Despite the Slow Economy, New Veronis Suhler Report Predicts Growth in Both Consumer and Institutional End-User Spending on Media and Communications

NEW YORK (August 6, 2001) – The Internet bubble may haveburst, but that doesn’t mean the fizz has gone out of thecommunications industry, even with serious pressures on consumer andinstitutional spending affecting most media and informationsectors.

Media merchant bank Veronis Suhler has released the 15th annualedition of its Communications Industry Forecast (CIF), projecting amarked spending slowdown in most industry segments this year. However,the firm takes a more optimistic near-term perspective, predictingoverall industry growth at an annual rate of 5.6% from 2001–2005,outpacing the 5% growth rate of the Gross Domestic Product and reaching$738 billion in total spending by 2005.

Veronis Suhler reports that both consumer and institutional end-userspending on media and communications will remain strong over the nextfour years. The consumer market includes spending on cable &satellite services, box-office admissions, home video/DVD rentals andsales, recorded music, newspapers, books, magazines, video games, andInternet access. The firm projects spending to advance at a slightlyslower rate in 2001 before rebounding in 2002, then going on to post abetter than 5% annual growth rate through 2005, reaching $180.5.

The institutional end-user category includes advertisingexpenditures on television programming as well as spending inprofessional, educational and training media, business-to-businesscommunications, and business information services. As projected forconsumer pending,institutional end-user spending is expected to slow in2001 but will rebound even stronger than the consumer side with anearly 7% annual growth rate from 2001–2005, hitting $168.4billion in 2005.

The Veronis Suhler CIF is the most comprehensive accounting ofconsumer and institutional usage and advertising spending trends acrossthe full bandwidth of the communications industry – fromtraditional media to the latest information-driven technologies. The2001 CIF reports that consumer media usage will continue to grow,albeit at a more modest pace than previous years.

After hitting 3,472 hours per year for the average American in 2000,media use is forecasted to increase 5% by 2005, reaching 3,650 hoursannually, about 10 hours per day per person. Veronis Suhler projectsthat time spent with the Internet and video games will rise faster thanother segments during the forecast period of 2001–2005. Consumerspending on media will also rise in 2001, the average person spendingaround $207 per year on cable & satellite TV (a nearly 8% increasefrom 2000), $120 per year on home video/DVD (a nearly 10% jump from2000), and $33 per year on box-office entertainment (a nominal increaseof 0.3%). Veronis Suhler forecasts that annual spending totals perperson by 2005 will reach $266 on cable & satellite TV, $132 onhome video, and $36 on box office.

Like other industry watchers, Veronis Suhler sees a decline in adexpenditures for 2001, but by a modest margin of 1.1%, as advertisersreduce budgets in the wake of the economic downturn and dot-comshakeout. However, the firm projects that ad spending will bounce backcrisply in 2002 and will grow at a compound annual rate of nearly 5% inthe forecast period to reach $225 billion in 2005. By that year,Veronis Suhler expects the top three media categories in terms of totalspending will be cable & satellite ($98 billion), entertainment($82. billion), and newspapers ($79 billion).

Communications spending rose 8.5% to $565.6 billion in 2000 and grewat a compound annual rate of 7.9% from 1995–2000, driven byhigher expenditures across all four segments of the industry –advertising, marketing services and specialty media, consumer end userand institutional end user.

Industry Hit an Apex as Millennium Came to an End

The communications industry became the second-fastest growing sectorof the U.S. economy from 1995–2000, reaping over $565 billion inspending in 2000 and playing a starring role in the extended economicboom of the 1990s. But a slower-growing economy, a marked slowdown inad expenditures and tamer consumer spending are all conspiring to bringthe industry down to earth in the next few years, dropping it to thesixth-fastest growing sector by 2005.

Communications spending will advance at a slower rate than thenominal GDP in 2001 for the first time in at least a decade beforerebounding in 2002 and turning in a compound annual growth rate of 5.6%for the forecast period. Communications will remain the seventh-largestsector of the U.S. economy in 2005 with total spending of $738billion.

Looking at the Big Picture

Although other recent communication forecasts have predicted heavydownturns, particularly in advertising spending, Veronis Suhler is lessbearish and views the industry as a multi-faceted tapestry of media andinformation categories.

“Our forecast takes a broad perspective of the communicationsindustry, combining traditional consumer-oriented segments such asmagazines, newspapers, books, and TV with professional andbusiness-to-business segments such as business magazines, educationaland training media and business information services,” said JamesRutherfurd, executive vice president of Veronis Suhler and head ofinvestment banking at the firm. “The industry as a whole hasbecome much more dynamic than it was a few years ago and is moreresilient than the boom or bust of one or two sectors.

“America became so accustomed to aggressive, unprecedentedgrowth over the past five to seven years, which far outpaced GDPgrowth, that the recent slowdown has generated considerable doom andgloom reaction,” Mr. Rutherfurd added. “In fact, wecontinue to foresee long-term growth across most segments but at aslower pace, as the economy adjusts to new realities. Remarkably,Americans continue to find new ways to absorb content and informationon a daily basis. The ability to multi-task has made most of us highlyskilled and selective in how we use the media.”

Cable & Satellite TV Surges Ahead

In 2000, cable & satellite television was the third-largestrevenue generator in terms of ad spending among communications segmentswith $63.4 billion. This trailed entertainment’s $64.9 billionand newspapers’ $65.9 billion. By 2002, cable & satellitewill turn the tables becoming the number one communications category interms of ad spending and overall the largest segment of thecommunications industry hitting $75.5 billion, while entertainment willreach $72 billion and newspapers $68 billion. The growth of the cable& satellite segment will be spurred by cable providers revving upintegrated media promotions and extending channel offerings throughdigital cable.

To view the complete summary of Veronis Suhler communicationsindustry forecast projections across various segments, visitwww.veronissuhler.com

For more information on the Veronis Suhler CIF, please contact theabove numbers or visit www.veronissuhler.com.

Note: The 2001 Communications Industry Forecast sells for $1,995. Toorder, call 800-935-4990, ext. 8556.