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Low-Cost Online Rivals Hurt Major Net Publishers
Paul McIntyre, The Age

Major online publishers have slashed their advertising rates by up to 60 percent on vast blocks of inventory as a string of offshore "affiliate" advertising networks and local start-ups woo advertisers with new, low-cost online advertising space.

Former Nine Network sales director and Channel Nine Melbourne boss Paul Waldren is the latest media executive to launch a new internet ad sales venture, Full Circle Digital.

Mr Waldren's equity partners are the Ten Network's former strategic sales boss Brian Gallagher, who runs the branded content group Full Circle Entertainment, and the former ad sales director for The Age and APN Outdoor, Peter Barrie.

The company is expected to finalise a string of deals in the next six weeks as the ad sales representative for a number of as yet undisclosed websites.

Full Circle Digital is one of at least a dozen online ad networks to emerge in the past 12 months, offering new online inventory to buyers and putting margin pressure on the major publishers.

Ninemsn and Yahoo!7 refused to comment on the trend although Fairfax Digital confirmed the big players were struggling to extract higher prices on anything but premium content such as travel, automotive, business and home pages.

Some of the country's largest online advertising buyers predicted online ad rates would fall overall by up to 10 percent next year despite unprecedented online ad demand – an extra $400 million is forecast to flow into the $1 billion sector next year.

"For us it's a deflationary market and will be for the rest of 2007," said OMD managing partner Leigh Terry. "Prices will probably be off 5 to 10 percent. Generally, pricing is coming down across everything.

"There's an awful lot more buying points in the market and that's making it much more of a buyer's market than it's been in the past.

"The big area which is coming down significantly is the 'run-of-network'. It's off 50 to 60 percent, if not more and that's across the market. It's not just the big five publishers feeling it."

Overseas affiliate networks such as ad 2-one aggregated independent website users and sold them as low-cost, mass "run of network" audiences, said Emitch's chief executive, Lee Stephens. Their arrival was therefore having a major impact on pricing.

"The top publishers through the year have had two price rises, some of them amounting to 15-25 percent each," Mr Stephens said. "But at the same time we've had a large number of overseas affiliate networks arrive here, which is reducing the cost of reaching the mass part of the market."

Fairfax Digital sales director Liam Walsh said premium content was holding its pricing levels – home page ads for smh.com.au, theage.com.au and ninemsn and Yahoo!7, for example, were being sold on half-day rotations and were booked out until Christmas.

He acknowledged there was broader downward pressure on advertising prices but said it was only short term.

"That's happening right now and will continue through to the end of March," he said.

Mr Walsh predicted bigger online budgets from "brand advertisers" would emerge in the June quarter and reverse the pricing squeeze.