June 13 (Bloomberg) -- U.S. newspapers' print advertising sales fell the most on record in the first quarter, tumbling 14 percent on shrinking real-estate and job markets, and the loss of business to the Internet.

Advertisers spent $8.43 billion on newspaper ads in the first three months of 2008, according to the Newspaper Association of America, the eighth drop in a row. Real estate and recruitment ads each fell 35 percent.

Many of the industry's biggest advertisers in real estate, automotive and employment are cutting spending and shifting advertising to their own Web sites, said Kip Cassino, research director at Borrell Associates, a media consulting firm in Williamsburg, Virginia.

``This stuff isn't going to online intermediaries, because if it were there would be three or four enormous sites for each of these categories,'' Cassino said. ``It's going to companies that say, `I can do my own advertising.'''

USA Today owner Gannett Co., the largest U.S. newspaper publisher, reported on April 21 that first-quarter newspaper ad sales dropped 10 percent to $1.1 billion. With its national advertising, USA Today boosted ad sales 2.1 percent on higher prices. Advertising revenue at New York Times Co. fell 11 percent to $432.2 million.

News Corp.'s newspaper revenue increased 55 percent, reflecting the December purchase of Dow Jones & Co. and its flagship newspaper, the Wall Street Journal.

Online Slowdown

ColdwellBanker.com owner Realogy Corp., the nation's largest real-estate broker, is investing in its own sites, Cassino said. Thousands of companies advertise job openings on their Web sites as well, he added.

``Newspapers' biggest competitors are their former advertisers,'' Cassino said. ``The newspapers concentrated their efforts for a long time on a few categories like auto and help- wanted, and those categories are now moving away from them.''

The decline was the biggest on record in trade association data going back to 1971. The previous mark was an 11.9 percent drop in the fourth quarter of 2001, when the economy was in recession.

Newspapers' Web sites aren't attracting enough dollars to pick up the slack. Newspaper-owned sites attracted $804 million in advertising during the quarter, the NAA said, up 7.2 percent from last year and the smallest gain since the industry group began reporting online sales growth in 2004.

Recent Takeovers

The hastening revenue decline is complicating efforts to reduce debt at recently acquired newspaper companies.

Sam Zell, who led an $8.3 billion buyout Chicago-based Tribune Co. in December, has said the publisher of the Los Angeles Times and Chicago Tribune is shrinking faster than he expected. The company is selling assets to reduce its $13 billion debt.

In Minnesota, the private-equity group that bought the Minneapolis Star-Tribune last year asked creditors for a six- month delay in interest payments, the New York Post reported June 9. Philadelphia Media Holdings LLC, which purchased the Philadelphia Inquirer and Daily News in 2006, missed an interest payment on June 1, Standard & Poor's Corp. reported.

The industry's sales decline is likely to be more persistent than previously projected and may force newspaper companies to eliminate their dividends, Wachovia Capital Markets analyst John Janedis wrote in a note to clients today.

Ad Recession

Print advertising sales will fall 6.5 percent next year after dropping 12 percent in 2008, Janedis wrote. Previously, he had projected 2009 sales to drop 3.6 percent after falling 11 percent this year.

Janedis advised investors to sell shares of McClatchy Co., the Sacramento, California-based owner of the Miami Herald and 29 other daily newspapers. He also told clients in a report that Fairport, New York-based GateHouse Media Inc., a publisher of 98 small dailies, will do about as well as the broader market. He had recommended GateHouse until today.

``The local ad market recession that began last year will deepen,'' wrote Janedis, who is based in New York and doesn't own any of the stocks mentioned in his report. ``Dividend yields are providing virtually zero support for the stocks and we think boards of directors should consider cuts by as much as 100 percent.''

GateHouse's latest quarterly dividend of 20 cents works out to a 27.2 percent projected yield, according to Bloomberg data. Lee Enterprises Inc., a Davenport, Iowa, publisher that owns 50 dailies and interests in four more, pays a 15 percent dividend yield. McClatchy shares yield more than 9 percent.

Lower Ratings

Janedis also reduced his rating on Lee, which he now says will do about as well as the overall stock market.

McClatchy rose 16 cents, or 2 percent, to $8.15 at 4:01 p.m. in New York Stock Exchange composite trading and has declined 35 percent this year. GateHouse dropped 25 cents, or 7.7 percent, to $3 and has lost 66 percent in 2008. Lee fell 14 cents, or 2.7 percent, to $5.13 and is down 65 percent this year.

Gannett, based in McLean, Virginia, rose 7 cents to $25.78 in NYSE trading. It has declined 34 percent this year. New York Times gained 12 cents to $16.66 and has declined 5 percent. News Corp., which also owns the Fox network and film and TV studios, rose 66 cents to $17.98. The Class A shares have fallen 12 percent.

Newspapers' First-Quarter Advertising Revenue
Year-over year change

McClatchy Co.        -15.3%
Tribune Co.          -11.0%
Washington Post      -11.0%
New York Times Co.   -10.6%
Gannett Co.          -10.2%
Lee Enterprises Inc.  -5.7%
GateHouse Media Inc.  -4.2%

To contact the reporter on this story: Tim Mullaney in New York at Tmullaney1@bloomberg.net.

Last Updated: June 13, 2008 18:36 EDT