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Wednesday, August 8, 2001
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Veronis Suhler Forecasts Media and Publishing Industry Rebound
The Internet bubble may have
burst, but that doesn't mean the fizz has gone out of the
communications industry, even with serious pressures on consumer
and institutional spending affecting most media and information
sectors. Media merchant bank Veronis Suhler has released the 15th annual
edition of its Communications Industry Forecast (CIF), projecting
a marked spending slowdown in most industry segments this year.
However, the firm takes a more optimistic near-term perspective,
predicting overall industry growth at an annual rate of 5.6%
from 2001-2005, outpacing the 5% growth rate of the Gross
Domestic Product and reaching $738 billion in total spending
by 2005.
Veronis Suhler reports that both consumer and institutional
end-user spending on media and communications will remain strong
over the next four years. The consumer market includes spending
on cable & satellite services, box-office admissions, home
video/DVD rentals and sales, recorded music, newspapers, books,
magazines, video games, and Internet access. The firm projects
spending to advance at a slightly slower rate in 2001 before
rebounding in 2002, then going on to post a better than 5%
annual growth rate through 2005, reaching $180.5.
The 2001 CIF reports that consumer media usage will continue
to grow, albeit at a more modest pace than previous years.
After hitting 3,472 hours per year for the average American in
2000, media use is forecasted to increase 5% by 2005, reaching
3,650 hours annually, about 10 hours per day per person. Veronis
Suhler projects that time spent with the Internet and video
games will rise faster than other segments during the forecast
period of 2001-2005. Consumer spending on media will also rise
in 2001, the average person spending around $207 per year on
cable & satellite TV (a nearly 8% increase from 2000), $120 per
year on home video/DVD (a nearly 10% jump from 2000), and $33
per year on box-office entertainment (a nominal increase of 0.3%).
Veronis Suhler forecasts that annual spending totals per person
by 2005 will reach $266 on cable & satellite TV, $132 on home
video, and $36 on box office.
Like other industry watchers, Veronis Suhler sees a decline
in ad expenditures for 2001, but by a modest margin of 1.1%,
as advertisers reduce budgets in the wake of the economic
downturn and dot-com shakeout. However, the firm projects that
ad spending will bounce back crisply in 2002 and will grow at
a compound annual rate of nearly 5% in the forecast period to
reach $225 billion in 2005. By that year, Veronis Suhler expects
the top three media categories in terms of total spending will
be cable & satellite ($98 billion), entertainment ($82. billion),
and newspapers ($79 billion).
Below is a summary of Veronis Suhler communications industry
forecast projections across various segments:
Communications Industry Segment Highlights
- Cable & Satellite TV
Spending on cable & satellite advertising jumped 18.5% to $13.8 billion
in 2000 and forged ahead at a compound annual growth rate of 19.7% from
1995-2000, fueled in part by improved quality and growing popularity of
cable programming. Cable & satellite advertising spending is expected
to expand at a compound annual rate of 11.6% from 2000 to 2005,
reaching $23.8 billion in 2005.
End-user spending on cable and satellite subscriptions is forecast to
rise 7.4% to $207 billion in 2001, up from $192.8 billion in 2000.
Consumer spending is expected to inch even higher in 2002, 7.5% to
$222.7 billion, before growth slows to 6.6% in 2003, and 5.9% in both
2004 and 2005.
- Entertainment (box-office entertainment, recorded music, and
interactive entertainment)
Box office receipts remained virtually stagnant in 2000 at $7.5
billion, despite the booming economy that led to higher consumer
expenditures across almost all communications categories. Box-office
spending rose at a compound annual rate of 6.3% from 1995-2000. Growth
will slow to 3.3% compounded annually in the forecast period to reach
$8.8 billion in 2005 as the economy cools down and admissions growth
slows.
Veronis Suhler forecasts that total entertainment spending will rise
6.2% in 2001 compared to 6.5% in 2000. Interactive spending will see
the largest increase in 2001, growing 12.7% compared to 2.8% in 2000.
- Newspapers
Newspapers remain a mainstay of the communications world, weathering
competition from the websites, particularly those with classified
advertisements. The largest segment of the communications industry in
2000, newspapers will fall to #3 behind entertainment (#2) and cable &
satellite TV (#1) by 2002. While daily circulation was down 0.6% to
57.3 million in 2000, U.S. demographics favor solid circulation
numbers. The population is aging and statistics show older people read
more newspapers -- helping to somewhat reverse a downward trend during
the forecast period and perhaps beyond.
