Last week, the Associated Press reported that U.S. newspaper advertising revenues declined dramatically in 2009, bringing ad receipts to the lowest level recorded in nearly 25 years.

In fact, newspaper publishers’ total advertising revenues last year came in below $28 billion, down $10 billion from 2008. According to the Newspaper Association of America, annual ad revenues have now fallen by nearly $22 billion – a whopping 44% — since 2006.

And now, amid this toxic environment comes word that The Wall Street Journal has declared an all-out war on The New York Times for local advertising. In mid-April, the Journal — up to now focused almost exclusively on national and international news — is set to introduce a New York-focused section as part of its paper. Outside observers believe this will put as much as ~20% of the New York Times’ retail advertising revenues at risk.

And this isn’t a minor foray on the part of the WSJ, either. It will be spending upwards of $15 million to produce the new 12-page section which will cover local business, real estate, sports and cultural events. The financial outlay includes salaries for ~35 editorial writers – surely one of the few instances of new editor jobs actually becoming available.

The WSJ action couldn’t come at a worse time for the Times, which has experienced sharper ad revenue declines than the industry average. It’s responding by launching a major trade marketing campaign of its own, touting its audience strength with female readers and “high culture” afficionados.

But just how effective this countermove will be is debatable, as recent moves by the paper haven’t exactly telegraphed a continuing commitment to the local news scene. In the last few years alone, the Times has consolidated weekly sections covering specific regions of the New York metro area (Long Island, Westchester, Northern New Jersey), as well as axing its stand-alone “City” and “Metro” sections.

Over the coming months, it’ll be interesting to see how effective the WSJ is with its new local-focused section – whether or not it’ll land a major blow on its rival.

Either way, the vision of two venerable newspapers engaged in a Herculean struggle, fighting over an ever-shrinking advertising pie is isn’t exactly a pretty sight.

It reminds me of the famous scenes in the Disney movie Fantasia of the huge dinosaurs furiously going after one other – even as the world’s changing ecosystem is rendering the entire species extinct.