Internet Advertising and Access Spending
Summary The Internet market consists of spending by consumers to access the Internet and spending by advertisers. The Internet also is used for communication, to purchase products, and for other purposes. While consumer use of the Internet for transactions is growing rapidly, we do not include that spending in the Internet totals. Online purchases of entertainment and media (E&M) products such as recorded music or online video games are counted in the Recorded Music and Video Game chapters, respectively, because our focus is on the content that is purchased and not the channel used to purchase it. Online purchases of other products such as airline tickets are not included in this Outlook because it is not E&M content. Internet growth in the Netherlands dropped to singledigits in 2006, the first sign of approaching maturity. Spending rose by 7.7 percent, less than half the 15.6 percent increase recorded in 2005. The slowdown occurred in the access component of the market, which slowed to 5.4 percent growth from 13.9 percent in 2005. Although broadband continued to increase at double-digit rates, its 14.6 percent advance was substantially less in percentage terms compared with prior years. The decline of dial-up also continued with a 31.6 percent drop. In 2006, dial-up comprised only 13 percent of total access spending compared with 74 percent in 2002. Internet advertising, by contrast, remained robust with a 41.2 percent increase.
We expect much faster growth in Internet advertising during the next five years. Internet advertising tends to follow the broadband because broadband users visit more websites, download more content, and buy more products online than dial-up users, making them more attractive to advertisers. With the broadband household universe expected to expand by a cumulative 47 percent during the next five years, Internet advertising will continue to grow at double-digit rates, although increases will moderate compared with the past five years. Internet advertising will total and estimated € 275 million in 2011 from € 137 million in 2006, a 15.0 percent compound annual increase. The overall Internet market will rise to € 2.3 billion by 2011, averaging 6.3 percent growth compounded annually. With the Netherlands having moved ahead of Western Europe in 2000-2001 in Internet penetration, its market during the past five years has grown more slowly than the region as a whole. The Netherlands’ share of Western Europe’s Internet spending dropped to 4.0 percent in 2006 from 5.5 percent in 2002. We expect the Netherlands’ share to continue to trend down, falling to 3.3 percent in 2011.
With Internet household penetration at nearly 79 percent in 2006, further growth in the Internet household universe will necessarily be limited. Moreover, with broadband accounting for 80 percent of Internet households in 2006, gains generated from the migration from lower cost dial-up to higher cost broadband, which fuelled growth during the past five years, will provide less of a boost during the next five years. In the near term, access spending growth will remain at high single-digit levels. By 2010, however, as the market approaches saturation, growth will decrease to low single-digit gains. For the forecast period as a whole, access spending will expand at a 6.3 percent compound annual rate, rising to € 2 billion in 2011 from € 1.5 billion in 2006.
84
Dutch Entertainment & Media Outlook towards 2011
Internet Advertising and Access Spending (â‚Ź Millions) Category
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Access Spending
988
1,097
1,276
1,454
1,533
1,648
1,754
1,852
1,925
1,993
% Change
15.4
11.0
16.3
13.9
5.4
7.5
6.4
66
97
137
170
200
225
250
275
65.0 47.0 41.2
24.1
17.6
12.5
11.1
10.0
2,077
2,175
2,268
Advertising % Change Total % Change Netherlands as a %
32 40 52.4
25.0
1,020
1,137
1,342
1,551
1,670
1,818
1,954
16.3
11.5
18.0
15.6
7.7
8.9
7.5
5.5
5.6 3.9 3.5
6.3 4.7 4.3
2007-2011 CAGR
5.4
15.0
6.3
5.1 4.7 4.6 4.0 3.8 3.6 3.5 3.4 3.3
of Western Europe
Sources: Interactive Advertising Bureau Netherlands, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates
Dutch Entertainment & Media Outlook towards 2011
85
Internet Access Spending The Netherlands is the leading territory in Western Europe in both overall Internet household penetration and broadband household penetration. In 2006, 78.8 percent of all households in the Netherlands were online and 63 percent of all households had a broadband Internet connection, the only territory in Western Europe with broadband penetration above 60 percent. For Western Europe as a whole, broadband household penetration averaged 40.6 percent and overall Internet penetration was 58.2 percent. Broadband growth accelerated in the Netherlands in 2004, and the Netherlands’ advantage over Western Europe as a whole widened, in part boosted by the Broadband Paper of 2004 that established goals for the broadband market. The Telecommunication Law passed in 2006 enables municipalities to partner with private companies in building fiber optic networks. A fiber optic network under construction in Amsterdam at a cost of € 300 million is expected to support more than 400,000 Internet users. Widespread availability of broadband also facilitated penetration. Digital subscriber line (DSL) is available to 99 percent of the population and cable modems are available to 90 percent of the population.
