Broadband growth will fuel surge in online advertising, report predicts

By 2011, nearly three out of four U.S. households will be connected to the Internet by broadband connections, according to a new report by consulting firm PricewaterhouseCoopers. That growth in high-speed Internet access will push more advertising spending online in the U.S. and in the four other regions of the world covered in the “Global Entertainment and Media Outlook 2007-2011” study.

“Online advertising is growing explosively in each region, fueled by rising broadband penetration and the growing use of the Internet for social networking and as an entertainment and media center,” the report says.

Video advertising, in particular, will take off over the next few years, growing from $435 million in the United States in 2006 to $1.9 billion by 2011, a 34.3% compound annual growth rate, PwC predicts. Keyword search will remain the leading form of online spending, growing from $6.7 billion in 2006 to $14.5 billion in 2011, the report says.

During the same period, U.S. online classified ad spending will grow from $3.8 billion to $10.4 billion. Banner ads, display ads and other advertising will grow more slowly, from $5.8 billion to $8.6 billion, “as advertisers begin to substitute video ads for static ads,” the report says.

Contributing to this growth, PwC says, is the deepening penetration of broadband Internet access into U.S. homes. The report notes that the number of U.S. households with broadband connections more than doubled from 20.6 million in 2003 to 50.3 million in 2006. Broadband access will grow by 12.1% annually through 2011 to 89 million households, by which time 91% of Internet subscribers will be connecting via broadband, the report says.

Dial-up connections will decrease steadily during the forecast period, falling from 33.5 million subscribers in 2006 to 9 million in 2011. By 2011, PwC says, there will be 98 million homes with Internet access, or 81.6% of U.S. households. 74.1% of households will be connected to the Internet by broadband connections and 7.5% by dial-up links, the report says.