A Rosy Outlook for Internet Ad Revenue, says ZenithOptimedia

Despite a slowing of the U.S. economy, the money spent on global Internet advertising will continue to grow rapidly in 2008 and is on pace to reach $67 billion by 2010, according to ZenithOptimedia.

In its latest advertising expenditure forecast, the media services agency says Internet advertising will account for 12.3 percent of the total ad market by the end of the decade and much of that growth will come “at the expense” of newspaper advertising.

ZenithOptimedia Head of Publications Jonathan Barnard said the ongoing problems with the U.S. economy are having an impact on overall ad spending. Because of the slowdown, ZenithOptimedia downgraded its 2008 ad expenditure growth rate prediction for North America and Europe.

“Back in December 2007, when we did our last forecast, we were expecting 4.4 percent growth across all media,” said Barnard. “Now we’ve downgraded it to 3.8 percent. Almost all of that comes from a downgrade in newspaper advertising which previously we thought would be flat all year but is now expected to decline.”

Barnard said the economy-related weakness “was obvious during 2007,” but he noted ZenithOptimedia didn’t expect the doldrums to be so persistent. “We thought the market would stabilize in 2008, but that no longer looks possible,” said Barnard. “This is partly due to a shift to other media but also there’s the weakness in real estate advertising and finance and it looks like it’s going to continue for 2008.”

Nevertheless, ZenithOptimedia is still expecting total ad spending in the U.S. to increase 8.3 percent between 2007 and 2010 and it predicts a 23.4 percent growth in Internet ad spending this year for the U.S. market, said Barnard.

“The growth is coming from a variety of sources,” he said. “We have the beginning of mainstream online video with companies beginning to find out how best to make money out of that.”

Additionally, advertisers are quickly learning how to make use of the “amazing details people are willing to give about themselves” on social networking sites and use that information for ad targeting, said Barnard. He said ZenithOptimedia also expects U.S. Internet ad growth to be bolstered by increases in local search advertising.

“Local search is opening up the paid search market to local advertisers and advertisers that had not previously been interested in advertising,” said Barnard.

He said the decline of the U.S. economy “could actually be good for Internet advertising because Internet ads are still pretty cheap compared to traditional media and they are a lot more measurable.”

As advertisers in North America and Europe deal with the economic slowdown, their counterparts in many other parts of the world are on a roll, according to the report. ZenithOptimedia now predicts total ad spending will increase between 10.9 percent and 11.1 percent in 2008 as compared to 2007.

The report predicts continued healthy growth through 2010 courtesy of dynamic markets in the Asia Pacific, Central and Eastern Europe, Latin America and the Middle East.

Said Barnard: “The big news internationally is that, even though the U.S. and Western Europe are slowing down, it’s having less relevance in the international arena. The developing markets are pushing ahead in places like Brazil, Russia and China. Advertising is growing so quickly there, and the economies are doing well� as they become more consumer driven.”

The report says developing markets will contribute 63 percent of ad expenditure growth between 2007 and 2010 and increase their share of the global ad market from 27 percent to 33 percent by the end of the decade.