• by Jack Loechner , Staff Writer @mp_research, August 12, 2009

Veronis Suhler Stevenson (VSS), in its newest Communications Industry Forecast covering the years 2003-2013, 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.

In summary, says the report:

• Institutional end user and alternative media grows as traditional media advertising declines
• Institutional end-user spending isexpected 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

The study forecasts that institutional end-user spending will remain the largest and fastest-growing communications sector over the next 5 years, 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, says the report.

Jim Rutherfurd, Executive Vice President and Managing Director at VSS, says "The prolonged economic downturn has accelerated changes already underway in the communications industry... driven by a confluence of factors... (including) the growth of digital end-user businesses and the shift from broad reach traditional advertising to targeted alternative advertising and marketing services..."

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, concludes the study.

Growth Prospects

• Internet Media
• Word-of-Mouth Marketing
• Professional Information
• Subscription Television
• Business Information
• Mobile Advertising and Content
• Education
• Videogames
• Direct Marketing
• Business-to-Business e-Media
• Event Marketing
• Tradeshows
• Public Relations
• Digital Out-of-Home
• e-Books

 Declining Prospects:

• Newspapers
• Yellow Pages
• Consumer Magazines
• Business to Business Magazines
• Broadcast Television           
• Home Video
• Radio           
• Recorded Music
• Traditional Out of Home
• Traditional Consumer Books

While in 2009 the media and communications industry will endure its first spending decline since the 2001 recession, says VSS, 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. The next five years will see the communications industry increase 20% greater than Nominal GDP which will only increase annually 3.0% by 2013. 

In early 2009, and as the economy rebounds, says the report, communications spending is projected to accelerate and outperform the economy during the forecast period. Growth will be driven by:

• Pure-play consumer internet and mobile services
• Subscription TV
• 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
• Business-to-business trade shows

 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.

Media usage in the institutional sector 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%. 

Branded entertainment spending grew 12% to $24.97 billion in 2008 as brands engaged and connected with target audiences who are increasingly skipping ads and migrating away from traditional media. 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

Direct marketing 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 of 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

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. Consumer behaviors have led to declining print advertising spend, budget cuts and circulation spending:

• In newspapers where spending fell 13.1% to $54.16 billion in 2008
• In consumer magazine publishing with a spending drop of 5.8% to $22.91 billion

Local broadcast and satellite radio station advertising, 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.

VSS found that spending was reigned in on business-to-business promotions as well as outsourced publishing. Business-to-business promotions, including promotional products and travel marketing incentives, fell 7% through 2008. During the 2008-2013 period, the business-to-business promotion market is forecast to show a 2.9% annual decline. 

Four of the communications industry's sub-segments are projected to generate more than $100 billion in spending by 2013:

• Subscription television
• Professional & business information services
• Direct marketing
• 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.

For more report details, please visit VSS here.