The internet will this year overtake national newspapers to become the third biggest advertising medium by spend, according to authoritative forecasts.

By the end of 2007, internet advertising will close the gap on regional newspapers, the number two medium, but will still be well short of television, the biggest outlet in the £12bn-a-year media advertising market.

The projection, seen exclusively by the FT, underlines the pace of growth in internet advertising and the challenge to businesses reliant on traditional advertising revenue.

Excluding internet spending, total media advertising would be in recession with television, national and regional press reporting revenue falls this year, it said.

The report comes from GroupM, a WPP holding company which drew on data from the group's media buyers, MindShare, Media-edge:cia, MediaCom and MAXUS, which buy and plan more than 30 per cent of global media advertising.

It estimates the internet will take 13.3 per cent of the total media advertising market – excluding areas such as direct mail, public relations and market research – in 2006. National newspapers will take 13.2 per cent.

Although the difference between the two is slim and forecasts can be wrong, Adam Smith, futures director at GroupM, said analysts have tended to underestimate internet growth.

Mr Smith said: "Every year people think the internet must slow down because the growth rate looks high but it keeps going. Overtaking national newspapers is another milestone."

Search advertising, in which businesses pay to reach customers trawling on websites such as Google, accounted for more than half of web advertising in 2005. This is predicted to grow this year.

The 39 per cent forecast rise in internet advertising contrasts with a 9 per cent decline in national newspaper advertising revenue. GroupM predicts that by the end of next year, national newspapers will have seen their share of media advertising fall to almost two-thirds of its share in 2000.

Newspapers have responded by investing in their own websites and buying, at valuations well above mainstream publishers, online businesses, particularly those which have captured highly lucrative classified advertising.

Advocates of print point to its engagement with readers and ability to reinforce branding campaigns. But the medium's declining ability to reach the prized younger audiences is a concern.

While the newspaper market as a whole struggled to retain circulation, the red-top national dailies were being squeezed hardest, said Mr Smith. Red-tops faced greater competition from new media and tabloid-style weekly magazines. Some red-top advertisers, such as debt consolidation companies, had switched to multichannel television, and the failure of individual retailers has hit red-top revenues.

In recent years, almost all newspapers have benefited from investments in presses which allowed them to sell more premium-rate colour advertising. But the report warned that "supply keeps on rising and the current premium is hardly justified in terms of hard return on investment" from the advertisers' point of view.

GroupM said commercial television was in its "worst year since 2001" – the year that saw a media downturn and stock market slide after the September 11 attacks. It forecast a 2 per cent decline this year in TV advertising revenues, not adjusted for inflation, and a flat performance in 2007.

It calculated that ITV1, the biggest advertising-funded channel, would see an 11 per cent decline in advertising revenue this year.

While many large advertisers continue to value commercial TV's ability to reach large audiences quickly and large retailers have upped television spending, others have stayed away as audiences have spread more thinly over more channels.

The detailed GroupM report contrasts with a more sanguine, brief report on television from ZenithOptimedia, a rival media buyer owned by Publicis, the French marketing services group. ZenithOptimedia forecasts that UK television revenues before adjustment for inflation will grow by at least 1 per cent each year between now and 2010.

Chris Hayward, head of broadcast at ZenithOptimedia, said average television airtime prices were falling as audiences in commercial television moved from premium-rate advertising channels such as ITV1 and C4 towards cheaper multichannel broadcasters.

ZenithOptimedia predicts average airtime prices will fall 3.1 per cent this year, after a 1.6 per cent reduction last year.