Online advertising to overtake TV

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Internet advertising is set to overtake television as the largest advertising category this year, adding more pain for the free-to-air TV networks.

In a report compiled by PwC for the Internet Advertising Bureau of Australia (IAB), the online advertising industry contributes about $17.1 billion to Australia?s economic output, about 1% of the country?s gross domestic product (GDP), and provides around 162,000 jobs.

By 2017, online advertising is expected to reach $26.5 billion, with annual growth rate of 7.5%. The rapid growth of digital advertising is what prompted the IAB to commission the report. IAB?s Samantha Yorke said digital advertising would soon draw closer to the retail sector, which contributes an estimated 5% of GDP.

Last year digital advertising made up 25% of the total advertising market, with free-to-air TV slightly ahead at 26%. Free-to-air advertising has been gradually falling, as consumers have multiple choices for their entertainment time, including pay TV and internet.

Seven West Media (SWM.AX) which owns Channel Seven has the lion?s share of the free-to-air advertising market, at 42% followed by Channel Nine on 38.5%, with Ten Network Holdings? (TEN.AX) Channel Ten lagging with less than 20% of the market.

Ten has been making some big moves by trying to pick up major sporting events including live Australian cricket matches, after winning the rights to the 2014 Russian Winter Olympics. But its competitors are not lying down, with Seven extending its rights for Australian tennis, and Nine winning Australia?s international cricket rights.

Analysts have suggested that the price Ten has been willing to pay for sports events would see it make a loss on the coverage, but would be using the sports coverage to entice viewers to watch other shows on its channels.

Foolish takeaway

Free-to-air networks will only see further more pressure on their advertising revenues, and will need to revolutionise their businesses to keep viewers from switching to other media for entertainment. Newspaper publishers like Fairfax Media (FXJ.AX) and News Corp (NWS.AX) have already been forced to adapt to the online world, so to will broadcasters.

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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in Fairfax Media.

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