This article orginially ran in Mediaweek on August 4th
Study: Consumers Spend More Time With Paid Content
Aug 4, 2009
By Georg Szalai
U.S. consumers last year—or the first time—spent more time with media that they paid for than with advertising-supported media, according to the annual Communications Industry Forecast from private equity firm Veronis Suhler Stevenson released Tuesday morning.
In fact, advertising became the smallest of the four major sectors tracked by VSS in 2008—a first since it began tracking the industry in 1986. VSS also projects that advertising will only return to growth mode in 2011.
Total spending on communications, including advertising, consumer spending and other, rose 2.3 percent in 2008 to $882.6 billion, VSS found—the sector’s slowest growth rate since 2001.
The report projects communications spending to decline 1 percent this year—the first drop since the 2001 recession.
Overall, for the 2009-2013 forecast period, communications spending will grow 3.6 percent per year to over $1 trillion, making communications the third fastest-growing sector of the U.S. economy over that period, up from the fourth, VSS said.
It will also rise from the fifth-largest sector overall in 2008 to the fourth-largest by 2013. “In fact, the next five years will see the communications industry increase 20 percent greater than nominal GDP, which will only increase annually 3.0 percent by 2013,” VSS said.
Segments driven by user and business spending and targeted marketing services will be key industry drivers even while advertising remains under pressure, it predicted.
Advertising fell 2.9 percent in 2008 to $210 billion. This year, VSS expects advertising to fall an even bigger 7.6 percent (despite a projected 9.2 percent gain in Internet ads and an 18.1 percent gain in mobile), followed by a 1 percent decline in 2010. Advertising will again grow in 2011, the firm projects.
Meanwhile, institutional end-user spending will remain the largest and fastest-growing communications sector over the five-year forecast period, rising by 5.6 percent annually thanks to expected strong gains in business information services, particularly in the marketing and financial services sub-segments, and for-profit higher education services.
“While we have seen consumer media usage remain generally flat over the past year, the way in which consumers are spending their time continues to evolve,” said VSS co-founder, president and general partner John Suhler. “No longer are newspaper and magazine subscription purchases and network prime-time viewing the norm. Instead, they are declining and consumers are spending more time with media which they support and pay for as opposed to ad-supported media.” He added: “This development is a culmination of two decades of this secular shift towards consumer-controlled media, and shows no signs of slowing.”
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RELEASE FROM VSS:
VSS Releases 2009-2013 Forecast
New VSS Ten-Year Report Shows Major Shifts in Communications Industry Growth Patterns Accentuated By Recession
8/3/2009
- Institutional End User And Alternative Media Growing As Traditional Media Advertising Declines
- Institutional End-User Spending Expected To Remain Largest, Fastest Growing Sector –5.6% Future Annual Spending Gain Driven By Business Information Services And For-Profit Higher Education
- Communications Will Be The 3rd Fastest-Growing Economic Sector Going Forward, Rising From the 4th Position
- Communications Industry Forecast To Decline 1% in 2009, But To Grow Faster Than GDP In ‘09 And Over Next 5 Years
- Marketing Services Spending To Grow 3.4% Annually, Primarily In Alternative Marketing Segments
Veronis Suhler Stevenson (VSS), a leading private equity firm dedicated to the information, education and media industries, today announced the publication of its newest Communications Industry Forecast (CIF) covering the years 2003-2013 (www.vss.com/forecast09). VSS predicts that total communications spending will decline 1% in 2009 to $882.6 billion, but grow 3.6% per year over the next five years to over $1 trillion making communications the third fastest-growing sector of the U.S. economy over that period. Segments driven by end user spending and targeted marketing services are gaining even as traditional advertising is shrinking.
