.

Google reaches about eight percent of the small businesses in the country, estimates Click Z’s Gregg Stewart. That’s 1.5-2 million businesses who use Google’s ad services, contributing to its $27 billion annual revenue run rate. As Stewart points out, Google advertising is a convenience for many harried smaller merchants:

Local businesses face a multitude of challenges daily; servicing customers, generating sales, meeting payroll, and in effect doing what they “do” for a living. Basically, they’ve got their hand in everything and this rarely allows for deep specialization in any one specific facet of their business. Local businesses do not have the time required to research keywords, monitor results, and modify bids and ad creative along with all the additional complexity that is associated with SEM.

Look at that eight percent another way, of course, and we see 92 percent upside, a big opportunity to help merchants make sense of the chaos. Google — along with Yahoo, Yelp, Yellow Pages companies, AOL, and Microsoft — have been plumbing this territory, and so have newspaper companies and a trio of hungry online marketing services companies.

Now Google is making a couple of aggressive moves. It has announced Boost. It’s a product that is built on top of its local listings and Google Maps. Boost — there’s an ironic ambiguity to the name, in that it is intended to boost Google’s revenue and boost some money out of the pockets of local media — adds the ability to put ratings and reviews in place-based ads, and they are sold on a pay-for-performance basis, unlike an earlier similar offering. The Boost test is going forward in more than a dozen cities.

Secondly, Marissa Mayer, Google’s long-time maestro of the search business, is now in charge of the local business. That’s another signal of what an opportunity Google sees in local business, online and on mobile.

How much of the local business market do you think metro newspapers reach? Eight percent, estimates Mike Sacks, VP for operations at Tribune. That’s a number, give or take a couple of points, I’ve heard from other publishers as well. While that total is likely higher for smaller-circulation dailies, its small size is a reflection of the old way of selling, pre-chaos.

Newspapers worked the biggest local merchants for big contracts, concentrating on getting a relatively small number of checks from a small number of deep-pockets advertisers. Now, those advertisers — the likes of Best Buy, Target, and Macy’s — are increasingly going direct to their customers and using all manner of social and engagement media to find and upsell customers (“The Newsonomics of online marketing“).

So, newspaper companies, including Gannett, Hearst, and Tribune, most prominently, are re-strategizing. If the dollars from that eight percent are only half what they were 10 years ago, then we’d better get some revenue from the other 92 percent, they’re saying. They’re doing that three main ways:

• Retraining salesforces, and hiring more commissioned salespeople, to work the territories, selling not only space in their own papers and sites, but Yahoo inventory, Facebook placements, mobile messaging and more.
• Telesales: Think “boiler room” lite; more salespeople calling more prospects.
• Self-service: Sack’s Tribune is one of the companies using the Mediaspectrum platform to enable local merchants to place their own online or print ads. This Orlando Sentinel “Place an Ad” page shows what merchants can choose from. At the sister Sun-Sentinel, in Fort Lauderdale, Sacks says that more than a hundred new advertisers have been added in the year the service has been in place. “Every single cent is a new one…I’d like to see it grow ten-fold,” he says of the prospects of turning an experiment into a line of significant revenue. Sacks says average sized deals come in at about $1,000/$2,000 and also provide lead generation for upselling. Overall, Mediaspectrum’s self-service ad product is in place at almost 100 newspaper titles, including all of the Tribune’s papers (but not broadcast properties), UK’s Trinity Mirror chain, Morris Publications, the Columbus Dispatch, and the Washington Post. Most offer both online and print placements.

As we enter 2011, this new battle for local ad dollars is growing in strength, as merchants aim to make sense of the chaos of marketing choice. This exercise in chaos — and how sellers of marketing services do or don’t take advantage of it — affects more than just newspapers, of course. Locally, commercial broadcasters and Yellow Pages companies — the two other local media with substantial feet-on-the-street sales forces — are sensing the same opportunity to get to smaller businesses, as they, too, lose some of the bigger-business advertising they’ve long held.

Advertising agencies are in the midst of their own identity crises, as their value proposition to businesses is thrown into question, with the advances of pay-for-performance advertising and self-service overall.

