Forecast sees U.S. communications industry spending to grow 4.1% in 2011 to US$1.120T, to expand at 5.5% CAGR in 2010-2015; all segments to show increases except newspaper publishing, local consumer directories
October 5, 2011
– Industry Sector Highlights
* Four of Six Industry Sectors Expected to Outperform GDP in 2011, While Five of Six Will Do So in 2010-2015 Period, Led by Targeted Media and Business & Professional Information & Services
* Targeted Media Projected to Be Fastest-Growing Industry Sector in 2011 and 2010-2015 Period, Expanding at a CAGR of 7.9% to $272.5 Billion in 2015; Sector Growth to be Driven Primarily by Internet & Mobile Services and Branded Entertainment Segments
* Business & Professional Information & Services Forecast to Post 6.5% CAGR From 2010 to 2015, Reaching $244.04 Billion
* Education & Training Media & Services and Entertainment & Leisure Media to Outpace Economic Growth in the Forecast Period, While Traditional Consumer Advertising Media and Traditional Marketing Will Trail GDP Expansion
Revenue Stream Highlights
* While the Four Revenue Streams – Advertising, Marketing Services, Institutional and Consumer End-user – Will Lag GDP Growth in 2011, Each Will Exceed Economic Growth in 2010-2015 Period, Led by Institutional End-User and Advertising Revenue Streams, With CAGRs of 6.0% Each in the Period
* Among the Institutional End-User Segments, TV Programming, Cable License Fees & TV Station Retransmission Fees Will Grow at a CAGR of 7.5% from 2010 to 2015, While Business & Professional Services Will Expand 7.0%; Among Advertising Segments, Pure-Play Mobile Will Post a CAGR of 42.9% in the Forecast Period and Pure-Play Internet Will Increase by 13.7%
U.S. Communications Industry spending is on pace to grow 4.1% in 2011 to $1.120 trillion and forecast to expand at a 5.5% compound annual growth rate (CAGR) in the 2010-2015 period, outpacing nominal GDP growth by 90 basis points, according to a new forecast released today by Veronis Suhler Stevenson (VSS), a private investment firm targeting companies in the information, education, media, communications and business services industries in North America and Europe. By the end of 2015, the Communications Industry will be the eighth-fastest-growing and fourth-largest U.S. economic component, according to the 25th edition of the VSS Communications Industry Forecast 2011-15 (www.vssforecast.com).
This year’s VSS Forecast is being published later than usual due to the downturn in key economic indicators in the third quarter of 2011, which led VSS to recalibrate its forecasts to include the most current research and analysis through September. VSS will also begin publishing a Mid-Term Forecast Update in the first quarter of 2012. The VSS Forecast provides the only 10-year, multi-lens view of the communications industry by six Industry Sectors, four Revenue Streams, 20 segments, more than 100 sub-segments, and an exclusive Consumer Media Usage Index tracking time spent with media by consumers, businesses and other institutions. Industry Sectors include Targeted Media, Business & Professional Information & Services, Entertainment & Leisure Media, Education & Training Media & Services, Traditional Marketing, and Traditional Consumer Advertising Media. Revenue Stream components include Advertising, Marketing Services, Institutional End-User, and Consumer End-User. Together, the VSS Forecast and the new VSS Mid-Term Forecast Update provide the most comprehensive and in-depth view available of the U.S. Communications Industry.
Communications Industry growth in the 2010-2015 period will be driven primarily by the rapid convergence of computer, internet and wireless mobile technologies fueling the ongoing transformation of the media landscape and leading to new industries, platforms, channels, and consumer and institutional behaviors. Consumer and Institutional end-users are demanding instant and constant access to information, and their investment in state-of-the-art information and technology services remains central to effective decision-making on many fronts. In the forecast period, these trends are manifested by strong gains in four of the six Industry Sectors covered in the VSS Forecast: Targeted Media, the fastest growing industry sector, with an expected 7.9% CAGR in the period, fueled largely by the Pure-Play Consumer Internet & Mobile Services segment, which will post a CAGR of 16.2% – outpacing GDP growth by over 3x; Business & Professional Information & Services, which is expected to generate a 7.3% CAGR; Education and Training Media & Services – including Not-for-Profit Instructional Media and K-12 Instructional Media – which is anticipated to produce a CAGR of 5.2%; and Entertainment & Leisure Media, which will record a 5.6% CAGR from 2010 to 2015.
