January 25, 2023
VSS: Big Growth For Media, Not Advertising
- by Erik Sass @eriksass1, August 10, 2010
U.S. media and communications spending is poised for big growth from 2009-2014, according to a new forecast from Veronis Suhler Stevenson, a private-equity firm in the media business. In fact, VSS expects media and communications revenue to grow faster than the economy in general, due largely to the rapid expansion of Internet and mobile media.
However, VSS draws an important distinction between media and communications revenues overall, and advertising revenue in particular, predicting significantly lower growth in ad spending.
Total media and communications revenues will grow 3.5% this year, with an overall compound annual rate of 6.1% from 2009-2014, when it will reach $1.416 trillion, according to VSS. That's compared to a predicted compound annual growth rate of 5.8% for the U.S. economy over the same period.
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In an interview with Bloomberg, John Suhler said the high growth rate reflected the rise of consumer control in media consumption, including time- and location-shifting, subscription TV and on-demand services, as well as a coming wave of mobile apps and video games. "Everything that is an opportunity for consumers to show their preferences is growing faster than economic growth," he notes.
Driven by these trends, VSS sees entertainment and leisure media revenues growing at an annual rate of 6.3% to $354 billion in 2014.
However, business information will also see strong growth at an annual rate of 8.2%, approaching $250 billion in 2014, due to the growth of applications for organizing and accessing data, software, and services. Pure-play Internet and mobile services will enjoy the highest growth rate -- at 15% per year from 2009-2014, when it will reach $87.8 billion.
But amid all this good news for the media business in general, VSS sees traditional consumer advertising revenues (including broadcast TV, newspapers, consumer magazines, broadcast and satellite radio, Yellow Pages directories, and out-of-home media) stagnating from 2009-2014, with an annual growth rate of just 2.2% over this period, reaching $159.3 billion in 2014.
The VSS figures click with other frequently cited forecasts. In July, Magna predicted total U.S. ad revenue growth of 2.1% in 2010, rising to an average annual growth rate of 3.5% per year from 2010-2015. ZenithOptimedia was even more conservative, with its July forecast of 1.3% growth in total ad spending in North America in 2010, followed by 1.8% growth in 2011 and 3.0% growth in 2012.
These figures are particularly modest considering that they follow a huge drop from 2008-2009. In terms of dollars, Magna forecasts total U.S. ad revenues of about $170 billion in 2010, compared to about $190 billion in 2008. ZenithOptimedia pegs 2010 U.S. ad spending at $159 billion, compared to $180 billion in 2008.
While long-term what VSS predicts may come true, media companies do not think in the short-to-medium term that fee income from subscribers/users can fill the gap between an advertising shortfall and the their revenue needs. There needs to be a better transactional model for advertising buyers and sellers that recognizes the need for sellers to preserve rate integrity but also provide advertisers with the value (high target audience reach, low cost). I think the solution comes in the form of a reverse auction with ground rules that satisfies both buyers and sellers. A reverse auction recognizes that in a high-supply / lower demand environment, the seller should be bidding, not the buyer. And with media proliferation/fragmentation, the supply side of this equation is expanding faster than anyone could have predicted. This creates a situation in which buyers and sellers must find a way to monetize through advertising an ever-increasing amount of unsold ad inventory.