The online-only players aren’t just the search giants. ReachLocal, Orange Soda, and Yodle are the companies you hear a lot about when you talk to local site general managers. They are all working the same turf, with ferocity. A recent visitor to the Yodle “sales pit” came away with the impression of “how well trained these guys are” and how their state-of-the-art customer relations management system qualified prospects well.

That 92-percent “open” market — maybe 23 million businesses — tells us how early we are in this digital marketing movement. Commerce change is one thing. For those who care about the news, the big thing to watch is whether those dollars, as they move digitally, move to companies that produce news, distribute news — or have nothing to do with news.

Well, worth reading USA Today’s David Lieberman’s interview with Bartz, here. The questions help define the terrain of the day, even if the answers are less than conclusive and, added up, still fall short of answering the question of what Yahoo is, now that it is grown-up.

Here’s the local question, and answer, and how Yahoo works with “people like that,” uh, the news industry.

Q: You are starting a local news operation for San Francisco. Tell us about your plans to offer local information.

A: We all live in a place. You live in small communities, and you are very interested in what happens in those communities from police blotters to what happened in the city council or the neighborhood watch. It is interesting to the consumer.

And it is interesting to the advertiser because it is the ultimate target. Statistics are 95% of our purchases are (made) within 2 miles of our house, 5 miles of our house.

Q: There are a lot of people in local news. AOL has Patch. Local newspapers, radio stations, TV stations are online. Where do you fit in?

A: We have partnerships with local publications and an association with newspapers. They send us news feeds. We send viewers back to their dot-com locations. So we actually are very symbiotic with people like that.

But to answer more the spirit of your question, why can we succeed? I will give you the CEO answer: We do a better job. A better job in being a partner with local advertisers. A better job partnering with people actually writing from the community, not about the community. We have a lot of experience in this.

Yet, I wonder how valuable the system will be for selling advertising, which, of course, its main intent.

To quote Mark Fitzgerald in this morning’s Editor and Publisher, “In its example of a bundled subscription, ABC says a newspaper can count multiple copies per day from a subscriber who gets a print newspaper, but also access to a digital edition, mobile app or e-reader edition.

‘Beginning Oct. 1, newspapers that receive at least 5% of the price of the first or base subscription for each additional product made available in the offer can qualify all copies as paid circulation[emphasis mine],’ the ABC announcement said.” (Note the 5% number, which I recall used to be 50%. Paid circulation, a concept of decreasing value, ain’t what it used to be.

So that’s how I’ve come up with my 1042% forecast.

Seriously, I wonder how much the Gumbo-like turns of circulation accounting will matter to ad buyers. Increasingly, across all media buying, those buyers are focused on audience. They want to know who (gender, age, household status, region, clickstream behavior, recent buying behavior and more) and they want to target on the fly, as the world turns, spinning ever more quickly. So audience targeting is getting to be instantaneous; a 20th of a second is what we hear it takes.

Compare that to circulation reports issued every six months, or even monthly, and I’ve got to wonder what to make of these colliding “data” worlds. Does an ad buyer really care if a single person accessed a single brand six ways to Sunday? More important is who that single person is, and what else she is doing in her life (if she has time!)

My feeling, and it may not be a fair one, is this is like recasting the steamship data, as trains and cars roll into the world.

I am glad to see that ABC is moving forward on the question of how it accounts for when a reader accessed a publication. While print remains a more reliable number, ABC has been counting digital readership by saying that if someone accessed a digital news product once within six months, that counted as a digital reader. It didn’t sweep away that standard, but is phasing it out:

The ABC board announced these standards for “fulfill requirements”:

“In a hybrid scenario, the print edition of the newspaper counts as paid circulation. For the digital component of the hybrid, the newspaper must demonstrate that the subscriber accessed the digital edition, based on the following schedule:

“Effective Oct. 1, 2010 for March and September 2011 Publisher’s Statements, the digital edition must be accessed at least once in the six-month Publisher’s Statement period to qualify the circulation as paid.

“Effective Oct. 1, 2011 for March and September 2012 Publisher’s Statements, the digital edition must be accessed at least once per quarter to qualify the circulation as paid.

“Effective Oct. 1, 2012 for all subsequent Publisher’s Statement periods, the digital edition must be accessed at least once per week to qualify as paid circulation.

So in a by-the-second world, just as we approach 2013, weekly digital access will be the standard.

