IAB: Online Ad Sales Fell in Q4, 2001

The Internet Advertising Bureau has released its newest figures for the industry’s revenues during fourth quarter and 2001, and they’re not pretty.

The New York-based trade association and PricewaterhouseCoopers found that U.S. online ad revenue dropped 7.5 percent during the quarter, down to $1.7 billion. For all of 2001, online ad revenue declined 12 percent, to $7.2 billion — the first year-to-year decline in the industry’s history.

Of course, the news is of little surprise, considering the lingering effects of the Sept. 11 attacks in addition to the difficult economic environment, which has forced the industry to post declining revenues for more than a year. Still, the report is troubling, since fourth quarter for most media represents the strongest quarter.

The IAB — which is working to encourage traditionally offline advertisers to move larger portions of their budgets onto the Internet — put an optimistic face on the report, pointing to recent studies that suggest the online advertising decline mirrors the troubles in offline ad spending, and, in some cases, actually is healthier than some traditional media.

“The industry fundamentals — growing installed base of Internet users, more attractive demographics, and higher accountability — are firmly entrenched, enabling it to more than hold its own through its first acid test of a slow ad market,” said IAB President and Chief Executive Greg Stuart. “What is important now is how we improve the medium and the actions we take to help the industry rebound.”

While 2001 results might have been a something of a foregone conclusion, a bigger question looms over what sort of numbers the IAB will unveil at the end of the month, when it announces results from the first quarter of 2002. Some believe this year’s first-quarter performance could indicate a turnaround in industry fortunes, though media spending during first quarter is typically low for many media.

The industry also awaits the second phase in the IAB-sponsored media mix study, which is in the final stages of enlisting participating advertisers, and should be completed later in the year. In February, the association unveiled the first part of the research, conducted in conjunction with consumer packaged goods giant Unilever , which found that increasing online ad spending as part of a multi-media advertising plan could increase branding effectiveness.

In the meantime, the IAB/PWC study found that the richest online ad sellers continued to get richer, with the top 10 media companies controlling 76 percent of the industry’s revenue — up 6 percent from last year. The top 25 media sellers brought in 89 percent of overall online ad sales (an increase from 83 percent in 2001) while the top 50 comprised 96 percent of industry revenue, up from 93 percent.

During 2001, consumer-targeted ads (of which retail ads made up about half) continued to comprise the largest segment of online advertising by revenue — 30 percent, down 1 percent from 2000.

Computing ads and business services continued to make up about 18 percent and 9 percent of all online advertising, respectively, while financial services advertising — considered by many to be a driver of the industry’s turnaround — declined from 14 percent to 12 percent. Media advertising showed the only increase, growing from 8 percent to 12 percent.

Despite a decline of 3 percent from third quarter, impression-based pricing continued to be the dominant model by revenue during fourth quarter, comprising 45 percent of industry sales. Hybrid deals grew to 42 percent from 39 percent, while performance-based deals remained at about 13 percent.

Banner ads continued to represent about 35 percent of all online ad revenue during fourth quarter, while slotting fees and keyword-based ad spending increased 1 percent each, to 8 percent and 6 percent, respectively. Most other forms of online advertising saw little change from third quarter, although classified ads declined 2 percent, to 15 percent, as a result of weakness in the job market.

That’s something of a minor blow to the sector, since classifieds were believed to be more somewhat more resilient than mainstream media to the economic downturn, with auction and personal listings outweighing short-term declines in employment advertising.

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