Is the newspaper advertising slump about to end? Nope. But it’s continuing to get a little bit less awful.

The New York Times polled some of the remaining analysts covering the industry, as well as people who actually work in it, and concluded that Q3 ad revenue will be down 25 percent, or “possibly a bit less.” Awful by any standard except those of this year: Q1 was down 28.3 percent and Q2 was 29 percent.

Worth noting, but not in a newsworthy way: We’ve been headed in this direction for a while. Publishers, including the New York Times (NYT), Gannett (GCI) and McClatchy (MNI), started making hopeful murmurs–or less hopeless murmurs, really–earlier this summer. But all they’re really saying is that:

• Things don’t seem to be getting any worse, and
• It’s nearly impossible for year-over-year comparisons not to improve for the rest of the year since results will be measured against those posted in the fall of 2008, when the economy was in shocked-and-awed mode. Which we knew. But still worth repeating, and something we’ll probably repeat many more times through the rest of this year.

The big picture: Even though Facebook’s official valuation has slid from $15 billion–November 2007, when Microsoft (MSFT) invested–to $10 billion, Zuckerberg is OK with that, arguing that 1) that deal was done at the peak of the market and 2) the pact was never really a financial deal, but a way for Microsoft to partner up with Facebook–and, though he didn’t say it, to box out Google (GOOG). That sounds pretty reasonable.

Zuckerberg’s main talking points were that his company didn’t need the money, but it sure was nice to have, both to fund growth and make any M&A easier to pull off. And when it came to his new partners, he argued that DST’s existing portfolio, which includes several other social networks, would provide models/examples for his company as it continued to expand outside the U.S.

Earlier:

Facebook and its newest investors Digital Sky Technologies, are holding a teleconference to discuss the $200 million at 10 billion valuation deal the two parties just announced. I’ll be covering the call live.

Call starting “momentarily.”

On the call: Facebook Mark Zuckerberg, DST CEO Yuri Milner. Also, via phone (from D7!): Facebook COO Sheryl Sandberg and DST’s Alexander Tamas.

Zuckerberg reading statement that more or less tracks press release: “Advertising product” improving, “our business is doing really well” and we’re on track to create a “nice” business, and that’s why investors want in. DST approached us, has interesting profile and experience and insight into social networks. “We found their thinking and their leadership to be really impressive.”

Money provides “cash buffer” to support our continued growth, also possible other moves. No specific plans to talk about “but nice to have flexibility.”

Milner: “I realize not all the participants on the call are familiar with us.” Goes over DST portfolio. “We have now started to actively expand abroad.” We’re a holding company, have raised and invested more than $1 billion since 2005. Rattling off portfolio companies now.

Q&A:

What does this mean for possible IPO? Zuckerberg: “Our approach to financing has really been that we want to take money and work with partners”…”for a lot of start-ups, you get the feeling that the IPO is really the end goal…that’s not the case for us…we’re not rushing toward it…that’s really all I have to say about that today.”

What’s valuation for common stock? Zuckerberg: No comment. “There are different transactions that we’ve structured differently…we hope that there will be different things in the future…probably sometime in the next few months.”

What does this say about Microsoft’s $15 billion valuation? Zuckerberg: We did that deal at the peak of the market. That was part of a broader relationship. That investment was just one piece of it. This is also a relationship that we’re forming with DST…we hope we will work with other things over time.

“We feel really good about the progress we made…we feel this is  a good and fair valuation for us.” The Microsoft deal was at peak of market and was a strategic deal. “The world was in a pretty different place at that time.”

The international audience is 70 percent of our users. How do you monetize that? Zuckerberg: I have a few things to say, but want Yuri to talk, too. Milner: We have invested in five social networks in Europe. They have been able to monetize better than Facebook because they’re further along the curve than Facebook, which is a global company. But we think that Facebook will improve. Money will come from micropayments and advertising.

Zuckerberg: We can do advertising and have been experimenting with payments. Social networks in DST’s portfolio all monetize in different ways. Each is doing well, with a different model. We’re still growing. Online and direct advertising are growing the quickest, but over time, we expect to be able to build out a large number of these things.

