Online ad revenue and future of local TV

By Cory Bergman 

The final report from the IAB is out for 2006, and the ad bureau says online advertising grew 35 percent last year to $16.9 billion. Here’s how it breaks down:

  2006 share 2005 share
Display Advertising 22% 20%
Sponsorship 3% 5%
Rich media and video 7% 8%
Keyword search 32% 34%
Classifieds 18% 17%
Lead generation 8% 6%
Email 2% 2%

Ads purchased on a performance basis (such as paid search and lead generation) grew a total of 6 percent to a total share of 47 percent. CPM-type buys make up 48 percent.

Despite the healthy growth — which IAB predicts will continue — I’m concerned about the growth prospects for mid to larger market TV sites. Paid search, lead generation and classifieds (58 percent total share and growing) play a very small role in local TV sites, and sales competition from the more tech-savvy pure plays is increasing quickly on the local level. What about video, you ask? Borrell predicts tremendous growth in this category, yet the research company was careful to point out that most of this growth will be in advertorial, advertainment and classifieds — in other words, not pre-rolls on TV news clips. And if you haven’t noticed, just about every major paper in the country is beginning to shoot video. (Even CitySearch is beginning to shoot video, creating video directories in local markets). For me, I believe that revenue growth will evaporate — zero growth — for TV sites in competitive larger markets in as little as two years UNLESS stations branch out into new online niches with original online content and smart advertising products. Given this report today that local TV ad growth decreased in Q1, zero growth online is not an option. While some stations understand this urgency, I believe the majority just assume that industry-wide ad growth numbers can be applied to local TV sites going forward. They’re in for a rude awakening.