2008 and 2009 witnessed a major shift in the spending patterns in the communications industry as advertising became the smallest of the four major sectors in 2008 — a first for advertising since VSS began tracking the industry in 1986. While this period culminated a decade-long trend away from traditional advertising vehicles and towards institutional and consumer end-user spending and marketing services, it also highlighted the emergence of institutional and consumer communications as the dominant sectors in U.S. communications spending. VSS forecasts that the institutional sectors and various alternative media segments will drive overall communications spending for the next five years. More specifically, institutional end-user spending will remain the largest and fastest-growing communications sector, rising by 5.6% annually as a result of strong gains in business information services, particularly in the marketing and financial services sub-segments, and the for-profit higher education sub-segment of educational and training media and services. Alternative marketing segments – including branded entertainment and word-of-mouth marketing – will grow at 12.6% annually from 2008-2013 and will contribute to overall marketing services spending growth of 3.4% annually in the period 2008-2013.
As expected, the current challenges facing the industry are largely the result of the current cyclical economic downturn which is exacerbating the impact of structural and secular changes already underway. Over the five-year forecast period, 12 of the 20 major industry segments are expected to show positive growth, with the most challenged segments clustered in traditional advertising. However, the long term secular demand for information, education and entertainment will continue, and the bright spot for advertising going forward will be in digital and other alternative and targeted advertising businesses.
The CIF has been published annually by VSS since 1986, with data series dating back to 1975. The ten-year industry report includes a five year historical record of spending patterns and metrics and a five-year forecast of industry spending. The VSS CIF has emerged as an authoritative voice on, and the only provider of, comprehensive spending, usage and trend data across all four sectors of the Communications industry. “It would be fair to say that VSS’s Communications Industry Forecast is quite unique in the market, precisely because we cover the broadly defined Communications industry which is made up of four broad sectors, 20 segments and over 100 sub-segments” said John Suhler, Co-founder, President and General Partner of VSS. “We believe that the Forecast includes a wealth of data otherwise hard to come by and is unparalleled in the depth and breadth of its coverage.” Starting this year the VSS CIF will be published solely in digital format and available exclusively to subscribers to VSS CIF Digital™ 2.0.
Following is a listing of some of the segments and sub segments of the Communications industry which are forecast to grow over the next five years and those that are forecast to shrink over the next five years.
What is Growing?
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Internet Media
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Word-of-Mouth Marketing
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Professional Information
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Subscription Television
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Business Information
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Mobile Advertising and Content
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Education
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Videogames
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Direct Marketing
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Business-to-Business e-Media
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Event Marketing
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Tradeshows
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Public Relations
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Digital Out-of-Home
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e-Books
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What is Shrinking?
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Newspapers
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Yellow Pages
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Consumer Magazines
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Business to Business Magazines
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Broadcast Television
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Home Video
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Radio
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Recorded Music
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Traditional Out of Home
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Traditional Consumer Books
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4th Largest Sector of Economy
VSS found that while in 2009 the media and communications industry will endure its first spending decline since the 2001 recession, it is expected to rise from the fourth position to the third fastest-growing economic sector in the U.S. over the next five years, and also rise to become the fourth largest sector overall by 2013, up from the fifth largest sector in 2008. In fact, the next five years will see the communications industry increase 20% greater than Nominal GDP which will only increase annually 3.0% by 2013.
“The prolonged economic downturn has accelerated changes already underway in the communications industry. Notwithstanding significant declines in traditional media, the industry taken as a whole will continue to show relatively solid performance compared to the overall economy,” said Jim Rutherfurd, Executive Vice President and Managing Director at VSS. “These changes are driven by a confluence of factors – primarily the growth of digital end-user businesses and the shift from broad reach traditional advertising to targeted alternative advertising and marketing services.”
In early 2009 and as the economy rebounds, communications spending is projected to accelerate and outperform the economy during the forecast period. Growth will be driven by robust gains in many of the same markets generating 2009 growth, such as pure-play consumer internet and mobile services, subscription TV and branded entertainment. In addition, gains will resume in a number of sub-segments adversely affected by the recession, such as K-12 media, consumer books, outsource corporate training, customer publishing and business-to-business trade shows.
“While we have seen consumer media usage remain generally flat over the past year, the way in which consumers are spending their time continues to evolve. No longer are newspaper and magazine subscription purchases and network prime-time viewing the norm. Instead, they are declining and consumers are spending more time with media which they support and pay for as opposed to ad-supported media,“ said Suhler. “This development is a culmination of two decades of this secular shift towards consumer-controlled media, and shows no signs of slowing.”
