• by Wendy Davis  @wendyndavis, April 20, 2006

Local online ad spending surged to $4.8 billion last year, a 78 percent increase from 2004's $2.7 billion, according to a new report by Borrell Associates. The report further predicts that online ad spending this year will climb 21 percent to reach $5.8 billion.

"Last year's growth spurt was reminiscent of that seen at the height of the dot-com frenzy in 1999-2000, when many local media companies had just finished building out their Web sites and began selling online advertising in earnest," stated the report, "What Local Web Sites Earn: 2006 Survey."

For the study, Borrell examined revenues at 2,266 local media properties, including 696 daily newspapers, 148 weeklies, 1,154 radio stations, 437 TV stations, and 24 independent local sites. Borrell defined "local online advertising" as "advertising placed by locally based businesses for locally focused online messages."

Online revenues last year at newspaper sites came to an estimated $2 billion, up from $1.19 billion in 2004. On average, online revenue totaled 4 percent of all revenue for 10 of the largest newspaper Web sites--up from 1 percent four years prior. By contrast, Web sites of TV stations generated just $283 million, up from $119 million in 2004; but Borrell predicts that figure should grow quickly as online video grows more commonplace, thanks to increasing broadband adoption.

By and large, newspaper sites were profitable last year, according to the report, but the average site lost market share within its designated market area; the average site controlled an estimated 14.8 market share last year, down from 18 percent in 2004. Borrell proposed that the dwindling market share stems from the growing importance of search. "Local advertisers are turning to national search engines to reach local consumers--the same audience that local media companies have traditionally controlled," states the report.

Real estate, help wanted, and car ads have become more important to newspaper sites in the last year, according to the report. Last year, ads in those three categories accounted for 75 percent of online revenue, up from 70 percent in 2004.

At TV stations, automotive ads accounted for 25 percent of online revenue, up from 18 percent in 2004; real estate was the second single largest source of online revenue, generating a little more than 15 percent of online ad dollars, while health care was third, accounting for slightly less than 15 percent of online revenue.