Americans Still Spending More Dollars & Hours on Media.

Despite a major softening of the advertising market and the ensuing national recession, the U.S. communications industry managed to expand its reach with consumers in the past year, according to media merchant bank Veronis Suhler Stevenson.

In the 16th edition of its Communications Industry Forecast (CIF), VSS provides a silver lining to a most difficult year. Overall end-user spending on all forms of media, entertainment and information increased 4.4 percent in 2001, totaling $277.1 billion, fueled by a strong 6.5 percent growth in consumer spending. Growth was seen in seven out of 10 categories, with the largest – cable & satellite television – increasing 9.0 percent to $43.6 billion. The uptick was mostly driven by technological advances, aggressive marketing and price increases. However, the fastest growing segment was interactive television, where a widespread rollout of services propelled a spending increase of 77 percent to $1 billion.

Consumers also spent more time using media in 2001, logging 3,570 hours among various forms of media, averaging 9.8 hours per day. This is up 1.4 percent from 2000. Time spent with advertising-supported media accounted for 59 percent, or 2096 hours of the total, down from 68 percent five years ago. However, during the next five years, the number is expected to only decline to 56 percent, which could bode well for an advertising industry desperate for good news.

The exponential usage growth of the Internet since 1996 taken a sizeable chunk out of print and broadcast media market share, though traditional media still continues to dominate, encompassing over 80 percent of a consumer’s usage. In 1996, consumers spent 0.2 percent of their total media usage with the Internet, 76 percent with broadcasting & cable and 13 percent with print media. By 2001, Internet usage made up nearly 4 percent of a user’s day, with broadcasting & cable dipping slightly to 74 percent and print media dropping to just over 11 percent. In its forecast, VSS expects Internet usage to grow to encompass almost 6 percent of a consumer’s day. The time spent using broadcasting & cable is expected to shrink to just over 72 percent, and print will continue its decline, with the forecast showing usage to be just 10 percent of a consumer’s day. A fourth major category, entertainment, will encompass the remaining 12 percent of a user’s day, up from just under 11 percent in both 2001 and 1996. (See attached charts.)

The three areas experiencing a spending decline in 2001 were recorded music, consumer books and consumer magazines. The drop in recorded music, which sank 3.2 percent to $13.9 billion, was largely attributed to increased digital piracy. Consumer books declined for the second straight year. The flagging economy and the post-Sept. 11 malaise kept consumers away from books, in which spending fell 0.6 percent to $17.8 billion. Magazines, which were also hit hard by the advertising downturn, saw circulation spending fall 2.1 percent to $9 billion in 2001.

On the institutional front, spending increased 2.1 percent to $128.5 billion in 2001, stimulated by upswings in television programming, which grew by 6.2 percent to $32.6 billion and in the professional, educational and training media, which posted a 2.6 percent increase to $40.2 billion. Business-to-business spending dipped 2.0 percent to $8.3 billion, and the decline was attributed to declines in magazine unit sales and rented expo space. Business information services, suffering from the recession and the Sept. 11 terrorist attacks, fell a mild 0.2 percent in 2001.

“Considering the events that racked the industry in the past year, there are some encouraging signs,” said James Rutherfurd, Executive Vice President and head of investment banking at VSS. “The stresses on the economy and our national sense of well being have not suppressed Americans’ appetite to absorb media across all platforms. With a spate of new delivery systems like DVD, video-on-demand and personal video recorders coupled with the widespread acceptance of the Internet, consumers are relying on a variety of media for content, entertainment and information and are not yet saturated as a culture. Content providers and advertisers should find solace in the double trend of increased spending and usage, whether by consumer or institutional users.”

The annually produced CIF, which is the most exhaustive long-term media industry forecast, looks at trends over the past five years to create a five-year projection going forward. Total end-user spending on communications is expected to rise at a compound annual rate of 6 percent in the forecast period to $373 billion in 2006. The growth is slightly slower from the rate of 7.0 percent for the 1996-2001 period. An average consumer’s time spent with media will expand at a compound annual rate of 1.2 percent to 3,785 hours during the same period. That will surpass 10 hours per day for the first time since VSS began tracking media usage in 1986, and will be driven by technology-based media, such as DVD, video games, broadband Internet and interactive television.

Other CIF highlights include:

Consumer End-User Spending
Bolstered by increased spending on cable & satellite television, consumer Internet and box-office films, average consumer spending on all media grew 5.9 percent to $683.33 per individual in 2001. Average consumer expenditures on media rose at a compound annual rate of 6.3 percent from 1996 to 2001. The average consumer spent 3,570 hours with various forms of media in 2001, a 1.4 percent increase over 3,519 hours the previous year. Spurred by strong growth in home videos and the Internet, the average consumer’s time spent with media will expand at a compound annual rate of 1.2 percent in the forecast period to 3,785 hours in 2006. Total consumer spending on media advanced at a compound annual rate of 7.5 percent from 1996 to 2001, boosted by growth across all 10 segments but primarily cable & satellite television, consumer Internet and video games. An average consumer will find about $200 more to spend on media in the next five years. Consumer expenditures per person on media will expand at a compound annual rate of 5.3 percent in the forecast period to $885.31 in 2006, driven by increased spending on cable & satellite services, Internet content & access and video games. Total consumer spending on media will grow at a compound annual rate of 6.5 percent from 2001 to 2006, reaching $203.2 billion.

Institutional End-User Spending
Expenditures in the largest category-business information services-declined 0.2 percent to $47.4 billion in 2001, the first time in at least five years that spending in this category dropped. Institutional spending on television programs increased faster than all other segments in 2001, rising 6.2 percent to $32.6 billion, but growth decelerated for the third straight year. Total institutional spending on media and information grew at a compound annual rate of 6.6 percent from 1996 to 2001, boosted by growth across all four segments. Institutional end-user spending on communications is projected to grow at a compound annual rate of 5.8 percent from 2001 to 2006, reaching $170.2 billion, powered by increased spending across all four segments. Business information services will remain the largest segment through the forecast period, increasing at a compound annual rate of 6.6 percent to $65.2 billion in 2006.

For more information at http://www.veronissuhler.com

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