Historically a money-losing part of the overall operation, many newspapers and their parent companies got serious last year and turned their online losses into profits.

Most newspapers had no choice. Those that were public found venture capital drying up or already closed off to money-draining operations. Private companies were faced with a tough macro-economic environment, particularly with recruitment advertising, and had to cut their losses in other areas.

Consider the cyber adventures of The New York Times Co. The company’s digital unit, which posted its first-ever profit in 2002, has reflected the myriad ups and downs buffeting the evolution of online content.

The division was launched with great expectations, but ran headlong into the disintegration of all-things Internet. Plans to spin New York Times Digital as a separate tracking stock, for example, were halted in October 2000 when it became apparent the market decline was not a glitch but part of a longer-term trend.

Starting early in 2001, the company started to keep a tight lid on costs, with an eye on profitability. According to Chief Financial Officer Ellen Taus, that involved cost controls on both capital and personnel expenditures.

At the same time, the division laid the groundwork for new services in a bid to shore up revenues.

New ad packages were devised, offering customers new ways to present their ads.

A Web archive service, meanwhile, also kicked in revenues as users accessed the site to purchase older New York Times articles.

Blend paid off

The blend of cost control and new services paid off last year, yielding profits of $8.3 million, opposed to a loss of $7.3 million in 2001. EBITDA results were even more impressive, to $15.6 million. (EBITDA, for earnings before interest, taxes, depreciation and amortization, is typically used to provide a more accurate picture of cash flow and is especially useful to determine a trend line.)

“The biggest component of our (total) revenues is advertising revenue, and those grew very robustly and were up 37 percent in the fourth quarter,” Taus said. “That’s both of what you think of as display advertising on our Web sites, like banners, [tall ads] and Surround Sessions, and also classified advertising.”

Surround Sessions, a technology developed by New York Times Digital, enables online ads to travel from page to page as a user reads a particular article. The ads are tailored to the specific user, based on the user’s log-in identify. Between 40 and 45 advertisers participate in the program.

The archive service, through which users can purchase articles for $2.95 each, provides a stable — albeit flat — revenue stream, Taus said.

“That comprises less than a quarter of our revenues, about 23 percent of our total in the fourth quarter,” Taus said. “It’s a very stable revenue stream but it doesn’t grow, particularly. So our non-advertising revenue line really didn’t grow on a year-over-year basis. The growth is coming from the advertising side.”

Expenses did grow: Looking at the fourth quarter, and on a quarter-over-quarter basis, expenses grew 7 percent. That increase was more than offset by a 19 percent boost in revenues. The division currently employs approximately 240 people.

Climb not unique

New York Times Digital’s climb to profitability isn’t unique, according to Gordon Borrell, president and chief executive officer of Borrell Associates Inc., a Virginia-based research, consulting and project firm.

Most newspaper sites were reporting profitability in all or part of 2002, he said, either by cutting staff or accelerating their upsell marketing, which yielded a no-cost means to grow sales.

Papers can no longer afford to throw money away on their online ventures, he said.

“It’s not a good trend to follow if you’re going to maintain losses for a period of time in a new environment and not really focus your business model on profitability.”

Too many papers dived into the Internet because they were threatened by their competitors, he added. “That basically dictates you have a very aggressive response, and in some cases will over-invest.”

The market meltdown of 2001 and 2002 led papers to reassess their online investments, resulting in funding that more evenly matched the potential of sales, Borrell said, adding he estimates papers posted online sales of $572 million last year from their Web-related ventures. That’s up 24 percent from 2001.

Online veteran

Although most papers’ Web sites have only launched within the last few years, The San Diego Union-Tribune has been involved with online content since 1995, according to Chris Jennewein, director of Internet operations for The Union-Tribune Publishing Co.

“The operation started small and grew larger during the late 1990s when it became part of the city guide strategy, selling Web sites to individual businesses,” he said.

The site, signonsandiego.com, has also reached profitability, Jennewein said. A staff of 65 handles all the technology, strategy and business development.

The site’s revenues stream from a mix of classified and display ads. Unlike many other papers, The Union-Tribune (daily, 332,447; Sunday 438,648) never sold online-only ads.

Rather, it’s always been an option for advertisers to select whether they want their ad online in addition to print.

“What that means is a true revenue stream, and one we can stake rate increases against,” Jennewein said.

Jennewein said online ads represent about 40 percent of the sales it collects each year, down from 60 percent two years ago.

“My goal overall is to keep it around that percentage,” he said.

The site also gets revenues from building Web sites for individual advertisers through a partnership with national business and entertainment listings site CitySearch.

Jennewein said the paper has made strides to attract higher readership by more frequently updating the site.

“What we’ve evolved to is a strategy that includes what we call ‘the sheet,’ which is a piece of paper that has update times and items that need to be updated, starting at 6 a.m. and going until 9 p.m. We’re about to add another shift, which will take it to midnight.”

The site also recently struck a deal with local cable provider Cox Communications that calls for signonsandiego.com to appear as the default home page for Cox’ broadband users.

Jennewein said the deal has helped spike traffic to the site, particularly on evenings and weekends.

The company, privately held, declined to disclose how much money it attracts from its online efforts. But Jennewein said sales jumped 29 percent last year with another double-digit increase expected in 2003.

To monitor traffic, signonsandiego.com uses analytic software from WebSideStory. The firm’s HitBox application keeps tabs on traffic and immediately returns results as new stories are added to the site.

The tool also lets Jennewein know how visitors are accessing the site — either through broadband or dial-up connections. The site’s contents can then be modified to suit the audience.