Online Ad Sales Growing, But Not At 'Premium' Sites

Written by Josh Catone / August 7, 2007 / 0 comments

According to an article in the Financial Times today, online ads are expected to outsell those in print newspapers in the US by 2011. A study by Veronis Suhler Stevenson (VSS), FT reports, predicts ad spending online will grow to $62 billion over the next three years, compared to $60 billion for newspapers.

The bad news for American newspaper publishers, though, is that Internet ad growth at traditional media outlets is also slowing -- so they're being squeezed on both sides. Separately today, the New York Post is reporting that the New York Times, the Washington Post, CNET, and other premium web publishers have all seen slowing ad sales over the past year. "Online ad growth at the Washington Post fell to 11 percent in the second quarter, compared with 36 percent a year earlier," writes the Post's Holly Sanders.

"People are still buying display ads, but they are buying them elsewhere and for less than if they bought them from AOL or Yahoo!," said Jupiter Research analyst David Card.

This shift is benefiting newcomers - such as social networking sites like Facebook, MySpace and YouTube - at the expense of more established rivals that were once considered "must buys."

"We have a lot more choice and a lot more options out there," said T.S. Kelly, head of research at Media Contacts, the interactive arm of media buying firm MPG.

What does this mean? It means two things. First, this is likely great news for Google. Google's Adsense program is the du jour method of advertising for small, long tail web sites. Cheap opportunities for advertisers to spread their ad dollars to many smaller, perhaps more targeted sites, instead of large ad buys on major mainstream content producers and portals, means great news for Google and smaller ad networks like Burst Media and Gorilla Nation, who handle the advertising on many of those sites.

Second it means we should get ready for the bubble talk. A lot of people will likely point to the online advertising collapse of the 1990s where CPM rates tumbled as a result of too much inventory. Take this from Silicon Alley Insider, for example:

"The situation is also reminiscent of the late 90s, when freely flowing venture capital created so much online inventory so fast that prices collapsed, driving a whole generation of start-ups out of business. The problem now is not VC money; it's the ease with which new online media businesses can be established. But it will likely lead to the same result."

(Emphasis mine.)

The VSS report mentioned above indicates that online ad spending is increasing overall, however, so it doesn't appear there is any problem of excess inventory -- it is just a shift in where that inventory is located. As the New York Post article notes, the recent consolidation in the online ad industry is partly the result of the large sites like AOL and Yahoo! wanting a piece of non-premium ad sales action. So while this may be bad news for premium content producers like newspapers, it is good news for whoever is controlling the sale of these so-called non-premium ads.