UK media groups set for targeted online ad boom

LONDON (Reuters) - Britain's beleaguered publishers and broadcasters are finally well set to secure their share of the booming online advertising market by combining sophisticated video ads with behavioral targeting.

But as more content moves to the Internet, from television programs to user-generated content, those same groups will need to remain innovative if their Web sites are to stay popular with users and command high prices for ad space.

Media groups in Britain, which has the most developed online ad market, have long looked to the Internet to offset the relentless fall in their traditional revenues. But they have struggled to compete with the giant portals of Yahoo and AOL.

Analysts and ad executives say the sites that currently command the highest CPMs -- the all important cost per 1,000 views of an advert and a common industry metric -- are premium channels such as finance on big portals like Yahoo.

But publishers and broadcasters have the content that attracts viewers and could better exploit the full potential of online video ads, resulting in a very sophisticated offering.

"The likes of Yahoo, AOL and Microsoft get millions of users and (advertisers) get fast reach," CEO Guy Phillipson of the Internet Advertising Bureau told Reuters.

"But if you look at traditional publishers like ITV, Channel 4 and The Sun, they already have probably 95 to 100 percent awareness for their offering and have great potential."

Online advertising is the fastest-growing segment of the ad industry as it promises to build brand awareness and monitor users' response rates, while marketers can target specific audiences through niche sites.

After several years of losing audience and advertisers to the Internet, broadcasters like ITV have launched their own online catch-up sites, targeting younger viewers. ITV is aiming for online ad revenues of 150 million pounds ($302.1 million) by 2010.

Screen Digest analyst Dan Cryan told Reuters that Web sites needed to charge a suitably high ad fee to fund placing the content online, but he said as more content with more ad space moves online that fee could be forced down over time.

"As the inventory increases, it becomes more likely they will have to start offering additional services in order to maximize the value, and that's where we start getting into targeting.

"The basic theory is that (Web sites) will be able to increase the existing online CPM via targeting. Where this is most important is with video ads because they are currently more lucrative in terms of single viewing than on TV."

One alternative to the CPM model would be to use the cost per click model used by Google to generate more growth.

Ernst & Young estimates that had the main newspaper Web sites generated the same revenue per UK unique user in 2007 as Google, they would have earned online ad revenues of between 120 million and 250 million pounds each, just from their UK traffic.

TARGETING

Different companies use different systems to build profiles of their users but one that is getting the most attention at the moment is Phorm which has signed up Britain's three largest Internet Service Providers.

Phorm works by connecting advertisers, the ISPs and Web sites like FT.com and the Guardian to create more targeted ads based on a user's anonymous browsing trends across the net.

"You go to a travel site, you look at hotels in Paris and then you go to a blog, where the ads that can be shown are for hotels in Paris," Phorm chief executive Kent Ertugrul told Reuters in an interview.

And the Phorm service could act as a solution to another problem for British publishers -- how to cash in on the millions of international readers who access their Web sites but see mostly irrelevant UK ads.

As advertising is allocated on a domestic basis, UK newspapers have struggled to sign up international advertisers for their international readers online, but Phorm plans to operate in the U.S., meaning it could direct American brands to American readers who happen to be surfing on UK sites.

But the increasing sophistication and rapid growth of advertising online will not help all sites.

Several ad-supported music sites have appeared in recent months, promising to offer free tracks to users, but Cryan warns that music has traditionally attracted low CPMs.

Nigel Morris, the chief executive of digital ad agency Isobar, also warned that too much advertising puts people off.

"Inevitably there will be winners and losers and so much will depend on attracting the right kinds of users," he told Reuters in an interview. "But I think the sites that overcrowd themselves with advertising are not going to do very well."

(Reporting by Kate Holton; editing by Keith Weir)