Total UK online advertising expenditure in 2005 grew by 65.6 per cent to £1.4 billion to take the sector’s market share to 7.8 per cent, research by PricewaterhouseCoopers and the Internet Advertising Bureau, the trade body for online advertising, showed. At £1.4 billion, online advertising expenditure is almost three quarters the size of national newspaper advertising, which was worth £1.9 billion in 2005.

Paul Pilkington, director at the Entertainment and Media practice at PricewaterhouseCoopers, said that growth in online advertising was “not slowing down” and total online advertising expenditure in 2006 was on track to be worth more than £2 billion.

“The internet is totally transforming the ways in which we find, buy and consume products, services and entertainment and we anticipate more growth in online advertising as advertisers simply follow their audiences,” he said.

The results of the biannual IAB study, carried out in partnership with PricewaterhouseCoopers and the World Advertising Research Centre, revealed that the internet is driving the growth of the entire advertising market. Advertising across all other media fell by almost £200 million year on year. However, the dramatic increase in online marketing expenditure meant that the market saw a 2.5 per cent increase from 2004 to 2005.

Mr Pilkington said it was not all bad news for newspapers, as advertisers were increasingly opting to place adverts on newspaper websites.

The IAB study said broadband penetration was one reason behind the large growth rates. With 71 per cent of home internet users having broadband, advertisers have increased their investment in rich media, the advertisements that consist of graphics, audio, video or animation.

The research found that online classifieds saw a 62.4 per cent increase year on year — up from £161.4 million in 2004 to £262.2 million in 2005 — primarily driven by the automotive and recruitment sectors. It said that the growth of online classifieds was making a significant dent in traditional press classified expenditure where revenues fell by 5.1 per cent year on year.

The IAB said that recruitment was the highest spending industry category, worth 22.1 per cent of the total market in the second half of 2005. For the same period, finance accounted for 17.4 per cent, while automotive at 12.4 per cent saw continued investment.

Entertainment and media saw the most significant growth and was worth 10.2 per cent of spend in the second half of 2005 compared with 6.2 per cent in the second half of 2004.

The IAB said: “The entertainment industry has capitalised on broadband’s ability to engage consumers through video-streaming and sophisticated rich media adverts.”

The IAB has been working with PricewaterhouseCoopers since 1997 to survey the value of the online advertising market.

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