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Online ad sales soaring, report says
Short supply of traditional advertisements at biggest Web sites helps drive up rates, spending.
November 16, 2005: 8:15 AM EST
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NEW YORK (CNN/Money) - Many of the nation's leading Web sites are selling out the inventory of their most viewed ads and dramatically raising rates, according to a published report.

The Wall Street Journal reported Wednesday that the front Web pages of Yahoo Inc. (Research), Time Warner Inc.'s (Research) AOL and Microsoft Corp.'s (Research) MSN are sold out on big display ads for months in advance. Sites that offer car-buying tips are booked up to 18 months in advance in some cases, leading those sites to start a process to selling ads for next year similar to the "upfront" process used by television networks, according to the report.

Reports of strong advertising revenue for Internet companies is not new, but most of those gains have been in what is known as "paid search," in which ads are linked to keywords in Web searches and other online content; the ads are displayed when consumers view related content. But this report shows that even the traditional banner ads are drawing increased advertiser interest.

In the first half of 2005, U.S. online advertising spending increased 26 percent to $5.8 billion in the first half of this year, according to data compiled by PricewaterhouseCoopers LLP for the Interactive Advertising Bureau, an online trade group. That's much better than the overall growth of 4.5 percent for the total U.S. advertising spending, according to market-research firm TNS Media Intelligence, even though Internet ads still are well less than 10 percent of the overall U.S. market.

PricewaterhouseCoopers estimates that Internet ad spending for 2005 will total as much as $12 billion, up from $9.6 billion in 2004 and double the $6 billion in 2002.

The increased demand is also resulting in much higher rates, according to the report. MSN told the newspaper that it is charging between several hundred thousand dollars and $1 million for a prime, 24-hour ad spot on its home page. That's up from about $25,000 to $50,000 four years ago.

"It's starting to get into Super Bowl territory," Sean Finnegan, U.S. Director of OMD Digital, told the Journal. His firm, a unit of Omnicom Group Inc., buys online ads for clients such as Dell Inc. and Johnson & Johnson.

The Journal reports that the average price of a 30-second TV ad for last February's Super Bowl, the most watched and priciest commercials in the United States, was $2.4 million. It also reports that a full-page color ad in People magazine costs $228,275, while a 30-second spot on this week's episode of ABC's "Desperate Housewives," which had 26.5 million viewers, cost $574,504, according to Nielsen Monitor-Plus.

Despite the huge number of Web sites available to advertisers, the Journal reports that the biggest 50 Web companies are attracting 96 percent of the ad spending, according to PricewaterhouseCoopers. Most goes to the top four portals -- Yahoo, Google (Research), AOL and MSN.

Google ads are based on the paid search model, rather than banner ads. Demand for premium ads is strongest for Web sites that feature content about movies, autos, travel, consumer electronics and personal finance, according to the report.

It's not just banner ads or paid search that are seeing strong ad demand. Among the hottest current ads are 15-second commercials, known as "broadband inventory," that usually run at the beginning of online videos, according to the Journal.

"We have ad agencies telling us we'll take every broadband impression you can give us," Wayne Gattinella, president and CEO of medical information site WebMD Health Corp. (Research), told the newspaper.

The newspaper says that some Web sites are being cautious about long-term ad sales due to concerns that future increases in market rates make it better to wait.

AOL's head of ad sales, Michael Barrett, told the paper, "We have to take a risk in reserving our inventory in advance," but says that overall the idea of upfront sales, similar to what is done by television networks, benefits the Internet as a whole. It shows that "online has indeed moved to the grownup's table," he said.

CNN/Money, like AOL, is a unit of Time Warner.  Top of page

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