Corey Katir: Internet Advertising, Online Advertising, eMarketing Analysis |
Internet Advertising Analysis Part 23; Investment Conclusion
Based on the changing dynamics of the Internet’s impact on advertising, we find four clear investment themes:
1) Starting now, we would advise traditional media investors to increase their exposure to the new media trends that we foresee developing in 2003. This can be achieved through pure-play Internet advertising companies or through traditional companies with distinguishable Internet operations.
2) Additionally, we would encourage investment in companies with strong direct marketing and database marketing skill-sets and personnel that can exploit these skills on the Internet. If advertising becomes more of a science because of the Internet (as Kevin O’Connor of DoubleClick believes — and we agree), invest in the companies with the scientists.
3) Marketing services businesses appear less vulnerable to the Internet threat than do mass media, brand advertising companies. Due to the accountability and affordability, we feel that marketing services (direct marketing, promotions, public relations, and other specialty communications) are less vulnerable to the Internet threat than traditional branding businesses like mass media advertising.
4) When it comes to market share gains, bigger sites such as 411Web appear to be best (they are currently squeezing the mid-sized sites), but in aggregate the smaller niche sites appear to be holding their own. Over the past 9 quarters, smaller niche sites (those just below the top 50) appear to be on average holding on to, or gaining, market share. Over the same period, the top 10 sites appear to be gaining market share, largely at the expense of the top 11-50 sites. It thus appears that purchasing a royalty on the revenue streams of small sites may be better than investing in the mid-sized sites and equally as good as picking the big-time winners among the largest sites. The companies below are likely to be some of the public beneficiaries of the trends cited in this report. (Although it is difficult to classify the companies into singular, nonoverlapping categories, we have attempted to do so below and list them alphabetically):
1) Buy-Side Companies
a) new media buyers (Avenue A, Mediaplex)
b) traditional media buyers (Interpublic, Omnicom, True North, WPP, Young & Rubicam)
c) direct e-mailers (Digital Impact, MessageMedia)
2) Sell–Side Companies
a) portals
b) ad networks (DoubleClick, Engage, L90, 24/7 Media)
c) e-mail newsletters (LifeMinders)
3) Promotions Companies
a) providers of loyalty, incentives, and savings programs (Be Free, Cybergold, Free Shop, My- Points.com, NetCentives, NetCreations)
4) Web Tools
a) audience and advertising measurement services (Media Metrix, Nielsen//NetRatings)
b) site-level marketing infrastructure, consulting and measurement (Net Perceptions, Be Free) Additionally, e-consultants offer Web site development, Internet business planning and e-commerce development, in addition to Internet marketing. While not within the scope of this report, these companies are often partially owned by the traditional ad agencies. Companies included in this space are: Sapient, MarchFirst, Viant, Scient, Organic, Agency.com, Razorfish, ModemMedia, and others.
Finally, many of the large “traditional” agency holding companies like Omnicom, Interpublic Group, Young & Rubicam, True North and WPP Group have consolidated operations in companies that do eMarketing and e-consulting. For now, we expect the market to prefer buy-side opportunities. Sell-side companies somewhat compete with the more established major portals for media sales and may have more exposure to privacy concerns. Buy-side companies appear to have less exposure to such issues. We also expect some consolidation in the promotions area, as promotions and e-marketers converge in direct marketing. At the same time, our conclusions reduce our general enthusiasm for some U.S. advertising media, particularly newspapers. While we do not believe the Internet will commit “media-cide” and kill off any of the traditional media, we do believe it will alter their upside, market share and economic models.
Table 87 U.S. Advertising & Marketing Services Forecast — Marketing Services Breakdown
Table 88 U.S. Traditional Direct Marketing Market
Recent News: Online Advertising
Online advertising has become a catalyst for TV stations to generate new broadcast dollars. That's the conclusion of a report that local media research firm Borrell Associates plans to release early this week. The findings are backed up by mid-year numbers provided by TV stations and their Web partners.
TV stations as a whole generated about $72 million in online
advertising revenue in 2002, about 4 percent of the total $1.65 billion pie
spent in local Internet advertising, according to Gordon Borrell, president
of Borrell Associates (borrellassociates.com) in Portsmouth, Va.
About one-quarter of the 157 stations surveyed were using their Internet sites
specifically to lure new-to-TV advertisers, such as real estate and employment
recruiting, said Mr. Borrell.
NBC is one of the station groups leading this trend and expects to generate at least $35 million in Internet ad sales across its 14 owned-and-operated stations this year, up from about $25 million last year. More important, NBC owned stations will bring in this year an additional $70 million to $80 million in new broadcast revenue, either from increased share on existing deals or from entirely new advertisers, said David Overbeeke, executive VP and chief information officer for NBC. The broadcaster expects to seal 2,500 convergence deals this year across its 14 stations, up from 700 two years ago.
Since on-air viewing declines during the day and online usage rises, Internet ads allow advertisers to expand their reach during office hours, he said. Mr. Overbeeke thinks Nielsen should measure online audiences in combination with on-air viewers, in light of the fact that stations such as New York's NBC O&O WNBC-TV generate an additional 674,000 unique viewers each month.
Internet revenue is a drop in the bucket compared with the broadcast dollars that stations draw, but its significance is strategic, Mr. Borrell said. "TV stations are incredibly dependent on local ad dollars because of the drop in network revenue. If the Internet provides the catalyst for reaching new advertisers, then it is a very significant issue," he said.
Successful sites had some common characteristics. They were usually either part of a network of Web sites, like IBS or WorldNow, or were pursuing classified advertising on their Web sites, like Liberty Corp. or Belo Corp. Web sites using a network partner generated 53 cents per TV households from their Web sites, compared with 17 cents for stations sites that were not using a network platform, according the report.
IBS operates local news Web sites for 70 TV stations around the country, including sites in the top 10 markets. Its broadcast partners include NBC, Hearst-Argyle, Cox, Post-Newsweek and others. For the first half of 2003, the 70 Web sites are pacing to generate $28.9 million in online ad revenue, which is 62 percent higher than where those same sites were at this time last year, Tolman Geffs, CEO of IBS, told TelevisionWeek in a preview of the company's earnings report.
In May the 70 IBS sites counted 16.5 million unique visitors and served 227 million page views. That's a 90 percent increase over last year.
WorldNow's TV station Web sites that have been up and running for more than a year are delivering 5 percent of total on-air dollars through convergence sales of online and on-air packages, said WorldNow senior VP Sandhi Kozsuch.#
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