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Internet Advertising Will Soon Top Newspapers, Study Finds

Overall, communications spending increased 6.8% in 2006 to a record $885.2 billion, outpacing GDP growth for the fourth time in five years, the report says.

Consumers are spending less time with media and businesses are spending more, according to a report released by private equity firm Veronis Suhler Stevenson (VSS). If current trends continue, Internet advertising will eclipse newspapers as the largest advertising medium by 2011.

Overall, communications spending increased 6.8% in 2006 to a record $885.2 billion, outpacing GDP growth for the fourth time in five years, the report says. VSS projects that the communications industry will grow 6.4% this year and will continue to do so at a compound annual growth rate of 6.7% through 2011. This would make communications the third fastest growing sector of the U.S. economy.

But when communications-related spending finally tops $1 trillion in 2008, it will be alternative media and institutional sectors driving growth. VSS divides the communications industry into four major end-user groups -- advertising, marketing, consumer, and institutional -- that spend money in 19 separate media segments.

"We are in the midst of a major shift in the media landscape that is being fueled by changes in technology, end-user behaviors, and the response by brand marketers and communications companies," said James Rutherfurd, EVP and Managing Director at VSS, in a statement. "We expect these shifts to continue over the next five years, as time and place shifting accelerate while consumers and businesses utilize more digital media alternatives, strengthening the new media pull model at the expense of the traditional media push model."

The good news, at least for those concerned about the health of the communications industry, is that spending is rising. The bad news is that less and less of that money is likely to go to traditional media providers as consumer attention shifts online.

Consumers are spending less time (-6.3% from 2001 through 2006) with ad-supported media and more time with consumer-supported platforms like cable TV and videogames (+19.8% from 2001 through 2006). And for the first time since 1997, consumers spent less time (-0.5%) with media overall in 2006 than the year before.

Media usage by institutional users, meanwhile, grew at a compound annual growth rate of 3.3% from 2001 through 2006, reflecting the increased use of online platforms to boost performance and workflow.

VSS attributes the drop in consumer media usage to the fact that online news and entertainment typically are engaging consumers for shorter periods of time than traditional media like broadcast or cable TV. "For example, consumers typically watch broadcast or cable television at least 30 minutes per session while they spend as little as five to seven minutes viewing consumer-generated video clips online," VSS explained.

The fastest-growing media segments in the next five years will be Internet and mobile services, branded entertainment, out-of-home media, outsourced custom publishing, and public relations, according to VSS.

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