The newspaper industry is making the news, but not in a good way. The Newspaper Association of America reported that ad revenues in the industry have fallen by 9.5 percent in the biggest drop in any year since 1950. The decline comes at the heels of an economic slowdown and an increase in online advertising that together have put a damper on the fourth quarter - a peak period for ad sales.

The nation's largest newspaper company, Gannett Company (NYSE: GCI), was one of those hardest hit with a 7.2 percent drop in revenues. The numbers reflect a growing trend in the daily newspaper industry, as more readers flock to the Internet for news. This has led to a decrease in circulation and revenues in print publications around the country that has sent many newspaper companies to 52-week lows.

Many newspapers have relied on their online news services to at least partially offset losses in their print division. These online newspapers have seen revenue growth of 30 percent over the past three years, but the economic slowdown dropped this rate of just 18.8 percent during the fourth quarter. Meanwhile, online advertising revenues for newspapers still only account for around 7.5 percent of total revenues.

One of the solutions to this problem is being offered by Yahoo Inc. (NDAQ: YHOO) of all companies. The search giant plans to roll out a new set of online ad tools for 600+ newspapers that have joined its consortium. Reports have indicated that Yahoo has some 572 people working full-time on the project that could help newspapers successfully syndicate and monetize their content online to offset declining print revenues.

The Yahoo newspaper consortium was formed in November of 2006 and initially involved a combination of its HotJobs help-wanted site with local newspapers. Many saw great success with this program and are looking forward to the company's next beta testing of a platform that will help publishers target behaviorally and geographically across its growing network of newspaper sites. Few details of the new program have been leaked, but newspaper executives are uniformly impressed.

This potential for online advertising in the newspaper industry has prompted some investors to push for a separation of online and print publications via a spin-off of the online divisions. The theory as that this would allow investors to assign a higher multiple to the online segment and allow investors to unlock value. Unfortunately, this would leave the print publication to die a slow death or survive on razor-thin margins.

In the end, the newspaper industry continues to struggle with both an economic decline as well as a move from print advertising to online advertising. The solution to this problem is to embrace online advertising and Yahoo may be the answer for the industry. Meanwhile, many investors are insisting on a series of spin-offs to unlock value for shareholders and enable the online segments to growth.

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