Internet to Surpass Radio in Advertising Spending

Source: Posted on Sep 3rd, 2008 by the AssociatedCities.com

ST. LOUIS — While advertising projections across the board for 2008 have taken a haircut (or even crew cut) in the souring economy, the Internet sector is still growing at an aggressive clip.

   It turns out MTV was wrong more than a generation ago when it declared that "video killed the radio star". According to a recent report by British-based Aegis Media, Internet spending will grow 23.7 percent in 2008 and surpass radio as the third most popular medium worldwide.

   In the final decades of the 20th century, the radio industry not only survived but thrived (at least financially) by squeezing every ounce of available advertising inventory out of rapidly consolidating local broadcast stations.

   As media consumption patterns over the past decade shifted, however, the industry (like its newspaper and television brethren) failed to respond. Now they are paying the piper.

   According to the Aegis Media report, the radio industry in particular is getting hammered by the migration of listeners and advertising dollars to Internet-based media.

   The Carat Report, which was compiled by Europe's largest media buyer, noted that the expected 6 percent growth rate on global advertising expenditures in all media has been reduced to 4.8 percent. Growth projections for the U.S-based advertising economy have been downgraded to 2.1 percent from a previous March 2008 estimate of 3.8 percent.

   "It's clear that the worldwide economic issues affecting businesses are having an impact on where and how advertisers spend their money," said Aegis Media CEO Jerry Buhlmann in the report.

   Virtually ever sector of commercial media (with the exception of the Internet) is fighting through softened forecasts. Internet advertising continues to swim upstream in a downtrodden economy with projections of nearly 24 percent growth in 2008 and 2009, according to the report.

   The report cites a combination of changes in media consumption. It cites the track ability and effectiveness of search and online advertising as the primary reasons for continued growth.

   "With search now central to the planning and execution of any campaign, online media brings a greater level of accountability not just to itself but to TV, print and other forms of advertising," Buhlmann said.

   He added: "This is why we are predicting further strong growth for the Internet even when advertisers are cautious in many of the other sectors. The Internet is set to overtake radio [in 2008] to become the world's third most popular medium (behind TV and print)."

   While many people aren't surprised by the steady growth of Internet advertising spending relative to other media, there are profound material effects taking place. The Internet as a commercial industry is barely 15 years old.

   The Internet is now challenging the most dominant medium of the first half of the 20th century (radio) for consumer and financial superiority.

   Beyond that, the costs associated with producing and transmitting content over the radio and the billions of dollars of legacy equipment being rendered obsolete by a few microphones and an iPod are staggering compared to the economics associated with distributing media online.

   When looking through this report as well as other online and local media studies (such as those from Borrell & Associates and The Kelsey Group, which tell similar stories), it's important to not only look at the top-line growth figures but also the quality and efficiency of that revenue.

   Costs for growing and maintaining Web infrastructure will increase as even more people change their consumption patters.

   Can you again imagine a world where every broadcaster or narrowcaster of information and online media will need to pay for expensive transmission equipment as well as the endless personnel?

   Stay tuned for the next edition of GeoDomain News as we preview and diagnose a local advertising report from Borrell & Associates.