IAB: Online Ad Industry Began Growing in Q3

The Interactive Advertising Bureau (IAB) released Thursday its third-quarter online ad revenue estimate showing a slight bump from the previous quarter, giving the trade group hope that the two-year online ad slump is finally ending.

The report, done by PriceWaterhouseCoopers, said third quarter U.S. online advertising revenue came in at $1.47 billion, an 18 percent drop from the same period a year ago. However, revenue grew a modest 1 percent compared to second quarter, the first time the industry has recorded sequential growth in six quarters.

“The top-line numbers are not showing the underlying growth that’s going on in the business,” said Greg Stuart, the IAB’s president and chief executive.

While the IAB estimated modest growth, it found that the cream of the crop was performing quite well. Of the top 15 publishers, nine reported year-over-year revenue growth of an average of 66 percent in the third quarter.

“The return to positive growth in both online and offline media is a healthy sign for the overall advertising industry,” said Tom Hyland, head of PwC’s new media unit. “But it should be viewed cautiously, as we believe that the positive steps that are being taken are as much cost-driven as they are recovery oriented.”

PwC arrived at the revenue figures through data gathered from the top 15 online ad sellers, which historically represent 80 percent of the market. Those figure are then extrapolated for the entire industry. The IAB uses this estimation in the first and third quarters, which are then included in the full revenue reports issued in the second and fourth quarters.

The numbers, however, are dramatically affected by the 22 percent increase from marketing services, which encompasses both ad sales and paid search. The Online Publishers Association, which includes the online operations of many major newspapers, said last month that its members had racked up an average revenue growth of 36 percent in the third quarter. ESPN’s president, George Bodenheimer, said last week that the online unit would turn a profit this year. In May, an IAB-commissioned report by Thomas Weisel Partners found that 70 percent of the top 25 online ad sellers expected to be profitable by the end of this year.

It is a business,” Stuart said. “And now it’s a business that’s got its cost structure in line, and now they’re out making revenue.”

Many forecasts point to a broad recovery in the ad market, albeit incremental growth that could easily be thrown off by a prolonged war with Iraq or a double-dip recession. Online is expected to grow faster than traditional media.

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