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year, right? Not really.
Media industry was suffering, despite its growth
By Jeff Bercovici
Inevitably, 2000 will be remembered by those in the media business as the Indian summer that preceded the long cold winter of what may yet turn into a recession.
On closer inspection, however, that impression doesn't entirely hold up.
It only felt like Indian summer. The big chill was already setting in early in 2000.
We just didn't know it.
In fact, as a new report from media merchant bank Veronis Suhler demonstrates, there was cause for concern in the media industry even well before people started losing their jobs.
True, ad sales were setting records.
Total revenues for publicly reporting communications companies grew by 18.8 percent, to $276.4 billion, in 2000.
It was the year of fastest growth in nearly a decade, according to the 19th Annual Communications Industry Report. The compound annual growth rate for the period from 1996 through 2000 was 15.5 percent.
But behind these impressive numbers, trouble lurked.
Operating income and profits were plunging in a number of sectors, including cable and satellite television.
Adjusted operating income industry-wide was down 48.0 percent, to $11.8 billion in 2000, translating into a 10.9 percent compound annual decrease from 1996 to 2000.
Not surprisingly, it is the internet that is largely to blame for much of that decline, and more to blame certainly than many economists were thinking even six months ago.
Revenue in the consumer internet sector skyrocketed in 2000, swelling 62.7 percent, to $14.8 billion.
But operating losses nearly tripled during the same period, going from $4.5 billion in 1999 to $13.2 billion in 2000, according to the Veronis Suhler study.
The losses can be chalked up in part to the dropoff in online advertising revenues that began in earnest following the April Nasdaq crash and continued throughout the year.
But also to blame was what you might call an eat-everything-in-sight strategy on the part of many dot.coms and multimedia companies.
The thinking, as the study points out, was "acquire it now and decide how to integrate it later."
As history was to later instruct us, a lot of those acquisitions were overpriced, having been made when valuations were inflated by expectations of lush future earnings.
No less significant, though, many of them proved impossible to digest, with many such acquisitions withering and eventually dying under parents who became suddenly too busy either trying to save their core businesses or acquiring yet more add-ons.
Acquisitions were also up outside of the internet sector, with the number of publicly reporting media companies falling from 560 in 1999 to 440 in 2000 as a result of consolidation and the closings of numerous web companies.
Thanks to this pattern of consolidation, the biggest companies, in general, got bigger: 18 companies had revenues of $5 billion or more in 2000 compared to 14 companies in 1999.
Total revenues for marketing services, the sector that includes advertising agencies, rose 22.1 percent to $37.4 billion, with gains by traditional advertising and marketing companies offsetting losses sustained by providers of interactive marketing services.
October 30, 2001 © 2001 Media Life
-Jeff Bercovici is a staff writer for Media Life.