What is your ad revenue going to be? Zuckerberg: A couple of months ago, we felt that everyone outside the company was underestimating our performance. We’ve been EBITDA-profitable for five straight quarters coming on six. Revenue growth has been 70 percent. Cash-flow positive sometime in 2010. That’s important because it means this investment is pure buffer. I realize those aren’t absolute numbers, but those are the ones we’re talking about.

Will DST be involved in management? Milner: We have our own businesses to run. We’ll keep in touch.

Questions about micropayments. Zuckerberg: We’ve tested a lot of things. It’s not a big part of our business, could be greater one day. They create a lot of value for users, and there are ways to monetize them. I’m looking forward to learning how these models are working.

Please talk about common stock/employee stock purchase plans. Zuckerberg: Going back to first question re. IPO. We want to make sure that we can continually make it so employees can be focused on the long term. We felt that if we let people have a little bit of liquidity, it can take some of the pressure off and let people focus on making company as good as it could be. We started to do this last year and had to hold off. Now we hope to be able to do it again.

Will that be the only way you are allowing employees or ex-employees to sell shares? Zuckerberg: Still talking about.

Is current Facebook ad business to be the main business going forward? Doesn’t mean it will be main business in the long term. You guys know everything that we’re talking about now.

Why aren’t you running big brand ad campaigns? We’re very interested in it. We have a big ad sales team. Building out offices internationally: U.K., France, a few more coming up. We think the best way to serve advertisers is to create ads that people interact with, that are “social and engaging.” I don’t want anyone to think that this isn’t a big part of our business, because it is.

Sandberg: Heavily engaged with brands. Ads specifically designed for Facebook, so they look different and behave differently than other ads on other sites, and that’s a good thing.

Preferred shares–are these are substantially similar to the ones Microsoft bought? Zuckberg: “I’m gonna duck that one.”

Does the company have any debt? Zuckerberg: [pause] There’s been some information that’s been public about debt we have for operating equipment. Beyond that, we do equity deals.

Will you do other investment deals? How many did you look at? Zuckerberg: He doesn’t really answer this question; instead he goes on to praise DST. Milner: We see things that other people don’t see, which is monetization that other social networks have been able to do. So we “kind of feel comfortable with that valuation.”

Is this largest foreign investment in Facebook? Zuckerberg: Um… [pause]. There’s been some public information about other folks we’ve worked with, but I think from reading some of the records you can get the answer to your question.

Other new deals? Zuckerberg: It was really at our option to find someone we were comfortable with. We didn’t feel like we needed to take an investment, and now we feel like we have the buffer we want.

Working on video chat product? More international products? Zuckerberg Yes. There are lots of things like that that we’re working on now. We want the site to be available in every country. We’re not translating the site. Users translate the site themselves. And a lot of the features are universally applicable.

Call finished.

It can’t say that anymore.

The Post says revenue at its flagship paper was down 22 percent in the last quarter and that print ad revenue was down 33 percent. That’s worse than the declines of 13 percent and 21 percent it posted in the previous quarter. And it’s lousier than the poor results the Times posted last month, when it reported that overall ad revenue had dropped 27 percent.

The same holds for the Post’s online business: Even in the good old days, it wasn’t growing fast enough to counter the decline at the print business. But now, online is declining, too.

Web revenue was down eight percent, because the classifieds business has been decimated. Online display ads, at least, were up a meager three percent. But last quarter, display ads were up 10 percent and the overall business was still growing five percent.

As usual, the real difference between the Post and the Times isn’t their performance but their corporate structure: The Times is pure-play media business that’s now choking on debt, while the Post is an education company (Kaplan) that happens to own a newspaper, which makes all of these grim results much easier to bear.

Here’s a survey of the rest of the Post’s business lines. Click on the image to enlarge.

Time Warner’s AOL can spin positive news out of the miserable results it offered up today: Our wounds are self-inflicted, and we can heal them.

But Ann Moore, who runs Time Warner’s Time Inc. publishing business, will have a tougher time selling that story to investors. Her magazine company performed as badly as the rest of the industry did in the last quarter.

