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Report: $6.5 Billion in Online Ad Spending in 2002

Veronis, Suhler & Associates released the 12th annual Communications Industry Forecast, which predicts that advertising spending growth will be paced by a ramp-up in online advertising, from $906 million in 1997 to $6.5 billion in 2002.

The forecast does not expect that 1997's robust growth in communications spending can be maintained, but does not anticipate a recession. Based on the fundamental health of the U.S. economy, reflected in near-full employment and historically high income levels, Veronis, Suhler expects Americans to maintain their strong appetite for media and entertainment. Consumer spending growth particularly is seen as particularly strong for cable television subscriptions, other subscription video services and online services.

Over the five-year forecast period from 1997-2002, VS&A projects overall spending on media to rise at a compound annual growth rate (CAGR) of 7.7 percent, reaching $613.7 billion by 2002. Compound annual growth in the high single digits is forecast for spending by advertisers, institutions and consumers alike.

Currently the seventh largest industry in the U.S., communications is forecast to be the second-fastest-growing industry behind telecommunications from 1997-2002 and will move up to sixth place in size by period's end, increasing its share of GDP from 4.8 percent in 1992 to 5.9 percent by 2002.

Advertisers are far from abandoning traditional consumer and business media, however. In the five-year period 1992-1997, advertiser spending rose at a CAGR of 6.1 percent for broadcast television, 9.3 percent for radio, 6.2 percent for daily newspapers, 7.0 percent for consumer magazines, 8.0 percent for business magazines, and 7.6 percent for outdoor advertising.

A healthy economy is forecast to maintain these growth rates. From 1997-2002, advertising spending is forecast to reach a CAGR of 6.1 percent for broadcast television, 9.3 percent for radio, 7.2 percent for daily newspapers, 6.25 for consumer magazines, 9.2 percent for business magazines, and 8.4 percent for outdoor advertising.

The very fragmentation of the advertising market appears to boost spending, the report said. Expanding advertising options have enhanced advertisers' ability to reach their target audiences, leading to increased spending in all ad forums.

While usage grows slowly, remains flat or shrinks for traditional media such as broadcast TV, radio, consumer magazines and newspapers, these media remain the best alternatives to reach a broad audience. The cable audience is itself fragmenting among proliferating players, leaving broadcast networks as yet unchallenged as a source for reaching a mass audience.

Veronis, Suhler & Associates, a media industry investment bank, publishes three annual research reports: the Communications Industry Forecast, tracking consumer media consumption and spending trends over a 10-year period (1992-2002 in 1998); the Communications Industry Transactions Report, analyzing publicly reporting company mergers, acquisitions and other transactions in each media segment over a five-year period; and the Communications Industry Report, tracking the financial yearly performance of all publicly reporting media companies by media segment over a five-year period. A full copy of the Communications Industry Forecast is available from Veronis, Suhler & Associates for $1,495.