• by Wendy Davis  @wendyndavis, October 18, 2005

Online ad spending increased by around 10 percent in the third quarter, according to a new study conducted by Deutsche Bank in conjunction with MediaPost.

For the report, 87 media executives were questioned earlier this month about their clients' experiences with Internet advertising in the third quarter, and expectations for the fourth quarter. This survey, which was conducted online by InsightExpress using members of the MediaPost advisory panel, is the fourth in an ongoing series of quarterly studies of media professionals by MediaPost and Deutsche Bank.

"Our respondents supported our thesis that the branded advertising pricing environment continues to strengthen for publishers, as rising demand levels coupled with supply constraints for premium inventory appear to be giving publishers pricing power," states the report, which was released today.

Overall, respondents reported price increases for both search and display ads--including ads on run-of-network sites. "Even the low, untargeted inventory, that is typically in plentiful supply, is continuing to see improvement in the industry," said Deutsche Bank Senior Analyst Jeetil Patel.

Overall, 74 percent of executives surveyed said that their clients' spending increased from the second quarter, while 25 percent reported that budgets were flat. About four out of 10 survey respondents--43 percent--said that marketers upped their spending by at least 11 percent, with 8 percent reporting increases of between 21 and 30 percent and 5 percent seeing increases of more than 30 percent. On a weighted basis, average growth came to 10 percent, according to a Deutsche Bank analysis of the responses.

The spending surge is likely to continue during this quarter, reported Deutsche Bank. Sixty percent of respondents said their clients would likely put more money into Web advertising in the fourth quarter than the third; more than one in three media executives--36 percent--predicted an increase of more than 10 percent.

Deutsche calculated the predicted fourth-quarter increase to be 9 percent, on a weighted average basis. That figure was slightly lower than last quarter's predicted 10 percent increase.

Growth in spending on pay-per-click ads also looked healthy. "Our survey results and channel checks suggest that pricing growth for the industry has picked back up in September after a flat July and August," states the report.

The majority of executives surveyed--58 percent--reported paying more for cost-per-click ads in the third quarter than in the second. Most of those who reported an increase in cost said it was between 1 and 10 percent. Forty percent of all executives said cost-per-click had increased between 1 and 10 percent, while 10 percent reported a price increase of 11 to 20 percent; 8 percent of respondents said paid search costs had increased by more than 21 percent.

Thirty-one percent of respondents reported no change in cost-per-click, while 11 percent said they paid less in the third quarter than the second.

Weighted growth in pay-per-click advertising came to 5 percent for the quarter, according to Deutsche Bank.

Deutsche Bank also found that publishers still have the edge in setting prices for display ads, especially for premium sites--with 66 percent of executives saying that impressions on home pages, vertical channels, and rich media cost more in the third quarter than the second quarter; the remaining 34 percent said premium pricing was flat.

Almost half of respondents--44 percent--said that prices for premium inventory rose between 1 and 10 percent; 13 percent of respondents reported an increase of between 11 and 20 percent; 4 percent of executives said that prices went up between 21 and 30 percent; and 4 percent of respondents reported a spike of greater than 30 percent. On a weighted basis, average price increases for premium came to 7 percent for the quarter, according to Deutsche.

About one in three respondents--34 percent--saw prices rise for run-of-network inventory, while 56 percent of executives said remnant inventory pricing was flat, and 10 percent saw price drops of between 1 and 10 percent. Overall, Deutsche calculated the average weighted growth of run-of-network inventory to be 3 percent.

Media executives appeared even more bullish for 2006 than this year. When asked how they thought spending next year would compare with the 26 percent increase reported by the Interactive Advertising Bureau for the first half of 2005, 84 percent of respondents indicated that they believed growth would be faster next year.

"It will continue to grow at an accelerated rate as more success stories unfold and new brands are born online," wrote one respondent. Another added: "We're already getting preliminary budgets for '06, and we're not seeing any decreases across our client base."