Veronis, Suhler forecast shows communications industry growing at 7.0 percent compound rate to reach $353.3 billion by 2000.

NEW YORK--(BUSINESS WIRE)--Aug. 19, 1996--According to the tenth annual Communications Industry Forecast released by investment bankers Veronis, Suhler & Associates Inc., a favorable economic outlook, improved advertising spending across all segments, increased consumer spending on emerging media, and a pickup in expenditures on business information will be among the major factors behind the projected 7.0 percent compound annual growth of the communications industry over the 1995 - 2000 period.

The Forecast predicts that total communications industry spending will climb to $353.3 billion in 2000, from $251.5 billion in 1995, and will move up to third position in terms of growth among the top 12 U.S. industries, trailing only electronic equipment and components and telecommunication services.

Among the ten industry segments covered by the Forecast, Interactive Digital Media (IDM) will register the largest five-year compound annual growth with a 19.4 percent gain, followed by Subscription Video Services (8.5 percent) and Recorded Music (8.1 percent). Growth in the communications industry as a whole during the forecast period will be 1.6 points ahead of the 5.4 percent increase registered in the 1990 - 1995 period, and 1.5 points ahead of the projected 5.5 percent average annual rise in the nominal GDP between 1995 and 2000.

In the same period, according to the Forecast, television, recorded music, consumer books, home video, and the interactive digital media -- principally on-line services, the internet and video games -- will take up more of consumers' time. By 2000, the number of hours per year devoted to overall media usage by the average consumer will rise to 3,450, from 3,401 in 1995.

Each component of the communications industry -- advertising, consumer end-user spending, and institutional and other end-user spending -- will outstrip the economy over the forecast period in terms of growth.

Advertising

Increased competition, the shift from price promotions to brand advertising, and the emergence of new advertising media will boost ad spending in the traditional media. Advertisers will spend more in the traditional media to establish overall reach, while targeting expenditures in the new media to maintain a presence and to seek out hard-to-reach audiences.

"With restructuring virtually completed, companies have now refocused their attention on expanding their market share and establishing brand identity in an increasingly competitive environment," said John S. Suhler, president of Veronis, Suhler.

"Audience fragmentation will present a challenge to advertisers," noted Suhler. "On the one hand, use of any single medium will be less effective than in the past. On the other hand, with a wider array of media opportunities, advertisers will be better able to target their messages, and a broader supply of media outlets will keep advertising rates in check."

Advertising across all communications industry segments will increase at a 6.9 percent compound annual rate, versus 4.1 percent in the 1990 - 1995 period, rising to $144.7 billion in 2000, from $103 billion in 1995.

Consumer Spending

A faster-growing economy will also contribute to a stronger consumer market, but other factors will affect individual segments in different ways. For example, increases in the number of people over 40 will help the daily newspaper and consumer book segments; slower growth in penetration will adversely affect subscription video services and home video; while the expansion of internet use will foster consumer spending on interactive digital media. On balance, the pluses will outweigh the minuses, and consumer spending as a whole will expand at a 7.3 percent rate compounded annually over the 1995-2000 period, an improvement over the 6.9 percent annual increase of the last five years. Consumer spending in 2000 will total an estimated $138.2 billion, up from $97.1 billion in 1995.

Institutional and Other Spending

Institutional and other end-user spending will be driven by more rapid growth in spending on programs for television and business information services, which will more than offset slower growth in professional and educational books and business magazines. New cable networks and expanded program hours for the new broadcast networks will boost demand for programs, while the improving economy and next-generation technological advances will lead to accelerating gains in business information services. Overall institutional and other end-user spending will rise at 6.9 percent compound annual rate over the 1995 - 2000 period, 1.5 percentage points higher than the 5.4 percent annual increase in the previous five years. By 2000, institutional and other end-user spending will total an estimated $70.4 billion, up from $50.5 billion in 1995.

Forecast highlights of the various segments of the communications industry follow. (More detailed information is contained in the individual segment releases.)

Television Broadcasting

Total advertiser spending on broadcast television will increase to $41.2 billion by 2000, from $30.6 billion in 1995, expanding at a 6.1 percent compound annual rate. Over the last five years, broadcast advertising grew at a 3.7 percent compound annual rate.

With three Olympic years in the next five, the broadcast networks should continue to expand at mid-single-digit rates. By 2000, network advertising spending will reach an estimated $15.6 billion, up from $11.7 billion in 1995. Over the next five years, the continued appeal of broadcast television to advertisers will apply to the stations as well as the networks. Television station advertising will expand to an estimated $25.6 billion by 2000, from $18.9 billion in 1995.

Radio Broadcasting 

Radio advertising as a whole will total an estimated $15.9 billion by 2000, growing at a 7.0 percent compound annual rate from $11.3 billion in 1995.