Major segments that have been negatively impacted in recent years by the migration to digital platforms and economic factors are expected to stabilize during the forecast period, according to the VSS Forecast. The Traditional Consumer Advertising Media sector, which includes the Broadcast Television, Consumer Magazine Publishing, and Broadcast & Satellite Radio segments, among others, will generate growth in the forecast period, albeit trailing GDP, as brand-related digital products and delivery methods gain a stronger foothold for most traditional media outlets.
“While there are instances of declines and decelerated growth – largely in the more traditional segments of the Communications Industry – there is a convergence taking place in which everything digital continues to gain greater influence, scope and relative revenue mix, neutralizing the general decline of traditional media,” said John Suhler, Co-Founder, President and General Partner of VSS. “Business & Professional Information & Services continues to be a fast-growing sector, in part, because it has long embraced digital content and related software services and delivery. Also, the sectors that held up well in the last economic downturn – Targeted Media, Business & Professional Information & Services, Education & Training Media & Services, and Entertainment & Leisure Media – are all expected to record solid growth in the forecast period, thanks in large part to their migration to digital platforms and delivery methods.”
The VSS Forecast projects the 2010-2015 expansion period – while generating relatively slower growth compared with the majority of past expansions dating back several decades – will outpace the most recent 2002-2008 expansion period by 60 basis points.
Digital’s Growing Influence Permeates the Entire Communications Industry
The VSS Forecast illuminates the fact that digital media is having a strong and long-term impact on the Communications Industry because it is entrenched across Industry Sectors and Revenue Streams. Eighteen of 20 industry segments covered in the report will see increased CAGRs in the 2010-2015 period compared with the 2005-2010 period, with Pure-Play Consumer Internet & Mobile Services producing the largest increase in spending with a 16.2% CAGR in the forecast period to reach $97.43 billion in 2015. The only segments expected to register declines in the forecast period are Newspaper Publishing and Local Consumer Directories, both in the Traditional Consumer Advertising Media sector.
Time spent with the internet, including traditional media brand-related digital and pure-play platforms – covering usage at home, school and work – increased 6.0% in 2010 to 397 hours per person. The growth came from consumers spending more time with social media and workers using software to access and manipulate information. Time spent with mobile media in 2010 soared 49.7% to 77 hours per person, thanks in large part to increased smartphone penetration. With the introduction and rapid adoption of computer tablets by consumers and businesses, those factors are also expected to fuel a 35.3% increase in time spent with wireless media in 2011, reaching 104 hours per person. The segment will post a 19.8% CAGR during the forecast period, with consumer purchases of more e-books, music, mobile applications and streaming video driving the increase.
Accordingly, Targeted Media – which includes products and services from operators that provide advertising and marketing messages to vertically defined consumer or business niches – will be the fastest-growing sector in 2011 and during the forecast period, increasing 7.1% to $199.66 billion this year and posting a 7.9% CAGR in the 2010-2015 period, reaching $272.50 billion. In addition to the Pure-Play Consumer Internet & Mobile Services segment, growth in Targeted Media will come from Branded Entertainment Marketing, where Consumer Events and Paid Product Placements will post CAGRs of 8.5% and 9.7%, respectively, to end 2015 with spending of $33.36 billion and $6.15 billion.
Forecast Changes by Industry Sector
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VSS has relied on the Revenue Stream analytical perspective since the first publication of the Forecast in 1987. For its own investment strategy purposes, VSS added the Industry Sector analytical perspective two years ago in recognition of the media disruption caused by digital technology and innovation, which has caused the Communications Industry to diverge into six distinct media ecosystems. Analysis by industry enables our investment fund professionals, our platform company management teams and our media company executive colleagues to have the Forecast organized in such a way that enables them to more easily benchmark their operational performance while also providing an additional perspective useful in corporate development and M&A planning.