All of these changes, of course, are works-in-progress, attempts to grapple with a world that ABC circulation practices never envisioned. The industry also uses Scarborough readership data, which itself has seen change. If it is successful in aligning that readership data (as the prototype somewhat aims to do) with the new circ data in ways that are meaningful to advertisers, maybe these changes will help sell ads. If not, time spent on retrofitting may better be spent expanding on such relationships as the Newspaper Consortium, which is now able to use more state-of-the-art audience targeting technology, through Yahoo, to sell digital advertising.

As expected, Gannett’s second quarter 2010 was markedly better than a year ago, a time we should recall when the year 1929 was on everyone’s lips.

No surprise: a doubling of profits. Those profits moved up to $195.5 million from $70.5 million a year ago. That’s still a slim quarterly profit margin for a $5.5 billion revenue company. In the heyday, Gannett’s margins topped 30% in newspapers — the envy of other chains, and the bane of publishers running its peers. Now it’s down in single digits for net publishing profit. In recent years, I’ve kept an ongoing comparison of Gannett — the #1 U.S. news publishers (and #2 worldwide to News Corp) — and Google. They usually announce results within days, and the gap between their profits is one of the signal pieces of data showing the how the world and business leadership has been transformed.

Gannett’s quarterly profit, 2Q: $195.5 million. Google’s quarterly profit, 2Q: $2.37 billion.

So we can parse today’s Gannett numbers — which have markedly disgruntled investors (“Gannett Craters Following Earnings” — and more importantly look at what they tell us about Gannett strategies.

To the numbers:

• Yes, revenue is still down, or as I wrote yesterday, there’s not yet enough bounce in the dead cat. (“The Newsonomics of the Dead Cat Bounce“). Overall revenues down 1.6 percent. Publishing revenues down just shy of 6 percent.
• Broadcasting as expected is a bright spot, up 20% — highlighting the disparity between the post-recession bounces of broadcasting and publishing.
• Digital up 8%, more we’d believe from Gannett’s motley portfolio of digital companies (Pointroll, CareerBuilder,  ShopLocal, Planet Discover, Schedule Star and Ripple6) than from its local digital sales successes.
• Circulation revenue down 5.5%. That’s an important number for Gannett and the industry. If the strategy is to shed less vital circulation, but price up, getting habitual readers to pay for more of the freight, it looks like that strategy may have hit a wall. You can’t both shed readers in mid-single digits and shed about the same in circ revenue. (Few companies look like they’re making the new discipline work. For instance, the New York Times Company — given its aggressive pricing of the Times itself — has been showing double-digit circ revenue increases.) Why’s this important? If publishing ad revenues continue to be significantly challenged, then circ revenues (far greater than digital publishing revenues) have been seen as a go-to to make up some of the difference.

Now to strategy:

• So Gannett’s decided that it’s go-it-alone, devise-its own-local-marketing strategies approach didn’t work. It partnered with AOL, while others were crafting the Yahoo agreement. Today’s announcement that all its local news markets are joining the consortium is a refutation of previous strategies. While some other companies — MediaNews, Scripps and Hearst — have been earning good millions of dollars in adopting Yahoo ad targeting technology and selling local Yahoo inventory, Gannett’s been late. One question now: How will the consortium fit with Gannett’s GannettLocal marketing services push? Such pushes, like Tribune’s 435 Digital Services, offer a revenue engine for the future. Connecting up smartly GannettLocal and Yahoo’s services is key. Gannett will also have to figure out where the Yahoo deal fits with QuadrantOne, but Hearst has already done that.
• What’s the Yahoo move tell us about Gannett’s new digital direction, in the wake of Chris Saradakis’ departure, as Josh Resnik moves up? Gannett, along with others has been cozying up to Rupert Murdoch’s Alesia paid content initiative. After breaking free of the old TKG (Tribune, Knight Ridder, Gannett) troika, is it now deciding that joining in industry-wider consortia is a smarter way to go?
• Is Gannett’s diversification sufficient? Wall Street is saying no, once again. Yes, broadcast and digital can be — and are — revenue drivers. Combined, though, they are just a quarter of the company. Three-quarters of it is still based in newsprint — way too much in a time when the newspaper recovery lags just about everyone else’s.
• With the second half of the year ahead — and tougher comparables for Gannett and all the newspaper companies — can it find a way to eke out some revenue growth from publishing?

