Paid content models may be all the rage, but the head of Hearst’s digital business believes there’s plenty of life left in online advertising. And he has the numbers to prove it.

Chuck Cordray, senior vice president and general manager of Hearst Magazines Digital Media, said display advertising revenue for Hearst’s digital properties grew 22% last year over 2008. Online ad revenues for the current quarter are on track to exceed those 2009 rates.

“In a tough economic year, we were pleased to see that kind of growth,” Cordray (right) said during a phone interview last week. “Advertising will continue to be our primary revenue driver.”

Which puts Hearst in a position of strength as the online ad market begins to pick up steam again. Revised advertising projections from media forecaster Magna point to a revenue rebound across key online categories:

• Direct online ad spending (paid search, lead generation, Internet yellow pages) is forecast to grow by 12.2% over 2009 to $15.6 billion
• National online ad spending (rich/online video, Internet classifieds, email, digital display, mobile ads) is expected to grow 4% to $5.8 billion
• Local online spending is forecast to grow 3.7% to $3.5 billion

Cordray said his group will continue to explore alternative revenue sources, but the priorities remain advertising and subscription sales.  (Hearst Digital sold 3.8 million net paid subscriptions for Hearst’s print magazines, which Cordray said “vastly surpassed our goals for the year.”)

“We’d be crazy not to explore other revenue opportunities,” he said, citing examples including affiliate sales through shopping sites like Kaboodle.com. “But we don’t believe those alternate streams will remotely replace advertising. We’ll continue to invest heavily to make sure our campaigns work for our advertisers.”

Cordray and Mark Weinberg, who joined Hearst Digital last September as vice president of programming and product strategy, touched on a number of other subjects during our interview, including:  

Search and syndication as traffic drivers

Hearst’s online revenue growth has been fueled by the traffic surge its network of sites has experienced since the company took over hosting operations from iVillage in 2006. Since then, unique visitors have grown from 4 million to 40 million annually. Lest anyone think that the digital business is simply riding the coattails of the magazine brands, Cordray pointed out that 60% of that audience goes to Hearst’s digital-only brands.

“We believe we have the right strategy and the right programming, which is why we’re seeing a lot of uptake in usage,” said Weinberg. The strategy involves a heavy emphasis on search engine optimization and content syndication, both across and outside of the network of Hearst sites.

To that end, 40% of the traffic to Hearst digital properties comes from search, and 30% comes from syndication across the network. “Optimizing is the name of the game,” said Weinberg.

New properties in particular are benefiting from cross-brand syndication. RealBeauty.com, a health and beauty website that launched last September, received nearly 400,000 unique visitors in December.

“Cross-network traffic is critically important for us,” said Cordray. “We’re not a portal – only a single-digit portion of traffic comes to the home pages of our sites. So we have to use the power of our network to drive traffic back and forth, by looking at how we can most effectively present content to our audiences from the two dozen properties that make up the network.”

Build or buy strategy

Hearst has made a handful of strategic online acquisitions since forming the digital group in 2006, including Kaboodle.com, the social shopping site; Answerology.com, a Q&A platform; eSpin, a teen social community; and RealAge.com, a consumer health site.

“When we buy something there has to be a distinctive set of reasons to acquire rather than build,” said Cordray. For example, RealAge.com already had a strong brand and a sophisticated personalization model. Kaboodle had technology and a growing community that Cordray said would have been hard for Hearst to duplicate.

An acquisition is less attractive if it’s in a content space where Hearst already has strengths. The costs to develop and launch RealBeauty.com, for example, were one-tenth of what it would have cost to acquire existing sites Hearst was eyeing in that space, Cordray said.

While the goal is to build or acquire standalone properties that add strength to the portfolio, Cordray noted that the company looks to leverage technology across multiple sites when appropriate. The Answerology platform, for example, has been deployed on a half-dozen of Hearst’s magazine brands.

Relaunches and redesigns

Another priority for Hearst’s digital group in the coming year will be refreshing some of the digital properties. The group is rebuilding its Teen network of sites, with new programming and redesigns more in tune with the younger target audience. It’s also planning an “all new” site for Popular Mechanics that Cordray said “will take us in some new directions,” without offering specifics.

Video will be one major focus of new programming efforts. “We’re building up our video presence pretty aggressively,” said Cordray.

One emerging technology that is not high on the priority list is mobile. “We view mobile Web as a very useful and effective channel for us,” said Cordray. “But putting out iPhone apps is not necessarily in the center of what we do. That’s not one of our major initiatives for 2010.”