International
US slump may accelerate switch to online advertising
By Finfacts Team
Sep 24, 2007, 07:26

Online advertising spending in the US is forecast is continue its strong growth even if a US economic downturn squeezes the advertising sector as a whole.

It is claimed today that pressure on companies to cut costs if the economy softens could even accelerate the switch in spending from traditional media to more targeted and measurable digital forms.

The Financial Times says that some of the US mortgage lenders embroiled in the recent lending crisis have stepped up online spending, attracted by the ability to entice people to click on ads.

“If marketing budgets shrink, and they are often the first to be cut in a downturn, digital will still continue to grow,” Eric Bader, managing director of digital at MediaVest, told the FT. “The focus will be on advertising that can be measured for effectiveness, and online will gain share relative to television, newspapers or radio.”

Online is the fastest-growing advertising sector, and may reach over $20bn this year, just over 7% of the total $285bn US advertising market.

A IAB/PwC study last June estimated that in a total of three European countries, the web’s share of advertising expenditure exceeded 10% in 2006. These were the UK, the Netherlands and Denmark. Ireland's share of web advertising is estimated to be in the range 2.5%-3.5%.

Mortgage companies including Countrywide Financial Corp. and IAC/InterActiveCorp's LendingTree Inc. haven't cut spending much and are moving ads to the web from print and TV, analyst Jeffrey Lindsay of Sanford Bernstein said. A 50% drop in ads for loans would cut Google and Yahoo's profit by 1% to 3%.

"Under economic pressure, advertisers favor online because it's a lot cheaper, it's measurable and it gives a higher return on investment," Lindsay said. Almost all of Yahoo's second- quarter growth in display advertising came from mortgage ads, he estimated. "The biggest beneficiary so far has been Yahoo."

US mortgage companies spent $755 million on Web ads in the year ended June 30th, or about 3.4% of the US online ad market, Sanford Bernstein said. The report doesn't cover third-quarter spending.

Countrywide, America's top mortgage lender, increased its online spending to 55% of its ad budget in the second quarter from 21% a year ago, Lindsay said.

In related news, US television networks are reported to believe they have found the business model needed to profit in the digital age – streaming their hit shows over the internet as opposed to selling them to consumers as digital downloads.

This season they are gearing up to stream unprecedented amounts of programming with embedded advertisements on their own websites and via those of distribution partners.

They are embracing streaming video after recent experiments eased concerns that it would cannibalise traditional broadcast audiences and undermine business models. Instead, many TV executives are confident that putting programmes online will build greater awareness among consumers and increase audiences. The networks have also been encouraged by advertisers, who are rapidly shifting their budgets to the internet to reach young consumers.