Now it’s becoming a media company, or in the old parlance: a publisher. It has purchased Associated Content for something more than $100 million, a company whose value has lately been burnished by the media’s fascination with Demand Media, and more lately with AOL’s Seed.com push, as AOL tries to set its own independent path.

Look at who is involved in these companies — Associated Content CEO Patrick Keane, former head of ad sales strategy at Google, and AOL CEO Tim Armstrong, former Google sales head and a continuing investor in Associated, and you can see the simplicity, the commercial elegance, behind it. Armstrong, his confidence built on Google’s success, has put it dramatically, saying he wants to “spark a revolution of people doing content at a different scale.”

It’s a matter of reversing the traditional stream. That stream: Writers, reporters and editors come up with ideas, editors decide what gets into print and everyone expects the ad sales people to sell against whatever gets published. You know: good luck, guys, we’ve created good stuff, certainly you can find advertisers who want be associated with it.

Now, Associated and Demand and AOL are looking it at the other way, which makes sense given the ad roots of their leaderships. Reverse the stream: Figure out what advertisers want, how much they willing to spend in which categories, when and to reach whom — and then essentially commission the, uh, content stuff.

How much do you pay for the content? Well, as little as possible — Associated Content pays $5-$30 a story to those surviving writers among the 380,000 who have signed up to contribute. But, here’s the important metric. You pay a lot less for the content than you know you can make on the advertising. Let the business opportunity drive the content creation.

Now these cost metrics are making sense even to the most hallowed of news brands. They don’t have to accept the entire business model, the whole ads-drive-editorial philosophy of these companies. They do, though, like the idea of getting cheap, at least-good-enough content, to drive their own websites, especially in topical areas, like travel and technology. So Reuters, Scripps, and Fox News, among others, have signed up to take Associated Content content.

For Yahoo, I think, it’s simple arithmetic. If you’ve figured out how to monetize content better than the other guys — remember Yahoo Newspaper Consortium members say they can mark up $8 CPMs to $15 and beyond, courtesy of Yahoo’s behavioral targeting technology — why not do it against content you own. With the Associated purchase, it now will own the 2.1 million articles in the database, with another 2000 coming in every day, and it can sell advertising directly against those articles, without having to do any margin-draining revenue shares.

How good is that content? Well, Patrick Keane is the first to say that editing would be too fancy a term to apply to his process. Though he employs 15 full-time editors, they’d have about two minutes per story to devote to editing, given the 2000-story-a-day in flow. So as Keane told me, editing amounts to “making sure the title is correct, the story’s not gibberish and not created by a bot in the Philippines.”

Lots of questions tumble out of the Yahoo Associated deal. Here are my first four:

• With the Yahoo Associated deal done, who is going to dance with Demand? Will it IPO or now be snatched up by Microsoft, as a defensive move? Google wouldn’t buy, because, it’s not a content company, right?
• What’s this mean to the Newspaper Consortium? Nothing, I’m sure Yahoo will say, but consider that the same niches — travel, gadgetry, health, sports, entertainment — that attract better ad rates than plain old news are the ones newspaper companies are themselves trying to better monetize, in part with Yahoo technology. Now, Yahoo, the emergent publisher, will be competing for viewers for that same content.
• Doesn’t this mean Yahoo itself will soon supply more content to news companies? Just as Associated and Demand (with its recent providing of USAToday Travel Tips section) have begun to do, Yahoo can do bigger time. It can produce largely Pro-Am, good-enough content cheaper than news companies, sell it to them — and even provide packages of content and ads. It’s a publisher. It’s a syndicate. It’s a wire. It’s an ad rep. News sites, in this scenario, are increasingly distributors, exercising some choice of what appears on their sites, under their own brands.
• Overall, today’s deal is further evidence we’re into the age of cheap content and of content arbitrage. The stream’s being reversed all around the news business, with advertising driving content creation in ways that those of us who fought print advertorials couldn’t once imagine. Content arbitrage is a feature of the landscape as I recently wrote (“The Newsonomics of Content Arbitrage“) and one that modern media companies must learn. How they use its principles will make all the difference in what they and their brands stand for, but the need to understand the principles is reinforced by today’s deal.

