With Record Internet Advertising in 2004 on Both Sides of the Atlantic Is It Any Wonder Traditional Media Invests Big-Time Buying Online Sites?
Philip Stone February 24, 2005
US Internet advertising grew 17% in the 2004 fourth quarter to achieve a record $9.6 billion for the year – that’s 32% more than 2003 and 19% more than in 2000 when the dot com boom was at its highest. Some European countries are reporting even higher percentage gains. And with the traditional newspaper business facing circulation declines and soft advertising markets, the “If you can’t beat them, join them” syndrome is in full swing.
In the United States, three of the top newspaper companies, New York Times, Wall Street Journal, and the Washington Post, have all made multi-million dollar investments in buying heavily trafficked Internet properties. With the Journal buying the financial MarketWatch site for $528 million and the New York Times paying $410 million for About.com, a consumer site with 22 million visitors a month, both publishing groups have put up big money to garner their share of the increasing record Internet ad spend. The Post paid some $20 million to buy the web Slate Magazine from Microsoft .
|
European ad growth is forecast to be a bit less in 2005 than in 2004 with only Germany among the major countries expected to see growth improvement, according to media agency Carat.
Each New Years brings with it tidings, if not promise, of health and prosperity. Forecasters have already chimed in with the prospect of more ad spending for most media in 2005.
At the end of each year global traditional media powerbrokers meet in New York for two media conferences where they prognosticate about the year ahead. This year it was a mixed bag...
|
And with not that many Internet sites on the block the buyers are paying a hefty premium. For example, the Times purchase price was about 30 times 2004 About.Com earnings, or using projected 2005 revenues then it is about 23 times earnings. In comparison, Lee Enterprises has just received anti-trust permission to buy the Pulitzer newspaper chain for $1.4 billion, but that works out about 13.5 times 2004 earnings. Using that deal as a benchmark – one of the largest traditional media deals in years – it would seem the Times is paying at least a 50% premium for its additional web presence.
And while New York Times executives have been at pains to explain why they don’t think they overpaid, Standard and Poor’s debt rating service has changed its outlook for the Times from stable to poor indicating if About.Com does not perform as management has promised that the Times could see a downgrade of its debt rating which will increase borrowing costs.
Most of Europe is also reporting record 2004 Internet advertising revenues. European newspapers for the most part are seeing meager if any advertising increases and at the same time they are experiencing circulation stagnation if not declines due to free news on the Internet and free newspapers. No big European Internet deal has been announced (yet) but can the European media be far behind the US media?
In the Netherlands, for instance, Internet advertising grew by 67% per cent in 2004 to reach €66.2 million, according to Interactive Advertising Bureau Nederland. In the fourth quarter the spend was €19.8 million, a 56% increase over the similar quarter a year ago, and that growth is expected to increase in 2005.
In Norway, Internet advertising, fueled by the real estate sector, saw overall revenues increase by more than 40% over a year ago, reaching €78.4 million.
Overall in Europe the total number of Internet advertisers is estimated to have grown by some 11%,
Yet for all its growth Internet advertising currently accounts for only about 3% of the US annual ad spend. But with magazines enjoying just a 5% increase in ad revenues versus the Internet’s 32% last year Jupiter research predicts Internet advertising will outstrip magazine advertising within three years. Sports Illustrated President John Squires told a media conference late last year that “print is dead,” and they should concentrate on electronic delivery of their products.
Nielsen reported the telecom industry is the fastest growing US Internet advertiser, but according to the Internet Advertising Bureau (IAB) companies such as McDonalds have increased their Internet spend 10-fold.
The US figures, which come from PriceWaterhouseCoopers research for the IAB, have shown five straight record breaking quarters, and the researchers say they can see no reason why such record breaking will not continue. There had been forecasts by many pundits of 25-30% Internet advertising growth in 2005, but based on the 2004 Q4 figures those predictions may be low.
Paid search has overtaken banner advertising and now accounts for some 40% of US Internet advertising.
| 