EMarketer Lowers Its Online Ad-Growth Forecast

Slowdown in Overall Economy Means Web Spending Won't Hit $16 Billion Mark in 2006

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NEW YORK (AdAge.com) -- Even the robust online ad sector isn't immune to a little economic downturn.
The eMarketer revised online ad-spending projection comes a week after Yahoo gave investors and web publishers a scare with warnings of slower online-ad growth.
The eMarketer revised online ad-spending projection comes a week after Yahoo gave investors and web publishers a scare with warnings of slower online-ad growth.

That's the reason e-commerce tracking firm eMarketer has lowered its ad-spending forecast this year from $16.7 billion to $15.9 billion. It's also predicting that ad growth this year will slow to 26.8%, down from previous growth rates of more 30% in past years.

'Bigger forces at play'
Analysts at eMarketer point to an overall slowing of the U.S. economy. "There are bigger forces at play here," said David Hallerman, senior analyst and author of the report, "U.S. Ad Spending 2006: From Peaks to Plateaus."

The revision comes a week after Yahoo gave investors and web publishers a scare with warnings of slower online ad growth. Yahoo CEO Terry Semel, speaking at a Goldman Sachs conference Sept. 19, said shrinking ad budgets in automotive and financial-services categories would hurt third-quarter revenue.

"We are starting to see some advertising weakness in some of the most economically sensitive categories,'' Yahoo said in a regulatory filing released that afternoon. "Growth is still positive, but it is slower in Q3 than it was in the first half of the year."

Standing behind sector
This week, as analysts continued to speculate over the cause of Yahoo's woes, competing web publishers took time to stress the sector's health.

According to a survey just completed by the Online Publishers Association, its members are reporting average year-over-year online ad revenue growth of 28% for the third quarter. Across the board, its members are also raising the third-quarter revenue estimates first made in the second quarter.

"By and large, OPA members say they see strength across all advertising categories with no particular areas appearing to slow down," said OPA spokesman Don Marshall.

And despite the news from both eMarketer and Yahoo, the sector is far from gloom and doom. EMarketer predicts U.S. online ad spending will swell to more than $21 billion in two years and pass the $25 billion mark by the end of 2010, growing from 5.7% of total ad spend in 2006 to 8.9% of total ad spend in 2010.

Big part of total spending
In fact, online spending gains are supporting the growth of total ad spending within media as a whole. In 2007, for example, total media ad spending will grow 1.4%. But take the predicted 15.1% internet growth out of the equation, and total media spending drops to a flat 0.6% gain.

Paid search will continue to dominate ad spending -- the eMarketer report predicts that paid search will grab more than 40% of online-ad dollars each year from 2005 through 2010. But as more major advertisers flock to the internet to buy TV-style ad inventory, the share of rich media, including video, will double from 9% in 2006 to 18% in 2010. Over the same time span, display ads are expected to drop from 21% to 17.8%.
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