VSS projects that all six Industry Sectors will post CAGR gains in the 2010-2015 period, with the biggest percentage increases coming in Targeted Media, and Business & Professional Information & Services, and the largest increase in spending coming from Targeted Media, which will increase from $186.42 billion in 2010 to $272.50 in 2015. Entertainment & Leisure Media, meanwhile, will expand from $270.36 billion in 2010 to $355.74 billion in 2015.
Among the segments of Targeted Media, Branded Entertainment will rise 7.6% to $28.04 billion in 2011, propelled by the inclusion of event marketing in more marketing campaigns and paid product placement spending gains in TV and emerging categories, such as music videos and video games. Outsourced Custom Content spending will increase 4.6% to $3.74 billion in 2011, post a 4.8% CAGR in the forecast period and reach $4.52 billion in 2015, driven by a surge in custom e-publications and other non-print content. Business-to-Business Media is projected to expand 4.6% to $26.50 billion in 2011, fueled by double-digit growth in e-media spending and growth in trade show, seminar and If you cannot see the graphic, please click to view in your browser]
VSS expects spending in the Advertising Revenue Stream to grow 2.5% in 2011 to $188.16 billion, with a 6.0% CAGR gain in the forecast period to reach $245.29 billion. Broadcast TV will remain the largest advertising segment, while pure-play mobile advertising spending will be the fastest growing. New technology, such as increased computer tablet penetration, and services, including mobile ad networks, will make it easier for brands and agencies to place mobile advertising campaigns.
Institutional End-User spending is projected to grow 5.3% to $507.33 billion in 2011, with a 6.0% CAGR in the forecast period, reaching $645.99 billion in 2015. Education & Training Media & Services will continue to be the largest institutional media segment, while Business & Professional services will be the fastest growing, as organizations invest in outsourcing solutions for higher-value business processes, cloud information technologies and infrastructure services.
Growth in the Consumer End-User Revenue Stream is expected to rise 3.4% to $194.37 billion in 2011, and post a 4.0% CAGR in the forecast period to reach $286.94 billion in 2015, primarily because of gains in traditional and pure-play digital products and services. Subscription TV will be the largest consumer
media segment in 2011, and Mobile Content & Access will be the fastest-growing, thanks to increasing penetration of smartphones, computer tablets, and e-book readers, as well as rising fees.
Marketing Services spending will increase 3.6% in 2011 to $198.78 billion, and post a 4.6% CAGR in the forecast period to reach $228.95 billion in 2015. Direct Marketing will remain the largest marketing segment in 2011, and Public Relations & Word-of-Mouth Marketing will be the fastest-growing, as the role of PR expands and becomes a more prominent component of integrated marketing campaigns and the increasing popularity of social media fuels WoMM growth.
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, communications and business 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 68 platform companies, which have in turn completed over 305 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 Communications Industry Forecast, Mid-Term Forecast Update, and Historical Database, , are the only sources to track, analyze and forecast spending, usage and trends in six Industry Sectors -- Targeted Media, Traditional Marketing, 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 20 segments and 100 sub-segments of the U.S. media industry covered, these reports provide actionable strategic intelligence to executives and owners with stakes in the media, communications and business services industries since 1987. VSS Forecast research is the essential source of econometric data and operating drivers for understanding the factors that influence the historical and future spending patterns of the Communications Industry.
Available solely in digital format, the VSS Forecast takes a 10-year view of the U.S. media industry and includes a five-year historical record of actual spending patterns and metrics and a five-year forecast of spending. After 25 years, it has emerged as an authoritative source of comprehensive spending, usage and trend data across the Communications Industry. (www.vssforecast.com).
About PQ Media
PQ Media (www.pqmedia.com), a leading provider of media econometrics and pioneer of emerging 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 its Alternative Media Research Series data to VSS for use in the 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 since 2003.