Growth in New Media Spending Should Outpace All Other Communications Industry Segments

Posted on October 1, 1999

The rise in Internet spending will continue to outperform all other communications industry segments over the next four years. Spending on online access will more than double, while spending on electronic advertising and shopping will more than quadruple, according to the media industry merchant bank Veronis, Suhler & Associates.

As part of its forthcoming 1999 Communications Industry Forecast due out this November ­ the 13th annual industry crystal ball produced by the firm ­ Veronis, Suhler & Associates projects that spending on Internet access will grow at a 19.7% compound annual growth rate (CAGR) over the five year period 1998-2003, from $6.1 billion in 1998 to $15.1 billion in 2003. Spending by households on online shopping will increase 50% CAGR, from $8.5 billion to $64.6 billion in 2003, while online ad spending will grow 33.7% CAGR from $1.9 billion to $8.2 billion in 2003 -- growth rates far exceeding those of ad spending in any other media segment.

The continued surge in Internet spending will be fueled by several factors, led by declining computer prices and the sheer rise in Internet penetration among U.S. households. Growth should also be fanned by Internet access conversion to cable modem and DSL. Other factors are greater acceptance of online shopping, and advertisers' attempts to reach new demographic groups online as Internet usage levels with the general population.

Other key points from the CIF: Growth in spending on Internet access will be fueled by an increase in cable modem subscriptions from 1.2 million in 1999 to 6.8 million in 2003, and in DSL lines from 25,000 in 1998 to 3.5 million in 2003. At the same time, the cost of cable subscriptions and conventional phone line subscriptions will converge somewhat, with monthly cable costs dropping from $40 in 1999 to $30 in 2003, while conventional subscription prices increase at a 3.8% CAGR over the five-year forecast period. Overall, Internet access spending will grow from an average of $215 per household in 1998 to $280 in 2003.

Web-based advertising jumped 111.9% in one year, from $906 million in 1997 to $1.9 billion in 1998. While approximately 72% of all ad spending was on the top ten websites, seven of which were portals, niche content sites captured 20% of ad revenues. Online ad spending growth of 33.7% CAGR across the forecast period will be driven by continued growth in the number of online users, the increase in usage hours, and the rise of online commerce.