Online advertising drives Q2 ad growth, YouTube revenue projected to hit $5.9B in 2014, reports say

Broadcasting and cable marketers take note: Online advertising now makes up roughly one-third of the total advertising market, and is picking up steam, growing 21 percent in the second quarter of 2014, a new report by MoffettNathanson says. More telling, however: In the second quarter, online advertising, including online video and other display ads, was the biggest driver, accounting for 98 percent of the market's growth.

"Online growth continues to outpace all other forms of advertising," the research firm said in its Q2 advertising tracker report, U.S. Advertising: The Other 98%.

By comparison, cable networks' advertising grew 4 percent; TV stations grew 4 percent; and cable MSOs grew 7 percent. Broadcasting fell 5 percent, "revealing the weak underlying non-sport advertising trends."

A new report by Jefferies echoed those findings, saying in an investor note that online video advertising is "a major go-forward growth engine for well positioned companies as the ecosystem continues to evolve." Jefferies cited Google (NASDAQ: GOOG) as a "franchise pick" for investors thanks to YouTube's high viewership and wide reach.

Jefferies also estimated that YouTube will generate $5.9 billion in revenue this year, and grow to $6.9 billion by 2016.

The overall online video ad market, Jefferies said, will grow at about a 33 percent CAGR (compound annual growth rate) between 2014 and 2017.

MoffettNathanson listed a few key reasons for the downturn in traditional TV advertising.

"On the structural front, we continue to believe that there is a continued shift in TV budgets towards online video and display," the report said, pointing out Home Depot as an example, which dedicated 36 percent of its second-quarter advertising budget to digital.

"On the cyclical side, weakness in retail and autos were cited as drags on spending." Domestic box office, down for the summer despite a record August, was also to blame.

MoffettNathanson developed its ad tracker to estimate overall U.S. advertising revenues by quarter. The tracker relies on reported ad revenues by 36 U.S.-listed, ad-supported media companies, as well as advertising by major media, such as broadcast networks, cable networks, cable operators and local TV stations. Online advertising, radio, newspaper, outdoor and consumer magazine are also tracked.

For more:
- read the MoffettNathanson report (sub. req.)
- Deadline has this story
- read this Jefferies franchise note (sub. req.)

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