Summary:

As *Yahoo* prepares to announce its Q3 earnings report on Tuesday — along with the expectation of a major layoffs — things aren’t looking…

As *Yahoo* prepares to announce its Q3 earnings report on Tuesday — along with the expectation of a major layoffs — things aren’t looking so great for its 32 newspaper consortium partners. While Yahoo (NSDQ: YHOO) has been adding a steady number of newspapers to its ad sales alliance over the past year — it represents 779 pubs — and a number of members have cited benefits to their individual ad sales, the downward trend in display ads is likely to hit the program hard. That’s even with the rollout of its new ad sales and targeting system, APT, which was released last month. IBD examines the current climate and what it might mean for Yahoo and the Newspaper Consortium:

Another lowered outlook: Citing data from Borrell Associates, IDB says that the forecaster expects local businesses to spend $11.9 billion on online ads this year — a downward revision from Borrell’s previously expected $13.1 billion local online ad spend for 2008. Looking to next year, Borrell’s updated forecast calls for $13.6 billion in local online ad expenditures; its last forecast anticipated $18.2 billion in local web ad revenue by the end of 2009. Borrell based its revision on surveys of local businesses ad revenue data from 3,200 U.S. media sites. As Borrell SVP Peter Conti said: “There is still going to be growth, but advertisers like the local car dealer probably aren’t going to be spending as much.” And that will make things more difficult for Yahoo and its newspaper partners.

Hope rests on Yahoo: At this point, participating in the Yahoo program should still provide a boost. But not much of one, unless the economy changes drastically. Leon Levitt, VP of digital media for consortium partner Cox Newspapers, regards Yahoo’s ad sales success as “critical” for newspapers. Levitt tells IDB: “Newspapers have a future, but how bright is going to depend on our ability to transition display advertising from print to a combination of print and online — and the power of this (Yahoo) tool will allow us to do that.”

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