Local online ad revenues have shown impressive growth lately, but a new report by Borrell Associates suggests that those gains would have been more substantial if it hadn’t been held back by bundling traditional and non-traditional media. The signs that ad sales based on “convergence” were crippling local websites’ growth have been building over the past two years and Borrell believes that by next year, such deals will be all but abandoned. And if the practice isn’t being severely cut back, Borrell’s report, 2008 Local Online Outlook: Convergence Era Ends, Stand-Alone Sales Skyrocket, which is scheduled to be released next week, makes the case that it should be.

The critique of convergence is placed within the context of rising local online ad revs, projecting growth of 47 percent this year to $8.5 billion and 44 percent to $12.5 billion in 2008. The implication being that on its own, local online advertising will rise higher.

-- The failure of convergence: “The notion that a single operation can deliver content to multiple outlets has never worked for local media in the past, especially when it comes to expecting a single rep to sell multiple media products. God bless them for trying, but I seriously doubt that any web operation can grow to its full potential without being significantly separated from its parent,” the report states. In terms of models of online success, Borrell points to Google (NSDQ: GOOG), Yahoo (NSDQ: YHOO), AOL (NYSE: TWX), eBay (NSDQ: EBAY), Amazon.com (NSDQ: AMZN). That most of these companies have high profile links with old media - e.g., the Yahoo Newspaper Consortium - isn’t the point; it’s that none of these companies achieved stellar growth as a subsidiary of a traditional media company. “When one of them tried to marry up with a traditional media company (AOL and Time Warner), look what happened.”

-- Convergence failed newspapers: Local newspapers represent a perfect example of the failure to increase online revenues through “convergence” efforts, according to Borrell. As print sales fall, newspapers have depended more heavily on convergence sales. Because of the attempts to mix old media and new, the advantages associated with online ads become diluted. In the end, most large newspaper publishers saw their online advertising slip below a 20 percent growth rate this year—well below the overall 44 percent growth of the local market in total, with the “pure-play” internet companies taking the number-one slot in terms of their share of local ad dollars this year.

-- Why convergence failed: As Terry Heaton explained in an email report about Borrell’s findings, convergence “hides the real potential of the web and discourages value creation and genuine innovation.” Those who use convergence see the web as an added-value tool and relegate online advertising to a supporting role as opposed to a separate media form.

-- Video ad gains projected to triple in 2008: Online video ad sales will triple in sales, going from a $401 million category this year to nearly $1.3 billion next year. Almost as notable: Borrell’s view that local video ads will grow twice as much as national video ads. The reason for the difference is that national relies mostly on lower-cost 15-second pre-rolls, while most local video tends to trade in more expensive longer-form “infomercial” style spots.  Secondly, local cable, newspaper and TV operators have also been particularly aggressive in pursuing video ad sales this past year as well. Local video is further enhanced by the shrinking of banner ad spend. Next year, after a decade serving as the dominant ad form, local banner advertising will slip to a single-digit growth rate.