Next 5 years belong to pay TV, Veronis reports

Aug 6, 2001  •  Post A Comment

Pay television in all of its existing and emerging forms, including digital video on demand, will be the fastest-growing industry sector over the next five years among otherwise moderately paced electronic media.
Pay-per-view-which includes all forms of conventional pay-per-view as well as emerging subscription VOD-will grow a compounded 14 percent through 2005. Consumer and advertiser PPV spending shot up more than 23 percent in 2000.
The findings are according to Veronis Suhler’s 15th Annual Communications Industry Five-Year Forecast, released Monday and covering 17 media industry categories.
Total spending on cable and satellite media will increase at a compounded annual rate of 9 percent, reaching $97.9 billion in 2005, when it becomes the largest segment of the communications industry. By then, entertainment will rank second in overall spending at $81.6 billion, followed by broadcast television with $49 billion, consumer Internet at $28.3 billion and radio with $26.5 billion. The entire communications industry will expand from $565.6 billion in 2000 to $737.7 billion by 2005.
“The real question is whether that pay-per-view growth is coming at the expense of broadcast television, other cable television, the home video rental market and other places,” said James Rutherfurd, executive vice president and head of investment banking for Veronis Suhler.
Consumer spending on all cable and satellite premium services, which reached $7.3 billion last year, will hit $9.7 billion by 2005, about $6 billion of which will be generated by cable operators accelerating integrated media promotions and digital platform offerings.
By comparison, through 2005, the New York-based media merchant bank projects there will be 11.6 percent cable advertising growth (reaching $23.8 billion), 7.7 percent basic cable subscriber growth, 5.9 percent premium cable services growth, 6.8 percent growth for radio, 4.7 percent growth in entertainment, and a paltry 3 percent growth in total broadcast TV revenues (to $48.9 billion).
Veronis Suhler predicts total communications industry advertising will grow only 4.9 percent through 2005, matching estimated 5 percent growth in the closely related gross domestic product (GDP).
“Pay-per-view is rapidly growing off a pretty small base. It has been coming for about 20 years. Last year’s $2 billion in pay-per-view spending was just a fraction of what was spent in overall cable and communications,” Mr. Rutherfurd said.
Ironically, the areas of most aggressive growth underscore consumers’ continued reliance on electronic media for more traditional fare such as movies, the most significant interactive aspects of which initially will be on-demand consumption.
“I’m not sure we subscribe to the notion that things are going to entirely change forever, at least within this forecast period,” Mr. Rutherfurd said. “We are in a cyclical downturn. All the ad-dependent media, particularly anyone in national advertising, are getting hit hard.”
“We do see the turnaround coming. But this is long-term, five-year research,” he said.
Although the firm sees broadcast television viewer erosion flattening, by 2005 the television audience will be nearly evenly split between broadcast TV and combined cable and satellite. But even with half of the audience, broadcast TV, from sign-on to sign-off, both network and local, will continue to command about two-thirds of all ad dollars spent on television.
Veronis Suhler expects the top three media categories in total spending by 2005 to be cable and satellite ($98 billion), entertainment ($89 billion) and newspapers ($79 billion).
Cable commanded $14 billion in ad sales last year compared with $42 billion for all broadcast television.
Although cable and satellite television will grow at a compounded 11.6 percent rate over the next five years while broadcast television revenues will grow at only 3 percent, broadcast television will continue to command about two-thirds of all ad spending, the report states.
Even with media conglomerates growing and diversifying their asset base, and bundling their offerings to maximize sales to advertisers, television will remain the single biggest mass audience play anywhere in media, Veronis Suhler maintains.
Surprisingly, digital, interactive television and even the prospect of a new wave of consolidation through additional deregulation do not weigh heavily or at all in the report, which attempts to project industry growth and changes through 2005.
“That may actually be the story in all of this,” Mr. Rutherfurd said. “We’re not sure there are going to be major fundamental shifts in the works today that will reshape the industry five years from now. It will be steady as you go, beyond normal cyclical ebb and flow.
“Until we see what happens with digital and interactivity, which will change the way the consumer deals with product, or we know what will happen on the regulatory front, the electronic media business will be the same two or three years from now [as it was] two or three years ago,” Mr. Rutherfurd said.
Overall deals will continue to lag until they are reactivated by improved advertiser spending and industry economics, and additional deregulation, Mr. Rutherfurd said. “Consolidation brings economies of scale on the cost and revenue sides. But that doesn’t change the overall dynamics of these electronic media sectors.”
As has traditionally been the case, Veronis Suhler takes an overall bullish view of media and communications over the next several years. Selective findings from the industry forecast also include:
* Broadcast network advertising will grow an annual 4.2 percent to crest at $20 billion in 2005, compared with $16.3 billion in 2000.
* Television station advertising is projected to grow at a compound annual rate of 2.4 percent to $28.8 billion in 2005, up from $25.6 billion in 2000.
* Including barter syndication, total broadcast television is expected to grow at a compound annual rate of 3.1 percent to $51.7 billion in 2005.
* Increased spending on original television programs by broadcast and cable networks will boost total filmed entertainment expenditures (which include box office and home video) to $56.3 billion from $44.9 billion last year, although compound annual growth will decline to 4.7 percent from 6.9 percent the past five years.
* Overall, the communications industry will grow at an annual rate of 5.6 percent to $180.5 billion in 2005.
* Institutional end-user spending, which includes ad expenditures on television programming, after slowing this year, will rebound to nearly 7 percent annual growth, resulting in $168.4 billion in 2005.