Broadband Household Penetration (%)
subscribers that already use broadband means that there is limited room for growth in the Internet household base and limited room for further migration from dial-up to broadband. We expect the number of Internet households to increase from 5.75 million in 2006 to 6.85 million in 2011, a 1.1 million gain. That gain will be 37 percent less than the 1.75 million rise in the Internet household universe that occurred between 2001 and 2006. Growth will average 3.6 percent on a compound annual basis during the next five years compared with 7.5 percent compounded annually during the past years. We expect that by 2011, there will be only 100,000 dial-up subscribers remaining, accounting for only 1 percent of the Internet subscriber base. For Western Europe as a whole, dial-up will account for 9 percent of all Internet households in 2011.
Internet Households (Millions) 8
6
4 Dail up Broadband 2
0 2002 2003 2004 2005 2006 2006 2007 2008 2009 2010
Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates
100 80 60 40
Netherlands Western Europe
20 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates
Of the Internet households in the Netherlands, 80 percent had a broadband connection compared with 70 percent for all of Western Europe. There were only 1.15 million dial-up subscribers in the Netherlands in 2006, down 30.3 percent from 2005, while the broadband household universe rose 16.5 percent to 4.6 million. The high overall Internet penetration rate and the large share of Internet
The broadband market has been spurred by competition between telephone companies and cable operators, both of which are offering attractive packages that combine high-speed Internet access with telephone service. Voice over Internet protocol (VoIP), a low-cost telephone service, is being offered by cable operators and telephone companies. Cable operators use the Euro DOCSIS (Data-Over-Cable Service Interface Specification) which incorporates VoIP while facilitating high-speed transmissions. Cable operators, of course, can also combine their I n t e rn e t H o u s e h o ld s broadband and telephone services with television in a 8 triple play offering. KPN, the leading telephone company, 6 is planning to compete in the television market with Mine, an Internet Protocol Television (IPTV) service, that it will 4 introduce in 2007. Competition also is evolving from a Millions price-based service for standard speeds 2– generally up to 0
86
2001
2002
2003
2004
Dutch Entertainment & Media Outlook towards 2011
2005
D ia l-U p
2006
2007
B r oa db
1.5 Mbps – to high speed options – 15 Mbps to 20 Mbps or higher – at premium prices. The added appeal of high speed options and triple play packages will further stimulate the broadband market, which we expect will increase to 6.75 million subscribers by 2011, an 8.0 percent compound annual advance. By 2011, broadband penetration will reach 89.1 percent of all households, and overall Internet household penetration will rise to 90.4 percent.
Internet Households (Millions)
Category
2002
2003
Dial-Up
3.81 3.49
% Change
8.9
–8.4
Broadband
0.80
1.40
% Change
60.0
75.0
Total
4.61 4.89
% Change
15.3
2004
2005
2006
2007
2008
2009
2010
2011
2.18
1.65
1.15
0.80
0.50
0.35
0.20
0.10
–37.5
–24.3
–30.3
–30.4
–37.5
–30.0
–42.9
–50.0
2.90 3.95 4.60
6.20
6.50
6.75
107.1 36.2
5.25
5.80
16.5
14.1
10.5
6.05
6.30
5.08
5.60
5.75
6.1 3.9
10.2
2.7
6.9 4.8 3.8 6.55
6.70
5.2 4.1 4.0
2.3
2007-2011 CAGR
–38.6
8.0
6.85 2.2 3.6
Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates
Internet Household Penetration (%) 2003
Category
2002
2004
2005
2006
2007
Dial-Up
54.4 49.2 30.7
22.9
15.8
11.0
Broadband
11.4
19.7 40.8
54.9
63.0
71.9
78.4
Total
65.9
68.9
77.8
78.8
82.9
85.1
71.5
2008
2009
2010
2011
6.8 4.7
2.7
1.3
83.1
86.4
89.1
87.8
89.1
90.4
Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates
Dutch Entertainment & Media Outlook towards 2011
87
The average broadband monthly fee fell 1.6 percent in 2006 to € 24.20. Broadband fees had been falling for a number of years, reflecting growing competition in the market. The drop in 2006 was the smallest during the past five years as the market moves into a new phase. While competition will continue to put downward pressure on fees for standard services, the availability of high-speed services at premium rates will put upward pressure on average prices as a growing share of the subscriber base trades up to faster speeds. We expect the average fee to drop by only 0.8 percent in 2007 and then stabilize in 2008. During 2009–2011, the average fees will rise as migration to faster speeds plays a larger role in the broadband subscriber mix. By 2011, the average broadband subscriber will pay an estimated € 24.40 per month, up 0.2 percent on a compound annual basis from 2006.
