Aegis' Verklin Predicts Online Ad Spending Will Double In 36 Months

One of the world's biggest media buyers Monday predicted the percentage of advertising budgets placed in online media would nearly double in the next 36 months, and that most of that shift would come at the expense of television as marketers move more deeply into two areas of online marketing: search and broadband video advertising and sponsorship. The prediction by David Verklin, CEO of Carat Americas, during the opening day of UBS' 2005 Media Week conference in New York, echoed the strong bullish outlooks for online ad spending issued by other prominent ad executives, forecasters, and industry analysts, suggesting that the Internet was poised to close in on TV and newspapers as the No. 3 medium in Madison Avenue's so-called media mix.

Based on the numbers he is seeing from Carat's clients, Verklin estimated that online now accounts for about 8 percent of their advertising budget, and given the current rate of increase, would grow to 15 percent "in about 36 months."

"I think it is going to come from television, and I think a lot of it is going to move into online broadband," he said, predicting that there would be a corresponding shift taking the average media plan from about "two-thirds television" to 50 percent.

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Verklin concurred with other speakers during the opening day of the influential Wall Street media conference that there is a convergence taking place between broadband video and TV, but said budgets nonetheless would be shifting online. He said search is the big driver at the moment, but that "the next is going to be broadband."

He indicated that search also is becoming far more pervasive among marketers, and that it would soon be a component of every media plan. "Everybody from Kraft Macaroni & Cheese to direct marketing will be in search," he said.

Other observers issued predictions for accelerated online ad spending, including by Piper Jaffray analysts Safa Rashtchy and Aaron M. Kessler, who predicted online ad budgets would grow 27 percent per year to reach $55 billion in worldwide ad spending by 2010 (see related story in today's OMD.

Conventional ad forecasters such as Universal McCann's Bob Coen (see related story in today's OMD) and ZenithOptimedia's Steve King were also optimistic about online's growth, but had much more conservative outlooks for the medium's ramp up. In fact, ZenithOptimedia's revised forecast is about half as bullish as Aegis' Verklin, calling for online's share of U.S. ad budgets to grow by about 50 percent over the next three years--rising from a 6 percent share in 2005 to 8 percent in 2008.

While ZenithOptimedia predicted the rise would send online advertising costs soaring with increased demand from advertisers "tightening the availability of advertising and raising prices," Aegis' Verklin indicated that the online ad inventory problem might be a short-term one. He acknowledged that there is currently "inventory pressure" in the fourth quarter, "but you don't see that pressure in Q1."

He suggested that online ad demand is beginning to mirror the broadcast TV marketplace, where demand typically soars in the fourth quarter due to seasonal demand, and ebbs in subsequent quarters.

David Poltrack, executive vice president of research and planning at CBS, agreed that the online and broadcast TV ad marketplaces are beginning to converge, and that the major broadcast networks would increasingly be major players adding to the supply of broadband video advertising inventory.

"Yes, Internet advertising and marketing will continue to grow at double-digit rates for the next several years. And yes, we will be competing with Internet sites for advertising dollars. However, the broadcast network companies, with their strong creative development systems, will also be major players in this Internet advertising marketplace," Poltrack said, concluding: "We are in an era of transition from an analog, linear television market to a digital, non-linear market. And yes, that transition is likely to redefine the television business."

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