This week, though, also saw an impressive report from another of the key players in the local journalism game — a foundation. The William Penn Foundation (assets: around $2 billion) commissioned J-Lab, an energetic newer media provocateur largely funded by the Knight Foundation, to figure out what was going on in local news, and what could be done about it. J-Lab’s recommendation, encapsulated in a readable, short-form report:  A Networked Journalism Collaborative for Philadelphia.

Most of you will nod as you read the key findings, my own emphasis added:

• The available news about Philadelphia public affairs issues has dramatically diminished over the last three years by many measures: news hole, air time, story count, key word measurements.
• People in Philadelphia want more public affairs news than they are now able to get.
• They don’t think their daily newspapers are as good as the newspapers used to be.
• They want news that is more connected to their city.
• People from both the Old Philadelphia, anchored by the city’s union and blue-collar workers, and the New Philadelphia, representing tech-savvy, up-and-coming neighborhoods, want to be involved in helping to generate that news.
• The city is awash in media and technological assets that can pioneer a new Golden Era of Journalism.
• There is strong, but guarded, interest in exploring a collaborative journalism venture.
• A significant number of Philadelphia’s new media outlets have expressed interest in pursuing a collaborative media initiative.
• Any collaborative news effort must validate and support the fiercely independent mindsets of the city’s new media makers.

Philly’s a special place in some ways — argumentative, feisty, proud of many heritages — and, in some ways, it’s like many other cities. While daily newspaper companies emerge from bankruptcy (13 in the U.S.), proclaim profit and swear that the ad revenue bleeding is lessening (though they are taking in less revenue in 2010′s first (recovery) quarter than they did in 2009′s (near-Depression) quarter, many outside of daily newspapers believe they’ve seen the future, and it doesn’t include the dominant, near-monopolistic presences of daily metros that it used to.

So we see re-grouping everywhere. J-Lab’s report, like Len Downie’s last year, deserves credit for describing the reality well: Less is less — and it’s not enough. Foundations are redefining local journalism as a public good, like education, health and the arts — all community benefits that nobody expects the market to completely support. They’re pouring dollars into experiments, as are angels like Warren Hellman, the financial force behind Bay Citizen and Buzz Woolley, instrumental in getting Voice of San Diego off the ground. Entrepreneurs are testing models like TBD, as Allbritton (a TV veteran and innovator of Politico) believes a profitable enterprise can be constructed that’s digital-first, community-connected and tech-forward. The FTC continues hearings, roundtables and inquiries to see what can be done to “save” American journalism.

One big question that the Philly report begins to tackle is how to connect up diverse local media in any metro area. That seems like an academic question — the cliched herding of cats multiplied — but it’s not. Clearly, we see metro futures in which local news media will be far more diverse — public radio; news start-ups; commercial broadcasters; reduced, yet still substantial daily newspaper-based operations, plus a host of ethnic media and hyperlocal blogs. Connecting them smartly is key for two big reasons, ones that are the currency of the digital business: distribution and revenue.

Findability — the discovery of the local content — is key. Everyone from Outside In and FWIX to Yahoo, Google, MSN and AOL is trying to lasso local content, seeing the findability problem. Aggregation is happening, though it’s ungainly. Readers don’t yet know where to look for the best aggregation of diverse, yet trustworthy local news. Research I’ve done with Outsell confirms that while we’re all quite used to using aggregators to get to national and global news, we’re still stumbling around as we look for local, tepidly sampling newspaper and broadcast sites, without forming strong time-on-site attachments.

So whoever can best aggregate any single metro’s news content — in a way that’s logical, useful and fun (think iPad here, for instance) — can drive a big audience. That big audience, of course, will drive the revenue, revenue for the aggregator, and in the Philly model and some others, revenues that will fund (not just form a sick trickle down) the local content producers. It’s arithmetic that’s just forming, so it’s hazy to see.

