VSS Predicts Growth Across All TV Sectors

It may be a mature business, but there's still life in the broadcast TV, according to a new forecast from New York-based media merchant bank Veronis Suhler Stevenson. Broadcast TV growth over the next five years (2003 through 2007) will average 4.4% a year, nearly double the 2.5% growth rate the industry achieved between 1997 and 2002, VSS said. By 2007, broadcast TV will be a $52 billion business.

The cable/satellite sector will grow even faster, according to the forecast. And a look at the pay-TV numbers explains why broadcasters are obsessed with their search for a revenue stream beyond advertising. Overall, the pay-television business—basic, pay, pay-per-view, advertising and license fees—will grow at an annual clip of 7.5% through 2007 to $110.5 billion.

About 21% of the cable/satellite total, or $23.3 billion, will be advertising revenue, which will grow at an average annual rate of 9.7%. That's a healthy clip, but represents a slowdown compared to the 1997-2002 period when ad revenues grew at a rate of almost 13%.

Cable/satellite's growth over the next five years will be two-thirds greater than broadcast's, perhaps not unexpected given that cable is a relatively young business.

The annual VSS Communications Industry Forecast will be released this week, but the firm provided a sneak preview to BROADCASTING & CABLE.

The forecast, citing the improving economy, projects a 3.6% gain in network TV advertising in 2003 to $16.9 billion. Annual growth in the sector through 2007 will be somewhat better—close to 5% with revenues reaching $20.5 billion. If the VSS forecast proves correct, network TV will outpace the annual growth rate it posted from 1997 to 2002 (4.2%), which included the period of the dotcom boom/bust and ensuing recession.

A big question for network TV is whether it will be able to continue to charge higher rates for decreasing ratings, which has been the pattern for more than a decade.

The report pointed out that while consumers are spending more time watching TV—average household viewing last year was a record 7.73 hours per day according to Nielsen Media Research—it's cable that's grabbing increased share of viewing, not broadcast.

The report concluded that the networks aren't helping themselves a whole lot in the programming department with the slew of reality shows they've introduced in the past couple of years. The aim of course has been to try to duplicate the success of a few, such as Survivor, Joe Millionaire
and American Idol. But the result, said VSS, will more likely be reality burnout.

"Viewers appear to be turned off by reality overkill that has produced too many poorly produced imitations and thereby contributed to the continuing decline of network ratings," the report stated. "Furthermore, the reality shows are taking time slots away from new sitcoms and dramas that may have longer-lasting hit potential."

For local TV stations, the outlook for the next several years is a lot better than the five-year performance between 1997 and 2002, when national spot ad dollars grew at an annual compound rate of just 0.7% and local spot climbed 2.7% annually.

For the five-year period through 2007, VSS projects that national spot will grow 4.5% annually to almost $13 billion, while local TV spot is expected to grow 4.3% to $16.1 billion. Combined, total local TV dollars will grow 4.4% a year to $29 billion.

This year, being a "valley year" between political and Olympics, will yield 2.4% growth to $24 billion for local TV, with local spot up 2.2% to $13.3 billion and national spot up 2.6% to $10.6 billion.

For cable, advertising is expected to grow 6% in 2003 to $15.5 billion, VSS reports. The bulk of that will go to cable networks, which will sell $11.5 billion in advertising this year, while local sales will total $3.5 billion, and regional sports advertising will contribute another $480 million.

The good news going forward, if the VSS projection holds up, is that advertising growth for the medium will increase annually through 2007.

In 2004, for example, network ads will total $12.4 billion, up 8%, local sales will climb 10% to $3.9 billion and regional sports advertising will increase 9% to $525 million. "Annual ad spending throughout the remainder of the forecast period will be robust," the forecast stated.

"General Motors, Philip Morris, Pfizer and AT&T [among others] are expected to continue to pour money into cable advertising throughout the forecast period because the cost-per-thousand [price] is much lower than for broadcast television and because of the projected rise in cable viewership."

In the 2002-03 season, basic cable commanded a 51% share of all TV viewing, according to Nielsen, compared to a 46% share for the broadcast networks. Over the next four television seasons, VSS projects that basic cable will double its lead and command a 10 share-point lead (54% to 44%) over the broadcast nets.