Ad revenues not immune to dot-com crunch

Consistent with the cooling trend in all things Internet-related, online advertising revenues have registered a decline in growth for the first time ever. Reflecting the obliteration of many dot-coms, a traditionally slow quarter for ad spending and an overall economic softening, third quarter revenues registered at almost US$2 billion, down 6.5 per cent from a second-quarter total of $2.1 billion, according to new figures from the Internet Advertising Bureau and consulting firm PricewaterhouseCoopers.

That’s a significant slowdown for a sector that saw nine per cent growth for the second quarter of 2000 and that skyrocketed nearly 150 per cent in both the third and fourth quarters of 1999. Still, the IAB predicts that online advertising revenues for the year will hit between $8 billion and $9 billion, a slightly lowered revision from the $8 billion to $10 billion projected just a few months ago. So far this year, online ads have taken in about $6.1 billion, a mere $1.9 billion shy of the $8 billion mark, leaving plenty of room in IAB’s projection for a poor fourth quarter.

But it’s not just Internet advertising revenues that are starting to fray at the edges. Traditional media companies are seeing a decline in ad-space demand as well. According to leading media researcher McCann-Erickson, advertising growth is slowing considerably all around. An estimate of 9.8 per cent growth in 2000, for example, was cut almost in half for 2001, to 5.8 per cent. Other ad industry analysts, such as Zenith Media and the Myers Report, are less bullish, expecting 4.6 per cent and 4.9 per cent increases, respectively, in overall media spending next year.

On the Net, sliding revenue totals are being compounded by uncertainty over Internet advertising formats. Banner ads continue to decline as a portion of overall ad revenues: They brought in only 46 per cent during the third quarter. By comparison, a year ago, banners represented more than half of ad revenues, about 55 per cent. Sponsorship continued to edge up slightly, and classified ads staked a strong claim to nine per cent of revenues, a remarkable feat for a category that was too small to report in 1999.