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Reasons to Shift Offline Spend Online

David Halllerman
Reasons to Shift Offline Spend Online David Halllerman

The shift toward internet advertising is accompanied, at least in part, by a shift away from advertising on other media. According to Citigroup Investment Research, newspapers have been and will be the hardest hit, losing $890 million annually to the internet from 2004 through 2007, followed by broadcast TV, with losses to the internet of $720 million per year.

As the internet makes up an increasing share of the total media space, so does internet ad spending support the year-over-year growth of the total media spend. In 2007, for example, projected total media spending is at 1.4 percent. But pull internet advertising out of the equation, and that drops to a mere 0.6 percent.

The growth-rate disparity between internet advertising and total media spending signifies how it is likely the majority of internet dollars come from other media more so than from new spending entering the market. Of course, these are overall numbers and can vary greatly for any specific company.

Furthermore, internet ad spending will continue to rise even as total media spending falls for two key reasons: One, in tough times, marketers will increasingly look to more measurable media to make sure their spending is as effective as possible (and that's the internet); and two, as consumer spending falls, consumers will increasingly use the internet for research and shopping to maximize their dollars, too. And therefore, marketers will more likely give up ad spending in traditional media than in the internet space.

While this roughly measured proportion of internet ad spending certainly comes from budget shifts away from other media, there is little question among researchers that internet ad spending growth far outstrips that of any other medium.

Take recently released data from Nielsen Monitor-Plus (also cited above): In the first half of 2006, internet ad spending soared by 49.0 percent over last year's first half. And when you consider that this figure excludes search-based advertising (the major contributor to the online market), that growth rate appears even more astounding.

And no other major medium had spending growth even close to that, perhaps outlier, rate.

While other researchers project the internet at lower growth rates for 2006, they still give it top ranking among media. This includes Merrill Lynch (at 29.1 percent growth), TNS Media Intelligence (at 13.0 percent and also excluding search) and Group Interdeco/OMD (at 15.0 percent). Finally, over the past three years and with projections for this year and next, Citigroup Investment Research pegs internet ad spending growth higher than for all other media.

Growth rates are one thing, but the actual dollars still swing far more toward traditional media. The broad, seven-year view from Citigroup shows the greatest spending on television ads, both broadcast and cable, followed by direct mail and newspapers.

According to eMarketer's research, only 5.7 percent of total media ad spending in 2006 will go to the internet. In 2008, however, the internet's share (at 7.3 percent) will surpass radio's contribution to the whole. That will be the first time the internet gets a greater share of ad spending than any one the big four traditional consumer media -- TV, radio, newspapers and magazines -- depending on whose ad share data you look at.

David Hallerman is a Senior Analyst at eMarketer. This article was drawn from his recent report US Online Ad Spending: Peak or Plateau?


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