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IAB/Pwc Reports Third Record Setting Quarter For Internet Advertising

Seventh Quarter of Consecutive Growth

New York, NY (Sept. 20, 2004) – Today, during Interactive Advertising World Conference and Expo, the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers released the Internet Advertising Revenue Report covering Q2 and the first six months of 2004. Internet advertising revenues (U.S.) for the first six months of 2004 were approximately $4.6 billion – a 39.7% increase over the first half of 2003. Internet advertising revenue totaled approximately $2.37 billion for the second quarter of 2004, representing a 42.7% increase over same period 2003. Q2 2004 revenues represent a 6% increase over Q1 2004. This report replaces the previously announced Q1 2004 estimate of $2.27 billion with the actual of $2.23 billion.

The Interactive Advertising Bureau (IAB) sponsors the Internet Ad Revenue Report, which is conducted independently by the New Media Group of PricewaterhouseCoopers (PwC). The full report is issued twice yearly at the full and half year, and top-line quarterly estimates are issued for the first and third quarters.

“Internet Advertising is without question taking share from the other media at this time and for good reason- marketers have figured out that online advertising is often the most cost effective medium for influencing both branding and sales results. This data is fuelled by recent public announcements that online ad budgets are dramatically increasing, for instance approximately 25% is going online for Ford’s Lincoln Mercury and approximately 50% for Vonage,” said Greg Stuart, President & CEO of the IAB.

“Not surprisingly, search continues its popularity, and his been embraced by advertisers due to its innate relevancy, the simplicity of the results and because advertisers can determine more precise response rates. In addition, for the first time in a number of years, we see a 25% growth rate collectively in Rich Media and Display Advertising,” said Pete Petrusky, Director, New Media, PricewaterhouseCoopers.

“The industry has been experimenting with different formats since the beginning, and while search has been the strongest format recently, we think that evolution process will continue. In fact, as broadband begins to reach critical mass in the home we think the number of traditional advertisers with branding objectives will further increase as it provides a better platform for more compelling media ads and video formats,” said Tom Hyland, Chair, PricewaterhouseCoopers New Media Group.

The following highlights key revenue data breakouts comparing the second quarter of 2004 with the same period in 2003:

Ad Formats – As compared to 2Q 2003, four formats experienced significant year over year growth. For example, Search has grown 97% in absolute dollars and Rich Media has grown 27% in absolute dollars.

2004 Q2 2003 Q2
Search $947M (40%) $481M (29%)
Display Ads $474M (20%) $382M (23%)
Classifieds $403M (17%) $282M (17%)
Sponsorships $213M (9%) $199M (12%)
Rich Media* $189M (8%) $149M (9%)
E-Mail $47M (2%) $66M (4%)
Referrals $47M (2%) $17M (1%)
Slotting Fees $47M (2%) $83M (5%)

2004, the “interstitial” format was combined within the “rich media” category. Dollar figures are rounded.

Industry Categories – In the second quarter of 2004, consumer advertisers continued to lead the way in online advertising spending, accounting for 49 percent of total revenues, up sharply from the same period last year. The top five categories include:

2004 Q2 2003 Q2
Consumer 49% 35%
Computing 18% 20%
Financial Services 17% 13%
Media 10% 12%
Pharmaceuticals & Healthcare 5% 5%

Pricing Models – CPM pricing as a percentage of the total mix remains constant vs. year ago, while straight performance deals rise slightly, increasing to 39 percent of Q2 2004 revenues, up from 35 percent reported for the same period in 2003:

2004 Q2 2003 Q2
CPM/Impression 44% 45%
Performance 39% 35%
Hybrid 17% 20%

About the Internet Advertising Revenue Report

Conducted by the New Media Group of PricewaterhouseCoopers LLP, the “Advertising Revenue Report” was started by the IAB in 1996, and represents data from all companies that report meaningful online advertising revenues. The results are the most accurate measurement of interactive advertising revenues because the data is compiled directly from information supplied by companies selling advertising on the Internet. The survey includes data concerning online advertising revenues from Web sites, commercial online services, e-mail providers, and all other companies selling online advertising. The full report is issued twice yearly at the full and half year, and top-line quarterly estimates are issued for the first and third quarters

About PwC

PricewaterhouseCoopers LLP (www.pwc.com), the world’s largest professional services organization, helps its clients build value, manage risk and improve their performance. The PricewaterhouseCoopers New Media Group — with offices in New York, Los Angeles, Seattle, San Francisco Bay Area, and Boston — combines content and technology specialists to provide comprehensive service to dynamic entrepreneurial companies. Services include business assurance services, ad delivery and privacy attestation and consultation, assistance with mergers and acquisitions, tax planning and compliance, governance, risk and compliance, capital structuring and employee benefits and executive compensation packages.

About IAB

Founded in 1996, the Interactive Advertising Bureau (IAB) represents leading interactive companies that are actively engaged in, and support the sale of interactive advertising. IAB members are responsible for selling over 86% of online advertising in the United States. On behalf of its members, the IAB evaluates and recommends standards and practices, fields interactive effectiveness research and educates the advertising industry regarding the use of interactive advertising. For more information please visit iab.com.