Time Inc. saw ad revenue drop 30 percent in the first three months of 2009, which corresponds roughly to the 26 percent drop in ad pages the overall magazine business recorded during the same time.

That drop is much worse than industry executives had braced for last fall when nearly every publishing company, Time Inc. included, made a round of layoffs. And as this quarter’s miserable numbers trickled in, publishers from Forbes to Condé Nast have made a second round of cuts to adjust to the new reality.

Time Inc. hasn’t done so, or at least not in a significant manner. But it may have to. One suggestion, offered to me by a Time Warner (TWX) executive yesterday: “Time has way too many magazines. They should fix that.”

For the record, Time Inc. has “more than 115 titles” world-wide.

Google’s YouTube and Vivendi’s Universal Music Group will be launching a new site, dubbed VEVO, that will highlight UMG’s videos. The site will launch in “coming months” according to a press release (below). And YouTube users will still be able to watch UMG clips from the likes of Lil Wayne via a “new VEVO channel through a special VEVO branded embedded player.”

This is essentially what I’ve been calling “YouTube Music,” and it’s been in the works since last fall. In March, I reported that the two sides had basically hammered out a deal.

I’ll be tracking down whatever details I can throughout the day, but at first glance, this is a pretty big deal for YouTube, the music business, and the rest of the media world.

• YouTube, which dominates the market for Web video but can only sell ads against a small portion of the clips it shows, gets to hang on to valuable, advertiser-friendly inventory.
• Universal gets its best shot at making money from something other than music sales, which it desperately needs to do. I’m also assuming that it gets a large chunk of cash upfront: The press release says the two companies will share ad revenue, but I’d be shocked if UMG CEO Doug Morris wasn’t able to wrangle a significant advance from Google (GOOG). UPDATE: No word on an advance, but I’m told that the two sides have scrapped their earlier arrangement, in which Google paid Universal a fraction of a penny every time someone played on of its videos. That’s a big deal: YouTube has complained that the previous deal was a money-loser, while the labels have complained that they weren’t getting adequately comped for their content.
• Obvious question: Will Universal’s fellow labels–Warner Music Group (WMG), EMI and Sony (SNE)–come on board? Sony has already re-upped its deal with YouTube, and Warner is currently at loggerheads with the video site. I assume that all of them will want access to the dollars and eyeballs that Universal is now getting, but a person familiar with the deal tells me that it’s not a foregone conclusion–in part, because neither YouTube nor the labels understand how VEVO will do. It’s possible, for instance, that both Sony and YouTube will be happy to keep the label’s videos on the larger site. “This is their big toe in the water,” an insider tells me, speaking of YouTube. “I’m not sure they want their whole body in the water.”
• The deal is also an important signal to other content providers YouTube would like to do business with: Give us your best stuff, and we’ll cut you a special deal. Now that YouTube is creating a new site for music videos and directing some its traffic there, who’s to say it couldn’t do the same thing for movies or TV shows? The company would desperately like to sell ads against some of Hollywood’s premium content–whether it’s Sony’s movies, or Disney’s (DIS) shows on ABC. So VEVO may be a template for future deals.

More later. For now, here’s a Lil Wayne video, followed by the press release:

UNIVERSAL MUSIC GROUP (UMG) AND YOUTUBE TO LAUNCH REVOLUTIONARY PREMIUM MUSIC & VIDEO SERVICE

VEVO – UMG’s Premium Music Service Powered By YouTube
To Launch In Coming Months

NEW YORK, NY and SAN BRUNO, CA, Thursday, April 9, 2009 – Doug Morris, Chairman & Chief Executive Officer of Universal Music Group (UMG), the world’s leading music company and Eric Schmidt, Chairman of the Board & Chief Executive Officer of Google Inc., today announced that UMG and YouTube, a Google subsidiary, are working together to launch VEVO, a music and video entertainment service that will feature UMG’s premium video content.

In addition to VEVO, YouTube has renewed and extended its successful partnership with UMG that allows users to continue creating and watching user-generated videos containing UMG sound recordings and Universal Music Publishing Group’s compositions on YouTube through various territories around the world. The two companies will also share advertising revenue on YouTube and VEVO.