Netherlands’ share fell to 4.7 percent. As the Netherlands market approaches saturation, broadband growth will slow. With Western Europe behind the Netherlands in broadband penetration, it has more room to expand and we expect faster growth in other countries. Consequently, we look for the Netherlands’ share to continue to decline and project it to fall to 4.0 percent by 2011. Competition is not limited to broadband. There are a large number of Internet service providers (ISPs) vying for a dwindling number of dial-up subscribers. As with the broadband market, however, the rate of decline in dial-up fees moderated to 1.6 percent in 2006, the smallest decline during the past five years. With Internet subscribers abandoning dial-up, there is little to be gained from additional price cuts. We therefore expect that further price declines will be relatively modest and project prices to stabilize at € 13.95 per month during 2009–2011.
Broadband access spending will increase from € 1.3 billion in 2006 to € 2 billion in 2011, an 8.1 percent compound annual increase. We expect two additional years of double-digit growth, but as the rate of subscriber growth drops to single-digits, spending growth will drop to single-digits as well. Between 2002 and 2005, the broadband market in the Netherlands grew faster than that of Western Europe. The Netherlands’ share of the broadband access market rose from 5.2 percent in 2002 to 5.6 percent in 2004 and remained at that level in 2005. In 2006, however, the
Broadband Access Market
Category
2002
2003
Subscribers (Millions)
0.80
1.40
% Change
60.0
75.0
27.00
26.40
25.40
–2.9
–2.2
–3.8
Average Monthly Fee (€) % Change
2004
2005
2006
2007
2008
2009
2010
2011
2.90 3.95 4.60
6.20
6.50
6.75
5.25
5.80
16.5
14.1
10.5
24.60
24.20
24.00
24.00
24.10
24.25
24.40
–3.1
–1.6
–0.8
0.0
0.4
0.6
0.6
1,892
1,976
107.1 36.2
6.9 4.8 3.8
2007-2011 CAGR
8.0
0.2
Broadband Access Spending (€ Millions)
259 444
884
1,166
1,336
1,512
1,670
1,793
% Change
55.1
71.4
99.1 31.9
14.6
13.2
10.4
7.4
5.2
5.3
Netherlands as a %
5.6
5.5 4.4
8.1
5.6 4.7 4.5 4.3 4.2 4.1 4.0
of Western Europe
Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates
88
Dutch Entertainment & Media Outlook towards 2011
Dial-up access spending will fall from € 197 million in 2006 to only € 17 million in 2011, a 38.7 percent compound annual decrease. With the Netherlands adopting broadband faster than in other countries, its dial-up market has also fallen faster. The Netherlands’ share of the Western European dial-up market fell from 6.3 percent in 2002 to 2.8 percent in 2006. With the dial-share of subscribers expected to drop to only 1 percent in the Netherlands compared with 9 percent in all of Western Europe, the Netherlands’ share of dial-up spending will continue to fall. We expect that by 2011, it will be only 0.5 percent.
Dial-Up Access Market Category
2002
Subscribers (Millions)
3.81 3.49
% Change Average Monthly Fee (€) % Change
2003
2004
2005
2006
2007
2008
2009
2010
2011
2.18
1.65
1.15
0.80
0.50
0.35
0.20
0.10
8.9
–8.4
–37.5
–24.3
–30.3
–30.4
–37.5
–30.0
–42.9
–50.0
15.94
15.59
15.00
14.53
14.30
14.20
14.05
13.95
13.95
13.95
–2.9
–2.2
–3.8
–3.1
–1.6
–0.7
–1.1
–0.7
0.0
0.0
2007-2011 CAGR
–38.6
–0.5
Dial-Up Access Spending (€ Millions)
729
% Change
5.8
653 392
288
197
136
84
–26.5
–31.6
–31.0
–38.2
–29.8
–44.1
–48.5
5.5 4.1 3.3
2.8
2.2
1.5
1.2
0.8
0.5
–10.4
–40.0
59 33
17 –38.7
Netherlands as a % of Western Europe
6.3
Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates
Dutch Entertainment & Media Outlook towards 2011
89
With respect to access spending, broadband overtook dial-up market in 2004 and by 2006 was nearly seven times larger. By 2011, broadband will account for 99 percent of total Internet access spending. As recently as 2002, dial-up comprised 74 percent of access spending. Total Internet access spending will increase from € 1.5 billion in 2006 to € 2 billion in 2011, growing at a 5.4 percent compound annual rate. The Netherlands’ share of the Western European access market will fall to 3.8 percent in 2011 from 4.3 percent in 2006.