The Telecommunications Act of 1996 will stimulate further consolidation in the radio industry and radio station ownership will become more concentrated over the next few years, underscoring the advantages of common ownership in selling advertising. Radio station advertising will accelerate at a 7.2 percent compound annual rate, climbing to $15.4 billion in 2000, from $10.8 billion in 1995. Network radio advertising, meanwhile, will rise to an estimated $510 million by 2000, from $485 million in 1995.

Subscription Video Services

Total spending on subscription video services will grow to $43.6 billion in 2000 from $29.0 billion in 1995, for a compound annual rate of 8.5 percent.

The continuing penetration of Direct Broadcast Satellite (DBS), wireless, and standard cable will add to basic services spending over the forecast period at a 7.8 percent compound annual rate, somewhat down from the 10.5 percent increase achieved over the last five years because of slower penetration growth. By 2000, spending on basic services will total an estimated $26.1 billion, versus $17.9 billion in 1995.

Premium channels will benefit from penetration gains in basic services and a stronger economy over the latter part of the forecast period. Spending on premium channels will grow at a 4.4 percent compound annual rate over the 1995 - 2000 period, mounting to $6.7 billion in 2000, from $5.4 billion in 1995.

Pay-per-view movies represent a small component of the Subscription Video Services segment but one that is growing rapidly, helped by the expanding number of households that are capable of receiving pay-per-view. The introduction of DBS and attractively-priced pay-per-view movies contributed to the 32.7 percent explosion in spending in 1995. Expenditures on pay-per-view movies will rise at a 24.7 percent rate compounded annually over the next five years, more than tripling to $994 million in 2000, from $329 million in 1995.

Advertising spending on Subscription Video Services will reach $9.9 billion in 2000, almost twice the $5.3 billion spent in 1995.

Filmed Entertainment

Total spending on filmed entertainment -- box office, home video and television -- will rise to $41.1 billion in 2000 from $31.4 billion in 1995, growing at a 5.5 percent compound annual rate over the forecast period.

Spending on box office admissions is expected to increase at a 2.0 percent rate, comparable to its growth over the past five years. By 2000, box-office spending will total an estimated $6.1 billion in 2000, up from $5.5 billion in 1995.

A slowdown in VCR household growth has begun to affect the home video market, and as household growth slows in coming years, home video spending will also moderate, advancing at a 5.2 percent compound annual rate over the next five years. By 2000, consumers will spend an estimated $19.8 billion to rent or purchase prerecorded videocassettes, up from $15.4 billion in 1995.

The television program marketplace is in transition from a slow-growth to a fast-growth phase for several reasons. The two new broadcast networks and a host of new cable networks ready to enter the market will increase the demand for television programming. The elimination of the financial interest/syndication rules will allow ABC, CBS and NBC to create more programming, thereby adding to the potential supply of program producers. The elimination of the Prime-Time Access Rule will open up the top-50 television markets to spending on off-network programs in the access hour by affiliates of the top three networks.

As a result of these factors, spending on television programs as a whole (including barter syndication) will increase at a 7.7 percent compound annual rate, reaching $15.2 billion by 2000, up from $10.5 billion in 1995.

Recorded Music

Total spending on recorded music will increase to $18.2 billion by 2000, from $12.3 billion in 1995, growing at an 8.1 percent compound annual rate.

Spending on recorded music grew at double-digit rates between 1992 and 1994, then rose by only 2.1 percent in 1995, hurt by retail consolidation and a lack of hits. The retail consolidation that affected the market in 1995 will be less of a factor over the latter part of the forecast period, and a stronger economy in 1999 and 2000 will help boost sales in those years as well. In addition, an increase in the size of the prime recorded-music-buying age groups will help push up sales.

Newspaper Publishing

Spending on all newspapers -- dailies and weeklies -- will grow at a projected 5.5 percent compound annual rate over the next five years to $65.8 billion in 2000, from $50.4 billion in 1995.

The rate of newspaper consolidation has begun to show signs of moderating as fewer competitive markets remain. Therefore, fewer advertising outlets will be removed from the market and overall spending will hold up better. A healthier economy and improved demographics will also contribute to greater stability in circulation and a stronger advertising base. As a result, total daily newspaper spending will grow at a 5.4 percent compound annual rate over the forecast period to $59.5 billion in 2000, from $45.7 billion in 1995.

Daily newspaper advertising will reach $47.4 billion by 2000, growing at a 5.6 percent compound annual rate from $36.0 billion in 1995. With less consolidation expected over the forecast period, circulation spending should also grow at a faster rate of 4.6 percent compounded annually, up from 1.9 percent over the last five years. Newspaper circulation spending will expand to an estimated $12.1 billion in 2000, from $9.7 billion in 1995.

Weekly newspapers serve markets not feasibly covered by the metropolitan dailies -- local news at the neighborhood level in urban areas or suburban and rural coverage. Population growth has risen in suburban and rural areas in recent years and is expected to continue to increase over the forecast period. Desktop publishing has also made it easier for new weeklies to enter the market. Consequently, total spending on weekly newspapers will increase at a 6.4 percent compound annual rate over the next five years, reaching $6.4 billion in 2000, up from $4.7 billion in 1995. Of that total, $5.9 billion will come from ad spending, while $527 million will be generated by circulation spending.

