Google's UK advertising business will this year eclipse ITV, Britain's biggest advertising earner, according to analysis by the Guardian.
Figures released by the search giant reveal that the UK generated $969m (£593m) of revenue in the first quarter of 2011. On present growth rates of around 25% per quarter – which it has sustained since September 2009 – Google will rack up between $5.2bn (£3.2bn) and $5.6bn (£3.4bn) in the UK.
However to make the most accurate comparison of Google's and ITV's advertising revenues, it is necessary subtract the search engine's "traffic acquisition costs" (TAC), which Google pays to partners such as AOL or MySpace to acquire business. Those have run at 25% of revenue for the past five quarters.
On that basis, Google's total UK advertising income in the year will be between £2.4bn and £2.55bn, depending on whether one assumes 20% or 25% growth this year – well beyond the £1.7bn ITV will manage if it achieves a 15% rebound during 2011.
"The significance is that everybody who's advertising now wants to see a return for their spending, and on the internet you can do that exactly," said Lorna Tilbian, head of media analysis at Numis Securities. "Whereas for television, it's still the case that, in the famous quote, half your money is wasted, but you don't know which half."
The UK is the only country apart from the US where Google generated more than 10% of its revenues, and has been since it began offering detailed accounts in early 2004.
The two companies were already neck and neck for UK advertising income in 2010. Published accounts from Google show that its UK revenues for 2010 totalled $3.33bn (£2.04bn), which after 25% TAC amounts to £1.53bn.
By contrast, ITV's results for 2010 showed that its net advertising revenue was £1.496bn, up 15.9% from 2009. Total revenues, including sponsorship, itv.com and media sales income, was £1.77bn, up 14.8%.
But ITV's business, although growing this year, is not expanding as fast as Google's: encouraging growth in the first quarter was only 12%, and while it is expecting to have benefited from an advertising boost around the royal wedding in April, that is still not expected to push advertising growth beyond 15% to about £1.7bn – leaving Google in the lead. Even if its entire business grows at 15% for the year – beyond all current City forecasts - it will only bring in £2bn.
Tilbian pointed however to itv.com, the company's online portal for programming, as offering a path to internet growth where it would know its audience and be able to target adverts.
Overall, she suggested that there was little risk Google would not overtake ITV as the biggest source for spending. "They're about different things – Google is about searching, and ITV is entertainment for when you come back from a long day at work and you put it on and it's got The X Factor, or Coronation Street, or something else you can relax to. Then again, both are about people's time: ITV won't want to have them spending time searching when they could be watching. But the younger generation is capable of doing both at the same time anyway."
ITV has come through a torrid period in which advertising revenues dropped precipitously, so that overall receipts are no greater now than in 2006 – a period when Google UK was a relative minnow, with revenues of $1.6bn (£1bn), at a time when its TAC was about 30%. Since then the search engine has never seen a fall in year-on-year growth, and its quarterly revenues are typically four times larger than in 2006.
Google's overall first-quarter results showed that revenues grew by 26% year-on-year to $8.6bn and profits rose 18% to $2.3bn, but its shares fell as analysts worried that the company's expansion strategy and high spending would drive up expenses too far.
ITV had not responded to a request for comment at the time of publication.
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