I have good news and bad news about the information industry, both in the same statement: For decades, industry growth has been stable and steady. It’s typically a 5% growth rate per year, and it always has been. It varies slightly, but overall, the industry is predictable and, like a grandfather’s sweater, comfortable. Unfortunately, this sweater is showing some wear.

For the most part, investors and owners have loved this “stability.” Subscription revenues have generated profitable money flows, and advertising businesses dropped good margins straight to the bottom line. Over the past decade, in and around all this stability, we’ve seen the advent of the web, the dot-com boom and bust, and the rise of Google and social, mobile, and global networking.

All in all, things were going pretty well. And then the economic world around us came crashing down. We’ve seen the newspaper segment gutted, and across the industry, companies are consolidating while others sprout like weeds. This year, overall we project the industry to drop about 4%, with news being the hardest hit (declining nearly 20%). Yes, some sectors are growing, but those that didn’t prepare for digital transformation are hurting badly.

This is a complex industry with a lot of segments and niches. Overall, though, there are a few critical trends. We call them “following the money” because there’s gold in understanding the industry’s critical money flows-something we track and analyze year-round.

First, it’s important to keep in mind that budgets for information come from three sources: advertisers, end users and their departments, and enterprise information managers or libraries. For consumer information and entertainment, you can substitute consumers and their households for end users and their departments. That’s it. These sources are budget driven (based on how the organization is performing), rarely fluctuating by more than single-digit percentage points. That’s why ours is a steady, stable industry. So unless a publisher finds new budgets to go after (Corporate Executive Board did this brilliantly when it grew from nowhere by going after consulting budgets), it is displacing its budget (aka going after market share) for existing and new product sales.

At the same time, we know marketers and advertisers are moving their “fixed” (and shrinking because they’re enterprise driven and enterprises are cutting back) budgets from print to digital at a time when choices of where to place ads proliferate. Fewer dollars are chasing more choices in the field of advertisers, driving down prices and creating havoc in the advertising supply chain. Intensifying things is the fact that marketers are moving a good chunk of their funds to their own websites; the equivalent of TV advertising or $65 billion this year is moving.

As a byproduct of this trend, we’re seeing business and professional information properties that rely on advertising revenue making (or buying) their way into subscription and transactional paid-content businesses. This means more supply and competition in the paid content part of the market. And because this segment is also relatively fixed from a budget standpoint, it will mean battles for market share and price-based competition, given that many ad-funded providers who enter paid-content businesses come in with lower pricing. It’s the paradigms they are used to, and it is also where consciously or unconsciously they end up being the most disruptive.

We find it ironic that paid content has come back into vogue after the “all things ad-funded” mentality that prevailed with search-advertising hype. We said, “All things ad-funded would not survive,” given the fixed-budget phenomenon we’ve been tracking and the increased investment of enterprises in their own sites. Hype won out (for the short term). We’ll see the same hype about paid content. It’s a money game, and it will be difficult. There is simply not enough money to go around because the industry is budget-driven.

To add insult to injury, our survey data shows that end users and their departments are spending less on content and turning to their intranets more often as their first “go to” for information. We also see more emphasis on centralized buying and procurement getting into the vendor portfolio management and the advertising spending act.

All roads point to continued pressure on growth. Companies that are “winning” (read growing) have market share leadership and respected brands, are easy to do business with, have real-time data and/or workflow solutions that are in the money or risk management flow of their customers’ businesses, or have digital solutions with unique and valued audiences and are delivering tactical solutions (read leads) to customers. At the end of the day it’s survival of the fittest, and we will continue to see it play out in 2010.