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Internet ad spending in the UK grew to ?1,682.5 million in the first half of 2008, a 21% year-over-year increase, according to the latest figures from the Internet Advertising Bureau (IAB-UK) in partnership with PricewaterhouseCoopers (PwC) and the World Advertising Research Center (WARC).

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The biannual internet advertising spend study found that the total advertising market was ?8982.5 million, down 0.7% year-over-year, during the period from January to June 2008. The advertising market would have experienced a 4.6% decline without the internet’s growth.

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In real terms, internet advertising added ?348.2 million to its bottom line when compared with the same period in 2007. Online spending exceeded expectations to increase its market share by four points to 18.7%, only 0.6% behind total press display (19.3%) and 3% behind TV (21.7%).

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The study suggests strong advertiser confidence in online media – including search, classifieds, rich media and video – at a time when TV, print, outdoor and radio, are experiencing declines.

Online formats surpassed expectations

  • Paid search spending grew 28% year-over-year and was worth ?981 million in the first half of 2008, with its market share marginally up to 58.3% of total online advertising (57.8% in first half of 2007).
  • Total internet display advertising spending rose 16.3% year-over-year to ?333.8 million. This was boosted by a 36.6% increase in spending on embedded formats such as banners, rich media and video. Internet display ads are still the only major display medium to be growing.
  • The majority of online display ad spending is still via major portals and online publishers, but sales networks – representing thousands of smaller sites – have increased their volumes and account for 41% of all display expenditures. Sales houses and networks are growing the ‘long tail’ of internet advertising – smaller and niche websites – and offer advertisers a streamlined ‘quick sell’ for direct response campaigns.

Technology, finance and entertainment & media top categories

  • In terms of revenues for specific sectors, technology is the top category with a 17.3% market share, followed by finance at 11.9%, entertainment & media at 10.7% and Recruitment at 9.9%.
  • Classifieds grew by 30.2% year-on-year to ?361.6 million as recruitment, property, automotive and small ads continued their migration to the internet from print classifieds, which declined 10% year-on-year.

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Key growth drivers:

Advertising networks: The rapid rise of advertising networks as efficient, streamlined warehouses that sell display advertising to the internet’s ‘long tail’ are opening up the internet to more advertisers.

Online audiences: The online population now reflects the demographic make-up of the UK as a whole, with a 52%/48% male/female split. 21% of internet users are 25 to 34 years and at the other end of the spectrum, the over-50s now represent 30% of total time spend online.

3G, wireless and inexpensive laptops: Wireless and laptops are no longer a luxury item or confined to business. Mobile network ‘3’ sells more 3G dongles than mobile phones, T-Mobile offers a ?10 per month 3G dongle, which coupled with a powerful inexpensive laptop, substitutes for a traditional broadband contract on a fixed-based PC. In Q1 2008, 6% of adults used mobile broadband and in the five months from February 2008, 511,000 mobile broadband connections were sold by the UK’s five mobile network operators. 75% of those with access to mobile broadband use it at home, 18% do so at work and 27% while elsewhere/on the move.

Broadband as commodity: Faster, cheaper broadband, with deals as low as ?4.50 per month from Virgin Media are attracting more people online. The proportion of homes taking broadband services grew to 58% by Q1 2008, a rise of six percentage points on a year earlier. By the end of 2007, 58% of UK households had a broadband connection, up from 52% a year previously and from 41% two years ago.

Catch-up TV: Launch of services such as BBC iPlayer and Channel 4’s 4oD are breaking the barrier between video entertainment and the internet as a communications or shopping tool. The Beijing Olympics was the tipping point for BBC iPlayer with a broader demographic profile using the online service. Consumers are responding to this increased supply. Some 27% of those age 15-24 claim to use the internet for watching TV programs in 2008, up by 17 percentage points in 12 months. 45% used it for watching video clips/webcasts, also up by 18 percentage points over the same period.

Social networking websites: Social media continues to have a large impact on the market, especially as an audience driver, the research said. In the first half of 2008 ad spending for this area was relatively low and coming off a small base, but is expected to grow steadily in the coming years. CPM values for user-generated content are lower in this sector and they are generally bought through networks. However, the premium channels such as MySpace Music and MySpace Film are sold at a higher CPM rate.

“Online is not immune from the economic downturn, but while other sectors see falls in expenditure the internet is still experiencing an incredible increase and is propping up the entire advertising market,” said Guy Phillipson, CEO of the IAB UK. “The growth in internet advertising spend is beating all expectations as advertisers look to maximize their budgets, and take advantage of new display advertising formats such as video. They are also increasing their investment in paid-for search marketing because it delivers measurable returns on investment.”

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