In local online advertising, the natural advantage was long with established media, such as newspapers and TV and radio stations, but there's now a major shift underway.
Traditional local media have locked up the easy money, that gotten from additional online spending by existing advertisers. But with that sector now saturated, their online revenue growth has begun to slow.
The new growth area in local markets is nontraditional advertisers, those who did little or no advertising in the past, and that's a tougher battle, one in which traditional media face a slog. They find themselves pitted against stand-alone, or pure-play, internet companies, such as Google and Yahoo.
The pure-plays look to be winning. Overall local online ad spending continues to rise, and these pure-plays are seeing much of that growth. That's according to a new report from Borrell Associates, the online research firm.
To combat this trend, traditional media companies are realigning their operations and hiring additional sales people to win over this emerging area of ad sales.
“Pursuing non-traditional advertisers is becoming the route to growth,” says the report, Borrell's fifth annual survey of local online advertising revenue, based on information from 740 daily newspapers, 252 weekly papers, 1,260 radio stations, 570 TV stations and 33 independent local sites.
It forecasts that U.S. local online advertising will hit $7.5 billion in 2007, up 31.6 percent over 2006. Meanwhile, national online ad spending is forecast to grow 20.7 percent.
Last year local online ad spending grew at about 18.8 percent, according to Borrell, while national grew at 24.4 percent.
Looking at the market shares of the categories shows that newspapers continue to hold the No. 1 spot, although their share is slipping. Borrell estimates that newspapers take 35.9 percent of all local online advertising in 2006.
The pure-play sites now have a 33.2 percent share. This is followed by directory sites with an 11.7 percent share and other print sites with 9.2 percent. TV sites now manage a 7.7 percent share, while radio sites garner 2.2 percent.
Borrell forecasts that daily and weekly papers will nab $3.2 billion in online advertising revenue this year, up from $2.6 billion last year, but that growth will be at a slower pace than in past years. Since 2001, online revenues for newspapers have on average grown in line with the development of local online advertising overall.
In the first quarter of 2007, the local online ad revenue for the 13 newspapers companies surveyed grew 17.9 percent compared to the 35 percent that all local online advertising grew.
Newspapers' share of local online ad revenue has slipped 8.2 points over the past two years, as radio, TV and, particularly, internet pure-play sites have gained share, and Borrell believes that share is likely to slip again this year.
In part, this reflects the web’s gradual shift from banner and listings advertising to video advertising and paid search.
That's prompted 276 newspapers to join in advertising deals with Yahoo. “They have teamed up with the national portal, hoping to boost their sagging online recruitment revenues and to get a bigger slice of national online advertising,” says the report.
Meanwhile, the rise of video online is something that local broadcasters believe could help them as they increasingly ramp up their interactive capabilities online. Borrell forecasts that local broadcasters will see their web revenue grow 40 percent this year, to $602 million.
Meanwhile, radio continues to have the smallest share of local online advertising, though it has doubled over the last few years, to 2.2 percent. “The vast majority of stations are just beginning to smell the opportunity on the net,” says the report.
Looking at the other categories, Borrell pegs the pure-play sites, which have 33.2 percent of local online advertising, as the most interesting to watch, with the fastest-growing share of the market, up by 18 percentage points in the past two years and largely driven by Google and Yahoo’s search-engine advertising.