Total spending on daily newspapers will achieve compound annual growth
of 3.4% in the forecast period, compared with 5.3% in the 1995-2000
period largely because of a weak 2001.
- Broadcast Television
Advertising spending on broadcast TV rose 11.1% in 2000, compared to a
4.4% jump in 1999, reaching $44.4 billion compared to $40 billion in
1999. Both television networks and individual stations benefited from
a hotly contested and historic presidential election as well as other
political races as candidates funneled money into network and spot
advertising. However, with the absence of political and Olympics-
related advertising, along with the evaporation of promotions related t
to the new millennium and the census, and the drop-off in dot-com
spending, Veronis Suhler projects total spending on broadcast TV to
drop 2.5% to $43.3 billion in 2001.
Veronis Suhler expects a recovery in 2002 when the Olympics in Salt
Lake City, Utah, commence. These Games are expected to have a more
positive impact on advertising growth than the 1998 Games, because of
the domestic location and time zone. Olympic spending is projected to
fuel an 8% gain in 2002. As in the past, growth is expected to heat up
in 2004, a Presidential election year, and then slow down in 2005, the
year following the election.
- Consumer Internet
Veronis Suhler projects that by 2005, 68.4 million households (or 88%
of all "computer" households and 63% of all American homes) will be
online. Furthermore, it is expected that the compound annual growth
rate of Internet households will slow to 6.9% during the 2001-2005
forecast period, down from 39.1% during the 1995-2000 period.
Consumers spent $11.6 billion on Internet access in 2000 compared with
$9.4 billion the prior year, an increase of 23.6%. Veronis Suhler
expects that by 2005 the average annual spending per household for
dial-up Internet access will reach $243, while access via cable modem
and DSL will total $300 and $420 per year per household, respectively.
Total access spending is expected to exceed $18.4 billion by 2005,
advancing at a compound annual growth rate of 9.6%. Advertising
spending is expected to rise to $9.9 billion by 2005, increasing at a
3.8% compound annual rate, and by 2005, total Internet spending is
expected to reach $28.3 billion.
- Radio Broadcasting
One of the fastest-growing media segments overall from 1995-2000, Radio
was rivaled only by the Internet in terms of advertising growth last
year. Veronis Suhler forecasts that radio advertising will be down
slightly, 0.7%, in 2001 from 2000 with local spot advertising flat
(0%), national spot down 3.5%, and radio network advertising down 0.5%.
Expenditures on national spot advertising will continue to rise at
slightly higher rates than local spot ads during the forecast period of
2001-2005. By 2005, national spot expenditures will reach $5.2 billion,
growing at a compound annual rate of 7.2% from 2000. By 2005, local
spot expenditures will reach $20.3 billion, growing at compound annual
rate of 6.7% between 2000 and 2005.
Total spending on radio advertising grew 12.6% to $19.1 billion in
2000, led by an 18% gain in national spot advertising and an 11.5%
surge in local advertising. Veronis Suhler predicts that total radio ad
expenditures will expand at a compound annual rate of 6.8% from 2000-
2005, reaching $26.5 billion in 2005.
- Consumer Magazines
After recording a banner year in 2000, magazine consumer ad spending
will decline in 2001, but will rebound substantially from 2002-2005.
The outlook for next year is for the return to positive revenue trends
as advertisers will seek to recover and reinforce share, and prevent
competition from getting ahead. Circulation erosion, particularly at
newsstands, is likely to persist. As subscription marketing continues
to search for an effective replacement for the stamp houses, it will
not reverse the decline of single-copy sales. Circulation revenue will
post a sustained positive trend, however, as prices for single copies
and subscriptions continue to grow and offset unit losses.
Meanwhile, the consumer magazine market as a whole will post a compound
annual growth of 3.7% during the period, reaching revenues of $25.5
billion in 2005, according to Veronis Suhler. Advertising expenditures
will rise at a 4.5% compound annual rate in the period, while
circulation spending will increase 2.5%.
- Business-to-Business Communications
Growth of spending on business-to-business magazines will decline in
2001 for the first time in a decade due to the slowing economy,
conservative budgeting by advertisers, and less dot-com and technology
ad spending. But Veronis Suhler expects spending on B-to-B magazines to
bounce back in 2002 with a 6% growth spurt to $9.7 billion over 2001's
$9.1 billion, which was a 7.1% drop from 2000. Spending on B-to-B
magazines is projected to wind up the forecast period with nearly $11
billion. Trade shows and exhibitions, which grew at 6.7% from 1995-
2000, will outpace business magazines by growing a robust 6.2% from
2000-2005.
