Local real estate advertising dollars are surging online

Local online advertising spending is predicted to rise over 30% in 2007, and newspapers are in command of the largest share while Internet giants such as Google and Yahoo and Monster are gaining, according to a report by media research company Borrell Associates Inc.

Local online ad spending -- which is defined as advertising placed by businesses located in a given market area that is intended to reach an audience in that same market area -- is projected to reach $7.5 billion this year, a 31.6 percent gain over spending in 2006, according to the "What Local Media Web Sites Earn: 2007 Survey" report.

National online advertising spending is projected to reach $22.1 billion this year, up 20.8 percent from $18.3 billion in 2006.

So-called "pure-play" sites, such as Yahoo, Google, Realtor.com and others that are not owned by a traditional media company, "are the ones to watch, even though they are the most difficult to track," the report states, as their share of local online advertising is growing at the fastest clip.

"Most of this growth has come at the hands of Google and Yahoo through their search-engine advertising," the report states, and "recent partnerships between newspapers and major pure-play portals such as Yahoo and verticals such as Monster.com may be a signal that the national sites need those feet on the street as much as the local media companies need the national reach to continue growing."

Newspapers' Web sites are heavily reliant on recruitment, automotive and real estate advertising, according to the report, and newspapers control about 35.9 percent of all locally spent online advertising. That compares with 33.2 percent market share among pure-play Internet companies such as Google, Yahoo and Monster; 11.7 percent for yellow pages operators, 9.2 percent for other print publications and local magazines, 7.7 percent for television stations; and 2.2 percent for radio stations, according to the report.

Newspapers' reign in local advertising revenue may be nearing an end, though, as newspapers' share of online ad spending has slipped 8.2 percentage points in the past two years, the report states, and "it is likely to slip more this year as the industry grapples with the Web's transformation from a banner-advertising and pay-for-listings medium ... to one that is dominated by video advertising and paid search."

Real estate advertising rose from 11.3 percent of online newspaper ad revenue in 2005 to 11.9 percent in 2006. In a given market area, the average online advertising market share per newspaper Web site was estimated at 15.1 percent.

Print real estate advertising fell 14.2 percent in first-quarter 2007, according to a report by the Newspaper Association of America, and also dropped 2.3 percent in fourth-quarter 2006.
Newspaper Web sites' revenue per unit of print circulation increased from $27.10 per unit in 2003 at newspapers with greater than 200,000 circulation to $69.50 per unit in 2006. That rate also more than tripled from 2003-06 for newspapers with 100,000 to 200,000 in circulation and nearly quadrupled for newspapers with a circulation of 2,000 to 10,000.

Media companies have begun to treat online operations as a standalone business, according to the Borrell report, and the staff of locally based online-only salespeople grew 26 percent in 2006. That could ramp up to a 35 percent increase in hiring this year, according to Borrell's analysis.

"What is being tossed out the window is exactly what was in vogue just two years ago," the report states. While the old model in advertising sought to up-sell advertisers to buy advertising in the online and print or broadcast media, the new model, "perhaps in recognition that the wagons have been hitched to a fading star," increasingly features "separate staffs and network affiliations" for online operations.

Hundreds of newspapers have entered into deals with Yahoo that will offer national and regional advertising opportunities to the newspapers and allow the newspapers to share in pay-per-click ad revenue. Yahoo, the report notes, has experienced some stagnation in its advertising. Yahoo's domestic advertising revenue growth slowed from 36 percent in 2005 to 19 percent in 2006, according to the report, and slowed to 0.4 percent growth in first-quarter 2007.

Among television stations participating in the survey, about 68 percent had profitable Web sites, typically less than 5 percent of all online revenue was from national online advertising, and less than 7 percent of revenue was related to online video advertising.

"Online video advertising would seem to be the future for TV broadcasters, since it is a natural extension of their core medium," the report states.

The report notes that there are a variety of city-based Web sites, such as SanDiego.com and SanFrancisco.com, that "are beginning to attract meaningful audiences" and attract online advertising by offering local content -- these "city.com" sites earn a median of about $340,000 per year in ad revenue, according to the report, while the ratio of total revenue to local online advertising revenue was generally below 1 percent for this group of sites.

FROM INMAN NEWS

Three sets of numbers pretty much tell the whole story.

First, follow the money.
There is a growing divergence between how consumers spend their time and how advertisers allocate their marketing budgets. Last year, U.S. consumers spent nearly a third of their total media-consumption time engaged with online or interactive media, a dramatic increase from just two or three years ago. At the same time, Fortune 500 companies allocated only 6 percent of their marketing budgets to online media in 2006, up from 5 percent in 2005. Marketing bellwethers like Procter & Gamble and Nissan make headlines when they talk (incessantly, it seems) about moving in new directions, but, in most cases, their budgets simply have not budged. That's a problem; they're spending ever more money where, increasingly, consumers aren't.

Second, follow the growth.
The inevitable correction is upon us. That's why online adverting in the U.S. market is growing seven times faster than other advertising media: Online was up 35% year over year, while the overall ad market grew only 4 percent. Whether dollar allocation percentages ever match consumer usage numbers is academic; it's clear that the gap between consumer behavior and corporate marketing budgets must close. Of course, the penetration of online media among consumers continues to grow, so there's no static target. Instead, there's a new dynamic equilibrium that the marketing world is currently seeking and cannot (yet) find.

Third, follow the power.
As ad dollars shift online, something remarkable is happening. Despite the promise of democratization of the Web, with nearly 120 million active sites last month, there is nothing that favors the little guy (or even most of the big guys) when it comes to online ad dollars. In the United States, at least, an oligopoly has emerged. Call a Big Four: Google, Yahoo, AOL and MSN.