Research Center >> JoA

Online Poised to Grow Seven Times the Rate of Overall Ad Market
Experts say plenty of upside. Dollars earmarked for digital, still not commensurate with consumers immersion with it.
from AICPA Custom Media Solutions

also see
Blogs, podcasts, video becoming mainstream at U.S. publications
The International Perspective

Despite a ho-hum forecast for overall ad spending growth in both the U.S. and abroad, online advertising budgets are expected to expand roughly seven times as fast as the overall media marketplace, according to many ad industry forecasters. The forecast by Publicis Groupe’s ZenithOptimedia unit came as other leading prognosticators such as Universal McCann's Bob Coen, and a variety of Wall Street analysts have been issuing revised outlooks for 2007. They are calling for another year of moderate single-digit rates of growth for the overall advertising economy — in the two percent to five percent range — but a continuing boom for online and digital media.

Here at the AICPA, online advertising surged almost 40 percent (see related story in today’s issue).

“ZenithOptimedia predicts that Internet ad spend will grow 28.2 percent in 2007, while the rest of the market grows 3.9 percent,” the media agency said in the most recent revision of its ongoing quarterly ad spending report. “The rise of the Internet has been dramatic. It has taken only 11 years to overtake two long-established media: cinema (which it overtook in 1997) and outdoor (which it overtook this year), and by 2009 it will be larger than radio.

That makes online the fifth largest advertising medium, and closing in on No. 4 with what ZenithOptimedia termed "plenty of potential growth" due to the still rapid expansion of its market penetration worldwide, which is driving advertising spending.

Fitch Ratings, another industry watcher, concluded in its own outlook report that “the trend continuing to affect the media universe in 2007, is the ongoing shift in advertising dollars from traditional media into non-traditional media, most notably the Internet.”

Overall, Merrill Lynch predicts that U.S. ad spending will inch up 2.6 percent next year — a forecast based on a survey of its analysts covering categories that comprise some 60 percent of the ad market. Analyst Lauren Rich Fine said the bare increase is “not surprising, given the more muted economic expectations next year.”

The country's largest category — autos (15% of the overall ad economy) — is forecast to increase a slight two percent next year and in 2008 reversing a dismal commitment to advertising in 2006. Another highly competitive category, telecom, is expected to post a more robust increase — up five percent — partly as a result of company mergers. This year, AT&T spent heavily to “re-introduce” itself after linking with SBC. Next year, its merger with BellSouth should be the impetus for a major effort to reinforce yet another iteration of the AT&T brand. Also, in the wireless area, Cingular will be re-branded as AT&T, another spending driver. Similarly, the pharmaceutical category expects to increase significantly — in the mid-single-digit range — despite increased pressure in Congress to curb direct-to-consumer ad spending.

Robert Coen, senior VP and forecasting director at Universal McCann in New York, said he believed that more marketers next year would increase ad budgets — despite 2007 being an off-year for elections and Olympics — as they decided to “start turning their attention back to long-term communications” from a focus on cost-cutting.

Blogs, Podcasts, Video Becoming Mainstream at U.S. Publications

“Blogs are rapidly becoming a core component of the online habits of American Internet users, and are an easy and effective way to add personality and direct communication to any Web program,” according to a study released earlier this month by Washington, D.C. PR agency The Bivings Group.

Of the top 50 magazines, 34 percent offer video content, 14 percent offer podcasts and eight percent allow users to comment on articles. Newspapers are even further ahead. The most popular Web feature offered by the top 50 newspaper Web sites — reporter blogs — is offered by 92 percent of online newspapers. In addition, just three of the top 50 magazines — six percent — used a system of tags for searching and organizing their Web sites: Popular Science, US Weekly, and Parenting.

The International Perspective

“Internet penetration is peaking at about 70 percent in the most mature markets, but is only 17 percent worldwide. Even in the developed markets, the Internet receives a much lower share of ad budgets than the amount of time consumers devote to it would suggest it warrants.”

Zenith forecasts that online will take nearly nine percent of global ad spending by 2009, but ultimately expects the medium to take “well over 10 percent,” a share it already enjoys in three major markets: Norway, Sweden and the U.K.  

Within online ad spending, ZenithOptimedia noted that paid search already is the largest sector, and will account for nearly $14 billion in global ad spending in 2007. But display advertising, including broadband video, is among the fastest growing segments, and will generate $10.5 billion in advertising budgets. Online classified spending ranks third, with a forecasted $6.2 billion for 2007, followed by about $721 million in “other” formats such as e-mail and mobile media.

Ad buyers at the major American brand companies may be reluctant to commit larger sums to the Internet because they believe they do not have control over where their ads appear, analysts say. Many Internet advertisements in the United States are still sold through online networks that place ads on member sites. In Britain, more advertisers work directly with Web publishers, giving them greater say in where and when ads appear.