Forecast: Search and Video to Drive Internet Ad Spend

The Internet ad spend is expected to climb from $25.9 billion in 2006 to $48.1 billion in 2009, an 85 percent increase, according to a forecast released yesterday by U.K.-based ZenithOptimedia a unit of Publicis Group. The forecast attributes the hike in Internet advertising primarily to online video and local search.

Online represents the fastest-growing category within the overall ad spend, though ZenithOptimedia expects the growth rate will slow in coming years . In 2006, spending on the Internet increased by 34.9 percent over the previous year. The forecast projects year-over-year growth of 29.9 percent for 2007, 23.5 percent in 2008, and 15.6 percent in 2009, or an annual average of 23 percent.

The forecast is in line with findings from a TNS Media Intelligence report on advertising spending for the first half of 2007.

Internet still surpasses television advertising, which is expected to go from $161.7 billion in 2006 to $192.2 billion in 2009, a total increase of 18.8 percent.

As the size of the Internet ad spend gets larger, it takes more dollars to show an increase in percentage points.

“The very rough growth of the Internet is creating a huge amount of inventory,” said Jonathan Barnard, head of publications at Zenith Optimedia. Added inventory, particularly rich media and video units, can be attractive to advertisers used to making media buys on television.

Online video and local search are cited as two drivers of Internet growth now and in coming years. The two categories are responsible, in part, for taking dollars from other media. Though in many cases, the cross-channel publisher retains money from advertisers as it cross to other media.

“Networks seem to be at the forefront of the development of online video, helping to offset some of their losses to the Internet,” said Barnard. In some cases television networks are creating multiple distribution channels for shows and content. The NBC and News Corp joint venture Hulu slated to launch later this month will initially stream content from both networks, while NBC recently announced NBC Direct where consumers can download limited playback of the network’s TV content.

“At this stage nobody really knows what the successful model of the future will be,” said Barnard. “There is a lot of experimenting.”

Newspapers continue to see dollars shift from offline to online. “Newspapers are losing directly to the Internet, either to other classifieds, search, or auction sites,” Barnard said. “Their Web sites tend to be quite large and get advertising, but unfortunately they are not making enough to offset offline.”

Not all new search dollars come directly from newspapers. “It’s the fact that it’s opening up the Internet to other types of advertisers that only have a small market in which they sell,” said Barnard. “A national or international ad on a large search engine wouldn’t have been cost effective, but now they’re able to localize their results, and are able to draw in small advertisers.”

The overall ad spend is expected to increase by 18.3 percent between 2006 and 2009. Television will likely see a peak of 7.3 percent growth in 2008, due to heightened advertising activity during the Olympics.