NEW YORK--(www.vss.com/vssforecast), providing a five-year historical record and a five-year forecast of spending for four Revenue Streams – and now also an additional analysis of the six major Industry Sectors (http://www.vss.com/imgs/forecast/chart2.jpg) -- including 20 segments and more than 100 sub-segments of the U.S. Communications Industry.)--Veronis Suhler Stevenson (VSS), a leading private equity firm dedicated to the business information and services, education, media and business and marketing services industries, today announced the release of its VSS Communications Industry Forecast 2004 -2014 (
“Institutional communications spending by businesses, government agencies and educational institutions will be the primary driver of the Industry’s growth during this period”
VSS predicts total Communications Industry spending is on pace to increase 3.5 percent in 2010 and post a compound annual growth rate (CAGR) of 6.1 percent in the 2009-2014 period to $1.416 trillion, driven by a gradual economic recovery, advances in digital technology, and secular trends impacting the entire industry landscape.
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 percent, 7.3 percent and 6.3 percent, 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 percent from 2009 to 2014. VSS predicts that Communications Industry spending will exceed nominal gross domestic product (GDP) CAGR growth of 5.8 percent, 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.
“There will be a longer and slower economic recovery during the expansion period covered by the forecast compared with previous expansions because of the breadth and depth of the recession,” said John Suhler, Co-Founder, President and General Partner of VSS. “We expect the Communications Industry will only slightly outperform nominal GDP over the next five years. Advertising and marketing investments, historically the drivers of Communications growth during recoveries, are expected to be more muted due to the shift away from traditional media outlets to more targeted media.”
The VSS Forecast has been published annually since 1986, with information dating back to 1975. This year’s VSS Forecast offers three unique perspectives of the entire Communications Industry that work in parallel to identify patterns, help to fully illuminate trends, and offer direct comparisons.
In addition to sharing a Revenue Stream perspective – an analysis of Advertising, Marketing, Consumer End-User and Institutional End-User spending – as VSS has done for the past 24 years, VSS has introduced an Industry Sector analysis (http://www.vss.com/imgs/forecast/perspectives.pps). This added perspective shows growth for six major Industry Sectors, including Entertainment & Leisure media, Business Information & Services, Targeted Media, Education & Training Media & Services, Marketing Media, and Traditional Consumer Advertising Media. The VSS Forecast also offers greater depth and detail on time that consumers and businesses spend with media. This marriage of exclusive Industry Sector, Revenue Stream and Media Usage data and analytics provides the most comprehensive and in-depth view of the Communications Industry ever published.
Continued Shift to Digital Alternative Media and Drivers of Growth
The long-standing mass media model of one-to-many is being challenged by the growing influence of a new model that leverages the ability to target the individual and multiple niche audiences, as well as empowers the individual and niche audiences to select between sources of content. Unmet societal needs and digital technology are the key drivers, pushing the Communications Industry into a reset-and-restructure mode that will see secular shifts in all Industry Sectors and Revenue Streams from traditional to digital platforms. Reflecting the shift to alternative media categories, the VSS Forecast found that 17 of 20 segments tracked in the report will post increases in CAGR between 2009 and 2014, with the largest CAGR growth being seen in Pure-Play Consumer Internet & Mobile Services, which is expected to rise at a 14.6 percent CAGR and reach $87.79 billion in 2014.
Overall, media usage will remain relatively flat during the 2010-2014 forecast period as consumer and business end-users continue to migrate to digital platforms that have more searchable and often shorter and more focused content when compared with traditional media. Growth will primarily occur in the Business & Professional Information & Services sector, which will post a 8.2 percent CAGR between 2009 and 2014, reaching $249.00 billion. Increases will be a result of publishers/vendors and users continuing to expand their online and mobile products and services through application suites incorporating databases, software solutions and outsourced processing services to drive increased productivity.
This shift to alternative digital media will also be influenced by consumers and business end users taking more command over what information and entertainment they want to consume through wireless devices, such as computer tablets, eBooks, and third- and fourth-generation mobile phones. Media operators will benefit from offering must-have products, particularly ones that allow them to stay connected with friends and family, such as broadband Internet access and mobile phones. Online social networking functionality and interactivity will remain on the rise, and marketing strategies that allow brands to connect emotionally with captive audiences through favored entertainment content will continue to receive a growing share of marketing budgets.
