Economy Drags Down Online Ad Spending

Online ad revenues declined 7.8 percent in the first half of 2001 compared to the first half of 2000, according to the Ad Revenue Report by the Interactive Advertising Bureau (IAB), which points all of its fingers at the economic slowdown.

The report, conducted independently by the New Media Group of PricewaterhouseCoopers, found that Internet advertising in the United States totaled $3.76 billion for the first two quarters of 2001, with Q1 accounting for $1.893 billion and Q2 coming in at $1.868 billion.

According to the report, the 7.8 percent decline from the same period in 2000 is consistent with the other media revenue trends reported by Competitive Media Reporting (CMR). Measured against media that have similar short advertising buying cycles (i.e., not media purchased upfront such as network or syndicated TV) online advertising was stronger in the last six months than spot TV, which declined 14.7 percent, national spot radio, which was down 22.4 percent, and Sunday newspapers, which lost 10.4 percent according to CMR. It’s important to mention, however, that none of these numbers take into effect the aftermath of the events of Sept. 11, 2001.

“We believe that the numbers we are reporting today must be viewed in the context of advertising overall. While the declines are not insignificant, they are well within the parameters of the overall advertising industry’s experience and seen in perspective, they reflect our confidence in the long term value of the online medium,” said IAB President & CEO Robin Webster.“

The consumer-targeted category continues to be the largest overall online advertising segment (30 percent) with the retail segment of the consumer category (50 percent) driving ad revenues.

Popular Online Advertising Formats
Format 1st Half
1st Half
Banners 36% 51%
Sponsorships 28% 27%
Classifieds 15% 5%
Slotting Fees 8% N/A
Interstitials 3% 3%
Keyword Search 3% 1%
Referrals 2% 3%
Rich Media 2% 2%
E-mail 3% 3%
Other 0% 5%
Source: IAB/PricewaterhouseCoopers

In the first half of 2001, 90 percent of the revenue transactions were cash based (94 percent in the first half of 2000) with barter/trade at 9 percent (5 percent for the first half of 2000). Package deals remained the same at 1 percent.

The study also found that the online revenue-rich are getting richer, as more dollars become concentrated in the hands of the biggest media companies. While 70 percent of revenues went to the top 10 media companies in the first half of 2000, that number had grown to 76 percent in 2001. In the first two quarters of 2001, the top 25 media companies brought in 88 percent of the dollars, compared to 83 percent last year; and the top 50 media companies garnered 96 percent of overall industry revenues, as compared to 91 percent in 2000.

Banners remain the most popular form of online advertising, but the trend seems to show a movement away from the much-maligned banners. Increases were seen among keyword advertisements and classifieds.

“As the industry continues to develop, the IAB/PwC Internet Ad Revenue Report has tracked the evolution of the various ad formats,” said Tom Hyland, chair of the PricewaterhouseCoopers New Media Group. “Classified ads increased 176 percent in dollars versus a year ago, and represent 15 percent of the total revenues for the first half of the year. This is the first year we have identified slotting fees — the fee charged for premium ad placement and/or exclusivity — which made up 8 percent of the revenues for the first two quarters of 2001. Banners, while decreasing, are still the predominant format, contributing more than one-third of online revenues.”

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