Veronis Forecasts Cautiously Optimistic Interactive Growth

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Interactive media is the fastest-growing segment of the communications industry, but Veronis, Suhler & Associates is conservative on the market potential.

In its annual industry forecast, issued today, the investment banker predicts U.S. spending on interactive digital media will rise to $22.3 billion in 1998 from $12.9 billion last year, an 11.7% compound annual increase.

While impressive, the increase is actually several points below the 16% annual growth in interactive media from 1988 to 1993. That boom was fueled mainly by skyrocketing interest in videogames, a market Veronis says will face difficult times.

Notably absent from the forecast is interactive TV, a medium Veronis believes won't have a significant impact on the market in the next five years.

Instead, Veronis sees continued market emphasis on other segments: consumer reference software, educational software, home shopping and infomercials, and online services.

"All that is imagined in the new on-demand interactive world in fact will happen," said John Suhler, president of New York-based Veronis. "But the actual ability of cable systems, for instance, to be interactive is not nil, but close to it today ... The only thing that's really interactive in this planning environment are online services and CD-ROM."

Videogames are in for a rough ride, Mr. Suhler predicts.

Though the $8.9 billion segment accounts for nearly 70% of the interactive media market, the videogame business is maturing and is expected to grow only 10.2% a year to $14.3 billion in 1998, compared with 16% annual growth over the 1988-1993 period.

The fastest-growing market segment will be consumer reference software, mainly CD-ROMs, Veronis predicts. An $80 million business in 1993, the market is expected to grow 42.9% a year, reaching $476 million in 1998.

Veronis attributes the growth to the increase in CD-ROM-equipped personal computers in homes. Over the next five years, the number of households with such equipment is expected to increase more than 400%, to an estimated 28 million from 5.2 million in 1993.

"The real growth and the consumer interest right now is more in the PC platform and CD-ROM multimedia platform," Mr. Suhler said.

Educational software, or "edutainment," a boom market in the five years since 1988 with 89.3% annual growth, will drop off sharply through 1998, Veronis believes, as consumers grow bored with the offerings. A $243 million market in 1993, it's expected to grow 29.6% per year to $888 million in 1998.

Infomercials and home shopping will fall victim to slower-than-anticipated growth in TV channel capacity.

The market segment, valued at $3.3 billion in 1993, will grow only 9.6% per year to $5.2 billion through 1998, down from 13.2% annual growth from 1988 through 1993.

Online services, or as Veronis calls the segment, "consumer data and services," will continue to benefit from increased consumer interest in computers, growing 29.1% annually to $1.46 billion in 1998. The market grew 23.8% annually from 1988 through 1993, reaching $407 million.

The number of online households is expected to grow 218% to 10.5 million in 1998, from 3.3 million today.

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