The newspaper industry has seen a 55% drop in sales since 2007 going from $9.8 billion to $5.4 billion this year and owing to a new deal struck by the USPS to mail pre-print ad material, it looks like it will only get worse.

From Newsosaur

Representing some $5.2 billion a year in sales in 2011, advertising inserts from companies like Best Buy, Target, Kohl’s, Home Depot and Kmart represent the second largest revenue stream left to an industry that has lost half of its sales since revenues peaked at $49.4 billion in 2005. The only bigger revenue source for publishers are the local retail ads carried in the pages of their print editions.

The growing importance of the preprint business to newspapers in the last five years is illustrated in the pie charts below, which show that preprints represented 26% of the industry’s $4.4 billion in sales in the first quarter of this year vs. 17% of the industry’s $9.8 billion in revenues in the first three months of 2007.

Preprint advertising has a significant impact on the industry’s profitability. “Preprint advertising accounts for 70% of the Sunday revenues at the average newspaper,” said one industry leader who declined to be named because he is not authorized to speak for his organization. With the Sunday paper producing “most of the profitability” for many publishers, he added, the health of the preprint business has a direct bearing on the bottom line of almost every publisher.

[hat tip/David Cay Johnston]