State of the Advertising Market Report from BOA Securities Research

Online Advertising

The author's views are entirely his or her own (excluding the unlikely event of hypnosis) and may not always reflect the views of Moz.

A friend of mine from SES NYC got in touch today with an interesting report prepared by Bank of America's securities research division. The researchers sat down with a number of large media buyers in the ad market to get this information. It's an eyeful, but there's a few pieces worthy of attention:

There remains substantial inertia to shifts in media mix. All the panelists agreed that shifts away from traditional media to new media will be evolutionary, not revolutionary. Many advertisers still view forays into new media as experimental.

Advertisers are very focused on ROI, but the definition of what that means varies by advertiser, product and market. The lack of a standard definition or easy quantification aids the inertia in media mix shifts because it reduces accountability. For the most part agency compensation has shifted from commission to fee-based, but performance-based payments are still tough to implement.

Online inventory is growing and online retains pricing power. Panelists expressed the opinion that there is no shortage of high-quality inventory for advertising placements online. They also indicated that online still has significant headroom in pricing, despite CPMs being three times network TV currently.

Newspaper challenges continue. Ad revenue growth will be challenging once again in 2006, with many advertisers looking to reallocate budgets to other media. Consolidation among big newspaper ad spenders and circulation issues remain challenging for the medium, with both unlikely to change materially.

They also had some specific words about the online ad and publishing industries (and some stock picks):

Publishing and Online Media: We believe the ad environment for the publishers will remain challenged, as advertisers continue to shift money away from traditional newspapers, into more targeted media and even free papers. Though market expectations are already low for 2006, we think there is still risk to estimates. On the positive side, though circulation issues continue, newspapers’ status as a monopoly in many markets does give the medium some leverage when negotiating rates. Our top pick in the group remains Dow Jones (DJ, $35.39, Buy, Target Price: $40), which has relatively less exposure to the consumer category.

We remain overweight the Internet sector. The panels reaffirmed that online should continue to take ad market share for the next several years, driven by attractive ROI. Pricing power and increased coverage will be two of the drivers of growth, along with improved monetization. Yahoo (YHOO, $41.21, Buy, Target Price: $46) remains our top pick in the sector.

I find it amusing that there's commentary on how online viewership is more expensive than broadcast television. When you talk about paying $5.00 a head to be in front of folks who searched for exactly what you sell, there can be no comparison to advertising your product to a market of folks watching a TV show that "could" be geared towards "some" people in your target demographic. That's not apples to oranges, it's apples to alien space monsters.

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earlpearl

2005-12-05T18:05:49-08:00

Having a local business that advertises in local media, being responsable for our own SEO and PPC, I find this very interesting.

Here is a little tidbit relative to ad growth in the traditional media.

We were approached by a local radio station (Washington DC market). The station built its own web site with a "local engine". They are selling ad space for 40 categories for a "top 3 position" for any searcher on their engine for a relevant phrase.

120 ad positions for search within their "engine". They are selling the top 3 positions for a total of $13,500 (an average of 4500/position - #1 is most expensive, etc.)

That is $540,000 of advertising for one radio station in one market. They cross market the "engine" (their site) on the radio.

Think of every local media outlet doing something like that; let alone the national media.

A different perspective. The total number of advertisers in yellow pages dwarfs the number of ppc users by an enormous amount.

Advertising dollars will continue to migrate onto the web in a myriad of ways.

Dave

1 0

Having a local business that advertises in local media, being responsable for our own SEO and PPC, I find this very interesting. Here is a little tidbit relative to ad growth in the traditional media. We were approached by a local radio station (Washington DC market). The station built its own web site with a "local engine". They are selling ad space for 40 categories for a "top 3 position" for any searcher on their engine for a relevant phrase. 120 ad positions for search within their "engine". They are selling the top 3 positions for a total of $13,500 (an average of 4500/position - #1 is most expensive, etc.) That is $540,000 of advertising for one radio station in one market. They cross market the "engine" (their site) on the radio. Think of every local media outlet doing something like that; let alone the national media. A different perspective. The total number of advertisers in yellow pages dwarfs the number of ppc users by an enormous amount. Advertising dollars will continue to migrate onto the web in a myriad of ways. Dave
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