It leaves us, for the moment, with these kinds of questions:

• What indeed is a daily newspaper’s role in these collaborations? The Philadelphia operation now run by publisher Brian Tierney and editor Bill Marimow seems old-school in seeing their papers’ roles in the community. Yet, in other cities, we see the Miami Herald, Seattle Times, Charlotte Observer (all three funded by J-Lab) and Seattle PI.com actively reaching out to other local journalists, forming big tents of various constructions.
• If not the local daily, then who may do the organizing? TV broadcasters could do it, but it’s not much in their DNA, though a few national leaders like Raleigh’s WRAL show leadership here. Public radio could do it, and it may, spurred by local innovation and Project Argo-like national encouragement. The New York Times (or Wall Street Journal) could do it, if it decides its Chicago (Chicago News Cooperative) and/or Bay Area (Bay Citizen) models make broad financial and journalistic sense. The start-ups themselves could do it, but most are more oriented to doing the journalism, than organizing it more widely. The big aggregators, Yahoo foremost among them, have seen the coming, big local ad play, but may not have the patience and provision of resources for what will likely be a laborious bringing-together of local media. The Outside Ins and FWIX’s are tools companies, able to offer good software, but unlikely to do the aggregating themselves.

The magic word here from a business perspective: Roll-up. Whoever figures out how to roll up major audiences and monetize them wins. J-Lab’s report holds out hope that may come about somewhat organically. History, though, teaches us that it’s more likely to come by dint of more singular zeal.

In Philly, the next steps sound more foundation- than journalism-like, three Penn Foundation grants directed at planning, enterprise encouragement and creative use of technology. J-Lab Executive Director Jan Schaffer, herself an Inqy alumnus, notes that the enthusiasm the study encountered is palpable: “There were people that wanted to start tomorrow.” What does the project need? “The right editor,” says Schaffer, one that combines the savvy of the old and new news worlds. They are out there.

The newest start-ups show that. In D.C. TBD’s head, Jim Brady (Poynter’s Steve Myers good piece on Brady and his push here) is one of them, as are two of his key hires, Erik Wemple and Steve Buttry. Jonathan Weber brings three lives of news experience to Bay Citizen. Soon, there will be lots more.

While in 2006, “online classifieds” made up 18% of overall online ad spending in the U.S., the just-released data from the Interactive Advertising Bureau and PricewaterhouseCoopers shows that they just now make up just 10%. And that’s down from 14% in 2008.

In fact, if you parse the numbers, overall ad spend in the U.S. would have been up in 2009 – a year wracked by near Depression that saw print and broadcast advertising drop by 20% and more.  Online classifieds lost $920 million year over year; overall digital ad spend was down about $700 million.

So online ad spending pulled off a coup, staying just about even in the worst ad year in memory.

The classifieds downturn is partly explainable by simple buying patterns: miniscule hiring, a semi-frozen real estate market and stop-and-go car buying. Even, in recovery, though, “classified” is not coming roaring back. As I talk to publishers from coast to coast, they tell me they see some glimmers of recruitment hope. Real estate is still largely mired in foreclosure. Auto shows some signs of forward movement.

Overall, they are budgeting classifieds in 2010 – against the awful 2009 comparisons – just north or south of flat. Undoubtedly, the classified trade will pick up some, as normal buying patterns re-emerge, but no one expects a robust return of the classifieds business, online or in print.  In fact, in areas like auto, sites are finding that Yahoo behavioral targeting, provided through the Newspaper Consortium, may be a better online moneymaker than auto classifieds listings products.

Classifieds, of course, were the original bundled source of online revenue, in newspaper companies’ early digital days.  At Knight Ridder, as was common among our peers, we attributed a small percentage of the overall, print-centric buy to “online,” usually in the single digits. “Bundling” provided much of the go-go growth of the middle of the last decade. Now, we see many of the newspaper companies moving, finally, away from bundling. McClatchy’s been the most vocal about its online-only sales, but companies from Scripps to Media General have recently been changing intra-company accounting to reflect the new realities.

Those realities: agencies and merchants are buying digital advertising on its own merits, and classifieds are fading slowly into history.

It’s a complaint we’ve long heard in the newspaper industry: It’s the 25-year-old media buyers who are driving the business into wrack and ruin. If they only understood the world wasn’t just made up of people just like them — the wired, the mobile, the people whose parents read newspapers — advertising spending would be more rational.

Much of that talk, of course, is sour grapes, the inevitably griping we hear when change is in the air, when disruption messes with our views of the way the world should be, with our careers, with our paychecks.

We’ve also heard, mainly in the past year or so, that news companies just don’t think there’s much ad money on the web. Rupert Murdoch and Arthur Sulzberger have been vocal about the need to get greater revenues from readers, given what they’ve said is an historic change in ad revenues. That philosophy has fueled much of the push to find paid content models that work and work big.

