VSS Revises Five-year Communication Forecast Down

Veronis Suhler Stevenson on Monday issued a revised five-year forecast for the communications industry, warning investors that overall ad spending in the media sector is likely to decline by 7.4 percent in 2009, versus a previous projection of 4.3 percent growth.

The new reckoning represents the first two-year decline in ad spend in 75 years, as steep reductions in traditional media are being driven by macroeconomic factors (recession and the collapse of the financial markets) and secular concerns (audience fragmentation).

As expected, local media stands to endure the most severe downturn in 2009, with newspaper publishing projected to contract by 16.2 percent and broadcast TV (including local stations) set to drop 9 percent. By comparison, VSS’ August 2008 forecast had broadcast spend slipping just 0.5 percent.

VSS sees consumer magazines dropping 8.5 percent, followed by terrestrial/satellite radio, which could fall as much as 7.2 percent this year.

While some segments are still expected to show growth this year, the rate of expansion has dipped. For example, so-called “pure-play” Internet and mobile services are likely to show growth of only 9.1 percent this year, down from VSS’ earlier projection of a 15.5 percent increase.

All told, overall spending in media companies is expected to decline by 0.4 percent, compared to a previous projection of 4.9 percent growth.

While the short term looks bleak, precedent suggests that the communications industry could recover more quickly than nearly all other segments, as media has outstripped GDP growth since World War II.

“The media and information industries … have performed better than many other sectors of the US economy, and we are confident that over the medium and long term, the communications industry will regain momentum,” said James Rutherfurd, executive vp and managing director, VSS.