Newspaper on newspaper standAlthough many media pundits have declared that newspapers are in a death spiral, group buying may -- just may -- have an antidote.

Let's jump through the math. In 2009, the Newspaper Association of America logged roughly $25 billion in advertising revenues. Three-quarters of that was from display advertising. That's a shocking $23 billion plunge from the 2000 bubble high of $48 billion.

But the NAA says print ad declines are now moderating, and I believe it. After all, 50% of Americans still use paper checks and are way past saturation with plastic or debit cards. Add in online newspaper ads of $2.8 billion, and you get to almost $28 billion in 2009 ad revenues -- during the Great Recession. I'd expect the declines to continue, but keep in mind the newspaper business is still quite profitable in many markets.

Partnering With Groupon and LivingSocial

So, what's needed to really turn around the segment is a new source of revenue growth. Online display ads will fill some of that need but not enough to compensate for the ongoing print declines. The disparity between CPMs in print and CPMs for display are simply too large. Yes, display ad will be a fast-growing business, in the low- to mid-double digits But not fast enough to save the newsies. So what next?

A much more likely prospect for fast revenue growth is group buying. In fact, most of the major newspapers already have a group-buying white-label deal in place or have plans to do so. The Chicago Tribune has actually partnered with Groupon. LivingSocial has an active newspaper partner program. Even smaller newspaper chains are pushing into group buying.

Why not? Add a java script to a box on the home page. Tell your sales force to upsell a deal-of-the-day. Collect checks. Repeat. The technology provider for group deals handles payments, couponing, customer service -- everything.

From Zero to $3 Billion in Two Years

This business is a perfect fit for the existing newspaper sales force, which has a deep Rolodex of local customers. The content, also, is also perfect newspaper websites. Publications can easily slice and dice offerings to key them to user interests or to Zip code, a capability that will soon be plain vanilla in most group-buying offerings. And what about the revenues?

Consider this. Groupon is on track for a revenue run rate of $2 billion. LivingSocial is looking at $500 million. Collectively, the rest of the 180 or so group-buying sites likely will pull in at least another $500 million. That means the segment has gone from nearly zero to $3 billion in global revenues in two years.

U.S. newspaper sites get 102 million unique visitors per month. Groupon had traffic of 21 million, but only 21% of those visitors were in North America. (I realize that it's more powerful to have an email subscriber, but this is the easy comparison metric for now, due to the deemphasis of papers on email newsletters to readers.)

So on a pure traffic basis, newspapers still have huge momentum. They also have another powerful, but counterintuitive tool. My local paper now includes a plug for the daily deal on a wrapper that must be removed to get to the front page. I read that deal every day. I'm a dinosaur in that I still like to get a print paper.

If Group Buying Keeps Exploding, Watch Out

But there are plenty of dinosaurs left. The NAA says "81% of women in a management or professional position with a household income of $100,000 a year or more read a newspaper in print or online; 73% read the print product." In essence, they're "opting-in" for a daily-deal plug, albeit one that's less powerful than an explicit email sign-up but one that'll still deliver the goods to an audience that's paying attention.

Let's say newspapers manage to capture 10% of all domestic group-buying transactions. That's a generous estimate because most of them already have a white-label service and get only 50% or less of the 30% to 50% of gross transaction that the group-buying service generally captures. So, put the actual revenue pass-through at 5%. At present, that would be something less than $100 million.

But if group buying continues to explode, it's quite conceivable that it could be a $30 billion business within a decade. 10x growth over 10 years is totally doable for disruptive trends. Witness Google AdWords and its amazing rise. The yellow pages business ($12 billion) and radio ads (many billions) are ripe for the picking. Keep in mind that local ad spending right now is over $140 billion per year in the U.S.

So, group buying now represents less than 1% of that, based on Groupon's North American revenues backed out of its traffic market share. Five percent of a $30 billion business is $1.5 billion (I suspect that number is low). Add to that the ongoing growth of display ads and slower decline in print ads, and group buying might just be enough to stall the downward spiral of newspapers.

This is a highly speculative exercise, and your mileage may vary. But let's talk in a few years and see what's happened.

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