Book Publishing 

Total spending for books -- consumer and professional and educational -- is forecast to rise at a 5.3 percent compound annual rate, growing to $32.2 billion in 2000, from $24.9 billion in 1995. By contrast the annual growth rate over the 1990 - 1995 period was 5.5 percent.

Fewer best sellers and retail consolidation curtailed consumer book spending in 1995. However, the factors that caused the adverse results in 1995 should not play a significant role over the forecast period. Spending on consumer books, consisting primarily of adult and juvenile hardcover and paperback books, will increase to an estimated $20.7 billion in 2000 from $15.6 billion in 1995, at a compound annual rate of 5.8 percent.

Spending on professional books will grow to $5.4 billion in 2000 from $4.1 billion in 1995. Some professional book categories will be affected by growing competition from on-line delivery, such as lawyers, who have become accustomed to getting recent information on legal cases from on-line services.

Spending on educational books, including elhi and college textbooks, will reach a total of $6.0 billion in 2000, compared with $5.1 billion in 1995. This category will be helped by a growing economy over the forecast period which will improve state tax revenues and subsequently raise school budgets. Enrollments for both elementary and secondary schools are also expected to rise over the forecast period, as is college enrollment.

Magazine Publishing

Total magazine spending, including consumer and business, is forecast to reach $31.5 billion in 2000, from $23.4 billion in 1995, increasing at a 6.2 percent compound annual rate, a distinct improvement over the 3.8 percent growth of the last five years.

Total spending on consumer magazines will increase at a 6.3 percent annual rate over the next five years, reaching $21.3 billion by 2000, from $15.7 billion in 1995. Advertising spending will account for an estimated $12.5 billion in consumer magazines in 2000 up from $8.7 billion in 1995, while circulation spending on consumer magazines will rise to $8.8 billion by 2000, from $7.0 billion in 1995.

Total spending on business magazines will rise at a 5.9 percent compound annual rate over the forecast period, totaling $10.2 billion in 2000, up from $7.7 billion in 1995. Business magazine advertising is projected to rise to $8.3 billion in 2000 from $5.9 billion in 1995, while end users will spend an estimated $2.0 billion on business magazines in 2000, up from $1.8 billion in 1995.

Business Information Services (BIS)

Since a recession is not anticipated over the forecast period and the economy is expected to expand at a faster rate, on average, than over the last five years, the economy should continue to support the increased rate of spending on business information that occurred in 1995. Furthermore, by the end of the decade, next-generation technologies will become widespread, spurring a new burst of spending. For the 1995 - 2000 period, spending on BIS is forecast to grow at a 7.3 percent compound annual rate, 1.2 percentage points faster than the 6.1 percent annual increase of the last five years, reaching $43.5 billion by 2000, compared with $30.6 billion in 1995.

Interactive Digital Media

Boosted by expanding computer penetration in the household, the emergence of on-line services, and the use of the Internet by consumers, spending on Interactive Digital Media as a group will rise to an estimated $20.3 billion by 2000, from $7.6 billion in 1995, augmenting at a 21.6 percent rate compounded annually, making this segment the fastest-growing in the communications industry.

Household spending for on-line and Internet-access services should more than triple over the forecast period, rising to $10.9 billion by 2000 from $3.2 billion in 1995, a 28.2 percent compound annual growth rate.

Spending on packaged PC/multimedia software, which includes general-interest titles, educational software, and computer game and entertainment software, will increase to an estimated $3.0 billion by 2000, from $1.4 billion in 1995.

Video-game console software is the most mature component of the Interactive Digital Media segment. By 2000, video-game console software spending will total $4.3 billion, up from $3.0 billion in 1995.

Veronis, Suhler & Associates Communications Industry Forecast

Veronis, Suhler's extensive Forecast offers a comprehensive analysis of economic, demographic and other forces expected to shape the communications industry over the next five years. The study assesses the impact of these forces on advertiser and consumer spending patterns and provides individual five-year projections for ten major segments of the communications industry: television broadcasting, radio broadcasting, subscription video services (formerly "cable television"), filmed entertainment, recorded music, newspaper publishing, book publishing, magazine publishing, business information services and interactive digital media.

Founded in 1981, Veronis, Suhler & Associates Inc. is the leading investment banking firm specializing in the communications industry. -0- For further information on findings of the 10th Annual Communications Industry Forecast, contact Chris Russell of Veronis, Suhler at 212/935-4990, or via e-mail at: [e-mail]

CONTACT: Veronis, Suhler & Associates, New York 

Chris Russell, 212/935-4990

or

Gavin Anderson & Co., New York

Michael Kinnicutt or Laura Cowan

212/373-0200