Let’s look at some of the data about ad spend, and at least one innovation that may impact revenue allocations in the next several years.

First, and maybe most importantly, usage of digital media — in time — far outweighs, in proportion, the ad dollars spent on it. From a recent JP Morgan report, we see the estimate that adults are spending 29 percent of their time on the web, but advertisers are only putting 8 percent of their ad spend on the web. Meanwhile, newspapers only get 8 percent of our attention, but 20 percent of the ad dollars. That’s a big, continuing disparity. We wouldn’t expcct a one-to-one relationship between time and dollars spent — too many mitigating factors — but given the trajectory of online usage, we’d expect less disparity over time.

In 2009, most reports put the total of online advertising spending in the U.S. at about $23 billion. The Newspaper Association of America (NAA) puts daily newspaper online revenue at about $3.5 billion. That’s 15 percent of the total, a number that I think is a bit high, given the bundling and difficulty of separating out print from digital buys. Even at 15 percent, though, it’s less than the historic 20 percent of the national ad spend that newspapers — in print — long took out of the market. $3.5 billion (or even $4.6 billion, had the industry maintained its print percentage) isn’t a big number — and it’s peanuts compared to print revenues lost over the last couple of years.

Yet, the $23 billion number is a big one, and the fastest growing in advertising overall. Significantly, the top 10 websites take in 72 percent of that revenue, a share three percentage points greater than a year earlier, according to Interactive Advertising Bureau. The concentration in spending on bigger properties has accelerated.

So the spoils of the new medium have gone to a relative few, most of them content aggregators, as Yahoo, Google, AOL, and MSN top these revenue charts. The New York Times is represented, but most local newspaper companies and sites fare relatively poorly. It’s not just dimes of Internet revenue to dollars of print revenue; it’s trickle-down ad spend.

Why? One key reason is scale. It’s simply easier to buy the big sites than smaller ones. That’s especially true when we consider how new and how immature the digital ad spending landscape is.

That 25-year-old buyer may now be reaching the terrifying age of 30, but she or he isn’t the problem. The problem is at least, in part, structural. The American Association of Advertising Agencies (AAAA) has estimated that it costs twice as much to manage the placement of digital ads as compared to print and broadcast.

“If traditional services are assumed to require staffing and fees that imply an effective commission rate in the range of 12%–15% (with media planning and buying services assumed to be 1/3 of the total), Digital can typically require resources equating to an effective commission rate ranging from 25%–30% (with media planning and buying services assumed to be 1/2 of the total),” says the 2009 report.

So, the 30-year-old media buyer finds herself in a system that’s overburdened. TMI, too much information flowing in, too little time to absorb and make sense of it and not enough staff to work it. One result: More money spent on bigger ad buys, which, of course, take less time to place.

Against this backdrop, we see the value of Yahoo’s Newspaper Consortium, streamlining the buying process for all those newspaper properties. That’s boosted online revenue by the tens of millions.

Now Centro, one of the news industry’s top suppliers of digital advertising (about $100 million in ad business moved through Centro to media overall in 2009) is demoing a streamlining product. It is called Transis, and it was unveiled at AAAA’s early March conference. The product’s ambitious goal: “Transis automates the entire digital media buying process from planning through billing and centralizes all related communication. It aims to bring the diverse tasks of ad placement — from building media plans, handling RFPs and insertion orders, billing and reconciliation — into a single console for ad agencies. The intent: more ad volume for Centro and the 2,000 or so websites on which it places ads.

Ten digital agencies are now testing Transis, a trial that could last six months. So, if Transis has an impact on the revenues of non-Top 10 websites — the broad swath of local websites that Centro President Shawn Riegsecker calls “B” placement sites — it will be in 2011. Of course, Transis, or something like it, would have to become a standard to drive a major change in ad revenue buys and splits. Its principle, though, is one to watch, and one that could be more ad dollars going to smaller sites.

Further, it’s another indication that the digital industry’s out-of-the-chutes growth is based on many first-generation practices and habits. As it emerges out of gawky adolescence and matures, new technologies may have the capacity of changing how we think of business models and business potentials, and how new journalism will be funded.