Analyst's Forecast: Mainstream Media Outpacing Everyone on Web

By: E&P Staff "Traditional" media companies that in 2000 won just 16% of total advertising and marketing spending on Internet and mobile services are on pace to grab 45% of the spending by the end of this year, according to the Communications Industry Forecast 2006-2010 released Tuesday by Veronis Suhler Stevenson (VSS).

The New York City-based private equity and mezzanine capital fund management company that concentrates on media and related information industries predicts that Internet and mobile services will grow at a rate of 14.7% over the next five years -- and that the fastest growth will come from traditional media companies.

"Despite increased competition and fragmentation, traditional media companies have positioned themselves to capitalize on an increasing share of the surge in spending on broadband video advertising, music and game downloads, and mobile marketing services," VSS said.

Spending on Internet and mobile advertising through traditional media companies, VSS said, will reach $25.57 billion by the end of this year, year-end 2006 -- up 26.1% from 2005 level.

Overall communications spending is accelerating through 2006, VSS says, "driven by driven by double-digit growth in alternative advertising and marketing strategies."

Total spending on media and communications, it added, is expected to increase 7.2% in 2006 to $961.90 billion, outpacing 2005's gain of 6.3%. Spending is on pace to achieve a compound annual growth rate of 6.6 % in the 2005-2010 period, breaking through the $1 trillion market to $1.236 trillion, the forecast says.

Newspapers, though, will grow far more slowly than that, VSS predicts.

"Spending on print dailies is expected to rise at a CAGR (compounded annual growth rate) of just 0.2 % from 2005 to 2010 to $58.69 billion," the forecast says. "The weak print performance will be offset by strong online and mobile advertising, marketing and content spending, which is expected to rise at a CAGR of 20.0 % from 2005 to 2010."

This year, total daily newspaper spending, including print, online and mobile, is projected to edge up just 1.5 % in 2006 to $67.76 billion, VSS said. After total spending on dailies stayed essentially flat between 2000 and 2005, spending bumped up 2.3% in 2005 to $60.64 billion.

"While there is a shift in spending from conventional media to new media strategies, our research indicates that traditional media companies are aggressively pursuing online and mobile platforms, protecting their brands and developing new revenue streams," said James Rutherfurd, VSS' executive vice president and managing director.

Rutherford said amid the unprecedented fragmentation of the media market, "traditional media companies have responded by investing in multiple media platforms to reach this increasingly fragmented audience."

With more media available, more people are spending more time with media, the forecast found. VSS said its tracking data "indicates that the hours consumers spent with media increased 0.4 % in 2005 to 3,543 hours per person" annually.

By 2010, VSS predicts, that number will climb to 3,620 hours -- or nearly 10 hours every day.

The VSS forecast includes data on numerous other media, including broadcast and satellite radio and TV, events marketing, out-of-home marketing, book publishing and Yellow Pages.

In an increasingly new media environment, the forecast says, direct marketing will hold its own. Spending this year on all forms of direct marketing is expected to increase 6.6% to $154.47 billion -- and keep that pace up, with an estimated compounded annual growth rate of 6.0% in the 2005-2010 period.

"Despite the implementation of the federal Do Not Call Registry, telemarketing is the largest segment of the direct marketing industry and continues to achieve steady growth," VSS said. Spending on telemarketing grew 5.9 % to $60.23 billion in 2005, and is on pace to "grow steadily in the mid single digits" through 2010.