Communications Spending to Grow - Despite Economy & Traditional Ad Declines

Total U.S. communications spending is projected to increase 5.4 percent to $923.91 billion in 2008, as strong gains in the institutional and alternative-media sectors offset the downward pressure of declining traditional advertising spending, according to Veronis Suhler Stevenson (VSS), writes MarketingCharts.

Broadcast TV will surpass newspapers as the largest ad medium in 2008, while total internet ad spend will surpass broadcast TV in 2011, VSS forecast.

Among the key findings of the VSS Communications Industry Forecast 2008-2012:

• Total spending on communications overall will continue to outpace U.S. economic growth during the 2007-2012 period, increasing at a 6.2 percent CAGR (compared with a 5.6 percent CAGR for nominal GDP) and reach $1.2 trillion in 2012.

(See table of 2002-2007 communications spend and 2012 forecast, by four major sectors.)

• The industry’s primary growth driver in 2008 is the institutional sector, particularly professional & business information services and education & training media. Institutional media spending is expected to increase 8.5 percent to $245.39 billion in 2008.
• Communications will be the second-fastest growing of the 15 U.S. economic sectors during the forecast period and will exceed $1 trillion in 2010, with spending reaching $1.183 trillion in 2012.
• Similar to previous recessionary periods, consumer spending on communications as a share of disposable income is expected to increase in 2008.
• Brands are expected to continue shifting budgets from traditional to alternative advertising and marketing vehicles in 2008 and 2009, driven by fragmentation, advanced technology and more sophisticated measurement tools.
• Spending on alternative media will climb 21.0 percent to $81.67 billion in 2008, accounting for 17.7 percent of total advertising and marketing spending, up from 6.9 percent in 2002.
• By comparison, traditional advertising and marketing will inch up 0.4 percent in 2008 to $378.48 billion, including a 1.8 percent decline in traditional advertising.

While the deteriorating housing market, higher gas prices and a weakening job environment weigh heavily on the overall economy and the advertising sector, the institutional and consumer media sectors remain durable as businesses continue to spend on mission-critical services and consumers use entertainment media to relieve economic stress, according to VSS.

Below, more detailed analysis and data from VSS about the past five years, the current year, next year and the 2007-2012 period.

Institutional & Alternative Media Drive 2002-2007 Results

Driven by strong gains in institutional, alternative and consumer media, total communications spending rose at a compound annual growth rate (CAGR) of 6.1 percent from 2002 to 2007, according to the VSS Forecast:

(See table of 2002-2007 communiations spend and 2012 forecast, by 20 major segments.)

• The institutional sector, including business, education and government spending on media, information and related services, was the fastest-growing in 2007 as well as during the 2002-2007 period, increasing 9.5 percent to $226.11 billion in 2007, and expanding at a CAGR of 9.3 percent from 2002 to 2007.
• Marketing services, including segments such as direct marketing, promotions and branded entertainment, was the largest communications sector at $231.75 billion, a 5.8 percent growth rate over 2006, and a CAGR of 5.9 percent from 2002 to 2007.
• Consumer spending on communications, such as internet access, consumer books and videogames, rose 5.7 percent in 2007 to $205.87 billion, and climbed at a 5.0 percent CAGR over the five-year period.
• Advertising was the slowest growing sector in 2007 and in the 2002-2007 period, inching up only 1.6 percent in 2007 to $212.56 billion, hampered by a 2.1 percent decline in traditional advertising.
• Three media exceeded $100 billion in 2007: cable & satellite television, professional & business information services, and direct marketing.
• Eight media segments exhibited double-digit gains during the 2002-2007 period, led by the nascent word-of-mouth marketing segment at 49.8 percent growth, followed by outsourced custom publishing, pure-play internet & mobile services, branded entertainment, professional & business information services, public relations, out-of-home media and cable & satellite television.

2008: Communications Share of Disposable Income Up, Traditional Advertising Down

VSS tracking data in the first half of 2008 indicates that, similar to previous recessionary periods, consumer spending on communications as a share of disposable income is expected to increase this year:

• For instance, spending on videogames is projected to climb at a double-digit rate, while the movie industry experiences its strongest summer on record.
• Moreover, home video sales and rentals increased during the first half of 2008 after declining in two of the past three years.
• Total consumer spending on media is expected to increase 6.1 percent in 2008 to $218.37 billion.

While some major advertisers, particularly in the automotive and financial categories, have been slashing budgets this year, many brand marketers have not cut spending as aggressively as in past economic downturns due to heavy pressure to retain market share.

At the same time, marketers have become more sophisticated, often reducing spending on a case-by-case basis while shifting dollars to alternative media that more efficiently reach target audiences, provide stronger return-on-investment metrics and generate immediate responses.

In addition, the quadrennial occurrence of the presidential election and summer Olympics is softening the negative economic impacts on the advertising industry in 2008.

Meanwhile, brands are expected to continue shifting budgets from traditional to alternative advertising and marketing vehicles in 2008 and 2009, driven by fragmentation, advanced technology and more sophisticated measurement tools:

• Spending on alternative media will climb 21.0 percent to $81.67 billion in 2008, and account for 17.7 percent of total advertising and marketing spending, up from 6.9 percent in 2002.
• By comparison, traditional advertising and marketing will inch up only 0.4 percent in 2008 to $378.48 billion, including a 1.8 percent decline in traditional advertising, despite the influx of political and Olympics advertising, as newspapers, consumer magazines and broadcast radio all post declines for the year.

For many alternative media, this will be the first economic slowdown in which they will be seriously tested, such as online search, digital out-of-home media, word-of-mouth marketing, videogame advertising, and social network advertising, among others.

As a result of these trends, VSS projects that broadcast TV will become the largest advertising medium by yearend 2008, the first time in US history that newspapers have not held that position.

MarketingCharts has more coverage - including 2009 projections and more-detailed 2007-2012 forecast info.

About the study: The VSS Forecast tracks, analyzes and forecasts spending, usage and trends in all four major sectors - advertising, marketing, consumer, and institutional - as well as 20 segments and more than 100 sub-segments of the US media industry; in part, it uses data licensed from alternative-media econometrics provider PQ Media. The VSS Forecast is the core component of the VSS MediaResearchNet 2.0, a data visualization dashboard that includes the first performance overview of all major media segments during historical recessions and 2008, titled The Recessionary Behavior of Media.