U.S. companies will spend nearly $200 billion this year on targeted media such as direct mail, text messages or product placement in video games to concentrate on narrow, valuable groups of consumers, a new study shows.
Investment group Veronis Suhler Stevenson (VSS), which conducts the annual study, forecasts that spending on so-called targeted media will rise by 7.1 percent this year. By 2015, spending will have increased to $272.5 billion, far outpacing growth in the broader economy and making it the fastest growing area of the communications industry, VSS said.
One reason for the trend is the economy, which causes companies with budget constraints to focus on their key customers, the company said. That means, for instance, a brewery may sponsor a local concert rather than put money into a scatter-shot national newspaper advertisement.
The trend also reflects the continued push into digital communications. Targeted media includes event marketing, product placement and direct mail, but it also includes some red-hot areas of digital communication such as smartphone messaging and apps. Last year, hours spent with mobile media soared by nearly 50 percent.
"Across the board, mobile is going to be a big driver going forward - and will experience outsized growth similar to what Internet delivery and pure play Internet experienced over the last five years," said John Suhler, co-founder and general partner of VSS.
Along with mobile, social media has emerged as the darling of the communications business. But for private equity firms such as VSS -- which has invested in 66 companies in deals worth around $14 billion since 1981 -- taking a stake in hot social media companies can prove frustrating.
"What's happening is that the social media world is going through the same bubble phase as the Internet in the late 1990s," said Suhler.
Just as private equity couldn't afford to take stakes or buy out hot Internet companies with skyrocketing valuations in the late 1990s, they are facing similar obstacles in investing in the pricey social media companies of today, he said.
Suhler created the VSS Communications Industry Forecast in 1987, but delayed its publication this year because of fresh signs of an economic pullback over the summer.
In the end, VSS forecast that U.S. communications spending would increase 4.1 percent this year and expand at a 5.5 percent compound rate through 2015 to $1.4 trillion, outpacing growth in the gross domestic product.
"Everything digital is growing faster than economic growth and faster than overall spending for communications," Suhler said.
He added, "The media sectors that have been slow to adapt have inherently not thought of themselves as being digital have had a hard time."
(Additional reporting by Yinka Adegoke in New York; Editing by Richard Chang and Derek Caney)