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April 8, 2010, 10:13 a.m.

The Newsonomics of online ad trending

[Each week, our friend Ken Doctor — author of Newsonomics and longtime watcher of the business side of digital news — writes about the economics of the news business for the Lab.]

Through all the twists and turns of economic boom and bust, Apple innovation after Apple innovation and news company bankruptcy drama, Internet-based advertising keeps growing its share of the ad market.

In a report just released by the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers, there are signal numbers that tell us what the next several years of the ad economy will be like. The big, compelling numbers, though: In 2005, the Internet generated 8 percent of the ad revenue in the U.S. In 2009, that share more than doubled to 17 percent, to $22.7 billion.

So, through thick and thin, digital marketing, with better targeting being introduced around the clock, keeps pulling dollars away from traditional media — TV, newspapers, radio, and magazines. TV ($26.2 billion) and newspapers ($24.6 billion) are still ahead of Internet, but cable (at $20.4 billion) and TV networks (at $15.5 billion) are below. Radio pulls in $14 billion, while consumer magazines take in $10 billion and trades $7.5 billion.

Targeted media continue to grow the fastest. That’s no surprise in ad world in which Yahoo’s real-time ad bidding Right Media exchange is now aiming to match an advertiser with a consumer in the 50 milliseconds or less before a page loads. (How fast is that? A twentieth of a second — fast enough to align reading and commercial interests — and by some accounts the time it takes for each of us to decide whether we’ll stay on a web page, or not).

So, paid search moved up to 47 percent of digital ad spend in 2009, from 45 percent in 2008.

Classifieds were the big loser, down to 10 percent from 14 percent year over year.

Banner ads held steady, up a point to 22 percent, with digital video now grabbing 4 percent of the market, up 39 percent in revenue in one year.

Overall, online revenues were down about $700 million — or 3.6 percent — for the recession-wracked year, and that’s attributable to digital classifieds by itself.

So the online ad industry managed to pull off quite a feat: it stayed almost above water in a year in which traditional media lost more than 20 percent of its revenue. Significantly, newspaper companies’ are reporting a steady-as-you-go year in 2010, meaning what’s been lost in recent years — newspaper ad revenues are down 44 percent since 2006 — is unlikely to be regained in any great numbers.

For the online ad industry, it’s a different story. For the fourth quarter of 2009, it gained 2.6 percent increase year-over-year and 14 percent over the third quarter of 2009, bringing in $6.3 billion.

Collectively, those are sobering numbers.

Even pre-iPad — with its direct questions about how it and its successors may hasten the print-to-digital transformation — the movement is in one direction. More targetable, more measurable and seemingly more efficient digital advertising beats the selling of space (in newspapers and magazines) and time (on TV and radio). Certainly, brand advertising has a place in the marketing future, but as I’ve noted, marketers have far less need for big brands than they used to.

News companies, unevenly, are acting on these trends. They’re increasingly offering a panoply of online marketing services in their areas, with McClatchy’s just-announced embrace of WebVisible search engine marketing programs just the latest public example. It’s a slow rebuilding of the business, digital brick by brick, but it’s one that recognizes which way the wind is blowing.

POSTED     April 8, 2010, 10:13 a.m.
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