Record Breaking Quarter: Digital Ad Revenues Cross $10 Billion Mark For The First Time

With the third consecutive year of double-digit annual growth, digital advertising revenues hit new records in 2012, according to the IAB’s annual Internet Advertising Revenue Report conducted by PwC. Released today, the report shows a 15% rise to $36.6 billion in U.S. digital advertising revenues in 2012, with Q4 revenues topping $10 billion for the first time.

Coming in at $10.31 billion, Q4 ad revenues increased 14.9% from the prior year and were up 11.6% from Q3, outperforming the overall media market. Nielsen Company and Kantar both estimated that total media revenues grew just 3% in 2012. Mobile saw triple-digit growth again this year, and digital video remained the fastest growing sector of the display market.

On the IAB briefing call today, PwC’s David Silverman pointed to three main trends driving this growth. First, the increasing use of multiple screens is leading to new available ad inventory. Second, new ad formats are available for mobile devices featuring improved screen resolutions.  And third, the industry is meeting the growth in mobile with better ways to sell advertising on those devices.

Mobile may have broken out this year, but search remained strong, accounting for 46.3% of the online ad market in 2012 (down negligibly from 46.5% in 2011). Search revenue grew 14.5%, totaling $16.9 billion compared to $14.8 billion in 2011. These numbers do not include mobile search, which is now captured in the Mobile format. Mobile claimed the biggest increase in market share, growing 111% in 2012 to $3.4 billion in revenues.

Performance-based pricing (fueled by search) continued to gain preference. 66% of total ad revenues came from performance-based ads, up from 65% in 2011. CPM pricing saw an uptick as well, rising to 32%. Both formats took their growth from Hybrid which fell from 4% to 2% of total revenues.

When compared to other ad-supported media in the U.S., internet continues to gain significance. At $36.6 billion, internet advertising revenues stayed ahead of cable TV ($32.5 billion), which it surpassed in 2011, and came closer to closing the gap with the leading ad revenue source, broadcast TV ($39.6 billion). [Update: This sentence was edited to reflect the correct cable TV revenues of $32.5, not $36.6 as previously reported.]

The growth of internet advertising revenue has outpaced other media every year since 2005. The recession year of 2009 is the only year internet advertising has not experienced double-digit growth. In comparison, no other media has seen double digit growth since 2005.

Looking ahead, social will play a larger role in the digital landscape, predicts Linda Gridley of Gridley & Company which released its findings with IAB today.  Gridley sees that “social is entering the enterprise” and says that mobile and social are the underpinnings in the future growth of digital advertising. Faster networks and more TV programming coming online are fueling digital video, and advertisers are just now catching up with consumer behavior trends in watching digital video on mobile devices.

Gridley & Company points to research showing that in Q1 of this year, as live primetime viewing among 18-49 years old has fallen, advertisers are finally shifting budgets from TV to online.

In 2013 we’re likely to see continued growth in mobile and digital video as advertisers evaluate their budget alignments in light of multi-screen usage trends and TV content becoming more prevalent online through TV Everywhere and traditional streaming channels.  And in Search, it is yet to be seen how that segment will be affected by the impending roll-out of AdWords enhanced campaigns and Bing Product Ads this summer.

Postscript: See also The Crazy Way The IAB Defines Internet Ad Revenues and Mobile Ad Revenues $3.4 Billion, Search The Biggest Contributor.