Internet Access Spending 2,000 1,600 1,200
Dail up Broadband
800 400
0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates
Internet Access Spending (€ Millions) Category
2002
Dial-Up
729
% Change
5.8
2003
2004
653 392 –10.4
2005
2006
2007
2008
2009
2010
59 33
2011
288
197
136
84
–40.0
–26.5
–31.6
–31.0
–38.2
–29.8
–44.1
–48.5
1,892
1,976
Broadband
259 444
884
1,166
1,336
1,512
1,670
1,793
% Change
55.1
71.4
99.1 31.9
14.6
13.2
10.4
7.4
Total
988
1,097
1,276
1,454
1,533
1,648
1,754
1,852
% Change
15.4
11.0
16.3
13.9
5.4
7.5
6.4
17
5.5 4.4 1,925
2007-2011 CAGR
–38.7
8.1
1,993
5.6 3.9 3.5
5.4
B ro adband A c c e s s Spe nding
Netherlands as a %
5.7
5.2
5.0 4.9 4.3 4.1 4.0 3.9 3.8 3.8
2,000
of Western Europe 1,600 1,200 Associates Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen 800 Millions of Euros 400 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Broadband
90
Dial-Up
Dutch Entertainment & Media Outlook towards 2011
Advertising Growth in the broadband household universe is fuelling Internet advertising. Broadband users spend more time online than dial-up users and visit more websites. Broadband also facilitates TV-like commercials that incorporate full-motion video and sound. This format has been effective on television and is now suitable for the Internet as 80 percent of online households connect via broadband. Advertisers are incorporating the Internet in their national campaigns, which has contributed to growth. The Internet is also used for transactions. In 2006, consumers spent nearly € 2.3 billion buying products (both E&M and non-E&M products) over the Internet. That total was 16.7 percent higher than in 2005. Compared with 2002, online purchases in 2006 were 2.4 times larger. Broadband users buy more products online than dial-up users and growth in the broadband universe contributed to growth in online purchases. With broadband continuing
Consumer Online Purchases (€ Millions)
Category
to expand we expect online purchases to also continue to expand, increasing to € 3.8 billion by 2011, a 10.8 percent compound annual gain. Although we are not counting online purchases in the Internet totals, they are an important driver of online advertising. As people buy more goods and services online, advertisers will spend more online to reach them. Internet advertising rose 41.2 percent in 2006 to € 137 million (excluding sponsored or keyword search), the third consecutive annual increase in excess of 40 percent. The acceleration in broadband household growth in 2004 coincided with an acceleration in Internet advertising growth. After rising by 25 percent in 2003, Internet advertising jumped 65 percent in 2004 and averaged 50.7 percent compounded annually during the past three years. Further expansion in the broadband household universe will continue to stimulate Internet advertising. With the broadband market approaching saturation, however, broadband subscriber growth will moderate.
2002
2003
2004
2005
2006
2007
2008
2009
Purchases
940
1,240
1,600
1,950
2,275
2,600
2,900 3,200 3,500 3,800
% Change
58.0 31.9
29.0
21.9
16.7
14.3
11.5
2007
2008
10.3
2010
2011
2007-2011 CAGR
9.4
8.6
10.8
2010
2011
2007-2011 CAGR
Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates
Internet Advertising (€ Millions)
Category
2004
2005
2006
66
97
137
170
200
225
250
275
65.0 47.0 41.2
24.1
17.6
12.5
11.1
10.0
2.2
2.0
1.9
1.8
1.8
Advertising1 % Change Netherlands as
2002
2003
32 40 52.4
25.0
2.5
2.5
2.5
2.4
2.3
13
17
24
2009
15.0
a % of Western Europe Advertising Per Internet Household (€) % Change
7
8
40.0
14.3
62.5 30.8 41.2
28 32 34 37 40 16.7
14.3
6.3
8.8
8.1
10.8
1 Display only.
Sources: Interactive Advertising Bureau Netherlands, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates
Dutch Entertainment & Media Outlook towards 2011
91
Accordingly, we anticipate more moderate gains in Internet advertising during the next five years. We project Internet advertising to rise to € 275 million in 2011, a 15.0 percent compound annual increase from 2006. Because broadband subscribers are more valuable to advertisers, we expect that advertising per Internet household will continue to grow as the broadband share rises. Advertising per household will increase from € 24 in 2006 to € 40 in 2011, a 10.8 percent compound annual gain. The Netherlands comprised 2.3 percent of Internet advertising in Western Europe in 2006, down from 2.4 percent in 2005 and 2.5 percent during 2002–2004. Paid search advertising, a significant driver in other countries, is not included in the Netherlands total, which accounts for the drop in share in the Netherlands. We expect the Netherlands’ share to edge down to 1.8 percent by 2010–2011.
92
Dutch Entertainment & Media Outlook towards 2011
Dutch Entertainment & Media Outlook towards 2011
93