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2001 FORECAST Highlights

Veronis Suhler Releases 15th Annual Communications Industry Forecast

Authoritative Source of Key Trends, End-User Spending and Media Consumpton Forecasts, and Historical and Projected Expenditures Across 12 Different Media Industry Segments.

Despite Dark Clouds of Slowing Economy and Decrease in Total Ad Spending for 2001, Veronis Suhler Expects Industry to Rebound in 2002; Advertising Spending to Grow at Compound Annual Rate of 5% From 2001-2005, Reaching $225 Billion

Consumer Spending on Media and Information to Rise at a Compound Rate of 5.6% From 2001-2005, Reaching $180 Billion; Institutional Spending to Grow Nearly 7%, Hitting $168 Billion

American Media Consumption Still Growing, Heading To 10 Hours a Day Per Person by 2005


2001 Communications Industry Segment Highlights

1) Cable and Satellite TV

Spending on cable & satellite advertising jumped 18.5% to $13.8 billion in 2000 and forged ahead at a compound annual growth rate of 19.7% from 1995-2000, fueled in part by improved quality and growing popularity of cable programming. Cable & satellite advertising spending is expected to expand at a compound annual rate of 11.6% from 2000 to 2005, reaching $23.8 billion in 2005.

End-user spending on cable and satellite subscriptions is forecast to rise 7.4% to $207 billion in 2001, up from $192.8 billion in 2000. Consumer spending is expected to inch even higher in 2002, 7.5% to $222.7 billion, before growth slows to 6.6% in 2003, and 5.9% in both 2004 and 2005.

2) Entertainment (box-office entertainment, recorded music, and interactive entertainment)

Box office receipts remained virtually stagnant in 2000 at $7.5 billion, despite the booming economy that led to higher consumer expenditures across almost all communications categories. Box-office spending rose at a compound annual rate of 6.3% from 1995-2000. Growth will slow to 3.3% compounded annually in the forecast period to reach $8.8 billion in 2005 as the economy cools down and admissions growth slows.

Veronis Suhler forecasts that total entertainment spending will rise 6.2% in 2001 compared to 6.5% in 2000. Interactive spending will see the largest increase in 2001, growing 12.7% compared to 2.8% in 2000.

3) Newspapers

Newspapers remain a mainstay of the communications world, weathering competition from websites, particularly those with classified advertisements. The largest segment of the communications industry in 2000, newspapers will fall to #3 behind entertainment (#2) and cable & satellite TV (#1) by 2002. While daily circulation was down 0.6% to 57.3 million in 2000, U.S. demographics favor solid circulation numbers. The population is aging and statistics show older people read more newspapers - helping to somewhat reverse a downward trend during the forecast period and perhaps beyond.

Total spending on daily newspapers will achieve compound annual growth of 3.4 percent in the forecast period, compared with 5.3 percent in the 1995-2000 period largely because of a weak 2001.

4) Broadcast Television

Advertising spending on broadcast TV rose 11.1% in 2000, compared to a 4.4% jump in 1999, reaching $44.4 billion compared to $40 billion in 1999. Both television networks and individual stations benefited from a hotly contested and historic presidential election as well as other political races as candidates funneled money into network and spot advertising. However, with the absence of political and Olympics-related advertising, along with the evaporation of promotions related to the new millennium and the census, and the drop-off in dot-com spending, Veronis Suhler projects total spending on broadcast TV to drop 2.5% to $43.3 billion in 2001.

Veronis Suhler expects a recovery in 2002 when the Olympics in Salt Lake City, Utah, commence. These Games are expected to have a more positive impact on advertising growth than the 1998 Games, because of the domestic location and time zone. Olympic spending is projected to fuel an 8% gain in 2002. As in the past, growth is expected to heat up in 2004, a Presidential election year, and then slow down in 2005, the year following the election.

5) Consumer Internet

Veronis Suhler projects that by 2005, 68.4 million households (or 88% of all "computer" households and 63% of all American homes) will be online. Furthermore, it is expected that the compound annual growth rate of Internet households will slow to 6.9% during the 2001-2005 forecast period, down from 39.1% during the 1995-2000 period.