Thus, not surprisingly, the Targeted Media sector will be the second-fastest growing industry sector and experience a 7.3 percent CAGR increase in the forecast period to reach $265.58 billion, according to VSS. Growth will be spurred not only by the Pure-Play Consumer Internet & Mobile Services segment, but also by two of the other four segments within the sector including Branded Entertainment, which is poised to increase CAGR by 9.2 percent to $38.16 billion, and Outsourced Custom Publishing, where advertisers are seeking targeted approaches to reaching key audiences, resulting in an 11.2 percent CAGR gain to reach $6.57 billion in 2014. Other well performing segments include Public Relations & Word-of-Mouth Marketing which will register CAGR growth of 9.7 percent between 2009 and 2004, reaching $8.01 billion, and Business & Professional Services which will see CAGR climb 9.1 percent to reach $147.12 billion in 2014.
Future Growth by Industry Sector
Gains during the forecast period 2010-2014 are expected to be driven by continued growth of Business & Professional Information & Services, Entertainment & Leisure Media, and Education & Training Media & Services, and will significantly contribute to total communications spending reaching $1.416 trillion by 2014, a 6.1 percent increase CAGR, or the year-over-year growth rate.
Business & Professional Information & Services will be the fastest-growing industry sector from 2009 to 2014, posting an 8.2 percent CAGR between 2009 and 2014 to reach $249.00 billion, as Business & Professional Information and Business & Professional Services operators expand their online and mobile products and services. This will occur through application suites that incorporate databases, software solutions and outsourced processing services to drive productivity.
Growth in Education & Training Media & Services will experience a 6.8 percent CAGR improvement in the forecast period to $311.28 billion, thanks to strong gains in the for-profit post-secondary and college education markets, and solid increases in outsourced corporate training and K-12 educational materials during the latter part of the forecast as the economy improves.
The Entertainment & Leisure Media sector is forecast to post CAGR gains of 6.3 percent over the next five years, reaching $353.87 billion, with 6.3 percent CAGR growth. Subscription Television will continue to be the primary driver, while Entertainment Media and Consumer Book Publishing will remain driven by hit titles and affected by consumer shifts to less expensive online and mobile distribution of content.
The aforementioned Targeted Media industry sector will be the second-fastest growing industry sector during the forecast period, driven by double-digit growth in Pure-Play Consumer Internet & Mobile Services and Outsourced Custom Publishing, as well as solid gains in Branded Entertainment. Gains registered by these three segments will help compensate for low-single digit growth projected for Direct Marketing and Business-to-Business Media.
Marketing Media will be the slowest growing and smallest communications industry sector during the forecast period, increasing at a 1.8 percent CAGR from 2009 to 2014 to $77.23 billion. Solid gains in Public Relations and Word-of-Mouth Marketing will be unable to mitigate sluggish growth in traditional marketing segments, such as Business-to-Business Promotions and Consumer Promotions.
For Traditional Consumer Advertising Media, which includes Broadcast TV, Newspapers, Consumer Magazines, Broadcast & Satellite Radio, Yellow Pages Directories, and Out-of-Home Media, growth in the 2009-2014 period is expected to be sluggish at around 2.2 percent CAGR, totaling $159.30 billion. The availability of new media platforms and technologies will contribute to continued changes in consumers’ media use, particularly secular declines in consumer consumption of traditional media platforms. This will prompt brands and agencies to re-evaluate their traditional advertising strategies and tactics.
Future Growth by Revenue Stream
From a Revenue Stream perspective, overall Communications Industry growth during the forecast period 2009-2014 will be fueled by solid gains in Consumer and Institutional End-User spending, which combined will climb at a 6.9 percent CAGR to reach $953.54 billion in 2014. The Consumer and Institutional End-User Revenue Streams have been the driving force behind Communications Industry growth over the past four decades, VSS reported in April of this year in its VSS Historical Database 1975-2009, a retrospective study of spending, consumption, growth and trends. (www.vss.com/historical09/).
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. The Advertising and Marketing Services Revenue Streams will see a 4.6 percent increase in CAGR between 2009 and 2014, reaching $462.72 billion. Surprisingly, the Advertising Revenue Stream, which has seen declines for two consecutive years, will experience stronger growth rates than Marketing Services in the forecast period.
