Total Communications Spend to Reach $1.41T in 2014

August 25, 2010

Total communications industry spending is on pace to increase 3.5% in 2010 and post a compound annual growth rate (CAGR) of 6.1 percent in the 2009-2014 period to $1.416 trillion, according to private equity firm Veronis Suhler Stevenson (VSS).

Gradual economic recovery, advances in digital technology, and secular trends impacting the entire industry landscape will all help increase communications industry spending, according to the “VSS Communications Industry Forecast 2004-2014.”

Pure-Play/Consumer Internet/Mobile Poised for 14.8% Growth
VSS analysis indicates that the shift of spending and consumption is reflected by growth not only in key industry sectors such as Business & Professional Information & Services, Targeted Media, and Entertainment & Leisure Media, which are poised to register CAGRs of 8.2%, 7.3% and 6.3%, respectively, during the 2009-2014 period; but also remarkable growth in the Pure-Play Consumer Internet & Mobile Services segment, which is expected to grow at a CAGR of 14.6% from 2009 to 2014.

Communications Spending to Exceed GDP Growth
VSS predicts that communications industry spending will exceed nominal gross domestic product (GDP) CAGR growth of 5.8%, and retain its position as the fourth-largest industry in 2014, although slipping to ninth place in terms of growth during the forecast period due to continued weakness in traditional advertising and marketing services.

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End User Spending Boosts Revenue
While VSS predicts that the Institutional End-User Revenue Stream will be the primary driver of growth, increases will also be fueled in part by strong growth in select Consumer End-User stream sectors. VSS predicts that the Institutional End-User Revenue Stream will remain the largest and fastest-growing of the four revenue streams it tracks, increasing CAGR by 5.3% in 2010 to $490.54 billion, and posting a CAGR increase of 7.3% to $661.48 billion by 2014. It is assumed that growth in Institutional End-User spending will come in part from an improving job market, which in turn will lead to growth in business and professional information, and outsourced corporate training, among others.

Consumer End-User spending will grow 3.6% this year to $225.88 billion, and will generate a 6% increase in CAGR during the 2009-2014 period to $292.07 billion. As the economy strengthens, and digital/wireless channels proliferate, VSS predicts consumers will resume spending on “hit-driven media,” such as home video, video games and recorded music. Spending on pure-play internet and mobile content and access will enjoy robust growth, thanks to ongoing consumer migration to digital platforms and increased adoption of third- and fourth-generation cell phones, such as the iPhone and the Droid, as well as smart phones like BlackBerrys and notepads like the iPad.

Advertising, Marketing Revenues Increase Less
Meanwhile, VSS forecasts the Advertising and Marketing Services Revenue Streams will see a 4.6% increase in CAGR between 2009 and 2014, reaching $462.72 billion. The Advertising Revenue Stream is expected to benefit from two additional even-year spending boosts, the Olympics and political campaigns, in the 2010-2014 period. This will drive a 5.4% increase in CAGR, pushing spending on advertising in the forecast period to $234.90 billion in 2014.

The Marketing Services Revenue Stream, which includes Direct Marketing, Branded Entertainment and Outsourced Custom Publishing, is expected benefit during the next five years from alternative market vehicles, such as e-mail marketing, consumer events, paid product placements, e-custom publishing and word-of-mouth marketing. CAGR will climb 3.7% by 2014 to total $227.82 billion. However, it will become the smallest revenue stream, VSS found.

Out-of-Home Spending Stays Flat in Q1
Out-of-home spending remained essentially flat in Q1 2010, according to Kantar Media and the Outdoor Advertising Association of America.

Ad spending slipped 0.7% to slightly more than $1.3 billion, marking the smallest decline since the third quarter of 2008, when ad spending began to slip. For the top 10 categories – which account for 81% of all outdoor revenue – spending was actually up 0.6%.

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