Consumers spent $11.6 billion on Internet access in 2000 compared with $9.4 billion the prior year, an increase of 23.6%. Veronis Suhler expects that by 2005 the average annual spending per household for dial-up Internet access will reach $243, while access via cable modem and DSL will total $300 and $420 per year per household, respectively. Total access spending is expected to exceed $18.4 billion by 2005, advancing at a compound annual growth rate of 9.6%. Advertising spending is expected to rise to $9.9 billion by 2005, increasing at a 3.8% compound annual rate, and by 2005, total Internet spending is expected to reach $28.3 billion.

6) Radio Broadcasting

One of the fastest-growing media segments overall from 1995-2000, Radio was rivaled only by the Internet in terms of advertising growth last year. Veronis Suhler forecasts that radio advertising will be down slightly, 0.7%, in 2001 from 2000 with local spot advertising flat (0%), national spot down 3.5%, and radio network advertising down 0.5%.

Expenditures on national spot advertising will continue to rise at slightly higher rates than local spot ads during the forecast period of 2001-2005. By 2005, national spot expenditures will reach $5.2 billion, growing at a compound annual rate of 7.2% from 2000. By 2005, local spot expenditures will reach $20.3 billion, growing at compound annual rate of 6.7% between 2000 and 2005.

Total spending on radio advertising grew 12.6% to $19.1 billion in 2000, led by an 18% gain in national spot advertising and an 11.5% surge in local advertising. Veronis Suhler predicts that total radio ad expenditures will expand at a compound annual rate of 6.8% from 2000-2005, reaching $26.5 billion in 2005.

7) Consumer Magazines

After recording a banner year in 2000, magazine consumer ad spending will decline in 2001, but will rebound substantially from 2002-2005.

The outlook for next year is for the return to positive revenue trends as advertisers will seek to recover and reinforce share, and prevent competition from getting ahead. Circulation erosion, particularly at newsstands, is likely to persist. As subscription marketing continues to search for an effective replacement for the stamp houses, it will not reverse the decline of single-copy sales. Circulation revenue will post a sustained positive trend, however, as prices for single copies and subscriptions continue to grow and offset unit losses.

Meanwhile, the consumer magazine market as a whole will post a compound annual growth of 3.7% during the period, reaching revenues of $25.5 billion in 2005, according to Veronis Suhler. Advertising expenditures will rise at a 4.5% compound annual rate in the period, while circulation spending will increase 2.5%.

8) Business-to-Business Communications

Growth of spending on business-to-business magazines will decline in 2001 for the first time in a decade due to the slowing economy, conservative budgeting by advertisers, and less dot-com and technology ad spending. But Veronis Suhler expects spending on B-to-B magazines to bounce back in 2002 with a 6% growth spurt to $9.7 billion over 2001's $9.1 billion, which was a 7.1% drop from 2000. Spending on B-to-B magazines is projected to wind up the forecast period with nearly $11 billion. Trade shows and exhibitions, which grew at 6.7% from 1995-2000, will outpace business magazines by growing a robust 6.2% from 2000-2005.

Despite a slower-growing economy in 2001, Veronis Suhler forecasts total trade show spending to increase at a compound annual rate of 6.2% from 2000 to 2005, hitting $8.8 billion in 2001 and reaching $11.3 billion in 2005.

Veronis Suhler projects that ad spending in healthcare (the largest b-to-b category in terms of circulation) will drop 35% in 2001 but will bounce back sharply in 2002 and will enjoy healthy growth rates for the rest of the forecast period of 2001-2005. Ad spending in the construction category will be flat in 2001 with healthier spending to resume for the balance of the forecast period. Veronis Suhler predicts that, after a rough 2001, technology ad spending will rebound in 2002 and grow between 3 and 5% for the remainder of the forecast period.

Overall, total spending on business-to business communications grew 4.9 % to $18.2 billion in 2000, fueled by a strong economy and solid corporate profits, which drove up spending on business-to-business magazines and trade shows and will grow at 4% from 2001-2005.