“Institutional communications spending by businesses, government agencies and educational institutions will be the primary driver of the Industry’s growth during this period,” Suhler said. “Technological advances are providing end users with quicker access to actionable strategic intelligence and manipulative tools, and this in turn empowers them to be more competitive in the global market. Consumer and business end-users will take more command over the information and entertainment they want through wireless devices and third- and fourth-generation mobile phones.”
VSS predicts that the Institutional End-User Revenue Stream will remain the largest and fastest growing of the four Revenue Streams, increasing CAGR by 5.3 percent in 2010 to $490.54 billion, and posting a CAGR increase of 7.3 percent increase 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 & professional information, and outsourced corporate training, among others.
Consumer End-User spending will grow 3.6 percent this year to $225.88 billion, and will generate a 6.0 percent increase in CAGR during the 2009-2014 period to $292.07 billion. As the economy strengthens, and digital/wireless channels proliferate, consumers will resume spending on hit-driven media, such as home video, video games and recorded music. Spending on pure-play internet & 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.
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 percent 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, will benefit over 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. The sector posted its worst performance in 35 years during 2009, falling 9.6 percent to $189.86 billion. The primary cause of the decline was Traditional Marketing vehicles – such as direct mail, point-of-purchase and business-to-business promotions. Between 2010 and 2014, it will rebound, with CAGR climbing 3.7 percent by 2014 to total $227.82 billion. However, it will become the smallest Revenue Stream, VSS found.
Advertising was the other Revenue Stream to decline in 2009. Without the even-year spending boosts to help the bottom line, spending was $180.25 billion, a 14.1 percent drop from 2008 and a 1.1 percent decline in CAGR between 2004 and 2009. Traditional Advertising media, including print media such as newspapers and magazines, will rebound during the forecast period as the economy improves and advertising budgets are restored. However, traditional Advertising media will continue to struggle because competition from alternative advertising vehicles.
About Veronis Suhler Stevenson
Veronis Suhler Stevenson is a private equity and debt capital fund management company dedicated to investing in the information, education, media, and business and marketing services industries in North America and Europe. 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 and debt funds have invested in 65 platform companies, which have in turn completed over 300 add-on acquisitions resulting in a portfolio with realized and unrealized enterprise values totaling over $14 billion. The company’s website is www.vss.com.
About the VSS Forecast
The VSS Forecast, and its supplement the VSS Historical Database, is the only source to track, analyze and forecast spending, usage and trends in six Industry Sectors -- Marketing Media, Targeted Media, Entertainment and Leisure, Traditional Consumer Advertising Media, Business & Professional Information & Services, and Education & Training Media & Services – and four Revenue Streams – Advertising, Marketing Services, Consumer End-User, and Institutional End-User Spending. With more than 20 segments and more than 100 sub-segments of the U.S. media industry covered, these reports provide actionable strategic intelligence to executives and owners with stakes in the information services, education and media and communications industries since 1986. The VSS Communications Industry Forecast research is the essential source of econometric data and operating drivers for understanding the factors that influence the future spending patterns of the Communications Industry.
Available solely in digital format, the VSS Forecast takes a ten-year view of the U.S. media industry and includes a five year historical record of actual spending patterns and metrics and the VSS five-year forecast of spending. After 24 years, it has emerged as an authoritative source of comprehensive spending, usage and trend data across the Communications Industry. (www.vss.com/VSSForecast)
About PQ Media
PQ Media (www.pqmedia.com), the leading provider of media econometrics and the pioneer of alternative media research, partners with Veronis Suhler Stevenson on the VSS Forecast. PQ Media has collaborated with VSS since 2003 on the research and development of the VSS Forecast and licenses it’s Alternative Media Research Series data to VSS for use in the VSS Forecast, including econometrics covering digital out-of-home media, product placement, word-of-mouth marketing and event marketing, among others. PQ Media is a research consultancy that provides actionable strategic intelligence through a variety of consulting services and research reports to leading media companies, financial institutions, management consultants, media agencies and brands. The firm’s experience, knowledge and insights have influenced strategic plans, investment parameters and tactical approaches for clients.
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