Led by declines in traditional segments of the industry, overall media and communications spending will drop by 0.4% in 2009, but will still continue to outpace US economic growth, according to a Mid-Term Forecast from private-equity firm Veronis Suhler Stevenson (VSS).
The forecasted 2009 decline in overall media spend comes after an increase of 2.3% in 2008, VSS said. This compares with previously projected growth of 5.4% and 4.9% for 2008 and 2009 respectively. This is the industry’s lowest growth rate – and only the second decline – since VSS started collecting industry data 30 years ago.
The mid-term report was produced specially because of the financial downturn to reflect worsening economic conditions. An interim update and revision to VSS’s annual five-year Communications Industry Forecast 2008-2012, it states that the continued negative outlook for economic activity – coupled with secular shifts and cyclical trends in the media and communications industry – is expected to limit the sector’s overall growth in 2009. Though some forms of alternative media and the professional and business-information segment of the communications industry will grow the fastest, the growth in institutional and non-traditional consumer end-user segments will not fully offset declines in overall traditional advertising and marketing spend.
Newspaper, Broadcasting Segments Hit Hard
The original 2008 VSS forecast predicted that only three of the 20 individual segments of communications spending would register declines in 2008 (Broadcast & Satellite Radio, Consumer Magazines and Newspapers), VSS said. However, the mid-term revision now includes five:
- The Newspaper Publishing segment is estimated to contract by 16.2% in 2009 (vs. -13.5% in 2008)
- Broadcast Television is projected to decline by 9% in 2009 (vs. -0.5% in 2008).
- Consumer Magazine Publishing is expected to decrease by 8.5 % (vs. -6.8% in 2008).
- Broadcast & Satellite Radio is projected to drop by 7.2% this year (vs. -5.8% in 2008).
- Marketing services – including segments such as direct marketing, promotions and branded entertainment – will decline 1.3% and drop to the the second-largest communications sector in 2009.
- Advertising spending will drop 7.4% in 2009. This decline, coupled with a drop in 2008, represents the first two-year decline in 75 years. Steep reductions in traditional advertising spend such as newspapers, television, and consumer magazines are being driven by fragmentation of target consumers and brand strategies thatare increasingly focused across multiple venues and platforms.
“The unprecedented changes in our financial markets beginning in mid September have had a profound impact on most industries and the communications industry has not been spared,” commented John Suhler, co-founder and general partner of VSS. “The downturn in our economy resulting from the financial markets’ collapse has added pressure to the secular trends already present and has accelerated the downward pressure on the traditional segments of the consumer advertising and marketing services sectors.”
Digital, Mobile Media Segments to Grow
In contrast to the declining role of traditional media, the newer, “alternative” segments of the media and communications industry will? experience positive growth in ’08 and ’09, and the end-user sectors – both consumer and institutional – which represent the majority of spending in the communications industry, have been revised to show slower but positive growth in both years, VSS said.
Communications segments that will drive growth are those supported by institutional and consumer end-users seeking necessary data and information for business or learning, or digital access, content and entertainment, VSS stated. Specific findings:
- The Pure-Play Internet & Mobile Services segment is still growing, though at a much slower pace. Previously expected to grow by 15.5% in 2009, VSS now projects an increase of only 9.1% for 2009, down from 11.6% in 2008.
- Mobile content and Video Games will continue to be in demand and record double-digit growth (34.2% and 19.5% respectively), however at significantly lower percentages than originally predicted.
- Various alternative communications segments included in both consumer and institutional end-user sectors – such as branded entertainment, digital out-of-home, and professional business information services – are also growing faster than other communications segments as well as the broader economy.
“We believe this mid-term forecast will present investors with a helpful guidepost in a challenging economic environment,” said James Rutherfurd, EVP and managing director at VSS. “The media, information and education industries have been negatively impacted by the economic downturn. However, as a whole these industries have performed better than many other sectors of the US economy, and we are confident that over the medium and long term, the communications industry will regain momentum. The Communications industry has outgrown GDP growth in all of the periods of economic expansion studied since the Second World War.”
About the research: VSS developed the Mid-Term Forecast in response to the unprecedented economic downturn and reviewed hundreds of primary and secondary sources for up to date data and trends through mid February 2009. The VSS Forecast tracks, analyzes and forecasts spending, usage and trends in all four major sectors – advertising, marketing, consumer, and institutional – 20 segments, and more than 100 sub-segments of the US media industry. VSS has published its Communications Industry Forecast for 22 years.