9) Consumer Books

Spending on consumer books fell 1.6 percent in 2000 to $17.8 billion, due primarily to a slump in adult trade book sales. By 2005, Veronis Suhler projects that total spending on hardcover books will rise to $6.8 billion from $6.6 billion in 1999. Spending on hardcover books in 2001 is expected to rise 1.4% while spending on paperback books increases 1.6%.

For the third year in a row, spending on juvenile books outpaced other categories, growing 14.5% in 2000. Juvenile books are expected to account for 19.1% of all consumer book spending in 2001.

Online book retailers like Amazon.com and Barnesandnoble.com are expected to grow sales at a compound annual rate of 11.4% from 2001-2005, attaining sales of $2.5 billion, or 12.4% of all consumer book sales, in 2005.

10) Advertising, Marketing Services & Specialty Media

Spending in the Advertising, Marketing Services & Specialty Media category totaled $305.5 billion in 2000, up 9.8% from the previous year - the sector's strongest growth rate in five years. Veronis Suhler forecasts 1.3% growth in the sector for 2001, compared to 9.8% in 2000, as more companies combine their advertising, marketing and specialty media efforts under one budget and marketing strategy.

Advertising spending alone climbed 11.1% in 2000 to $177 billion, spurred by double-digit growth in television, radio and consumer magazines - as well as Internet advertising. Declining stock valuation, along with evaporating cash and liquidity in the second half of 2000, slowed the runaway Internet advertising trend. Veronis Suhler says advertising spending growth will fall off in 2001 with a growth rate of -1.1%.

Meanwhile, spending in the marketing services and specialty media sectors is expected to grow 4.6% in 2001, compared to 7.9% in 2000, according to Veronis Suhler. Advances in technology will continue to spark growth in point-of-purchase promotions in 2001. A move toward higher quality premiums - the giveaways that marketers use to promote products - is expected to spur stronger growth in 2001.

11) Professional, Educational & Training Media

Combined spending on professional, educational, and training media reached $38.7 billion in 2000, fueled by increased expenditures in each of the four segments of these markets - professional, El/Hi (elementary/high school), college, and outsourced corporate training. Veronis Suhler expects spending to rise 6.1% to $41 billion in 2001 and to continue to climb during the forecast period of 2001-2005, reaching $53.8 billion in 2005.

The largest of the three categories in this segment is training media, which is projected by Veronis Suhler to rise at a compound annual rate of 7.6% during the forecast period to $27.8 billion in 2005.

12) Business Information Services

Veronis Suhler projects total spending on business information services to reach $65.7 billion in 2005, placing it among the largest communications industry segments. In the shorter term, total spending in the category is expected to slow in 2001, growing at 5.5% to $50.1 billion, compared to 7.3% growth and $47.5 billion in 2000.

Economic and financial information services, the largest areas of the sector, will grow 5.7% during the 2000-2005 forecast period to $17 billion.

Marketing, the second largest business information services area with 31% of the sector's expenditures, will see a 5.4% increase in end-user spending in 2001 to $15.5 billion.

For more information on the Veronis Suhler CIF, please click here or call.

Note: The 2001 Communications Industry Forecast sells for $1,995. To order, call , ext 8556 (in the U.S.), , or click here to order.

Veronis Suhler www.vss.com, a leading independent merchant bank dedicated to the media, communications and information industries, is celebrating its 20th anniversary in 2001. Since its formation, the firm has acted as a financial advisor across the full spectrum of media industry segments including Broadcasting, Cable & Entertainment, Newspaper Publishing, Consumer Magazines; Business Information Services, Consumer, Professional & Educational Books, Business-to-Business Communications, Specialty Media & Marketing Services, and the Internet.

In addition to the annually-published CIF, which tracks consumer media consumption and spending trends over a 10-year period (1996-2005), Veronis Suhler also publishes the Communications Industry Report, tracking financial performance of all publicly reporting media companies over a five-year period.

VS&A Communications Partners III, L.P., the firm's $1 billion private equity affiliate, is also exclusively dedicated to investments in the media and communications industries.

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Contact:

Allan Ripp/
Kerry Ann Murphy for Veronis Suhler/
Ken Heaton/


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