• by Paul Gough , June 29, 2004

Growth in cable television ad revenues will outstrip the broadcast networks, but it's not likely that cable's share of total TV ad dollars will pass broadcast in the next five years, according to a new report issued Tuesday.

PricewaterhouseCoopers Entertainment & Media Outlook predicts that the TV ad market will grow 7.6 percent--from $30.7 billion in 2003 to $44.2 billion in 2008. Just this year alone, TV advertising will grow to $34.4 billion, according to PricewaterhouseCoopers.

The increase will be strongest in cable, which is forecast to have an 8.1 percent compound annual growth rate during the period compared to 6.5 percent for the broadcast networks. While that's promising news for cable TV, the report finds that the industry will near--but not reach--parity with the broadcast networks within the next five years.

In 2003, PricewaterhouseCoopers estimated that $16.6 billion went to broadcast network advertising, compared to $14.1 billion for cable television. In 2004, the report predicts that advertisers will spend $18.6 billion on broadcast and $15.8 billion on cable. It will near an equal share in 2007, according to PricewaterhouseCoopers' estimation, with $20.6 billion going to broadcast TV and $20.2 billion going to cable. But 2008 will end with $22.7 billion in advertising spending for broadcast TV and $21.5 billion for cable TV.

The report said that cable is poised to continue gaining share from broadcast, but the cable networks will reach saturation in the near future, causing a moderation of cable networks' growth.

At a panel discussion following Tuesday's release of the report, MTV Networks President Mark Rosenthal said it was clear that cable had taken a significant sum of money away from broadcast TV in this year's upfront. He estimated that the cable TV industry took between $600 million and $800 million in advertising orders away from the broadcast networks during the upfront.

"This is the famous tipping point everyone was talking about," Rosenthal said.

Rosenthal cited how cable TV in general--and MTV Networks in particular--jumped into the marketplace early, ahead of the broadcast networks, as a factor in its success.

"We had a really good handle on the pulse of the marketplace," Rosenthal said.

As for the other advertising-supported media, PricewaterhouseCoopers seems bullish--although not as high as it was on TV and especially Internet advertising, which is predicted to achieve double-digit growth rates:

-- Magazine advertising will hit $25 billion in 2008, a 5.8 percent compound annual growth rate. Consumer magazine advertising is predicted to rise 5.3 percent to $15.1 billion, while business-to-business magazine advertising will increase 6.6 percent to $10 billion in 2008. But that doesn't mean that B-to-B publishers, who have been hit hard since the dot-com and business crash of 2001, should jump for joy. It's still below the heady days of 2000, when B-to-B publishers rang up $10.9 billion in advertising.

-- Newspaper advertising is forecast to average a 3.4 percent annual growth rate through 2008, when it will reach $53.2 billion. PricewaterhouseCoopers predicts that classified advertising will stabilize but remain sluggish through the period, national advertising will continue to grow, and retail advertising--always key for newspaper publishers--will land somewhere in between.

-- Radio and out-of-home, which are tracked together in the report, will also increase. Radio, boosted by an increased interest by national advertisers, is predicted to rise 5.7 percent over five years to $25.7 billion. Out-of-home will reach $7.4 billion in 2008--up 6.2 percent from 2003's $5.5 billion, PricewaterhouseCoopers said.

But it was the prediction that radio would grow in the mid-single digits that drew surprise from several industry analysts assembled by PricewaterhouseCoopers to discuss the results. John Tinker, a managing director at ThinkEquity Partners LLC, didn't buy the 5.7 percent growth rate for radio. He said that radio stands to be affected by Internet advertising inventory coming into the market and that a number of big advertisers, such as Wal-Mart, have never used radio.

"It will never disappear, but it's hard to see it picking up," Tinker said.

Wayne Jackson, global leader of PricewaterhouseCoopers' Entertainment and Media Practice, said that the company was betting that digital and satellite opportunities would add to radio's revenues in the future.

"Technology is what we see happening to boost that," Jackson said.

Peter Winkler, managing director of PricewaterhouseCoopers's Entertainment and Media Practice, told MediaDailyNews that his company's projections for radio might be higher than some others. But he said that the local advertising component can't be overlooked, as well as the fact that radio is pitching to a captive audience that is spending more time in cars, not less.

"Radio is a powerful medium because it can deliver local advertising," Winkler said.

Winkler too believes that digital and satellite radio will alter the equation by growing audience. He said he thought the satellite radio model, which has so far used commercial-free streams as a point of differentiation, might change in the future to more of an ad-supported model.