• by Wendy Davis , Staff Writer @wendyndavis, December 1, 2005

In a report issued this morning, Merrill Lynch remains bullish on Internet advertising, even while cutting the overall U.S. advertising forecast. Revenue from Web ads next year, excluding online newspaper classifieds, will increase by a predicted 25.2 percent, while overall U.S. ad revenues will grow by 4.5 percent--revised down from a previous estimate of 5.2 percent.

The report also forecasts that the Internet will account for more ad dollars than radio by 2007, and will surpass magazines by 2008, to become the third largest ad category, with newspapers and broadcast television remaining in the top two slots.

Categories that appear poised to gain online include beverages, hotels and packaged foods. Beverage companies, state the report, target a young demographic that "appears to be viewing an increasing number of less-traditional media."

Hotels--which receive 10 to 15 percent of bookings from the Web, according to the report--also look likely to shift budget to the Internet, with an eye toward bringing users to their sites.

As for packaged foods, the report predicts that traditional media outlets will continue "to account for the bulk of industry ad spending," but anticipates "in-store advertising and the Internet to account for a growing portion over the next several years at the expense of television and print."

Despite the optimistic tone about Web spending, the report also predicted that growth wouldn't be as rapid as in the last two years; in 2004, spending surged by 32.5 percent and, last year, by an estimated 28.8 percent.