Art & Commerce: Growth Industry

For a dozen years, the investment-banking boutique Veronis, Suhler & Associates has updated its Forecast, an encyclopedia of the history and outlook for a broad swath of advertising and media. The latest edition is hot off the press. According to VS&A, the U.S. ad business grew by 8 percent in '98, more than twice the 3.9 percent gain scored by the U.S. economy as a whole, and in line with the average annual compound rate of the industry's advance over the past five years. The forecast expects a slowdown in the growth rate, to 7.6 percent for 1999. But, with the year all but over, it's safe to bet a nickel that this forecast has been overtaken by events and that the actual growth rate will be ahead of last year's, not behind. The study also wrestles with the Internet, not just narrowly on its impact on advertising and media, but in broader economic terms. For example, the analysis points out that, with the fluid flow of information, many industrial processes can become much "smarter." A case in point: The ability to monitor more closely the balance between factory output and customer demand allows the system to react faster than ever as business conditions change. This minimizes out-of-stock conditions, on the one hand, and the buildup of excess inventories on the other. The first is important because it strengthens corporate profits (a major driving force behind ad spending); the second is also critical because inventory glut is a leading cause of economic downturns. The study counts more than money. It also looks at how people budget their time among media activities. Time spent on the Internet zoomed to 74 hours per person in '98, up from 28 hours in '97 (and three in '93). Does this mean there is less time available for consuming traditional media? Not exactly. In fact, total TV watching went up in '98, to 1,573 hours per person per year, compared to 1,561 hours the year before. The gain reflects the greater availability and appeal of cable-delivered video. In fact, the study predicts that time spent viewing basic-cable networks will exceed time spent with over-the-air networks next year. Some of the newfound time destined for increased media consumption will come from the hours freed by not having to shop, the study posits. As e-commerce saves us from making trips to the mall, we'll use this liberty to consume traditional media. That sounds like a stretch, but weirder things have happened. Consumer economics favors increased Internet usage. The introduction of sub-$600 PCs spurred a rise in the number of online households, as did the fierce price-based competition between Internet service providers. Indeed, when the only practical difference between one ISP and another was price, the average monthly tab was $15.80. Now, with other features, such as faster transmission speeds, becoming important, access prices appear to be rising again. Even so, the monthly average predicted for 2003 ($23.33) will be a lot less than the $31.67 paid by the early adopters back in '88. And in that distant year, according to the study, 50 percent of all U.S. households will be online, compared to 1 percent in '88 and 34 percent this year. K Alan Gottesman is principal of West End Consulting in New York. He can be reached at westendal@pobox.com.

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Art & Commerce: Growth Industry

Alan Gottesman

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Alan Gottesman