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AD GROWTH EXPECTED TO MATCH ECONOMY'S VERONIS PREDICTS 6.3% ANNUAL INCREASE

By Published on .

For the first time since 1987 advertising has reached parity with the growth of the national economy.

According to the eighth annual forecast by investment bankers Veronis, Suhler & Associates, New York, the communications industry will grow at an annual rate of 6.6% in the next five years, reaching $308.5 billion in 1998.

That rate makes communications the fifth fastest-growing industry in the U.S.

The communications industry includes both advertisers and end-users, such as consumer spending at theater box offices, magazine subscriptions and music stores. And while consumer spending will slightly outpace the growth of ad-supported media, the forecast signals a significant recovery for advertising, which will grow 6.3% annually to $119.2 billion in 1998.

That's a big turnaround from the past five years, when ad spending didn't grow by more than 5% in any given year.

"Two macro elements are driving all of this," said company President John Suhler. "The biggest driver is an improved economy. The second driver is the lessening of the impacts of restructuring in the retail environment."

Ad, promotion and non-measured media spending will rise by 5.1% annually, hitting $326.1 billion in 1998, vs. an annual rate of only 3.6% for the past five years.

"The use of price promotion will be not as strong as it was in the latter part of the 1980s," Mr. Suhler said. "Also, in an expanding economy, rather than focusing attention on price reductions to stimulate sales, marketers support brand identity, which is more easily achieved through advertising."

Promotional spending growth is projected to slow to an annual rate of 3.2%, rising to $133.8 billion in 1998. That represents a 1.1-point decline from the 4.3% annual increase between 1988 and '93.

Local media will be the primary beneficiary, especially newspapers and TV stations.

"The areas of opportunity in terms of relative growth are in the strong resurgence in local newspapers and network-affiliated television stations. But yet to be heard from, in a material sense, is local cable TV," Mr. Suhler said. "Local cable continues to be one of the highest-growth media segments, but they still have to research themselves better and they must learn how to deploy themselves better ADI-wide."

Overall, cable ad spending will rise more than any other medium, climbing 11.9% annually to $4.4 billion in 1998. However, that represents a slowing of cable's rapid ad growth rate: The annual increase for the past five years was 16%.

Still, Mr. Suhler believes local and spot cable TV represents an untapped reservoir for the medium with the two poised to explode at an annual growth rate of 14.2% for the next five years.

"Cable's lower [cost per thousand] compared to broadcast television's lets advertisers buy frequency and reach households they may not be able to on broadcast," he said.

While interactive/digital media will grow at a double-digit rate, rising 11.7% to $22.3 billion in 1998, Mr. Suhler said the growth is primarily from end-user spending and not from advertising.

However, he said the growth of the home shopping and infomercial component represents a significant shift of dollars from the mail-order and catalog businesses into a new form of advertising.

"Isn't that really advertising in a different package?" Mr. Suhler asked. "And it has become a multibillion-dollar business."

The electronic retailing sector is projected to rise 9.6% annually to about $5.2 billion in 1998.

But if any ad-supported media category could be dubbed a recovery, Mr. Suhler said it is business magazines, which had ad spending growth of only 1.9% annually for the past five years, rising to $5.1 billion in 1993.

By contrast, business magazine advertising will climb 5.7% annually to $6.7 billion in 1998.

Most significantly, Mr. Suhler noted that ad revenues will outpace circulation revenues for the business press in the next five years, a reversal from the past five.

"Business magazines are doing better than they have been, but look what it was in the past," he said. "Essentially, business magazines are confronted with this issue, which is that the composition of business magazines and their prospects are a direct mirror of the industries they report on. And we still have a lot of heavy industry and old industry business publications."

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