Online crisis looms as ad demand surges

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The good news: There's an explosion in online advertising. The bad news: There's an explosion in online advertising.

After years of dabbling, marketers are shifting significant portions of their budgets to the Internet, with online ad revenue expected to soar 35% this year to $12.9 billion, according to eMarketer.

But even as online media sellers celebrate that bonanza, they increasingly fear an inventory crisis in which they won't have enough prime real estate to meet the rising demand.

"One of the big media shops told me, `I could pick up a phone and spend $100 million on TV and I can't do that online,"' said Brian Quinn, a sales director at Dow Jones Online, parent of WSJ.com and MarketWatch.com. "We are starting to see advertisers wanting to do more and more."

The crisis looms particularly large at a select group of sites that represent the online equivalent of prime-time network TV. The most sought-after spots include the home pages of Yahoo, MSN and ESPN, as well as certain areas of AOL and CNet. Broadband-video inventory and so-called roadblock takeovers of home pages are also in scarce supply.

The Internet has soared as an ad medium in the last two years as the economy improved and marketers sought measurable, targeted alternatives to broadcast TV. Leading portals and major sites also cleaned up their interfaces to do away with Las Vegas-style clutter and splash, giving up some of prime inventory in the process.

Advance bookings

Yahoo reported a 44% rise in ad revenue in the first half of 2005 compared to the same period in 2004, while Google reported a 74% jump.

Media buyers are reacting by booking online space up to 18 months in advance. That flies in the face of an overall trend of advertisers holding back budgets until the last minute, and is an indicator of a seller's market.

"We try to look as far ahead as possible and book that inventory proactively to avoid pricing based on the buying frenzy," said John Cate, VP-national media director, Carat Interactive.

Sellers are reacting by hiking prices. Premium display-ad-inventory rates rose 9% from the first quarter to the second quarter of this year, according to one survey.

While the Web is theoretically an infinite-supply medium, publishers said they can't solve the inventory problem by simply adding pages. There's no guarantee they can drive traffic to those spots, and the real estate in any case isn't as desirable to buyers as premium positions like home pages.

That explains why some major online publishers have made acquisitions to add prime inventory. Recent notable examples include Dow Jones' purchase of MarketWatch, New York Times Co.'s buy of About.com and News Corp.'s buy of MySpace.com. Yahoo, MSN and AOL all announced major video-content additions, some fed from TV, to accommodate broadband-video advertising.

Publishers are also trying to be creative. Mr. Quinn is talking up behavioral targeting and "unique sponsorships" of targeted video. Forbes.com followed Reuters.com in adding a channel geared to small business and is launching an op-ed section and other new content areas.

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