The slowing economy is spreading through the pages of many newspapers on a regional and national scale as ad revenue drops, leaving media exchange traded funds (ETFs) vulnerable. Some say the drop in ad revenue is the most severe the industry has seen since The Great Depression, and the second half of 2008 is predicted to be worse.

Jeremy Herron for Associated Press reports that three publishers – McClatchy Co., Lee Enterprises Inc., and E.W. Scripps Co. – reported that profits had fallen by half for the second quarter, compared to last year. Both The New York Times (NYT) and Gannet Co. (GCI) reported earnings last Wednesday. The drop in ad revenue was in the double-digits for all the big news organizations.

The drop in advertising is the biggest scapegoat in falling profits, but rising costs share some blame, too. Goldman Sachs said earlier this month that the cost of newsprint was expected to jump 30% this year, reports Mark Fitzgerald for Editor & Publisher. Historically, the cost of newsprint falls in times of slower ad demand, but that isn’t the case these days.

June has been the harshest month and July has many wondering how bad it can get.

After new unemployment figures and a bleak housing market data report, the days of color are farther away than everyone would like. PowerShares Dynamic Media (PBS) holds Gannett and The New York Times.

Fortunately, PBS has an array of other diversified across areas that aren’t so newspaper-centric, including CBS (CBS), Google (GOOG) and Dreamworks Animation (DWA). The fund is down 17.9% year-to-date.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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