MORE than 8 per cent, and rising, of the $11.903 billion advertising market is now spent on the internet, up from just 5 per cent a year ago.

Internet advertising stole market share from classified directories, newspapers and free-to-air television last year, according to figures for 2006 just released by the Commercial Economic Advisory Service of Australia.

Only online advertising, pay-TV and outdoor generated significant growth in what was the slowest year for main media advertising since 2001.

Total growth slowed from 7.4 per cent in 2005 to 3 per cent. Excluding directories it fell to 4.94 per cent.

Mediacom chief executive Anne Parsons predicted the industry would pick up slightly. The Group M media buying alliance, which includes Mediacom, will release new forecasts based on econometric modelling by the end of May.

Rival agency OMD was a little less optimistic.

"I think we were looking at about 4 per cent overall, including online," chief executive Mark Coad said.

When the $1.306 billion classified directory sector is included, the $1.001 billion online advertising sector comprises 8.41 per cent of the total market, up from 5.35 per cent in 2005.

When it is excluded, the internet's share of advertising (including display, classifieds, search and online directories) jumps to 9.5 per cent. Online display advertising comprises 2.89 per cent, up from 1.92 per cent last year.

Most media buying agencies and analysts predict that internet advertising growth of 62 per cent during 2006 will slow this year, but a recent survey from digital agency Emitch (now part of the Mitchell Communications Group) and Roy Morgan indicated large advertisers expected to continue outspending the market, with 22 per cent of their budget set to go online.

Research firm Frost & Sullivan predicts the internet, which is already the third biggest medium (excluding directories), will grow at close to 30 per cent a year to almost $3 billion by 2010.

Publishers were reluctant to predict growth in the first quarter of this year before official figures are known, but News Digital Media sales director Paul Fisher said the market was "still outgrowing certain forecasts".

Meanwhile, classified directories revenue continues to move online, with the printed versions dropping 1.62 share points last year.

This report appears on australianIT.com.au