Local media ad revenue is expected to rise from $132.9 billion this year to $151 billion in 2017, or a compound annual growth rate of 2.8%, according to BIA/Kelsey's updated "U.S. Local Media Forecast." In March, the firm projected local media ad revenue to hit $148 billion in 2017 at an annual rate of 2.3%.
The primary driver behind the faster growth is a boost in online advertising, which is expected to rise at a rate of 13.8% per year, from $26.5 billion in 2013 to $44.5 billion in 2017, according to BIA/Kelsey. Traditional advertising is expected to remain flat over the same period, starting at $106.4 billion this year and ending at $107 billion in 2017.
"The economy is chugging along, and local media is still an important part for national and local advertisers," says Mark Fratrik, chief economist at BIA/Kelsey.
Fratrik pointed to several factors that he says will drive local ad revenue higher over the next five years, including an improving economy, 2014's elections and Olympics, as well as ad spending around the Affordable Health Care Act.
Currently, the economy is still not as robust as many would like it to be after four years of recovery, Fratrik says, slowing consumer spending and advertising.
"We tend to try to be a little conservative," he says of overall projections, "but I think the economy is growing a little faster than we thought a few months ago. Employment numbers are good, not spectacular, and businesses seem to be doing well."
Fratrik doesn't think this year's downbeat holiday spending forecast would have much of an impact on ad spending over the next few years.
"If the holiday sales are less than what many retailers wanted, they're going to have excess inventory at the end of the year and they'll want to move that," Fratrik says. "And it still will be a decent year for retail. Consumer spending is still somewhat strong."
The ad outlook will be rosier next year, with the year bookended by the Winter Olympics in February and the midterm elections in the fall.
The election "certainly helps media in states that will have close political campaigns. The recent decrease in the president's popularity might lead to more competitive senatorial races, which might mean more advertising spend," Fratrik says.
The also report breaks out the share of ad revenue attributed to print and over-the-air versus online and digital for Yellow Pages, newspapers, television and radio, the first time BIA/Kelsey has made such a distinction.
"We're bullish about the traditional media moving into online sales," Fratrik says. Online “is really where the growth is going to be."
Fratrik expects there to be a rise in online spending over time. “Even by 2017, it still will be in the 4% to 7% range of local TV and radio stations. Newspapers have a much higher percentage because they got started earlier and their traditional sources of revenue are decreasing.” [Editor’s note: A previous version of the story asserted that political spending at TV and radio stations would rise 4% to 7%. Fratrik later clarified that it is online spending that is expected to rise 4% to 7%.]
Newspapers print ad revenue continues to decline, and is predicted to fall to comprise only 9.1% of the total local ad revenue pie by 2017. Local newspaper’s digital share is expected to remain steady, accounting for 2.4% by 2017.
Broadcast TV and radio are expected to decrease slightly — 14.6% and 10.6% of the total by 2017, respectively — while their digital sides will grow slightly, with TV at 0.7% and radio at 0.5% by 2017.
Print Yellow Pages will continue to slide, with ad revenue decreasing to 1.5% in 2017, while its digital revenue is expected to rise to 1.9% of the total.
As for mobile, Fratrik says the category is more aggressive than it has been in the past. “We think it’s going to grow even faster, and the overall local market is going to grow a little faster than we had thought in the past,” he says.
“A good portion of the advertising for mobile isn’t display ads, it’s paid search,” Fratrik says.
Location-targeted ad revenue is mobile’s fastest growing segment, growing at a faster pace than the overall mobile category. Fratrik says mobile’s ability to geotarget consumers “obviously has a great attractiveness to advertisers.”
BIA/Kelsey forecasts that the segment will increase from $2.9 billion of a $7 billion total mobile ad market in 2013 to $10.8 billion in 2017, making up 52% of an expected $20.7 billion in overall mobile ad spending in 2017.
“Our previous estimate for mobile in 2017 was going to be 6.1%,” Fratrik says. “Now it’s up to 7.1%.”