Local Ad Revenue to Grow by 50%

But Newspapers and TV Websites Challenged by Pure-Play Web Companies

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NEW YORK (AdAge.com) -- Local ad spending online may be the nexus of traditional publishers' greatest hopes for future growth, but the anticipated spoils have already generated fierce competition, according to a new report from Borrell Associates.

Local ad revenue online looks likely to grow by 50% this year to $13.1 billion from $8.7 billion in 2007, Borrell said. The expansion can't sustain that pace much longer, though; its compound annual growth over the next four years is likely to fall to 15% from 48% over the last four years.

Traditional media, whose sites are venturing further and further afield from the look and function of their progenitors, is generating a minority of the "phenomenal" growth. "Most of it, however, comes from pure-play companies delivering lower-cost advertising that intercepts consumers not as they are reading news online," the report said, "but as they are using the web to research products and prices."

Among the report's other findings:

Local newspapers' online ad revenue is likely to reach $3.7 billion this year from $3.1 billion in 2007. The broader economic downturn is stunting some newspapers' online growth by sapping demand for recruitment ads. As a result, about 20% of large newspaper sites are seeing internet advertising revenue actually decline.

Newspapers sites also continue to lean on classified ads online, largely as "up-sells" from print classifieds. "Print classifieds are notoriously vulnerable to online competition," Borrell noted, "and as that pond dries up, up-sells evaporate with it."

Local broadcast TV stations are poised to collect $1.2 billion online in 2008, up from $772 million last year. Average online revenue for stations in large markets broke $1 million for the first time last year. And at least 14 stations' websites, in places such as Dallas and Hartford, are winning more traffic than the largest local papers in their markets.

Local Yellow Pages publishers are set to win $1.2 billion in online revenue this year, according to Borrell, up from $993 million in 2007.
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