2006 Outlook: Local Online Growth Continues (for Some) - Online Spending Projections for 211 Cities, including Local Paid Search - Market Research Reports - Research and Markets

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2006 Outlook: Local Online Growth Continues (for Some) - Online Spending Projections for 211 Cities, including Local Paid Search

Description:

Local online advertising is exploding in 2005. Some site operators are reporting 50 and even 100 percent increases in ad revenue over 2004. What will 2006 bring?

This Borrell Associates report analyzes the local trends in 2005 and, with the help of a panel of nearly 400 advertising experts, projects online ad spending through 2010. A useful appendix lists projections for local online advertising, including breakouts for paid search, for 211 individual markets.

Local online advertising is enjoying a bonanza year, with many site operators reporting revenue increases of 50 percent or more. While newspapers and the so-called pure-play Internet companies continue to benefit, the heightened sales activity has also breathed life into a bevy of competitors, including independently owned city.com sites and Web operations run by local TV and radio stations. In any one market, dozens of companies – some of them not even based in the market – are rushing in to compete for local online ad dollars.

The prize is a slice of the $4.1 billion that local businesses will spend this year for online advertising – 51.5 percent more than they spent last year. And it may be just the beginning: Even at $4.1 billion, local online represents just 3.1 percent of the nearly $130 billion that local businesses will spend on all media advertising this year. Our projections over the next five years show local online swelling to $8.6 billion – but still less than 6 percent of local ad spending.

Next year is likely to see continued growth, though not quite as strong as in 2005. Across all 211 DMAs, local online advertising may hit $5.7 billion in 2006, a 39.3 percent increase. Not all markets will fare that well: we expect a dozen small markets to see declines, while many of the larger markets will see above-average growth.

Site operators should not become enamored of all this growth. Although traditional media companies have built impressive local Web operations over the past decade, the foundation of their revenues is cause for concern. The practice of up-selling print or broadcast advertisers – especially with an "assumed" or forced online ad that is packaged with a newspaper ad or TV commercial – could collapse under the competitive pressure of more measurable and effective forms of online advertising.

Looking ahead, the biggest growth category in online advertising is the one that most local site operators cannot even offer: Local paid search. Spending by local businesses on paid search is expected to rise 161 percent next year, to $906 million, and to account for nearly half of all local online advertising by 2010.

Contents:

Executive Summary

Chapter 1: Market Share Becomes More Important
Chapter 2: Newspaper, TV Online Sales Model May Fail
Chapter 3: Where To Find Growth in 2006

Conclusions and Recommendations

Appendix A: 2005 - 2010 Online Ad Spending Forecast
Appendix B: Ad-Spending Forecasts for 210 DMAs
Appendix C: Methodology

CHARTS & TABLES

Figure 1. Media Segments Competing for Online Advertising, 2005
Figure 2. Online Ad Market Shares: Total U.S. Online vs. Local Online
Figure 3. Budgeted Revenue Growth for Newspaper Sites, 2004-05
Figure 4. Budgeted Revenue Growth for TV Station Sites, 2004-05
Figure 5. Growth of Local Online Advertising, 2000-2006p
Figure 6. Online Revenue Growth for Selected Companies, 2004-05
Figure 7. Share of Local Online Advertising for Market's Largest Newspaper Site, by Market Size
Figure 8. Local Online Ad Share for Newspaper, TV and Radio Sites, By Market Size
Figure 9. Newspaper Sites' Reliance on Up-Selling Print Advertisers
Figure 10. Targeted Online Advertising Becomes Predominant by 2010
Figure 11. The Rise and Fall of Online Advertising Segments, 2005-2010
Figure 12. Sites with More Salespeople Generate Far More Revenue
Figure 13. How Many Salespeople to Hire?

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