Internet Helps Communications Sector Stand Tall

Thanks in large part to the Internet and other new technologies, the communications industry was the fastest-growing sector of the US economy from 1994 to 1999 and will maintain that lead through 2004, according to the 14th annual Communications Industry Forecast by Veronis Suhler.

The Communications Industry Forecast (CIF) is a comprehensive accounting of consumer usage and advertising spending trends across the full range of the communications industry — from traditional media to the Internet. According to the report, new technologies and increased income have led to continued increases in consumer media use measured in hours, which spiked upward 3.8 percent to 3,399 hours per person in 1999 and is forecast to reach 3,786 hours (well over 10 hours per person per day) by 2004. The extra hours are concentrated in the Internet, video games (stimulated by online multi-player games), radio, and recorded music, the latter spurred on by the Internet and its download technologies.

Pacing communication industry growth for the 1999 to 2004 forecast period will be advertiser spending, which grew 9.1 percent to $165 billion in 1999 and is projected to attain a compound annual growth rate (CAGR) of 8.6 percent, reaching $249.1 billion in 2004. This growth will be driven largely by Internet advertising, which exploded 140.6 percent to $4.6 billion in 1999 and is forecast to increase at a 39.5 percent CAGR, more than quadrupling to $24.4 billion by 2004, according to Veronis Shuler. The growth in online ad spending should account for nearly one-quarter of total advertising growth forecast for all segments through 2004. It will propel Internet advertising ahead of cable and satellite TV ($21 billion), network TV ($19.4 billion), and consumer magazines $16.4 billion) and close to even with radio ($26.6 billion).

Internet companies’ heavy advertising in traditional media adds another dimension to the Internet’s impact on total advertiser spending. Also propelling overall ad spending growth from 1999 to 2004 will be rapid increases in cable and satellite advertising, outdoor, and radio. Most other segments will grow slightly more slowly than in the 1994 to 1999 period.

“To meet their demands and appetites, Americans have become expert media multitaskers — sending email and Web surfing while watching an episode of The Sopranos, maybe downloading music at the same time, or tracking an online trading account while listening to a CNBC business program and perusing the latest issue of The Industry Standard,” said James Rutherford, executive VP of Veronis Shuler and head of the firm’s investment banking operations. “We’ve arrived at a point where consumption of media and information accounts for more than half of our waking hours. Indeed, our need for entertainment and information should persist no matter what changes occur in the economy over the next several years.”

At the same time that new technologies will be causing Americans to spend more time consuming media, per-person use of daily newspapers and consumer magazines will drop slightly, while use of consumer books remains virtually flat. Daily newspapers’ share of total consumer hours spent on media will shrink from 4.5 percent in 1999 to 3.9 percent in 2004; consumer books will drop from 2.7 percent to 2.4 percent, and consumer magazines from 2.4 percent to 2.0 percent. By 2004, Americans spend more hours playing video games (161) and using the Internet (228) than they spend reading daily newspapers (147), books (92), and magazines (77).

The Veronis Shuler CIF also found the number of US online households soared 42 percent to 40.5 million in 1999, while spending on access rose 52 percent to $9.4 billion. By 2004, 67.1 million US online households are forecast, while spending on access rises to $14.6 billion. Downward pricing pressure accounts for the moderate spending increase. Per-household spending on access is forecast to shrink from $232/year in 1999 to $217/year in 2004. Broadband Internet access is forecast to explode from 2.1 million subscribers in 1999 to 18.9 million subscribers in 2004, while broadband spending grows somewhat more moderately, from $1.1 billion in 1999 to $6.9 billion in 2004.

Yet the Internet shows no sign of toppling traditional media and has in fact stimulated growth and creativity, as traditional media companies have made efforts to integrate the Web into their businesses. Consumer magazines have had content online for years, and the consumer book industry was one of the first drivers of e-commerce.

According to the report, newspapers have lost some classified and real estate advertising to the Internet, but strong national advertising and growing dot-com ad spending have offset the losses. Newspapers are also taking steps to recoup their classified losses by putting their own classifieds online. Television viewing, according to several studies, is not being cannibalized by Internet use, and television networks and stations have benefited from a dot-com advertising bonanza, albeit a moderating one.

Related reading

pokemon go