Direct Marketing and Alternative Marketing Services Drive Future Growth
The institutional end-user sector is the largest and fastest-growing communications sector. Powered by relatively strong gains in professional and business information services and TV programming, VSS found that institutional communications spending rose 6.5% to $241.06 billion in 2008. More moderate growth was found in the education and training and business-to-business media segments. Media usage in the institutional sector also gained as the need to access information throughout the day and in multiple locations became more important, allowing digital materials in the professional and business information services and business-to-business media markets to climb 13.3%.
Spending on branded entertainment soared 12% to $24.97 billion in 2008 as brands pursued marketing strategies that engage and connect with target audiences who are increasingly skipping ads and migrating away from traditional media. More brands pursued opportunities to integrate their products into television content and approached the nascent webisode and advergaming markets in an attempt to connect with young consumers. As more brands incorporate venue-based media into their mix, overall spending on branded entertainment is expected to grow at a CAGR of 9.3% during the forecast period, reaching $38.88 billion in 2013.
VSS reported that direct marketing benefited from the same trends as branded entertainment as marketers increasingly opted to reach their target consumer with one-to-one messaging as opposed to one-to-many. Digital technology has enabled marketers to perfect their techniques in targeting customers. While direct mail and telesales spending declined due their reliance on such stressed industries as automobiles and financial services, direct marketing still registered a 3.2% increase in 2008 to $106.52 billion, and is forecast to achieve a 5.6 % CAGR during 2008-2013. E-mail marketing performed even better, and continues to expand at double-digit rates because it offers a low-cost alternative to direct mail and other marketing strategies.
VSS forecasts that both alternative advertising and alternative marketing services will continue their growth. Alternative advertising is forecast to have a 12.3% CAGR from 2008-2013, compared to a 3.3% decline for traditional advertising, and only slightly outpaced by alternative marketing services at 12.6%.This trend is driven by gains in online advertising and digital out-of-home. Spending on alternative media as a whole is projected to reach $139.45 billion in 2013, representing 29.7% share of total advertising and marketing spending, up from just 18.2% in 2008.
Traditional Advertising Sectors Remain Challenged
The VSS forecast showed that the current economic cycle has accelerated long developing trends away from mass market image advertising and toward individualized, technology enabled access to information and entertainment. Changing consumer behaviors have led to declining print advertising spend, particularly in newspapers where spending fell 13.1% to $54.16 billion in 2008, and consumer magazine publishing showed a spending drop of 5.8% to $22.91 billion. These sectors also suffered from budget cuts by local and national advertisers in key categories such as auto and financial services. The difficult economy has also driven circulation spending down as consumers canceled subscriptions.
Broadcast and satellite radio were not able to avoid the industry decline in advertising spend. Local station advertising, extremely dependent upon stressed economic sectors including auto and home, saw their spend fall 7.1% to $20.28 billion in 2008. Consumers are migrating away from traditional radio to online social networks featuring up and coming artists. In addition, the depressed auto industry is hindering satellite radio growth, as fewer new cars are being sold with satellite radio services.
As the economy took its toll on companies throughout the year, VSS found that spending was reigned in on all fronts. This directly affected business-to-business promotions as well as outsourced publishing. Spending on business-to-business promotions, including promotional products and travel marketing incentives, fell 7% as budgets were cut and fewer salespeople were in the field calling on clients. Declining profits, layoffs and trimmed expenses all lined up to hinder growth in the business-to-business promotion market, and spending in the top promotional product category fell by double-digit rates. During the 2008-2013 period, the business-to-business promotion market is forecast to show a 2.9% annual decline.
The current downturn is causing several of the communications industry’s sub-segments to register their weakest growth in more than five decades. Nonetheless, four segments are projected to generate more than $100 billion in spending by 2013 — subscription television, professional & business information services, direct marketing, and entertainment media. VSS predicts that these segments will lead the communications sector to be the third-fastest growing component of the U.S. economy in the 2008-2013 period, following mining and construction. The institutional end-user sector will continue its growth and will be responsible for bringing the vast majority of the new dollars coming to the communications industry. This is on top of the nearly $90 billion in spending the sector was able to add from 2003-2008.
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