Launching later this year, VEVO will be a premium online music video hub built for consumers, advertisers and content owners that will blend UMG’s broad catalog of top artists and content with YouTube’s leading edge video technology and user community. YouTube will provide the technology infrastructure that will power VEVO and host UMG’s extensive library of professionally-created music videos on the new site.  On YouTube, this content will be exclusively available through VEVO.com and a new VEVO channel through a special VEVO branded embedded player.

“VEVO will bring the most compelling premium music video content and services to the world’s single largest online video audience,” stated Mr. Morris. “We believe that at launch, VEVO will already have more traffic than any other music video site in the United States and in the world. And this traffic represents the most sought after demographic for advertisers, especially as advertising dollars continue their shift from old media to new. VEVO will be uniquely positioned to monetize this opportunity and a host of others as we grow it to become “the” destination for premium music video content online. For music lovers who want the best in music videos, the VEVO experience will be second to none.  At the same time, VEVO will expand the premium video marketplace, generate new revenue streams for content creators, and provide brand advertisers an unprecedented opportunity to get in front of a highly engaged audience. We couldn’t be more excited about the huge potential we see in the VEVO service.”

“Technology has allowed fans to discover music in endless ways while creating new business opportunities for artists and labels alike,” said Mr. Schmidt.  ”At Google, we are committed to promoting greater innovation and choice and are thrilled to be working with UMG in what will surely be an exciting new service for consumers, advertisers, content creators and the music industry at large.”

At launch, people will be able to access UMG’s entire catalog of premium music video content, including professionally-created and full-length videos on VEVO, as well as artist-generated content and user-generated content hosted on YouTube.  VEVO will also serve as a syndication platform, expanding the reach of the VEVO brand. This innovative platform is aimed at providing consumers the very best in digital music content while further extending UMG’s lead in the direct-to-consumer market.

Presently, UMG’s YouTube video channel has more than 3.5 billion views, making the UMG channel the most watched on YouTube.

[UPDATE: Negotiations between YouTube and music labels are already getting unpleasant: Warner Music's clips are disappearing from the site, and both sides are taking credit for the move.]

Universal Music Group officials told CNET this week that they’re going to make close to $100 million from Internet videos this year–an 80 percent increase–and that most of that will come from Google’s (GOOG) YouTube.

I believe that may be possible–in part because people close to Universal Music Group told me the same thing earlier this year. But I think that those YouTube dollars may not continue to increase at the same rate, whether it’s for Universal or any music label.

That’s because YouTube’s current arrangement with the labels is a money-losing one, people familiar with the company tell me. And that’s unlikely to continue as the company renegotiates its deals with the four major labels–UMG, EMI, Sony (SNE) and Warner Music Group (WMG)–which expire throughout next year.

Here’s how the current deals work: Whenever someone clicks on an official video that’s been sanctioned by the labels, YouTube has to pay the labels either a per-stream fee or a share of ad revenue associated with the clip, whichever is greater. Since YouTube is just beginning to get serious about selling ads next to its content, it’s usually paying the per-stream fee, which industry executives peg at about half a penny per clip.

That kind of deal might have been OK during Google’s go-go days, but it’s unlikely to fly now. And as Google execs start sitting down with the labels, it’s reasonable to think they’ve got much more leverage. While music videos are some of the site’s most popular programming–look at how many label-sponsored clips like Avril Lavigne’s “Girlfriend” are among the site’s most popular offerings of all time–Google doesn’t need their blessing in the way that YouTube did when it was still transitioning from rogue copyright violator to upstanding citizen.

Meanwhile the labels are under great pressure to dig up dollars wherever they can find them because their core CD business evaporates day by day. Universal Music recorded some $4.4 billion in revenue during the first nine months of this year, so $100 million in high-margin video revenue would be a meaningful contribution to the bottom line. But it may be harder to get in 2009 than it was this year.

I can’t show you most of YouTube’s most popular clips here–the site disables embeds for those. But here’s a less-viewed one I do like.