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Spending, Led By Internet, Forecast to Reach $249 Billion in 2004

In its annual forecast, Veronis Suhler, the investment banking firm, predicted that the popularity of the Internet as an advertising and information medium will continue to increase rapidly in the short term, though not to the exclusion of more traditional media like magazines and newspapers.

Veronis Suhler's 14th annual communications industry forecast, released yesterday, found that total advertiser spending grew 9.1 percent, to $165 billion, last year; it expects spending to grow 8.6 percent annually, climbing to $249.1 billion in 2004.

According to the report, this growth "will be driven largely by Internet advertising, which exploded 140.6 percent, to $4.6 billion in 1999 and is forecast to increase at a 39.5 percent compound annual growth rate, more than quadrupling to $24.4 billion by 2004."

The report said the growth in online ad spending should account for nearly a quarter of total advertising growth forecast for all segments through 2004.

Should Veronis Suhler's predictions pan out, by 2004, Internet advertising will exceed consumer magazine advertising, which is projected to reach $16.4 billion; network television advertising, estimated at $19.4 billion; and cable television advertising, a projected $21 billion. It should then be close to radio advertising, projected to climb to $26.6 billion. Daily newspapers are still expected to generate the highest advertising income, an estimated $63.2 billion in 2004.

The Internet will continue to stimulate media growth almost across the board, said James P. Rutherfurd, executive vice president of Veronis Suhler, which is based in New York.

"The good news is that it has sparked a metamorphosis for traditional media," he said. "By developing content-rich Web sites and information portals, traditional publishers and television networks are positioning themselves to capture their share of revenue diverted to the Web over the next several years."

The report found that newspapers had lost some classified and real estate advertising to the Internet. But newspapers have offset these losses with strong national advertising, increased dot-com ad spending and development of online classified advertising programs. Another positive trend for newspapers, the report said, was the aging of the United States population, since 71 percent of people over the age of 35 read a daily newspaper each weekday.

In addition, the forecast said that "contrary to popular thought, television viewing is not being cannibalized by growing Internet use."

"Instead," the report said, "many Internet users actually watch television while surfing -- in a majority of households, computers are co-located in the living or family room with the television."

It also said that "while the television market has benefited from dotcom ad dollars, this influx is not expected to last, as some Internet entities change their advertising emphasis to more targeted media."

Veronis Suhler said this development should be positive for consumer magazines, which, with their large, targeted audiences, have become an increasingly attractive advertising vehicle for dot.coms. These publications have proved "very resilient when it comes to the Internet's growing reach," the report said, in part because the Web "has so far been unable to successfully duplicate the look, feel and ease of use of magazines and other printed media and is unlikely to do so."

Mr. Rutherfurd said: "The traditional media have audiences that trust them, are comfortable with them, return to them. It's often just as convenient to get information from a printed product or from television as it is to surf through the Web.

"The Internet is easy for search and comparison shopping, but not for random access," he added. "If you're looking for what's going on in the sports world, for example, flipping through a magazine or newspaper, with a catchy picture or headline, is better than surfing page after page on the Internet."

He also said the Internet was not as portable as print media since the weight and battery performance of laptops can be an issue. "In the wireless world, you can access e-mail and stock quotes, but it's not great to read the speech Clinton gave last night," he said.

The forecast also predicted that although the decline in broadcast television ratings has slowed since 1997, it will resume after the 2000 elections, the Sydney Olympics and the recent spike generated by reality-based programming.

It projected that interactive entertainment -- PC games and console video games, like Sega's Dreamcast system -- would have the highest growth rate of any segment of the communications industry through 2004. Hourly use per person per year of video games is forecast to climb 21.5 percent through 2004, on top of a 29.4 percent annual increase between 1995 and 1999. Spending is also forecast to grow 21.7 percent, to $13.8 billion, through 2004.

According to the report, between 1995 and 1999, hourly annual Internet use rose 106.8 percent. That growth is expected to moderate to 18.4 percent through 2004.


Jane L. Levere, The New York Times. August 8, 2000

Copyright © 2000 The New York Times. All rights reserved.