Slow Online Ad Growth Could Impact '09 Outlook - Seeking Alpha Blog

Slow Online Ad Growth Could Impact '09 Outlook

The Recession Survey:
Seeking Alpha Blog
September 7, 2008 

The challenge of realizing a digital content payday just got tougher.

Although the popularity of internet video is booming on all devices, content producers and aggregators are anxious to unlock the secrets of monetization. That may become increasingly more difficult as many marketers consider double-digit reductions in campaign media budgets and ad production for next year, according to a new survey by the Association of National Advertisers. The boom could be lowered on video advertising–on TV and online.

Nearly one-fifth of U.S. households that use the internet view TV content online (double the number from 2006), according to the Conference Board. But those programs generally are accessed on the originating TV networks' ad-supported home pages. Those usually include some version of the broadcast commercials – a no-brainer. The online ad revenues do not yet offset declining TV ad spending – which may grow only two percent in this quadrennial Olympics and presidential election year, by some accounts.

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That will pressure profitability at AOL (TWX) and cause Fox Interactive Media to make it only halfway to News Corp.'s (NWS) 30 percent growth target, Kahn said. Display advertising represents 70 percent of FIM's revenue and 37 percent of AOL's advertising revenue. With less than three percent of its 4 billion monthly video carrying ads, Google's (GOOG) YouTube could do even worse, of it were not for the user-generated website following MySpace's lead by selling pricey ad space on its home page. YouTube attracts about half of all online video views. More broadly, the growth rate of Google's revenues from display advertising-dependent network sites – such as YouTube, AOL and eBay (EBAY) – is expected to slip from last quarter's already lower 22 percent.

Slowing growth rates in online video suggest that not even influential forces like social networking can save the day during this economic squeeze, even as MySpace and YouTube struggle to crack that code. And that doesn't leave much else to rely on.

Although eMarketer predicts that 44 percent of internet users in the U.S. will be social networking this year, other survey conclusions vary widely. Universal McCann in April reported that only about one-quarter of the U.S. population uses social networking at least every other day, while a recent survey by Synovate found that 45 internet of domestic social network users are losing interest.