By Dave Porter

(AXcess News) Reno, NV - According to the latest report from the Internet Advertising Bureau (IAB), which is compiled by PricewaterhouseCoopers (PWC), online ad spending in 2006 rose 34 percent over the prior year, but don't start celebrating just yet.

IAB called the increase in online ad spending last year a "healthy environment" for Internet advertising agencies and those businesses who've come to view the Internet as an equal in media space, when comparing the Web to print, radio and television.  IAB said in 2006, $16.8 billion was spent on online advertising.

The Ad Bureau believes that business is now starting to align more of its ad budget for the Internet compared to prior years and expects that growth in online ad spending will continue, though the rapid pace of increase may decline.  Fueling the highest growth may be the so-called 'new media' format of video on-demand, though AXcess News is skeptical of it's rate of acceptance due to the looming Internet bill which could give cable providers the right to charge more for bandwidth.

The PWC report showed that in the fourth quarter of 2006 online ad spending in the United States grew at its fastest pace ever, rising 32 percent for the period to $4.8 billion.

Peter Petrusky, Director of PWC's entertainment, media and communications business unit, estimates that U.S. online ad spending will grow at double-digits - for at least five years.

Borrell & Associates, which monitors more of the local online ad market in comparison to IAB's 'top 50' sites, includes those 'city markets' in its estimates, which may add $4 billion or more to the actual year's total.  I might point out that Borrell & Associates has not released its annual report as yet.  But according to the independent research organization local online video advertising is a hot commodity and Borrell predicts that online ad spending in that web media niche will reach $5 billion by 2012.

To a large degree, I have to agree with Petrusky when he cited greater market penetration of broadband in the consumer arena as the reason that online advertising, in rich media format, is beginning to become more affective for advertisers considering that more people are going to the Web on a daily basis and like Borrell & Associates bullish outlook towards online video advertising, Petrusky is in line with that thinking.  "We expect video advertising to really ratchet up in 2007," Petrusky said.

In retrospect, comScore Networks said that global Internet usage in January grew 10 percent over last year and that in the United States, growth climbed something like 2 percent that month to 153.4 million users age 15 or older.  But that growth was nothing compared to Russia, India and China, which grew 33, 21 and 20 percent, respectively.  That leads me to set aside the glowing IAB online ad spending forecast a moment and call to advertisers' attention a simple fact - most of the growth in online ad spending over the course of the next five years will not be in the United States, but in Europe and Asia.

Only recently has IAB penetrated Europe, forming Bureaus country-by-country, which last year showed that combined, Europe produced five-times the amount of ad spending than the United States.  Why?  Because latent thinking in U.S. ad executives suggests that while they are taking hold of the Web as an equal media resource, they're not paying close enough attention to the fact that the Internet is 'virtual' and that many Internet users across Europe and Asia would buy products or services online - if they were advertised on Websites in those markets which they may prefer to visit over U.S. domains.  I rest my case!  Now, back to PWC's comments on video and the U.S. online ad market.

Petrusky brought up an interesting point about online ad spending - most advertisers are not spending enough.  PWC says that the amount of 'media time' consumers spend on the Web is about 20 percent, while the ad spend is only 5 percent, suggesting that online marketeers are not taking advantage of the Internet as much as they could.

Petrusky's argument gives considerable evidence to growth prospects for online advertising to occur and frankly, I think he's spot on!

Several considerations have to be given to the relatively short history of the Internet as it matured in the eyes of ad buyers.  First off, take into consideration the dot-com bust in 2000, which saw a shortfall in media growth because of the fact that there was a regression in places online for consumers to visit.  Then, later on came the No. 1 search engine today - Google - which has given competitors, Yahoo! and MSN a run for the money with both online search services having to adapt and offer users more tools.

Another issue is news.  Print publications have been losing money and everyone seems to agree that more and more people are turning to the Internet for news than print.  More entrepreneurial spirit has shown through amongst all that Web usage growth as well and now there more Websites registered than ever before.  In fact, the World-Wide-Web is getting a bit crowded and to fill that void, ICANN has had to dole out new addresses like .biz, .tv and more.

So those combined actions have livened up the Internet quite a bit, making Petrusky and Borrell & Associates forecasts quite believable.  Hey, if more people drive cars between point A and point B, chances are a gas station somewhere on that route would do OK.  So you have to look at the Internet like one big highway that today has more drivers on it.  That's why online advertising is showing growth.

But the onslaught of video on demand has big media corporations thinking that they can take advantage of video online because they already produce television programming in digital format.  This is going to create an unfair advantage for some, like Belo Corporation, who operates television stations as well as newspapers and their corresponding Websites.  If they ever "get it", they can quickly see more value in deploying a rich media content they've already produced.

All sounds great right?  Not really, there's a fox in the henhouse and its name is 'Net Neutrality'. Remember that?  Last year that bill didn't move forward, but the crux of it was that cable providers (bandwidth providers) could charge more for using higher amounts of bandwidth.  Now, with a shift in control of Congress, the 'Net Neutrality Bill' is poised to ressurect itself and is expected to pass.

If that happens, it will be the Google's, Yahoo!'s, Belo Corp's, CNN and FoxNews players who can afford to carry video online.  Anyone else will shrink from the alum of bandwidth usage and it's going to spill over to consumers as well who will face increased rates because of it to offset costs.  Many resources online which are free now, like Google maps where satellite imagery is one of those free tools, may go away - or at least only be available for 'premium' users who pay for the privilege to use it.

Major online ad agencies, like RealMedia and DoubleClick will have many publishers looking to turn off those marvelous rich media ads because it sucks too much bandwidth and drives up the cost of hosting.  So there is a downside to video online and it all lies in the hands of those 'fat cat' companies who control too much of what we read and see online already.  The so-called 'top 50', who are the heartbeat of IAB's income.  This could also shake up Borrell's 'local sites' predictions as well.

CNN, FoxNews and the major networks are already stepping into those shoes and they like the way their toes can wiggle in that market.  Even the old antiquated Associated Press news monopoly is getting in on the video news act and now offers that media to any Website that wants it.  Imagine, the 500 pound gorilla of news is trying to compete with television.  Good luck AP!