What would happen to your newspaper if your classified revenue fell by 10 percent? How about 20 percent?

For most newspapers, the answer is: Big trouble. Heads would roll, maybe even yours.

On average, U.S. newspapers in 2000 depended on classified revenue for 42 percent of their revenues, up sharply from 26 percent in 1975, according the Newspaper Association of America. In smaller markets, the percentage is closer to 35 percent - but that is still a major portion of newspapers' revenue.

My friends in the industry report that there has been an increase in advertising revenue this year - except classified revenues, which are down in many markets.

This anecdotal information was confirmed earlier this month when the NAA reported that advertising expenditures in daily U.S. newspapers in the first quarter of this year were $9.9 billion. That's an increase of 1.8 percent over the first quarter of 2002.

It's the detail that's interesting. Retail advertising was up 2.5 percent to $47.7 billion, and national advertising climbed 3.7 percent to $1.8 billion. Classified advertising was down 0.2 percent to $3.5 billion.

Two-tenths of one percent is not a huge number, except when viewed form a larger perspective. Newspaper classified revenue fell a whopping 15.2 percent in 2001 and 4.3 percent in 2002.

Newspaper executives hoped that when the economy rebounded, advertising would pick up. That seems to be happening, except in classifieds.

The boom years of the late 1990s were fueled by a labor shortage that spurred huge recruitment advertising. Newspapers raised their recruitment ad rates faster than other categories, and far faster than the rate of inflation.

Then the bottom fell out, and most newspapers suffered sharp drops in recruitment classifieds that were so big they overshadowed small increases in other categories, including real estate and auto.

Two villains were at fault. 1. The nation and world fell into recession. 2. The Internet emerged as a better, faster, less-expensive way to recruit employees.

Even when the economy rebounds, it's doubtful the printed newspaper will regain its position as the dominant advertising medium for recruitment. Even newspapers that have strong online recruitment products will suffer - so long as they insist that customers buy a bundled print/online package.

The same double whammy - the Internet and the economy - could begin to do great damage to another classified category - real estate.

After several boom years fueled by low interest rates, the National Association of Realtors (NAR) is projecting a 5 percent decrease in home sales in 2003. Historically, declining home sales have resulted in less real estate advertising in all media, including newspapers.

In addition, the NAR is encouraging its members to do more and more marketing via the Internet. The NAR contends the Internet is more effective and less costly than other forms of advertising.

This is distressing news for the newspaper industry which attracts 20 percent of the $11.3 billion spent last year on real estate advertising.

The NAR has strongly encouraged brokers to participate in the new Internet Data Exchange (IDX) program, which has the effect of turning individual broker web sites into de facto MLS sites. Borrell Associates says 87 percent of the MLS listings in the country are already available under IDX arrangements. "Suddenly, real estate firms have gained equal footing with media companies," Borrell said in a study funded by the Suburban Newspapers Association.

Borrell suggests - and I concur - that newspapers have and can combat the loss of real estate advertising by adding enhanced print and online products. In the real estate advertising downturn that is projected, it will be the weakest products that will lose the most.

Research indicates that the loss of recruitment advertising and the potential loss of real estate advertising will affect larger markets first.

Smaller markets have some protection because national competitors have concentrated on larger markets and because advertisers in smaller markets weren't early adapters of Web advertising.

In addition, the web products offered by many smaller market newspapers were far superior to most web sites offered by local competitors. Many small and medium-sized newspapers produce the dominant Internet site in their trade areas - they "own the Internet."

Having the best product - in print and online - is the key to survival. If a newspaper can't offer full-fledged database-driven online classified verticals, look for alternatives. There is great technology - Top Ads, Top Cars, Top Homes, etc. - that allows newspapers to build online "mini-verticals" that will maintain the newspaper's position as the best place to spend advertising dollars.

Having the best product is the best way to help your newpaper survive and thrive!

(Marc Wilson is general manager/ceo of TownNews.com, which helps more than 750 newspapers publish online editions. He is reachable at marcus@townnews.com).