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Online advertising to take bigger hit next year

Analysts expect to see smaller growth levels next year than previously anticipated, though some sectors may fare better than others.

Online advertising is expected to take a steeper hit than previously expected, but some sectors within the industry may feel the pain less than others, according to two separate reports released Monday.

Online advertising worldwide is now expected to grow at a slower rate of 25 percent this year compared with earlier projections of 28 percent, according to a research note by JPMorgan analyst Imran Khan. The situation for next year is also expected to deteriorate further than previously expected, with 13 percent growth compared with an earlier forecast of 19 percent growth.

Said Khan in his research note:

Overall ad budgets continue to weaken. Since we reduced our estimates on September 4, we have seen a further slowdown in the economy, particularly in the last two weeks of the third quarter. Weakness continued into October and spread from the U.S. and U.K. throughout continental Europe and Asia. Additionally, dollar strength was greater than expected which will further depress growth rates.

Display advertising worldwide is expected to drag down the numbers, with growth now projected at 14 percent this year, compared with a previous forecast of 16 percent growth.

And in the U.S., growth in display advertising is expected to reach 11 percent to $7.95 billion for the year, compared with previous expectations of 14 percent growth. Next year, however, growth expectations are expected to see a modest 6 percent increase, compared with earlier projections of a whopping double-digit growth of 16 percent.

Search advertising remained stable in the third quarter and its growth is anticipated to come in a few percentage points less than previously expected for the year, but Khan expects a much larger drop next year.

U.S. search advertising growth is expected to reach 17.3 percent next year, compared with earlier predictions of 25.5 percent growth.

Meanwhile, the Rubicon Project third-quarter market report offered some insight into which sectors within online advertising faced a decline in average CPM (cost per thousand page impression) rates and which areas grew during the quarter.

The project, which collects data across 1,300 publisher clients, found that average CPMs served across its publisher clients and ad networks fell 11 percent in the third quarter compared with the previous quarter. But the report noted that some areas posted upwards of a 40 percent gain while others declined by nearly 20 percent.

During the quarter, entertainment, music, and young adult sites faced the greatest declines in CPMs.

Entertainment dropped 17 percent compared with the previous quarter, music fell 14 percent, and young adult sites slipped by 8 percent.

But news and reference sites soared by 36 percent on a quarter-to-quarter comparison, technology jumped 35 percent, and TV and film climbed by 27 percent.

JT Batson, Rubicon vice president of publisher communities, said in a statement:

Some channels have endemic advertisers that are willing to pay higher CPMs.

Take TV and film. You have a new release coming out every week, so the sites that attract moviegoers are going to consistently get higher CPMs. On the other hand, some of the early entertainment or music sites can draw similar, if not larger audiences, but they're not sites where advertisers have felt the most comfortable in terms of putting their brand. Whether right or wrong, those channels have a lower perceived value.