Internet Ads Still Feeling Industry Woes

Internet advertising in the United States remains off, but the third quarter study by the Interactive Advertising Bureau (IAB) insists the Internet market is more than holding its own compared to other advertising sectors.

The third quarter Internet Ad Revenue Report conducted by the New Media Group at PricewaterhouseCoopers found that Internet Advertising in the United States totaled $1.792 billion, down 4.1 percent from $1.868 billion in the second quarter.

For the first nine months of 2001, Internet ad revenue stands at $5.55 billion, compared to $6.06 billion for the same time period in 2000.

“While the online revenue reported has shown little change from the previous two quarters, the fact that our industry is holding steady should be looked at as a positive sign,” said Greg Stuart, IAB president and CEO. “The $1.792 billion in revenue for the quarter indicates that the Internet is holding its own against what we have been hearing about other advertising sectors, indicating that contrary to popular belief, advertisers are not deserting the medium and in fact are committed to the Internet long term.”

Internet advertising proponents can call the numbers a positive sign because despite the general malaise in every sector of the advertising market, the slowing economy now known to be in recession and the events of Sept. 11, Internet advertising suffered only a modest 4.1 percent decline from the second quarter. Many other advertising sectors have recorded double-digit declines.

“It appears that traditional advertisers are devoting a greater percentage of their budgets to online advertising, shifting budgets to mirror the shifting consumption of online media by their customers, and are loathe to desert the medium that they all know holds the greatest future potential for them,” said Tom Hyland, chair of PricewaterhouseCoopers New Media Group. “There is no more gravy train, but the slight decline in this quarter’s revenues bodes well for the industry in a fluid market.”

The consumer-targeted category continues to be the largest overall segment for online ad spending in the third quarter of 2001 (29 percent) with the retail segment (51 percent) driving revenue. The consolidation that has been ongoing in the industry for several quarters continued in the third quarter of 2001, with revenues more heavily consolidated within large media companies. The top 10 media companies accounted for 75 percent of the advertising dollars in the third quarter, while the top 50 accounted for 95 percent.

Online advertising formats used in the third quarter remained practically unchanged from the second quarter.

Online Advertising Formats
Percentage of Revenue
Format Q3 2001 Q2 2001 Q4 2000
Banners 35% 36% 40%
Sponsorships 25% 28% 31%
Classifieds 17% 16% 10%
Slotting Fees 7% 8% NA
Interstitials 3% 3% 5%
Keyword Search 5% 3% 2%
Rich Media 3% 2% 2%
E-Mail 3% 3% 4%
Referrals 2% 2% 5%
Source: IAB/PricewaterhouseCoopers

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