15.1.07

A media search party to last all year

2007 is likely to be watershed year in digital media in Australia

Michael Sainsbury
sainsburym@theaustralian.com.au

There will be more activity than ever before in terms of mergers and acquisitions, partnerships and the sheer weight of cash being flung at the online operations of Australia's major media groups. But the single biggest focus will be on the internet's boom business of search.

The word floating around the local online sector is that revenues across the three main businesses of the net - banner/display advertising, classifieds and search - crossed the magic $1 billion mark in 2006.

It's hard to get a truly accurate picture because there is limited visibility of the revenues of one of the biggest players: Google. For those who've been napping, it's certainly time to take the worldwide web seriously. While that's still short of the big guns - newspapers about $4 billion and television about $3 billion - it's growing much, much faster.

In fact, during December, the media buyers who have traditionally stitched up annual deals with the TV stations and print media at that time, were also inking similar deals with the so-called big six of the internet in Australia.

Well that's not entirely true, only four of the big six focus on the display advertising for which traditional media buyers want to strike annual deals: News Limited (publisher of The Australian), Fairfax, Ninemsn and Yahoo7. That leaves Google, which is just in search right now, and Telstra, which pulls in access revenues on its BigPond arm and mainly classifieds through Sensis and Trading Post.

The latest money-go-round will be fuelled by the two media deals at the close of last year by the nation's two biggest television moguls - James Packer and Kerry Stokes - to sell 50 per cent of their media assets to private equity firms.

This means that two of the big six online players - PBL Media and Seven Media - are cashed up. As well News, by dint of its global size, is always cashed up, if you like - as is Google. Telstra too, has plenty of money to spend, particularly on Sensis and BigPond, which are its designated growth businesses.

Only Fairfax, in the midst of a deal to expand through its purchase of Rural Press, might appear strapped for cash.

Still, there are unlikely to be any mega M&A deals in Australia's digital media or online sectors.

It's not like this clever country is producing ventures such as MySpace, YouTube, Bibo or the latest web-based social networking sensation, SecondLife.

Sure, the occasional small deal, such as last week's low-million purchase of online ticketing group Moshtix, will pop up from time to time, and there is plenty of money out there sniffing around.

Rather, local digital media groups will pump funds into growing their existing businesses. Which takes us back to search.

The $1 billion of Australian internet revenue last year was roughly split evenly across the main categories: display, classifieds and search.

Display advertising, which is more predictable, is expected to grow about 30 per cent this year. Classifieds growth is slower at about 20 per cent but search is tearing ahead at somewhere over 50 per cent, perhaps as high as 70 per cent.

Such growth will pull Australia into line with other countries where search is already the biggest, and fastest-growing, category.

But the Australian market is distorted in search too. Google has 80-85 per cent of the search market - in the US for instance it's under 50 per cent. MSN and Yahoo hold low to mid-single digit shares and so much for the rest at this stage.
Much of the action has been, and will continue to be, in local search, the online category that threatens Telstra's Yellow Pages in the medium term.

But Telstra's bid to best Google with Sensis search has failed so far. News's TrueLocal has found only a very limited market and Ninemsn's Mylocal has been the sector's biggest (although possibly cheapest) dog.

So this year, expect redoubled efforts from News and MSN to wrest some share from Google, and Yahoo is likely to launch a local search product in Australia some time this year.

As for Fairfax, its search strategy remains unclear, with its relationship with Yahoo7 not on the most solid footing.

After licking their wounds (counting their losses) and dozing off for a few years after the tech boom/bust, Australian digital media wannabes woke up with a start last year, all naming new chiefs and finalising alliances: Yahoo7 was formed, as was News Digital Media.

Unencumbered by too many legacy businesses, PBL got a great jump-start on its rivals with its market-leading Ninemsn portal - which takes the biggest share of display ads - and its leading job and car sites. However, it's certainly no guarantee that it will finish in first place.

For evidence of how quickly new companies can run over the top of longer and better established rivals, look no further than Google vis-a-vis Yahoo, Microsoft and others no longer with us.

And Google is certainly where all eyes will be focused, one way or another, in 2007.

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