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Online ad spend: Internet advertising nears £1 Billion for the first six months of 2006

According to the latest figures from the Internet Advertising Bureau, the internet continues to grow with 40.3% like-for-like annual growth for the first half of 2006.

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This takes the sector to a half year high of £917.2 million - compared to £630.5 million a year ago - and a market share of 10.5%.

The new findings from the Internet Advertising Bureau (IAB), the UK online advertising trade body, carried out in partnership with PricewaterhouseCoopers (PwC) and the World Advertising Research Centre (WARC), reveal that in just six months online advertising expenditure has reached nearly £1 billion and looks set to overtake spending on national press advertising before the end of 2006.

Online climbs in depressed ad market

TV, press, radio, and direct mail have all experienced declining revenues in the past six months .  Online has buoyed the advertising market by contributing an additional £284 million to total UK advertising revenues.

Once again the internet is the fastest-growing advertising medium in the UK, commanding a market share of 10.5% for January to June 2006, up from 7.3% for the same period in 2005.  This takes online advertising to within one percentage point of national press, which recorded an 11.4% share for the first half of 2006.

By comparison the internet is now double the size of outdoor (5.1%), double the size of consumer magazines (4.6%) and three times the size of radio advertising (3.4%).  Online is also now half the size of the TV advertising market, which recorded a 22.7% market share following a decline of 1.3%. 

All major online ad formats maintain healthy growth
Paid-for search (sponsored listings that advertisers pay for when a consumer clicks through to their site) was 57.7% up year-on-year to £531.3 million – a share of 57.9% of the online total.  As the online audience increases (now 29.8 million individuals in the UK) so does the volume of search traffic and with 87% of consumers using search to find websites, advertisers have adopted the format not only as a direct response tool but to help build their brands and secure an online presence.

Online display advertising (including banners, skyscrapers and embedded formats) climbed 33.2% to £215.9 million and a 23.5% share of all online adspend, making it by far the fastest-growing display medium. Ten million households in the UK are now on broadband, and this is recognised by the marketing community as an opportunity to create engaging ‘rich media’ ads that engage consumers’ attention.

While traditional press advertising expenditure fell year-on-year, online classified advertising grew 23.4% to £162.2 million, a share of 17.7% for the first half of 2006.  Interruptive formats, including ‘pop ups’, declined by 9% to £6.8 million – the format is now worth just 0.7% of all online advertising expenditure.

FMCG, retail and entertainment sectors up
While recruitment and finance remain the highest-spending industry categories, other sectors are increasing their online advertising spend.  The Automotive and Entertainment and Media sectors represented 13.8% and 8.9% of the market respectively for the first half of 2006. Consumer Goods, which includes FMCG, rose to 4.6%, up from 3.6% in the same period of 2005. Retail saw its share increase to 3%, compared with 2.8% for the first half of 2005.

Guy Phillipson, chief executive of the IAB, said: This has been a very tough market, marked in most media by loss of confidence and declining advertising expenditure.  In this environment, it’s encouraging to see the internet turning over nearly half a billion pounds a quarter – showing healthy growth from an already high base. The gap between online and newspaper advertising is narrowing fast and if this growth rate continues then we will be a £2 billion medium by the New Year.

Paul Pilkington, Director, Entertainment and Media practice, PricewaterhouseCoopers LLP said: Internet advertising can deliver well understood and segmented audiences, highly relevant context, measurable results, and a good return on investment.  From this perspective, it is hardly surprising that internet advertising revenues have continued to grow, and that the medium is fast becoming part of the mainstream advertising mix.

Key Drivers for growth in the first half of 2006

Broadband: Broadband take-up in the UK has continued apace with ten million British households now using fast connections, according to the Office of National Statistics.  This represents 40% of UK homes, an increase from the 8.5% of households with broadband just three years ago.   With more than 80% of home internet users now accessing through a high-speed connection, advertisers are able to deliver far more creative and engaging communications.

Equivalent of one day a week spent online: According to YouGov, the average time spent online has climbed to 23 hours a week.  This boom is driven by the growing number of people using broadband and by faster, cheaper connections.  This means consumers can access increasingly sophisticated and involving content, keeping them online for longer.  Advertisers know that consumers are spending more time on the internet and are switching their budgets accordingly.

Online retail surge:  According to the Interactive Media in Retail Group (IMRG) online retail spend increased by 40% year-on-year to £13.5 billion in the first half of 2006.  Not only are more people shopping online but they are spending more; £1,154 per annum in 2006 compared with £816 in 2005.  This is due to a change in consumers’ buying habits, especially in sectors like motor insurance, which is increasingly sold online.

Creativity and engagement: We know that online now plays a key role in marketing communications across all sectors, in part due to the increasingly sophisticated creative formats, which encourage significant dwell-time and interactivity.  www.creativeshowcase.net, an online advertising gallery, illustrates the extent to which creativity and innovation within online is pushing the boundaries and setting higher standards.  More and more advertisers are embracing rich media tools to build their brands as online remains the fastest-growing display medium.

New online ad formats: During the past year, new formats have increased in popularity, placing the spotlight on the internet as a powerful entertainment medium.  Internet marketing tools such as blogs, podcasts, in-game advertising, ipTV and the proliferation of ‘user-generated-content’ and ‘social networking’ sites have all attracted mass media publicity, raising the profile of online and drawing more interest from advertisers.   


Background to the study
• The IAB has been working with PwC since 1997 to survey the value of the online advertising market.
• PwC has run projects in Europe and North America to assess the size of the interactive media markets.
• These figures have become the industry standard for measuring advertising spend and in the UK are now used by the Advertising Association.
• 90 companies have participated in the survey representing thousands of websites.
• Reported figures are not adjusted to account for other organisations that have not participated.
• Total advertising revenue is reported on a gross basis.
• The figures are drawn up on the basis of site declaration.  They cover thousands of UK websites, but by no means all.

About the Internet Advertising Bureau (IAB)
The Internet Advertising Bureau (IAB) is the trade association for online advertising. With over 200 members, it's run for the leading media owners and agencies in the UK internet industry. Online is an exciting and fast-growing medium and our job at the IAB is to work with members to ensure marketers can identify the best role for online, helping them engage their customers and build their brands. Through the dissemination of research and the organisation of regular events, we aim
to put online on the agenda of every marketer in the UK, acting as an authoritative and objective source for all internet advertising issues.

About PricewaterhouseCoopers
The member firms of the PricewaterhouseCoopers network provide industry focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 130,000 people in 148 countries across our network work collaboratively using connected thinking to develop fresh perspectives and practical advice.

Unless otherwise indicated, PricewaterhouseCoopers refers to PricewaterhouseCoopers LLP (www.pwc.com/uk) a limited liability partnership incorporated in England. PricewaterhouseCoopers LLP is a member firm of PricewaterhouseCoopers International Limited

For the full report visit www.iabuk.net

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