Veronis Suhler Stevenson's 2005 Forecast Reveals Accelerated Growth as ''New Media Order'' Transforms the Communications Industry

NEW YORK--(BUSINESS WIRE)--Aug. 15, 2005--Veronis Suhler Stevenson

-- Average Person Expected to Spend 10 Hours a Day with Media by 2009, with Highest Hourly Gains Achieved by Home Video, Consumer Internet, and Wireless Content and Interactive Television

“We are facing a unique transformation of the communications industry, the likes of which have not been seen in decades”

-- Digital-Based Media Forecast to Drive Average Annual Consumer Spending on Media over the $1,000 Threshold in 2009 for the First Time

-- Communications Industry Expected to Top a Trillion Dollars by 2009, Becoming the Fourth Largest and Fastest Growing Sector of the U.S. Economy

Veronis Suhler Stevenson, a leading global media and information private investment firm, today announced the release of the 19th annual Communications Industry Forecast, revealing a "New Media Order" that is forcing fundamental changes across all four communications industry sectors. According to the newly-enhanced 2005 Forecast, technology innovation, the emergence of new media, quickening audience fragmentation, increasing demand for customization and tighter focus on return on investment are collectively causing major shifts in spending patterns and time spent with media. These shifts are expected to drive accelerated growth across all four sectors - advertising, specialty media and marketing services, institutional end-user and consumer end-user - through 2009.

The 2005 Communications Industry Forecast institutes a number of substantive changes in methodology and structure designed to better capture the emergence of new trends and drivers in the media industry. These enhancements include expanded data and analysis in a number of areas including consumer Internet and direct marketing, as well as the addition of several new segments and subsegments that reflect the growing importance of new media, such as business-to-business e-media and wireless content.

"We are facing a unique transformation of the communications industry, the likes of which have not been seen in decades," said James P. Rutherfurd, Executive Vice President of Veronis Suhler Stevenson. "During the past five years, as this 'New Media Order' began to take shape, we have seen a gradual shift of time spent away from advertising-based to consumer-supported media, as well as a steady transfer of spending away from traditional to new media advertising. We expect the underlying trends driving this industry-wide transformation, such as consumer empowerment, accelerating audience fragmentation and the increasing need for stronger ROI measurements, to continue and drive accelerated growth in all four industry sectors as more sophisticated purchasing plans, which utilize a variety of conventional and alternative media outlets, become necessary."

Below is a summary of forecast spending patterns from the 2005 Communications Industry Forecast:

-- Communications spending is expected to be the 4th fastest growing sector of the U.S. economy in the 2004-2009 period, expanding at a compound annual rate of 6.7 percent, surpassing the trillion-dollar mark in 2008, and reaching $1.109 trillion in 2009, compared with nominal GDP growth of 6.0 percent during the same forecast period. Growth will be driven by mid- to high-single-digit percentage growth rates in all four industry sectors, with institutional spending outpacing the other three sectors.

-- Growth in total communications spending is forecast to be 6.8 percent for 2005, reaching $857.59 billion, following on the strong 2004 growth rate of 7.3 percent.

-- After regaining its position as the second-largest sector of the communications industry in 2004 from the consumer end-user sector, advertising spending is expected to remain strong with forecast growth of 6.1 percent to $199.67 billion in 2005, and compound annual rate of grow of 6.8 percent from 2004 to 2009, reaching $260.90 billion. Comparably, consumer spending is expected to accelerate in 2005, climbing 7.0 percent to $199.34 billion, and slow slightly during the forecast period to grow at a compound annual rate of 6.3 percent, reaching $252.80 billion by 2009. Growth in advertising is expected to continue to be driven primarily by the migration of advertising dollars from traditional to new media.

-- New media advertising is expected to continue to attract advertising dollars in 2005 with forecast growth of 20.7 percent compared with only 3.2 percent for traditional media. During the forecast period, spending on new media advertising is forecast to grow at a compound annual rate of 16.9 percent, reaching $68.62 billion by 2009, while traditional media advertising is expected to rise only 4.2 percent on a compound annual basis during the forecast period to $192.28 billion.

