Seek float a success, but is it all blue sky?

SYDNEY - The success of classifieds website Seek's float this week begs the question: is the future for internet advertising so strong and should its newspaper rivals be shaking in their shoes?

Seek roared onto the market on Tuesday, making a packet for Kerry Packer's Publishing & Broadcasting which spotted its potential in 2003, after newspaper publisher John Fairfax Holdings walked away from a stake.

The publisher of The Age and The Sydney Morning Herald took a lot of flack for not jumping aboard Seek, particularly as its internet rival has 14 per cent of the market and is forecasting a further raid on market share.

Last week Fairfax fought back against the criticism, denying it let Seek slip through its fingers.

"We were not an unwilling buyer but they were an unwilling seller because of what we perceived to be their perfectly legitimate desire to remain a pure play," a Fairfax spokesman said.

Fairfax also took a swipe at Seek's prospectus, saying Seek's claims that online job advertising had advantages over print media were either subjective or wrong.

It is a view the market ignored when Seek floated, as investors pumped the shares up A20c on the A$2.10 ($2.26) issue price, pushing the value of PBL's initial A$33 million investment for 25 per cent of Seek to A$161.1 million.

EL&C Baillieu media analyst Ivor Ries there was a lot of room for Seek to expand, despite the slowing of advertising growth, at a time when newspaper classifieds were facing a squeeze.

"There is no doubt that online share of job advertisements has been increasing and will continue to increase," Mr Ries said.

CommSec analyst Olivia Cartwright said Seek had snaffled 14 per cent of the employment classified market and was poised to take more from Fairfax and Rupert Murdoch's News.

"Seek says that they are are three years behind the penetration in the United States, which is at 22 per cent at the moment, so there is still some growth," Ms Cartwright said.

Mr Ries said the increasing penetration of broadband was a factor driving a rise in internet advertising.

"On dial-up flicking from page to page online is laborious, on broadband it's much faster," he said.

"We expect online advertisers to get more revenue as more people move on to broadband."

He also said the "online guys" would be more insulated as advertising growth contracted to about five or six per cent in the second half of 2005.

"Their ads are very cheap relative to the print ads, so in a downturn where companies are cutting back their budgets they are more likely to cut their A$2000 or A$3000 ad in the newspaper than the A$50 ad from Seek.

"Fairfax has more 60 per cent of the capital city print jobs market and they are the ones that will suffer most of all."

But is it all over for the print guys, leaving clear blue sky for Seek?

Mr Ries said Fairfax had a fair point in claiming that the cyclical market was merely at a high point and there was a lot of strength left in the business.

"There is no doubt about that, but it doesn't mean Seek's business will fall over during the next slump in job advertising, I don't think so.

"They are probably going to weather the storm better than the print guys."

Ms Cartwright said while Seek was a great company it could face competition issues, including from Fairfax which is a smaller player online.

"My view on Seek is they have been able to create scale and probably get a premium for their ads - but Fairfax can start to replicate that.

"What I'm saying is that Seek is not a natural monopoly.

"As a job seeker I have no loyalty to Seek, nor does any advertiser, so once someone else builds up enough scale, and they could do that by offering lower prices, then Seek can't keep charging the premiums."

- AAP