• by Tameka Kee , January 3, 2008

Get ready to pay more for both premium and remnant display ad inventory. JP Morgan is forecasting the U.S. graphical ad market to hit nearly $8.6 billion this year--a 20% increase from 2007, with much of that cash flow being driven by costlier CPMs.

What's going to fuel the price spike? According to analyst Imran Khan, the 4% growth in CPMs will stem from a cocktail of factors, including less abundant (and possibly devalued) offline inventory, improvements in behavioral and geographical targeting, and the increased use of ad exchanges.

Khan said that local broadcast and cable inventory will be "tight" in 2008, as presidential campaign ads will absorb many of the available spots, and the increasingly scattered TV market will contribute to more ad dollars shifting online. And we expect newspapers to continue to bleed circulation and ad revenues to the Web.

Meanwhile, Web publishers will get better at monetizing their inventory via improved targeting, migration to ad exchanges and sites like social networks increasing the number of ads per page. In 2007, some 83% of graphical inventory was sold for less than $1/CPM, according to Khan--so if a publisher improves its yield even by a few cents, it can have a tremendous impact on revenues.

Khan and other analysts on JP Morgan's U.S. Equity Research Internet team gave their bullish predictions for the display market during Wednesday's 2008 Global Internet Outlook conference call, and named Yahoo as one of the "greatest beneficiaries of improved graphical advertising trends."

MSN, AOL and CNET were also included as winners in the buoyant display market, but Khan went so far as to peg Yahoo as the leader in 2008--forecast to snag 10% of the $20 billion global graphical ad market. MSN is slated to snag roughly 7.2%, while AOL and CNET will own 5% and about 2% of the global display market, respectively.

According to the report, much of Yahoo's success with display ads in 2008 hinges on whether the Web giant can effectively leverage the Right Media ad exchange and ramp up a number of strategic partnerships--with said partnerships possibly adding $100 million to Yahoo's network revenue over the year.