Rising competition among ad sellers and sluggish economy puts a damper on earlier forecast.
Local digital ad revenues will continue along a path of strong growth, but research firm BIA/Kelsey has tempered its outlook - yet again. The company projects local digital ad revenues will reach $35 billion in 2015, nearly $3 billion down from its November 2011 forecast. The firm reported today that local digital revenues totaled $21.2 billion in 2011; in November, Kelsey expected that number to hit $23.3 billion.
Kelsey chalks up the downward revisions to a sluggish economy and increased competition in the digital ad space.
Combined, traditional and digital ad dollars targeting local audiences reached $132.8 billion in 2011, said Kelsey, in its U.S. Local Media Forecast, published today. The firm in November had already lowered its expectations for combined digital and traditional local ad revenues in 2011 from $136.2 billion to $135.9 billion.
In the November "Annual U.S. Local Media Forecast, 2010-2015 - Fall Update" report, Kelsey said it expected local digital ad revenues to hit $37.9 billion in 2015. Now it says local digital ads will bring in $35 billion, almost $3 billion less than the earlier estimate. It will take another year to reach the $38.5 billion mark in 2016, today's report says. In 2016, local digital ad spending will account for more than 25.5 percent of total local ad spending.
"There's incredibly increased competition in the digital space," said Mark Fratrik, Kelsey's chief economist. As digital media consumption grows and local online media outlets create additional hyper local content, local ad inventory is growing, said Fratrik.
"There are increased amounts of available inventory out there and as a result... you have increased inventory at the same time you have a slight slowdown in the economy or the expectation and concern about the economy," he said. "It ends up being competition in the various online outlets."
That competition is coming from various sources including local TV and radio companies boosting their digital content and ad offerings. Fratrik reported on the Kelsey site last week that local TV station online revenues rose 19 percent over 2010, reaching $536 million in 2011, and local online radio station revenue rose 15 percent to $439 million.
"From valuable local content, to cross-promotional opportunities between on and off air, and a trained sales staff that understands the local market and the advertiser community, the core assets of local stations give them a competitive footing in the online arena," wrote Fratrik.
Kelsey defines the local media ad marketplace "as those media that provide local audiences to all types of advertisers."
The company expects CAGR growth in digital local advertising to be 12.7 percent between 2011 and 2016 according to today's report.
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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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