Consumers spend more time with paid content

Buyers shun advertising-supported media for first time ever

NEW YORK -- U.S. consumers last year -- for the first time -- spent more time with media that they paid for than with advertising-supported media, according to the annual Communications Industry Forecast from private equity firm Veronis Suhler Stevenson released Tuesday morning.

In fact, advertising became the smallest of the four major sectors tracked by VSS in 2008 -- a first since it began tracking the industry in 1986. VSS also projects that advertising will only return to growth mode in 2011.

Total spending on communications, including advertising, consumer spending and other, rose 2.3% in 2008 to $882.6 billion, VSS found -- the sector’s slowest growth rate since 2001.

The report projects communications spending to decline 1% this year -- the first drop since the 2001 recession.

Overall, for the 2009-2013 forecast period, communications spending will grow 3.6% per year to over $1 trillion, making communications the third fastest-growing sector of the U.S. economy over that period, up from the fourth, VSS said.

It will also rise from the fifth-largest sector overall in 2008 to the fourth-largest by 2013. "In fact, the next five years will see the communications industry increase 20% greater than nominal GDP, which will only increase annually 3.0% by 2013," VSS said.

Segments driven by user and business spending and targeted marketing services will be key industry drivers even while advertising remains under pressure, it predicted.

Advertising fell 2.9% in 2008 to $210 billion. This year, VSS expects advertising to fall an even bigger 7.6% (despite a projected 9.2% gain in Internet ads and an 18.1% gain in mobile), followed by a 1% decline in 2010. Advertising will again grow in 2011, the firm projects.

Meanwhile, institutional end-user spending will remain the largest and fastest-growing communications sector over the five-year forecast period, rising by 5.6% annually thanks to expected strong gains in business information services, particularly in the marketing and financial services sub-segments, and for-profit higher education services.

"While we have seen consumer media usage remain generally flat over the past year, the way in which consumers are spending their time continues to evolve," said VSS co-founder, president and general partner John Suhler. "No longer are newspaper and magazine subscription purchases and network prime-time viewing the norm. Instead, they are declining and consumers are spending more time with media which they support and pay for as opposed to ad-supported media." He added: "This development is a culmination of two decades of this secular shift towards consumer-controlled media, and shows no signs of slowing."