-- Specialty media and marketing services, the largest sector of the communications industry in 2004, is on track for another strong year of accelerated growth in 2005 with an expected 7.0 percent gain in marketing spending to $275.11 billion. Driven by custom publishing, branded entertainment and public relations, the specialty media and marketing services sector is forecast to grow at a compound annual rate of 6.7 percent during the forecast period, reaching $355.15 billion by 2009 to remain the largest sector of the communications industry.

The Communications Industry Forecast, published annually since 1987 by Veronis Suhler Stevenson, was substantially revised this year to provide users with more up-to-date information and reflect the emergence of new media. This year's Forecast contains the new and exclusive subsegments business-to-business e-media and product placement, as well as the new subsegments wireless content/promotions/advertising, videogame advertising, and videogame rentals. Furthermore, a number of subsegments have been expanded to provide greater analysis. Together, these changes have resulted in the most comprehensive source of consumer and business spending data available that specifically addresses the media, communications and information industries.

Institutional end-user spending to outperform all four industry sectors during forecast period, following highest growth rate in a decade

For the first time since the 2001 recession, institutional end-user spending on communications outperformed consumer end-user spending in 2004, expanding at its highest growth rate in a decade to become the fastest growing sector in the communications industry. Growth was fueled by solid gains in professional and business information services, television programming, and outsourced training in the educational and training media segment, in addition to trade show exhibit space in the business-to-business media segment. Institutional end-user spending is expected to be the fastest-growing area of the communications business again in 2005, climbing at a strong rate of 7.2 percent to $183.47 billion, outpacing both consumer spending and nominal GDP for the second consecutive year. For the forecast period, institutional end-user spending is projected to expand at a compound annual rate of 7.0 percent to $239.82 billion in 2009, outpacing the other three sectors, as well as nominal GDP, in each of the five years. The key trends driving growth over the next five years will be technology and products that deliver ROI metrics, the solid economic expansion, stronger corporate profits, increased institutional budgets and innovations in the development, delivery and use of integrated information services. Professional and business information services, forecast to grow at a robust compound annual rate of 7.8 percent during the forecast period, will be the largest segment of institutional end-user spending, reaching $142.33 billion in 2009.

Consumer end-user spending on communications began to rebound in the first half of 2005 after two straight years of decelerating growth as spending on new media as such interactive television and wireless content, satellite radio, and the Internet compensated for declines in traditional media. Consumer spending posted its slowest growth rate in fours years in 2004 due to slowing growth in the videogames segment and a home video segment that was severely impacted by the rapid decline of the VHS market. Nevertheless, consumer spending rose a respectable 6.2 percent to $186.30 billion in 2004 and is forecast to increase 7.0 percent to $199.34 billion in 2005. During the forecast period, consumer spending on communications is expected to grow at a compound annual rate of 6.3 percent, reaching $252.80 in 2009.

New media expected to drive advertising growth during the forecast period

The advertising sector regained its position as the second-largest sector of the communications industry in 2004, fueled by political and Olympics advertising, as well as double-digit gains in new media advertising. Spending on new advertising media, such as cable and satellite television, satellite radio, business-to-business e-media, consumer Internet, movie screen advertising and videogame advertising, grew 21.7 percent in 2004 to $31.37 billion, and is forecast to grow 20.7 percent in 2005 to $37.86 billion. Comparably, tradition media gained 5.2 percent in 2004 and is forecast to grow only 3.2 percent in 2005. Total spending in the advertising sector is projected to grow 6.1 percent to $199.67 billion in 2005, driven by non-traditional advertising vehicles, after growing 7.6 percent in 2004, 2.8 percent in 2003 and 1.7 percent in 2002.