Despite a slower-growing economy in 2001, Veronis Suhler forecasts
total trade show spending to increase at a compound annual rate of 6.2%
from 2000 to 2005, hitting $8.8 billion in 2001 and reaching $11.3
billion in 2005.
Veronis Suhler projects that ad spending in healthcare (the largest b-
to-b category in terms of circulation) will drop 35% in 2001 but will
bounce back sharply in 2002 and will enjoy healthy growth rates for the
rest of the forecast period of 2001-2005. Ad spending in the
construction category will be flat in 2001 with healthier spending to
resume for the balance of the forecast period. Veronis Suhler predicts
that, after a rough 2001, technology ad spending will rebound in 2002
and grow between 3 and 5% for the remainder of the forecast period.
Overall, total spending on business-to business communications grew 4.9
% to $18.2 billion in 2000, fueled by a strong economy and solid
corporate profits, which drove up spending on business-to-business
magazines and trade shows and will grow at 4% from 2001-2005.
- Consumer Books
Spending on consumer books fell 1.6 percent in 2000 to $17.8 billion,
due primarily to a slump in adult trade book sales. By 2005, Veronis
Suhler projects that total spending on hardcover books will rise to
$6.8 billion from $6.6 billion in 1999. Spending on hardcover books in
2001 is expected to rise 1.4% while spending on paperback books
increases 1.6%.
For the third year in a row, spending on juvenile books outpaced other
categories, growing 14.5% in 2000. Juvenile books are expected to
account for 19.1% of all consumer book spending in 2001.
Online book retailers like Amazon.com and Barnesandnoble.com are
expected to grow sales at a compound annual rate of 11.4% from 2001-
2005, attaining sales of $2.5 billion, or 12.4% of all consumer book
sales, in 2005.
- Advertising, Marketing Services & Specialty Media
Spending in the Advertising, Marketing Services & Specialty Media
category totaled $305.5 billion in 2000, up 9.8% from the previous
year -- the sector's strongest growth rate in five years. Veronis
Suhler forecasts 1.3% growth in the sector for 2001, compared to 9.8%
in 2000, as more companies combine their advertising, marketing and
specialty media efforts under one budget and marketing strategy.
Advertising spending alone climbed 11.1% in 2000 to $177 billion,
spurred by double-digit growth in television, radio and consumer
magazines -- as well as Internet advertising. Declining stock
valuation, along with evaporating cash and liquidity in the second
half of 2000, slowed the runaway Internet advertising trend. Veronis
Suhler says advertising spending growth will fall off in 2001 with a
growth rate of -1.1%.
Meanwhile, spending in the marketing services and specialty media
sectors is expected to grow 4.6% in 2001, compared to 7.9% in 2000,
according to Veronis Suhler. Advances in technology will continue to
spark growth in point-of-purchase promotions in 2001. A move toward
higher quality premiums -- the giveaways that marketers use to promote
products -- is expected to spur stronger growth in 2001.
- Professional, Educational & Training Media
Combined spending on professional, educational, and training media
reached $38.7 billion in 2000, fueled by increased expenditures in
each of the four segments of these markets - professional, El/Hi
(elementary/high school), college, and outsourced corporate training.
Veronis Suhler expects spending to rise 6.1% to $41 billion in 2001
and to continue to climb during the forecast period of 2001-2005,
reaching $53.8 billion in 2005.
The largest of the three categories in this segment is training media,
which is projected by Veronis Suhler to rise at a compound annual rate
of 7.6% during the forecast period to $27.8 billion in 2005.
- Business Information Services
Veronis Suhler projects total spending on business information
services to reach $65.7 billion in 2005, placing it among the largest
communications industry segments. In the shorter term, total spending
in the category is expected to slow in 2001, growing at 5.5% to $50.1
billion, compared to 7.3% growth and $47.5 billion in 2000.
Economic and financial information services, the largest areas of the
sector, will grow 5.7% during the 2000-2005 forecast period to $17
billion.
Marketing, the second largest business information services area
with 31% of the sector's expenditures, will see a 5.4% increase
in end-user spending in 2001 to $15.5 billion.
For more information on the Veronis Suhler CIF,
visit veronissuhler.com.
The 2001 Communications Industry Forecast sells for $1,995.
Veronis Suhler is an
independent merchant bank dedicated to the media,
communications, and information industries.
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