DIGITAL MEDIA FUTURE LOOKS ROSY;VERONIS STUDY PREDICTS INDUSTRY WILL GROW NEARLY 20% ANNUALLY

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The interactive media industry is once again the fastest growing of all communications businesses, according to Veronis, Suhler & Associates' Ninth Communications Industry Forecast.

The interactive industry-including consumer online/Internet services, PC/multimedia software and videogames-tallied $5.7 billion in spending last year, according to the investment banker's report, issued last week. That figure is expected to reach $14.2 billion by 1999, a hefty 19.9% annual growth rate.

By contrast the entire communications industry is expected to grow only 6.8% annually through 1999, from $233.5 billion last year to $323.7 billion in 1999.

Clearly, the interactive industry is starting from a much smaller base than more established media like TV, which racked up $29 billion in spending last year. But Veronis is bullish on interactive; in 1994, for example, it was half the size of the $10.2 billion radio category, but by 1999 the gap is expected to close to only $300 million.

Leading most of that growth will be the online segment, which has grown dramatically over the past year with the rise of the World Wide Web.

"Within six months to a year many of us will find it hard to remember that [to us] the online world didn't exist" a few years ago, said Robert Broadwater, author of the interactive portion of the report.

Indeed, Veronis predicts 22% of all U.S. households will be online by 1999, up from 5% today.

While still bullish on the overall concept of interactive media, Veronis has rethought how to define the category. Gone from this year's report are infomercials, home shopping and arcade videogames, which combined accounted for $8.1 billion of the 1993 total of $12.9 billion.

It was too much of a leap of faith to consider transactional TV programming in the same category as CD-ROM software, Mr. Broadwater said.

"We don't believe in the current environment that those [home shopping and infomercial] companies fit our criteria of interactive digital media," he said.

The revised figures more accurately reflect the "true" interactive industry he said, although Mr. Broadwater admitted "neat categories aren't there now the way they used to be."

Overall, a faster rate of growth in the communications industry over the next five years will come from end user-supported media segments vs. those that are ad supported, including digital interactive media, said John Suhler, president of Veronis. Interactive media, he said, will have a steep ad growth curve, but not as fast or as big a base as end-user spending.

Mr. Suhler estimated that interactive ad spending is currently less than $100 million and that it would likely grow at a 20% to 30% rate annually for the next five years.

Such spending will likely come not from traditional media budgets but from areas of marketing communications like "customer service or customer information programs," Mr. Suhler said.

Traditional media segments will have healthy but not unexpected growth curves over the next five years, Mr. Suhler said, adding that overall ad spending will outpace the growth in the nation's gross domestic product.

Joe Mandese contributed to this story.

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