• by Ken Liebeskind , August 6, 2001

These days, most people in the ad industry are fairly jaded when it comes to advertising forecasts. Nevertheless, when a promising forecast comes from Veronis Suhler, everyone usually takes notice.

Released today, the 15th annual edition of the investment banking firm's Communications Industry Forecast actually has some good news for the industry - while ad expenditures will dip 1.1% this year (a lower dip than others have projected), it will bounce back next year and grow at a compound annual rate of nearly 5% to reach $225 billion by 2005, the end of the forecast period.

Leo Kivijarv, director of publications at Veronis Suhler, notes that the economic slowdown ("not a recession," he says) caused this year's dip, but that the tax rebate and passage of economic legislation will fuel growth for next year. "We're more bullish, we think the economy will right itself," he says.

In the past, advertising rebounded strongly the year after similar downturns. He projects strong growth in national advertising next year. National had dropped more than local in all media this year.

Spending on cable and satellite advertising reached $13.8 billion in 2000 to become the third largest revenue generator among communications segments. It is expected to expand at a compound annual rate of 11.6% and reach $23.8 billion by 2005, to become the leading segment. The segment will be spurred by cable providers, who will rev up integrated media promotions and extended channel offerings through digital cable.

Newspapers was the largest segment of the communications industry in 2000 but will drop to number three next year. Total ad spending will grow 3.4% during the forecast period, despite a small drop in circulation.

Broadcast television spending dropped 2.5% this year to $43.3 billion, due to the absence of Olympics and political advertising. Growth will occur next year with the Olympics in Salt Lake City and many important Congressional races.

Radio was one of the fastest growing segments from 1995 to 2000, rivaled only by the Internet. But spending was down 0.7% this year with local spot flat, national spot down 3.5% and network down 0.5%. National spot will rise more than local during the forecast period and reach $5.2 billion by 2005. Local spot will reach $20.3 billion. Total radio spending will reach $26.5 billion by 2005.

Consumer magazines dropped this year but will rebound substantially from 2002 to 2005. Ad spending will reach $25.5 billion by 2005, a 4.5% compound annual rate jump.

This year's 1.1% drop in ad spending followed a huge 11.1% gain in 2000. Growth of 4.9% is expected for the entire forecast period with next year's growth expected to be 6.9%.

Veronis Suhler also reports that consumers are spending less time with advertising based media and more with accessed media, such as the Internet, cable and satellite TV.