Going forward, marketers are expected to continue shifting dollars to new media advertising options as they look to reach younger audiences more effectively and strengthen their ROI measurement tools. During the forecast period, spending on new media advertising is expected to grow at a compound annual rate of 16.9 percent, reaching $68.62 billion, while traditional media advertising is expected to rise only 4.2 percent on a compound annual basis during the same period to $192.28 billion in 2009. The new media sector is expected to grow its share of total advertising from 16.7 percent in 2004 to 26.3 percent in 2009, while the traditional media segment's share is forecast to decline in the same period from 83.3 percent to 73.7 percent. Total advertising spending is expected to increase at a compound annual rate of 6.8 percent, reaching $260.90 billion in 2009 and surpassing the 3.0 percent growth rate achieved in the previous five-year period.

Specialty media and marketing services represented the largest sector of the communications industry in 2004, accounting for 32.0 percent of all communications spending for the year. Custom publishing, branded entertainment and public relations drove growth in the segment in 2004 and is forecast to continue fueling strong growth in this segment with an expected gain of 7.0 percent in 2005 to $275.11 billion, surpassing the advertising industry's growth rate. In 2005, custom publishing is forecast to increase 11.9 percent to $24.63 billion, branded entertainment is expected to grow 9.7 percent to $22.73 billion, and public relations is projected to grow 10.1 percent to $3.75 billion. Total spending on specialty media and marketing services is forecast to grow at a compound annual rate of 6.5 percent in the forecast period, reaching $355.15 billion in 2009 to remain the largest sector of the communications industry.

Media supported by consumers continues to grab market share from media supported by advertisers

According to the 2005 edition of the Veronis Suhler Stevenson Communications Industry Forecast, the average consumer will increase time spent with all media per year at a compound annual rate of 0.4 percent to reach 3,555 hours in 2009. Meanwhile, consumer spending per person per year on media will break $1,000 for the first time in 2009, rising at a compound annual growth rate of 5.2 during the forecast period to $1,023.69.

Media supported by consumers is expected to continue to grab market share from media supported by advertisers during the forecast period, but at a decelerating rate as penetration rates of new media begin to level off due to several key segments reaching saturation points. By the end of 2009, consumers are expected to spend 54.9 percent of their time on advertising-based media, compared with 56.8 percent in 2004, while consumer supported media will command a 45.1 percent share of time spent, compared with 43.2 percent in 2004. During the forecast period, the media expected to show the highest growth in usage are interactive television and wireless content, with a compound annual growth of 31.3 percent; home video, with a compound annual growth of 8.0 percent; and videogames, with a compound annual growth of 4.4 percent. Usage of total television and consumer Internet will expand in the low single digits, and radio listenership is expected to be flat. The average person is projected to use media almost 10 hours per day by 2009.

For more information on the Veronis Suhler Stevenson Communications Industry Forecast and to view select information from individual chapters, visit www.vss.com. To order, call Brooke Suhler at 212-381-8477.

About Veronis Suhler Stevenson

Veronis Suhler Stevenson (VSS) is a private equity and mezzanine capital fund management company dedicated to investing in the media, communications and information industries in North America and Europe. Since 1987, VSS has managed approximately $2 billion in committed capital across four private equity funds and a mezzanine debt fund, all focused exclusively on the media, communications and information industries. VSS provides capital for buyouts, recapitalizations, growth financings and strategic acquisitions to companies and management teams with a goal to build companies both organically and through a focused add-on acquisition program. To date, VSS equity funds have invested in 38 platform companies, which have in turn completed over 191 add-on acquisitions resulting in a portfolio with realized and unrealized enterprise values totaling approximately $7.5 billion. The VSS investment team is comprised of a unique combination of both seasoned media operating executives and media-focused financial transaction professionals, who together are capable of providing a combination of strategic operational insight, relevant industry contacts and sophisticated financial advice to its portfolio companies over the entire life cycle of an investment. Significant current and past investments include Hanley Wood, YBR Group, Solucient, Ascend Media, Facts on File, DOAR, Pepcom Cable and Hemscott. For additional information, visit: www.vss.com.