• by Joe Mandese  @mp_joemandese, December 6, 2006

Despite rather healthy predictions issued this week by some of Madison Avenue's leading forecasters, the rate of U.S. ad spending appears to be slowing down, not accelerating, and the Internet may be a culprit. That's ironic, because the Internet continues to be the fastest-growing of the major ad-supported media, according to estimates released Tuesday by ad tracking firm TNS Media Intelligence.

Through the first nine months of 2006, U.S. advertisers spent $7.2 billion on online advertising--over a billion dollars more than the $6.1 billion they spent online during the same period in 2005, according to TNS MI's figures, which include only display advertising and do not factor in an even higher rate of growth for online search advertising. TNS MI estimates that online display ad budgets are now expanding about 18%, but if the even faster-growing search category--rising at a rate of more than 30% per year--is factored in, the underlying rate of Internet ad spending is growing even more rapidly, said TNS MI President-CEO Steven Fredericks.

And with just the display category in excess of $7 billion, "it's starting to feel pretty substantial," he added, noting that display's growth is outpacing the growth in the overall advertising economy by a factor of 4.5 to one.

Online would actually be growing at more than that, said Fredericks, but the momentum is being fueled almost entirely by mid-size and smaller advertisers. The nation's biggest advertisers--the top 50--continue to focus on traditional media, Fredericks said. During the first nine months of 2006, Fredericks said the top 50 marketers lagged the rest of the market by two percentage points in online ad spending.

"I suspect a couple of things are going on," he said. "Because advertising on the Internet is cheaper than traditional media, some of the second-tier advertisers who are more concerned about every dollar in their ad budget may be spending more online."

And while bigger advertisers are boosting their online ad budgets at a lower rate, Fredericks noted that their online buys are going further relative to their traditional media dollars. Yet the cost savings are likely being reinvested in traditional media, not online, he said.

"If you look at the top 50, they actually increased the amount of money they spent on TV," noted Fredericks. "I'm not sure what the reason for that is, but I think it may be that staying with traditional media is just an easier thing for them to do right now."

Share of Advertising Spending by Media:

Jan-Sept 2006 vs. Jan-Sept 2005

MEDIA TYPE	Jan-Sept 2006	Jan-Sept 2005
TELEVISION	43.5%	43.0%
MAGAZINES	19.8%	19.7%
NEWSPAPERS	18.7%	20.0%
RADIO	7.5%	7.9%
INTERNET	6.6%	5.8%
ALL OTHER	3.9%	3.6%
TOTAL	100.0%	100.0%

Source: TNS Media Intelligence