Local advertising dollars are surging online, and newspapers are in command of the largest share while Internet giants such as Google and Yahoo and Monster are gaining, according to a report by media research company Borrell Associates Inc.
Local online ad spending — which is defined as advertising placed by businesses located in a given market area that is intended to reach an audience in that same market area — is projected to reach $7.5 billion this year, a 31.6 percent gain over spending in 2006, according to the “What Local Media Web Sites Earn: 2007 Survey” report. An executive summary of the report is available for free download, while the full version is $995.
National online advertising spending is projected to reach $22.1 billion this year, up 20.8 percent from $18.3 billion in 2006.
The report analyzes Web revenues for 2,855 local media properties, including 740 daily newspapers, 252 weekly newspapers, 1,260 radio stations, 570 television stations and 33 independent local sites.
So-called “pure-play” sites, such as Yahoo, Google, Realtor.com and others that are not owned by a traditional media company, “are the ones to watch, even though they are the most difficult to track,” the report states, as their share of local online advertising is growing at the fastest clip.
“Most of this growth has come at the hands of Google and Yahoo through their search-engine advertising,” the report states, and “recent partnerships between newspapers and major pure-play portals such as Yahoo and verticals such as Monster.com may be a signal that the national sites need those feet on the street as much as the local media companies need the national reach to continue growing.”
Newspapers’ Web sites are heavily reliant on recruitment, automotive and real estate advertising, according to the report, and newspapers control about 35.9 percent of all locally spent online advertising. That compares with 33.2 percent market share among pure-play Internet companies such as Google, Yahoo and Monster; 11.7 percent for yellow pages operators, 9.2 percent for other print publications and local magazines, 7.7 percent for television stations; and 2.2 percent for radio stations, according to the report.
Newspapers’ reign in local advertising revenue may be nearing an end, though, as newspapers’ share of online ad spending has slipped 8.2 percentage points in the past two years, the report states, and “it is likely to slip more this year as the industry grapples with the Web’s transformation from a banner-advertising and pay-for-listings medium … to one that is dominated by video advertising and paid search.”
Newspapers’ Web sites relied on recruitment advertising for 51.8 percent of Web site revenue in 2005, and that dropped to 46.5 percent in 2006. Likewise, automotive ad revenue at newspaper Web sites fell from 13.4 percent in 2005 to 12.5 percent in 2006. But real estate advertising rose from 11.3 percent of online newspaper ad revenue in 2005 to 11.9 percent in 2006. In a given market area, the average online advertising market share per newspaper Web site was estimated at 15.1 percent.
While there was an annual gain in real estate ad spending at newspapers’ Web sites, the report states that this category of ad revenue “began showing declines toward year-end … because of its close ties with the print product.” Print real estate advertising fell 14.2 percent in first-quarter 2007, according to a report by the Newspaper Association of America, and also dropped 2.3 percent in fourth-quarter 2006.
Newspaper Web sites’ revenue per unit of print circulation increased from $27.10 per unit in 2003 at newspapers with greater than 200,000 circulation to $69.50 per unit in 2006. That rate also more than tripled from 2003-06 for newspapers with 100,000 to 200,000 in circulation and nearly quadrupled for newspapers with a circulation of 2,000 to 10,000.
Online ad revenue for newspapers is projected to reach $3.2 billion this year, up 38.5 percent from $2.6 billion in 2006. For television stations, online revenue is expected to reach $602 million this year, up 40 percent compared to 2005. And radio stations’ online advertising is expected to reach $189 million this year, up 51.2 percent compared to 2005.
But “online ad revenue growth actually began to slow down in late 2005 and continued to slope downward in 2006,” and “traditional media companies were reporting growth rates considerably lower than a year earlier” by the first quarter of 2007.
Media companies have begun to treat online operations as a standalone business, according to the Borrell report, and the staff of locally based online-only salespeople grew 26 percent in 2006. That could ramp up to a 35 percent increase in hiring this year, according to Borrell’s analysis.
“What is being tossed out the window is exactly what was in vogue just two years ago,” the report states. While the old model in advertising sought to up-sell advertisers to buy advertising in the online and print or broadcast media, the new model, “perhaps in recognition that the wagons have been hitched to a fading star,” increasingly features “separate staffs and network affiliations” for online operations.
Hundreds of newspapers have entered into deals with Yahoo that will offer national and regional advertising opportunities to the newspapers and allow the newspapers to share in pay-per-click ad revenue. Yahoo, the report notes, has experienced some stagnation in its advertising. Yahoo’s domestic advertising revenue growth slowed from 36 percent in 2005 to 19 percent in 2006, according to the report, and slowed to 0.4 percent growth in first-quarter 2007.
Among television stations participating in the survey, about 68 percent had profitable Web sites, typically less than 5 percent of all online revenue was from national online advertising, and less than 7 percent of revenue was related to online video advertising.
“Online video advertising would seem to be the future for TV broadcasters, since it is a natural extension of their core medium,” the report states.
Television stations captured about $32 million, or 20 percent of the estimated $161 million spent by local advertisers on online video ads in 2006, the report states, and this year Borrell expects that revenue “to more than triple, to $89 million for TV sites, with an increase in share to 24 percent.”
Radio stations’ Web advertising totaled $125 million in 2006, which is more than double the amount in 2005, and the report expects a 51 percent increase in online revenues for the category this year, to $189 million. Radio stations are projected to gather 28 percent of online revenues from local auto dealers this year, compared to 18.1 percent in 2006 and 2.6 percent in 2005.
Radio stations generated about 23 percent of online revenues from audio streaming in 2006, and surveyed stations expect that revenue to double this year.
The report notes that there are a variety of city-based Web sites, such as SanDiego.com and SanFrancisco.com, that “are beginning to attract meaningful audiences” and attract online advertising by offering local content — these “city.com” sites earn a median of about $340,000 per year in ad revenue, according to the report, while the ratio of total revenue to local online advertising revenue was generally below 1 percent for this group of sites.