We saw in the Fairfax Media result on Monday, a hint of the enormous growth in revenue for online advertising.
It’s outstripping all other forms of media and it saved Fairfax from a terrible result: instead it just scraped through thanks to the 43.7 per cent growth in revenue for Fairfax Digital to $61.2 million and the 41.7 per cent growth in earnings before interest, tax, depreciation and amortisation to $17 million.
Figures out yesterday show internet advertising reached $1.001billion in 2006 in a series of huge leaps: it totalled $195 million in the first quarter and by the third quarter had reached $263 million.
That means it has passed radio’s share of advertising which was around $930 million.
According to the figures from Audit Bureau of Verification Services advertisers spent 61 per cent more on banner ads, classified and sponsored links online in 2006 than in 2005.
The search and directors component reached a touch under $400 million or around 40 per cent. Banner ads generated an estimated $300 million of revenue and classified almost $300 million.
All three categories exceed the ad revenues for Pay TV which hit an estimated $205 million in 2006.
Now, according to Fusion Strategy, a Sydney consultancy, internet advertising will top the $1.5 billion mark in 2007, exceeding radio advertising and the magazine market.
If it reaches this level it will be running at more than half the metropolitan TV market and around 45 per cent of the total Australian TV ad market (metro and regionals).
(The free To Air ad revenues figures are gross which include agency commissions of 5 to 10 per cent, so the share by the ‘Net is actually higher because other figures in the Fusion report are net)
In comparison Pay TV is expected to reach $225 million this year from $205 million in 2006.
Both are the fastest growing forms of advertising but Pay TV is left far behind.
On Fusion’s figures, if internet advertising doesn’t slow down it could pass newspapers ($3.33 billion and all TV $3.34 billion) by around 2010.
But the internet is closing rapidly with this year’s increase estimated by Fusion to more than 50 per cent.
If you find it hard to understand why there is such a huge multiple and market cap on a stock like Seek (well over $1.85 billion, or a price/earnings ratio of over 44 times) the answer can be found in the revenue growth.
It also helps to explain the success of Wotif and the lacklustre performance at Fairfax: it could have been so much better if former CEO Fred Hilmer had chased Seek and or Carsales.com.au.
It also explains why growth in advertisers in traditional media has slowed sharply, especially in TV and newspapers.
Apart from the economic slowdown in the big states of NSW and Victoria (which has impacted advertising generally) and the problems in housing, having a billion dollars going into a new media drains a lot of the revenue and profits from established media.
It does explain the weakness at the Ten and Nine TV networks (to an extent) and the problems at Fairfax and to a lesser extent at the newspapers of News Ltd.
