• by Shankar Gupta , January 3, 2005

Noting optimistic conversations with media buyers, and a burgeoning demand for rich media, Goldman Sachs on Monday predicted a "break-out year" for online advertising in 2005.

"The media buyers with whom we spoke consistently state that the strength in branded online advertising continued in full force this holiday season," stated the report's author, Goldman Sachs analyst Anthony Noto. "In fact, our discussions with media buyers indicate that major portals had significantly more demand than supply during the quarter. In particular, rich media inventory was scarce during the quarter."

Entertainment, pharmaceuticals, and automotive ads were among the fastest-growing advertiser segments, the report said. "The unmet demand for rich media advertising inventory noted by media buyers will likely result in the creation of increased original online content by online media companies," Noto wrote in his report. "The unique online content should result in larger audiences, greater reach for video advertising, and ultimately, more video inventory."

Yahoo! made several moves late last year that suggest the company is interested in developing original programming for the Web. In December, Yahoo! bought exclusive rights to two animated videos created by political satirists JibJab Media, and in November, Yahoo! hired Lloyd Braun, a former ABC producer, to head up its entertainment division. In the fall, Yahoo! became the official Web site for "The Apprentice," which involved the site broadcasting previously unaired footage of the show edited specifically for the Internet.

The report also mentioned AOL.com, about to be re-launched, as a possible arena in which demand for online advertising space might be met. "Media buyers are anxiously awaiting the re-launch of AOL.com next year in order to help satisfy the strong demand from advertisers," Noto stated.

High prices due to low supply are keeping some advertisers out of the market for rich media ads, the report theorized, but AOL's relaunch and Yahoo!'s new online video content could fill that void. "In some cases, rich media prices are viewed as high, primarily reflecting the low availability of inventory. As such, it is quite possible that the prices of this type of ad vehicle could come down in 2005 as more inventory is created," Noto stated.

According to the report, major portal sites like Yahoo! got the bulk of online branding campaigns. "The major portals continue to be the first online advertising buy for branded advertisers given their audience scale and breadth of inventory," Noto stated. "Yahoo! is still the most frequently mentioned site by media buyers and appears to be a 'must-buy' for advertisers."

In trading yesterday, Yahoo! closed at $38.18 from $37.68, and Google rose to $202.71 from $192.79, after the release of Goldman Sachs' report yesterday morning.