Although the United States communications industry is expected to rebound in the second half of this year, it will no longer be one of the nation's top-three fastest growing industries, according to the widely followed annual forecast by the merchant bank, Veronis Suhler Stevenson.
And the bank, which plans to release its report today, does not expect the industry to recover from the current recession as robustly as it did from the last one 11 years ago.
In its 16th annual communications industry forecast, the bank, which specializes in the media, communications and information industries, said the last recovery had been fueled by the growth of the high-technology category, when the Internet was still in its infancy as a consumer medium.
"Tech spending has since cooled dramatically, and there is no equivalent new generator of advertising spending either developing or looming on the horizon," the report says.
The bank also says the media industry's comparative growth rate is slowing. The bank said the communications industry will be the nation's fifth-fastest-growing segment of the economy from 2001 to 2006, at a 5.5 percent annual rate, on average. But it was the third fastest-growing from 1996 to 2001, when it grew 6.5 percent a year. And it was the second-fastest growing in 2000.
On a more positive note, Veronis Suhler Stevenson predicted that advertising spending would rise 2.9 percent this year, compared with a 6.2 percent drop in 2001, and that all communications spending — including advertising and promotional expenditures, and spending by consumers and businesses on all media — will increase 4.8 percent, to nearly $610 billion, after falling 0.3 percent last year.
Media categories expected to post the healthiest spending growth rates between 2001 and 2006 are consumer Internet, cable and satellite television, and radio, Veronis Suhler Stevenson said. Not coincidentally, all but radio are what the bank considers nonadvertising-supported media, whose usage by consumers is expected to continue rising, while that of advertising-supported media, like broadcast TV, will decline.
Veronis Suhler Stevenson's projections for advertising gains this year are somewhat more bullish than those by other industry analysts. Last month, Robert J. Coen, senior vice president and forecasting director at Universal McCann, estimated that ad spending would grow 2.1 percent this year, while David Peeler, chief executive of advertising research firm CMR, earlier forecast a 2.5 percent gain.
Positive indicators have begun to emerge recently to set the stage for the industry's recovery, according to James P. Rutherfurd, executive vice president at Veronis Suhler Stevenson. He cited an increase in radio ad spending in the first quarter and an unexpectedly strong upfront buying season in the spring for broadcast television ads.
As the report predicts, "several other favorable economic indicators will prove positive for the communications industry by year's end, including increased business spending, low inventory levels, sustained low interest rates and the restoration of investor confidence."
Mr. Rutherfurd noted, "We then see a return to healthy growth, steady growth, non-Internet-inflated — similar to the early to mid-1990's."
In preparing the forecast, Mr. Rutherfurd said Veronis Suhler Stevenson compared the communications industry's recent slowdown to its downturn during the 1991 recession, which was made worse by the Gulf War. He said recovery from the current recession would probably take longer than the last time and not be as vigorous.
"Advertising accounts for 30 percent of all communications spending and has a cyclical relationship with the economy," he said. "So as the economy improves, we expect advertising and therefore communications spending to grow in a parallel path."
One major bright spot in the forecast, is consumer spending on communications, which the report expects to rise 6.5 percent a year through 2006, mostly because of continued growth in spending on cable and satellite TV, consumer Internet, video games and box-office films.
Leo Kivijarv, director of research and publications at Veronis Suhler Stevenson, said that, compared with media consumers after the last recession, today's most influential consumers are "a younger audience, more technologically savvy, who spend on video games, DVD's, Internet access."
By 2006, he said, the average consumer will spend more than $100 annually on each of several media: cable or satellite television, home video and the Internet.
Consumers will continue to spend more time on nonadvertising supported media to the detriment of advertising-supported media, Veronis Suhler Stevenson predicts. In 1996, consumers spent slightly more than 68 percent of their media time on advertising-supported media, like broadcast television, magazines and newspapers, and nearly 32 percent on nonadvertising supported media, like recorded music and video games. But by last year, the report says, time spent on advertising-supported media had declined to 58.6 percent and is expected to drop further, to 56.3 percent, by 2006.
The annual growth rate of spending on newspapers is forecast to rise 5.1 percent, from 2001 to 2006, while that of broadcast television is projected to increase 3.8 percent. Growth rates for spending are expected to be somewhat slower in consumer magazine publishing (3.2 percent), business-to-business media (3.1 percent) and consumer book publishing (2.8 percent).
And spending for recorded music is actually expected to decline 1.6 percent a year, on average, through 2006.
Jane L. Levere, The New York Times - August 5, 2002
Copyright © 2002 The New York Times Company. All rights reserved.