The past couple of years may have been a downer, but a comprehensive analysis of the changing media and communications landscape over the past 35 years by private equity firm Veronis Suhler Stevenson (VSS) found that total US communications spending rose at a compound annual growth rate (CAGR) of 8.1%, making it the 2nd fastest growing among the 15 major economic sectors, trailing only the services sector.
VSS’s new “Communications Industry Historical Database 1975-2009,” which tracks growth and change in 21 major segments and more than 100 sub-segments, also showed that Subscription Television (cable and satellite TV) is now the largest and fastest growing segment of the industry, rising at a 15.5% CAGR to more than $155 billion in 2009. The study also reported that consumer-supported media, including videogames and internet and mobile services, now accounts for almost 50% of the 3,532 hours the average person spends with consumer media annually.
The launch of the VSS Historical Database, which will be updated every year going forward, precedes the late summer release of the VSS Communications Industry Forecast, which the firm has published annually since 1986.
With the release of the VSS Historical Database, the firm has also announced an additional data perspective on the communications industry. VSS previously divided the industry by four revenue streams – advertising, marketing, consumer end-user and institutional end-user spending. But rapid change in the media landscape has led VSS to incorporate an additional analysis of communications spending by major industry groupings. These industries include entertainment & leisure media, business information & services, targeted media, education & services, marketing services, and traditional consumer advertising media. This new data series shows that traditional advertising media, such as broadcast TV and radio, newspapers, and consumer magazines and yellow pages, struggled just to keep pace with the economy from 1975 through 2009, rising only at a 5.4% CAGR during the period. Meanwhile, the key industry growth driver has been digital-based media through business information & services, such as business and professional information, and entertainment & leisure media, like subscription TV, each of which produced 10.1% CAGR increases – nearly double economic growth – over the 1975-2009 period.
“We’re finding that media owners and investors require greater awareness of how their companies match up to their industry peers and other industry spending patterns that could be viewed as an alternative growth areas and/or competitive,” said John Suhler, Co-founder, President and General Partner of VSS. “The ability to see the big picture, however, allows them to stay ahead of trends. Brands, for example, looking for a greater return on their advertising investment are increasingly supporting more targeted media led by digital media.”
VSS Highlights of the past 35 years:
The communications industry, at 8.1% CAGR, outperformed nominal GDP by 1.6 percentage points over the last 35 years, as the economy grew at a 6.5% CAGR from 1975 to 2009. During the 1975-2009 period, communications rose from the 10th largest economic sector at $63.10 billion, or a 3.9% share of the economy, to the 5th largest in 2009 at $877.90 billion, or 6.3% of GDP.
The entertainment and leisure industry (which includes subscription TV) has jumped from a 15.9% share of communications spending to 30.5%, making it the largest industry in communications. Following close behind is targeted media, which is now 23.4%, up from 18.4% in 1975, and business information & services which has doubled in size to 16.2% of media spend. On the other hand, traditional consumer advertising media has declined by 23.4% over the past 35 years to only 17.2% today, once accounting for 40.6% of communications spending.
The consumer and institutional end-user revenue streams in particular have been the driving force behind the growth of the communications industry over the past four decades, particularly spending by institutions, such as corporations, government agencies and education providers. Institutional end-user spending includes the segments of professional & business information services, education & training media & services, television programming, and trade shows and circulation spending of business-to-business media. The sector jumped at a CAGR of 9.2% from 1975 through 2009 compared with a 6.6% CAGR for advertising during the same period.
At the segment level, subscription television has been the fastest growing of the 21 major segments covered by the VSS Historical Database. Subscription TV also became the largest segment during this 35-year period, rising at a 15.5% CAGR to $155.10 billion in 2009. It must be noted that the internet & mobile services sector had not yet evolved in 1975 and, therefore, was not included in the analysis. However, since its inception in 1978, internet and mobile services has posted a 32-year CAGR increase of 52.3%. By comparison, traditional ad media has posted the weakest growth during the 1975-2009 period, growing only at a 3.7% CAGR. As a result, newspapers, which was the largest overall communications segment in 1975 representing 20% of all spending, has watched its share shrink to only 5.2% of spending in 2009, dropping to the 7th largest segment.
The trend of spending migrating from traditional advertising media to digital platforms is fully illustrated by the seminal shift in consumer media usage, in which audiences are spending much less time with primarily ad-supported media, such as broadcast TV, newspapers and magazines. In 1975, ad-supported media accounted for 89.6% of the time spent with consumer media, or 2,548 hours per year, but its share fell to 50.4% in 2009, a decline of almost 750 hours to 1,779 hours per year. Meanwhile, consumer-supported media, such as videogames, internet & mobile services, and subscription TV, expanded from 294 hours per person in 1975 to 1,753 hours annually in 2009.