U.S. Spending on Satellite, Cable TV Boosts Communications Industry

Communications spending in the United States rebounded 3.3 percent to $608.7 billion in 2002, driven primarily by consumer spending on media such as cable and satellite television, filmed entertainment and video games, according to New York-based Veronis Suhler Stevenson’s 2003 Communications Industry Forecast and Report. Growth in 2002 followed a year in which total communications spending declined for the first time in decades.

The communications industry’s 5.5 percent compound annual growth in the 1997-2002 period outpaced that of the nominal GDP, which rose at a 4.7 percent rate in the period. Communications spending outgrew nominal GDP for four consecutive years until 2001.

The forecast predicts that communications will remain the fifth-fastest-growing sector of the U.S. economy in the 2002-2007 period, growing at a compound annual rate of 6.3 percent to $827.5 billion in 2007, compared with a nominal GDP growth of 5.6 percent during the same forecast period.

Spending on cable and satellite television increased 10.2 percent to$76.9 billion in 2002. Cable and satellite television’s annual spending growth has outpaced that of the U.S. economy since 1995, and the industry has been one of the most consistently fast-growing media segments over the past five years.

Spending on cable and satellite TV is expected to reach a combined $110.5 billion in 2007, rising at a compound annual rate of 7.5 percent in 2002-2007.

Radio broadcasting expenditures from advertising and satellite radio grew 6.4 percent to $19.4 billion in 2002. Radio advertising spending grew 6.3 percent to $19.3 billion in a year in which many media segments were negatively impacted by a slow economy and soft corporate earnings. Satellite radio spending expanded forty-fold to $19.4 million as subscriber levels increased significantly.

The improving economy and advertising market are expected to fuel a growth at a compound annual rate of 9.4 percent to $30.4 billion by 2007.

“Despite two difficult economic years and a momentary scare after the Iraq invasion and the SARS [severe acute respiratory syndrome] outbreak in Asia, we expect a gradual broad-based media recovery to be on track throughout the forecast period ending 2007,” said James Rutherfurd, managing director of Veronis Suhler Stevenson. “Fears that these socio-political events would stifle the emerging recovery were largely unfounded and by the end of the second quarter of 2003, it is clear that the communications recovery is on track and gaining strength with major upside potential from upcoming trends and events such as the presidential election and Olympic coverage in 2004 and continued growth in entertainment media.”

Consumer Spending

Consumer spending on media grew at an accelerating pace for the second consecutive year in 2002, as end users continued to escape harsh economic and social conditions by indulging in additional cable and satellite TV and Internet services, theatrical movies, home video rentals, and a cavalcade of new video games, according to the survey. Spending growth was buoyed by upswings in 10 of 11 categories examined by the survey, including cable and satellite television, consumer Internet, video games and satellite radio. The consumer end-user segment includes spending on cable and satellite television, satellite radio, box-office films, home video, recorded music, newspaper circulation, consumer books, consumer magazine circulation, video games, interactive television and Internet access. Consumer spending on media increased 8.2 percent to $163 billion in 2002, expanding at a compound annual rate of 7.9 percent from 1997 to 2002. Total consumer spending on communications will rise at a compound annual rate of 6.6 percent from 2002-2007, reaching $224 billion.

In contrast, growth of institutional spending on media decelerated for the second consecutive year, as the slow economy forced corporations and government agencies to slash budgets for training, travel, conferences, magazines and instructional materials, the survey found. The institutional end-user segment includes spending on television programming; professional, educational and training media; business-to-business magazine circulation and trade show exhibition space, and business information services. Institutional spending on media inched up 1.6 percent to $140.2 billion in 2002, pushed by strong showing by television programming. Institutional expenditures rose at a compound annual rate of 5.6 percent from 1997-2002, and is projected to expand at a compound annual rate of 6.5 percent from 2002-2007, reaching $191.8 billion, powered by continued growth in television programming expenditures.

Meanwhile, total expenditures on advertising rebounded in 2002, fueled by growth in broadcast television and radio throughout the year. Advertising spending was bolstered by several other categories that began to show upside again in the fourth quarter following two years of industry recession brought on by an economic downturn, technology market meltdown and dramatic corporate cutbacks. Total expenditures inched up 1.6 percent to $305.6 billion in 2002, after dropping 5.7 percent in 2001. The story was similar in the specialty media and marketing services categories, which also began to rebound in the second half of 2002 after suffering for almost two years, according to the Veronis Suhler Stevenson survey.

The advertising segment consists of broadcast television, cable and satellite television, radio, newspapers, consumer and business-to-business magazines, the Internet, yellow pages, outdoor and box-office advertising. The market posted a 1.2 percent gain in 2002 to $171.1 billion, following an 8.0 percent decline in 2001. Growth was fueled by the television and radio segments, which were quick to recover from declines in 2002, growing 6.9 percent and 6.3 percent, respectively, and by box-office advertising, a small and relatively new advertising instrument that jumped 22.4 percent. Advertising expenditures grew at a compound annual rate of 4.3 percent in then 1997-2002 period. Going forward, total advertising expenditures is expected to grow 3.8 percent to $177.6 billion in 2003, and a compound annual growth of 6.3 percent from 2002-2007.

The marketing services and specialty media segment includes consumer promotions, business-to-business promotions, direct mail, public relations, event sponsorships, and promotional spending in other media (interactive advertising and promotions, and trade-show fees, sponsorships and advertising). Spending in the marketing services and specialty media segment increased 2.2 percent to $134.5 billion, outpacing growth in the advertising sector by a slim margin. None of the market segments posted declines in the year except for trade-show fees, sponsorships and advertising, but growth was sluggish for most of the remaining sectors. Marketing services and specialty media spending grew at a compound annual rate of 4.5 percent from 1997 to 2002. Upsurges in event sponsorships and direct-mail spending will drive 5.5 percent growth in marketing services and specialty media to$141.9 billion in 2003. The market is expected to grow at a compound annual rate of 6.0 percent from 2002-2007.

According to the latest figures from Veronis Suhler Stevenson, consumers spent 3,599 hours using media in 2002, an increase of 1.8 percent over the previous year as consumers continued to indulge in more creative and escapist media. Consumers spent the most time with television in 2002 as they continued to increase cable and satellite television viewing. Next to television, radio commanded the most attention from consumers climbing 4.3 percent in 2002 as a result of longer commutes and the emergence of satellite radio. Consumers spent less time with broadcast television, recorded music, consumer magazines, daily newspapers and home videos.

“Consumers are increasingly using two or more media simultaneously with the plethora of media choices and competition for attention accelerating,” said Rutherfurd. “The result is a media generation that is consuming more information in less time than ever before.”

Media supported by consumers continued to grab market share from media supported by advertisers in 2002 gaining nearly 10 points between 1997 and 2002, although the latter still commands a larger share of total time spent with media. Time spent with advertising-supported media accounted for 57.8 percent, or 2,081 hours, of the total while consumer- supported media accounted for the remaining 42.2 percent, or 1,518 hours. The average consumer’s time spent with media will expand at a compound annual rate of 1.5 percent in the forecast period to 3,874 hours in 2007. –Fred Donovan

(Contact: Joe LoBello, Stanton Crenshaw Communications, 212/780-1900)