Alternative Media Drives U.S. Communications Spending Growth

NEW YORK, August 8: According to a
new report released by private equity firm Veronis Suhler Stevenson (VSS),
total communications spending expanded in the 2001-2006 period to a record
$885.2 billion, driven by gains in spending on alternative advertising, as more
consumers migrate to new-media alternatives for news, information and
entertainment, rather than traditional media like broadcast or cable TV.

The report, entitled VSS
Communications Industry Forecast 2007-2011,
indicates that the communications industry is on pace to grow 6.4 percent this
year and will post a compound annual growth rate (CAGR) of 6.7 percent in the
2006-2011 period, making it the third fastest growing sector of the U.S.
economy. VSS predicts that total Internet advertising—including pure-play
websites and digital extensions of traditional media—will reach $61.98
billion in 2011, surpassing newspapers as the largest ad medium in the U.S.

Alternative advertising and marketing
will continue to spur growth in the communications industry in 2007 and through
2011, as alternative media is expected to expand at a CAGR of 17.4 percent in
the period to $197.11 billion, while traditional advertising and marketing will
post an aggregate CAGR of 3.2 percent to $438.99 billion in 2011. VSS projects
the fastest-growing media segments over the next five years will be pure-play
Internet and mobile services, branded entertainment, out-of-home media,
outsourced custom publishing and public relations, with each producing CAGRs of
between 10 percent and 15 percent in the five-year period.

The firm also notes that for the
first time since 1997, consumers spent less time with media in 2006 than they
did the previous year, as media usage per person declined 0.5 percent to 3,530
hours, due to changing consumer behaviors and digital media efficiencies. The
drop in consumer media usage was driven by the continued migration of consumers
to digital alternatives for news, information and entertainment, which require
less time investment than their traditional media counterparts. For example,
consumers typically watch broadcast or cable television at least 30 minutes per
session while they spend as little as five to seven minutes viewing consumer-generated
video clips online. In addition to shifting their attention to alternative
media, consumers are also migrating away from advertising-supported media, such
as broadcast TV and newspapers, to consumer-supported platforms, such as cable
TV and videogames. Time spent with consumer-supported media grew at a CAGR of
19.8 percent from 2001 to 2006, while time spent with ad-supported media
declined 6.3 percent in the period.

“We are in the midst of a major
shift in the media landscape that is being fueled by changes in technology,
end-user behaviors and the response by brand marketers and communications
companies,” said James Rutherfurd, the executive VP and managing director at
VSS. “We expect these shifts to continue over the next five years, as time and place
shifting accelerate while consumers and businesses utilize more digital media
alternatives, strengthening the new media pull model at the expense of the
traditional media push model.”

VSS expects consumer media usage
to stabilize in 2007 and increase slightly through 2011, as out-of-home media
and videogames will be the only major segments to achieve accelerating growth
in the forecast period compared with the 2001-2006 timeframe. Overall consumer
time spent with media will increase at a CAGR of 0.5 percent from 2006 to 2011,
compared with 0.8 percent in the previous five-year period.