• by Gavin O'Malley  @mp_gavin, June 5, 2007

Bucking the trend of slower online ad growth, local online ad spending will climb 31.6% this year to $7.5 billion, says a report to be released today by media consultants Borrell Associates. By contrast, national online ad growth is expected to rise by 20%.

This year's growth in local ads pales in comparison to 2005, when the sector exploded by nearly 80% year-over year--but is still better than 2006, when it grew 19% year-over-year.

While newspapers, with 35.9% of the market, control the bulk of local online advertising, pure-play Internet companies like Google, Yahoo and Monster.com are approaching fast, with 33.2% percent. Yellow Pages operators, meanwhile, control 11.7% of the market.

TV stations continue to lag with 7.7% of the local market, but the sector's fortunes may take a turn for the better thanks to YouTube's precedent-setting distribution deal--announced yesterday--with Hearst-Argyle Television Inc., one of the largest operators of local stations.

While the number of locally based, online-only salespeople grew 26% in 2006, there is still a demand for more focus on digital, according to Gordon Borrell, president of Borrell Associates.

"Package deals work--they drive revenue--but we see a growing demand for salespeople to focus exclusively on online sales," said Borrell. "We're getting to the point when traditional components, like print pages, can weigh down what should be a fully online buy." (Budgeted figures for 2007 anticipate an additional 35% increase in hiring this year, according to the report.)

Yet, Borrell's conviction that "convergence" is beginning to curtail online sales isn't echoed by all media buyers.

"A good vendor will find a way to make us happy," said John Cate, senior vice president-general manager of Carat Fusion's San Francisco office. "I've yet to find one who will not unbundle a package if it means closing the deal."

Few publishers have the digital presence to merit a strictly online buy, according to Adam Herman, senior vice president, integrated media director, MediaCom.

"You still generally have traditional guys pushing online," said Herman. "It's not the other way around because there aren't enough stand-alone sites."

Most local media operators will generate 2% to 5% of their revenues from Web operations this year, according to the report. That's up 0.5 to 1 points from last year. Newspaper companies tend to be in the 3% to 8% range, while TV and radio sites this year will generate 1.5% to 3.5% on average.

Those percentages, however, can amount to big money for some publishers. Gannett will see about $480 million in online revenue this year generated through Web sites operated by 85 daily newspapers, 23 TV stations and more than 1,000 non-daily publications. The New York Times Company will generate about $230 million from sites affiliated with The New York Times, The Boston Globe, and its 15 regional newspapers--not including more than $100 million from its ownership of About.com.

The report analyzed Web revenues for 2,855 local media properties with a survey requesting information regarding online revenues and expenses, 2007 budget projections, and other data markers.

The market is certainly maturing, as the online operations of traditional local players have evolved into formal business units with established staffs, product lines and P&Ls, according to Borrell.

Nearly 25% of the sites surveyed were on track to generate more than $1 million in gross revenues this year, while 6.6% expect to generate over $10 million.