UK Online ad spending to overtake TV this year

LONDON (Reuters) - The Internet will overtake television as the biggest advertising medium in Britain this year, with over 19 percent of total ad spend, according to a forecast by Enders Analysis.

The main engine for growth continues to be paid search on sites such as Google but Enders said it had also seen early signs that the popularity of online video is now making a small contribution to a shift in advertising from television to the Internet.

Analysts previously said advertising budgets had moved to the Internet at the expense of newspapers in Britain -- the most developed online advertising market in the world.

"Rising internet consumption and surging consumer e-commerce continue to drive strong growth in online advertising, particularly paid search, in spite of the deteriorating economic outlook," the report said.

"Our forecast for 2008 is that online advertising expenditure will grow 26.4 percent in nominal terms to 3.56 billion pounds ($7 billion), overtaking TV ad spend, which we expect to fall 2.5 percent to 3.39 billion pounds."

The report said Google would remain the biggest beneficiary of the growth in search advertising and predicted it would take 80 percent of UK spend on search advertising, up from 78 percent in 2007.

It predicted growth in online classified advertising, which increased 54 percent in 2007, would slow in 2008 due to declines in recruitment and property listings.

One source of growth is online video, however this could still be hard to develop as many of the most popular videos are short and user-generated clips put on sites like YouTube.

The report said broadcasters and online portals were achieving high CPMs -- the all important cost per 1,000 views of an advert and a common industry metric -- for in-stream video ads, reportedly averaging around 20 pounds, compared to 6 pounds for television spots.

However it warned that the high prices were a result of limited supply and said they would fall as volumes increased.

"In total, we estimate online video advertising will amount to about 35 million pounds or 1 percent of TV ad spend in 2008, with many advertisers using existing TV spots, the report said.

"Not all this money will come from TV budgets, but there are early signs of a direct shift in spend from TV to the Internet over and above the broader shift to online."

Enders Analysis provides independent research on Telecommunications, Media and Technology.

(Reporting by Kate Holton: Editing by Jason Neely)