Media market watchers these days are intensely focused on online ad revenues. Reports are measuring double- to triple-digit growth in online ad spending. A Merrill Lynch report says online advertising surpassed magazine advertising this year. PricewaterhouseCoopers and the Interactive Advertising Bureau say Internet advertising revenues were up 34 percent in fourth quarter 2005 over the same period in 2004. PQ Media reports that blog, podcast and RSS ad revenues rose 198 percent in 2005, with another 145 percent growth predicted for 2006.
Some observers, however, can’t resist the urge to compare this upswing to the more sluggish progress of print advertising in such a way that implies one will replace the other. Yet what we’re witnessing is more likely the continuing evolution of marketers looking at the most productive mix of ad dollar placement. As obvious as that sounds, a recent FOLIO: b-to-b CEO survey revealed that 42 percent of respondents still receive no revenue from online sources, even while 35 percent acknowledge that online was the fastest growing part of the business last year.
The train may have left the station, but there’s still time to catch it. "I’m thrilled that online advertising is growing. Every business-to-business publisher should be thrilled," says Rex Hammock, president of custom publisher Hammock Publishing and vocal critic via his Rexblog.com of the way these studies are often lumped into "death-of-print" stories. "But these studies have nothing to do with magazine advertising, and yet that is the lead in the press releases and resulting coverage.
They are studies about online advertising." One telling example that perfectly frames the online-print paradox is BusinessWeek. McGraw-Hill CEO Harold McGraw III said in a Q1 earnings call that pages in BusinessWeek’s global edition were up 2.9 percent in PIB numbers. However, McGraw noted that a growing number of marketers are buying integrated programs, which has contributed to 79.5 percent Q1 2006 ad revenue growth on Businessweek.com. That figure represents 12 percent, or $7.5 million, of BusinessWeek’s PIB revenue in the first quarter. Similarly, IDG founder and chairman Pat McGovern has said that his company expects to receive 40 percent of its revenues from online products by 2010.
The company currently brings in about $2.5 billion in revenues, 25 percent of which comes from online at a pretax margin of 25 percent. Comparatively, print pretax margins are in the range of 5 to 15 percent, said McGovern, which lead him to suggest that integrated sales efforts should follow a profitability profile: Begin with online, then events and secure the remaining budget for print products.
A Shift Away From Magazine-Centric
There are a couple ways to look at this. One way is the sky is falling freak-out. The other way, and arguably just as dramatic, is the way that McGraw would prefer you look at it;that magazine publishers are moving away from a model that relies solely on the print brand, even if it does dominate the revenue column. "The development of Businessweek.com also represents a shift from a magazine-centric business," said McGraw in his earnings call. In other words, through a diversified editorial brand, online revenue has become a must-do opportunity and if you’re in a position to grab it, then grab it.
This does not mean, however, that all print ad revenue is irretrievably evaporating and marketers are beginning to commit solely to online marketing. "I have no doubt that some advertisers are shifting advertising dollars from outdoor and print to online efforts," Hammock says. "However, what is taking place is far more nuanced than online versus print sound bites." Sean Finnegan, U.S. director at OMD Digital, says his company brokers $23 billion in annual ad spending, $1 billion of which will go into the online marketplace this year. Yet it’s not just about where the money goes. "It’s about engagement and relevancy and where you’re putting it as well," says Finnegan.
To put things into a more sober perspective, PQ Media’s blog/podcast/RSS metrics may have grown 198 percent last year, but to $20 million dollars;a drop in the estimated $267 billion overall ad market bucket. Likewise, according to the IAB and PricewaterhouseCoopers study, total internet ad revenues rose only 1 percent from 2004 to 2005, to 4.7 percent of total U.S. ad spending.