• by Masha Geller , May 16, 2001

It's that time again for Merrill Lynch's Henry Blodget - time to predict the future. This time, however, the forecast is not as frightening.

According to his latest release, Blodget thinks AOL Time Warner is not only the largest player in online media, but the conglomerate is actually keeping the rest of the industry afloat.

Relatively speaking, AOL's performance in the first quarter was so strong - a 5% revenue increase - that overall industry performance topped Blodget's expectations of a 35% revenue decline from the fourth quarter. This is the first time in nine months that the market exceeded his estimates.

Thus, Blodget believes the market is bottoming, and predicted sequential growth to resume again by fourth quarter, with healthy 20 to 30% annual growth starting in 2002. Blodget's estimate of a 25% decline in 2001 revenues didn't change, still pointing to, as he optimistically put it, a "conservative" total of $6 billion for the year.

However, he still sees trouble down the road, partly because the seven largest publishers captured 78% of total spending, up from 75% in Q4 of last year. AOL took in about 46% of all online ad dollars - up 10% percent from fourth quarter - and of all online ad sales companies, the top nine took in 84% of the ad dollar pie, up 4% from last quarter. Blodget said that the other big players - the likes of Yahoo!, Excite@Home, MSN and DoubleClick - saw aggregate revenue decline about 29% since last quarter.

"Advertisers continue to gravitate toward larger companies, despite deep price-cutting by smaller sites," Blodget wrote. "Longer-term, we are still believers in online marketing. We continue to believe the current weakness is the result of a brutal cyclical correction, not a secular downturn."