Newspaper Ad Sellers See Online Counterparts Closing Fast

In four years, spending on advertising for pure-play Internet properties, such as Google and Yahoo, will overtake that currently being devoted to cable TV and radio, according to a new report that also predicts overall Internet ad spending will bypass print newspaper advertising by then.

Private equity firm Veronis Suhler Stevenson (VSS) issued the prediction in its 21st Communications Industry Forecast, a document based in part on data supplied by PQ Media. VSS’s report posits the overtaking of newspaper advertising by Internet ads will be a “watershed moment in communications history,” one based on a projected expenditure of about $62 billion for online campaigns.

“More brand marketers are embracing Internet advertising regularly, whether it is traditional media, online platforms or pure-play platforms,” said Leo Kivijarv, vice president of research at PQ Media. “Whether it’s blogs, social nets, national or local, brand marketers are embracing it and, to some extent, shifting their dollars away from some of the traditional media such as over-the-air ads on TV and in print.”

The study says traditional advertising, defined as print media (including newspapers, magazines and yellow pages), out-of-home, TV and broadcast radio “inched up only 2.4 percent in 2006 to $183.21 billion.” However, “alternative advertising,” which includes pure-play online and mobile, Web sites of traditional media, satellite radio, videogame advertising and alternative out-of-home media, “soared 36.6 percent in 2006 to $26.53 billion.

Kivijarv said the researchers found that big-name, pure-play Internet entities — those without traditional media counterparts — currently rank sixth in terms of total advertising dollars. By 2011, the pure-plays will have risen to third-place — behind television and newspapers — predicts the report.

While the projection that Internet ad spending will outpace print newspaper spending is not good news for print publishers, Kivijarv noted the online figure includes advertising on those publishers’ Web sites. In other words, online spending, as defined in the study, includes both the pure-play Internet sites and the traditional media’s online extensions of their brand. And Kivijarv said ad spending on traditional media entities’ online sites, such as ABC.com, “is growing faster than the pure-plays.”

VSS believes growth in spending on pure-play Internet services will slow in the coming years “as Internet penetration reaches a saturation point, and broadband’s share of the overall Internet market reaches over 90 percent.” But even after penetration rates peak, the researchers believe overall spending will continue to grow at double-digit rates, driven by online video advertising and local search. “National search, display advertising and classifieds will remain among the largest online ad categories,” says the report.

Although VSS expects mobile advertising will grow at double-digit rates, it will account for less than 1 percent of the overall ad market. “Consumers continue to resist paying fees to access ad-supported content, while carriers are having difficulty developing an advertising model,” explained the researchers. They expect some marketers to lure consumers into viewing ad-supported messages by offering to them “free incentives.”

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