Paid search and e-mail will drive a boost in local online ad spending, with video bringing up the rear.
Local media outlets and their advertising clientele are making inroads in the world of online advertising. Though the sector accounts for a mere 2.1 percent of all advertising, it represents about a quarter of online ad spends, according to a Borrell Associates report released today. Advertising by regional businesses targeted to local Web media will climb 31.6 this year, reaching about 30 percent of the online ad market, or $7.7 billion, by 2007. Ad units counted in the report include banner ads, classifieds, paid search, e-mail ads and even video ads Paid search and e-mail will lead the way.
There are "no big surprises," here, remarked Colby Atwood, president of Borrell, a local media research firm. "Trends are unfolding.... We're really looking at a very normal growth process for an industry," he continued.
Indeed, all young markets must settle down eventually; this fate, too, will befall local online advertising. according to Borrell's "Outlook for 2007: Pac-Man Pace of Local Online Ads" report. Local Web ad growth eventually will slow to 15 percent in 2008, taper to 7 percent in '09, and will flatten or drop as it nears $10 billion by 2010.
However, the overall outlook is getting brighter. Last September, Borrell Associates expected the local online ad market to reach $8.6 billion by 2010, and JupiterResearch projected the market would hit $5.3 billion in that time.
Local online media outlets are responding to the online ad demand by augmenting their sales forces. According to the new Borrell report, about half are boosting sales staff this year, which will push up the number of Web-only salespeople by about 37 percent.
The fourth of the research firm's annual studies on local Web advertising, the report surveyed 2,500 local media Web sites. Borrell defines local online advertising as ads placed by businesses located in a given Designated Marketing Area (DMA) intended to reach that same DMA.
In the coming years, the report forecasts, the most expansive local ad formats will be paid search and e-mail advertising. In 2007, while banner ads and classified listings will account for 73 percent of online local ad dollars, they'll drop by nearly a quarter to 49 percent of local Web ads by 2010. On the other hand, e-mail will go from 3 percent of the local online ad market next year to 7 percent in 2010, hitting approximately $700 million.
Seventeen percent of the 833 TV sites Borrell surveyed for the report are offering opt-in e-mail newsletters. In addition to running ads within those newsletters, many local media companies are beginning to rent e-mail lists to advertisers, according to Atwood.
The report also predicts paid search, which represents 24 percent of current online local advertising, will jump to 44 percent of the market in 2010. Earlier this year, Borrell's 2006 "Local Search Advertising" report showed local paid search accounted for $420 million last year. That report had a slightly more positive projection that local paid search would account for 47 percent of all local online advertising in 2010. According to Atwood, the majority of local paid search dollars are flowing to the likely suspects: Google, Yahoo and other national search firms.
This boost in e-mail and search, he noted, indicates that "local advertisers are beginning to see the advantages and opportunities to doing more targeted forms of local advertising."
Video advertising across the Web has become a huge trend this year, and Borrell expects that phenomenon to filter through to local online advertising. The firm pegs local online video ad spends at between $75 and $100 million; however, according to this year's report, the category is expected "to grow significantly in the coming years, and automotive will likely lead the pack."
The report shows that local Web real estate advertising accounted for the biggest portion of local online dollars, at 21.8 percent. The automotive category clocked in at 12.7 percent.
"We're seeing an increase in video advertising, and a lot of that has to do with the nature of our business," explained Kevin Abramson, director of marketing at Internet Broadcasting, a network of TV station Web sites that publishes sites for NBC, Cox Broadcasting, Scripps Howard and others. "So many of these TV broadcasters are putting an emphasis of video on the sites.... It's just a natural extension of online revenues." Internet Broadcasting sells advertising across its national network as well as helping partner sites sell locally.
"TV stations are finally looking for aggressive ways to turn their Web sites into real money makers, and that's the type of advertising they understand and their advertisers understand," observed Atwood. "The trick is to not get stuck only serving existing customers."
In a battle against local TV station sites to score local Web ad dollars, newspaper publishers can use online video ads as "a way to compete against TV stations," Atwood predicted. The report shows that next year over 6 percent of overall newspaper publisher revenues will stem from online. Borrell reports The Washington Post's Web dollars will rise to 13.7 percent of total revenues next year from 3.6 percent in 2001. Online revenues for Belo Corp., which publishes papers including The Dallas Morning News and The Providence Journal, are poised to hit 9.8 percent, up from 1.8 percent in 2001.
While some local sites are making great strides, others lag behind, cautioned Atwood. "Media companies that get it are stretching out ahead of the ones that don't, and the gap between the successful and unsuccessful sites will continue to widen," he concluded.
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Kate Kaye was Managing Editor at ClickZ News until October 2012. As a daily reporter and editor for the original news source, she covered beats including digital political campaigns and government regulation of the online ad industry. Kate is the author of Campaign '08: A Turning Point for Digital Media, the only book focused on the paid digital media efforts of the 2008 presidential campaigns. Kate created ClickZ's Politics & Advocacy section, and is the primary contributor to the one-of-a-kind section. She began reporting on the interactive ad industry in 1999 and has spoken at several events and in interviews for television, radio, print, and digital media outlets. You can follow Kate on Twitter at @LowbrowKate.
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