Reality Bites Internet as Ad Sales Fall

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SAN FRANCISCO -- Internet advertising in the United States dropped 5 percent in the first quarter, marking the marketing medium's first downturn since 2002 when the Web was still recovering from the dot-com bust.

The data released Friday by the Interactive Advertising Bureau and PricewaterhouseCoopers LLP provided another reminder of the widespread pain wrought by the longest U.S. recession since World War II.

But the Internet's financial backbone isn't sagging as badly as that of more established media like newspapers and broadcasters, where far more severe advertising losses have triggered massive layoffs, bankruptcy filings and doubts about whether their businesses will ever be the same again.

Ad-Driven Websites

By contrast, the setback for ad-driven Web sites and services is considered temporary.

"We're confident that growth will resume as the U.S. economic climate improves," said Randall Rothenberg, the Interactive Advertising Bureau's chief executive.

Advertising revenue has been drying up as more companies clamp down on their marketing budgets to save money during tough times. The drought has gotten worse during the past year as traditionally big spenders like banks, automobile makers and dealers, department stores and real estate developers have been grappling with major crises that have forced some of them to merge with rivals or simply close their doors.

Even before the Internet recorded the first-quarter decline in ad revenue, sales have been slowing down after years of rapid growth.

Advertiser Spending

U.S. advertisers spent $5.48 billion on search, display, video and other Internet ads during the first three months of the year, a decline from $5.77 billion during the same quarter last year.

It was the first year-over-year decrease since the fourth quarter of 2002, when Internet advertising fell 4 percent.

In a telling sign of how much Internet advertising has progressed since the last slump, the total spending in this year's first quarter nearly surpassed the $6 billion that was devoted to online marketing during all of 2002.

Even if spending on online ads were to erode at the first-quarter's pace for the remainder of the year, the Internet would still pull in more than $20 billion.

Decline in Online Spending

The recent decline in online spending is exacerbating the problems facing newspapers, which have been investing heavily in their Web sites in hopes of picking up some of the advertising that has been diverted from their print editions in recent years.

But online advertising on newspaper-owned Web sites plunged 13 percent to $696 million in the first quarter, according to the Newspaper Association of America, a trade group. That contributed to an overall first-quarter ad decline of 28 percent that subtracted $3.4 billion from the tills of newspaper publishers.

The conditions were nearly as bad for U.S. radio stations as their total first-quarter advertising revenue plummeted 24 percent to $3.4 billion, according to the Radio Advertising Bureau.

The first-quarter advertising figures for U.S. television broadcasters aren't expected to be released until next week, but that media sector also is suffering. The research firm BIA Advisory Services last month forecast that television revenue will drop by about 20 percent this year.

The Internet hasn't been as hard hit largely because its advertising space tends to cost less and its technology helps advertisers reach the specific people most likely to buy a particular product or services. And in many instances, advertisers don't even have to pay unless a person clicks on the commercial message.

Those advantages have helped the Internet's search and advertising leader, Google Inc., to continue growing despite the recession. The Mountain View-based company's U.S. revenue edged up by about 3 percent in the first quarter. Most of Google's ad sales are tied to search requests that inform the company of a user's interests.

AP Business Writer Deborah Yao contributed to this story from Philadelphia.

Copyright 2009 The Associated Press. All rights reserved.

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