WHAT LIES AHEAD

The easiest way to sum up what the future of direct marketing holds is “more.” Everything else is commentary and long division.

The trick with “more” is knowing from where that growth will come. In its communications industry forecast, private equity and investment firm Veronis Suhler Stevenson reports that recent DM gains have been fueled by e-mail and mobile marketing, new advertisers exploring direct response TV and even modest growth in the two workhorse channels — direct mail and telemarketing.

First, the big picture: Total advertising and marketing services spending, which tallied up to $463.8 billion in 2006, should rise to $491.1 billion in 2007 and $527.9 billion in 2008, for not-too-shabby growth rates of 5.9% and 7.5%, respectively.

The bump in 2008's growth will be partly due to spending surrounding the Olympics and the U.S. elections, which will include a hotly contested open presidential seat.

Within that big picture, DM sucked up $101.5 billion in 2006, and should garner $107.7 billion in 2007 and $114.4 billion in 2008 — jumps of 6.1% and 6.3%. These increases are only slightly off the 6.5% annual increases it realized between 2001 and 2006.

Why won't it keep up with overall advertising spending in 2008? Largely because spending on television growth that year will spike, throwing off the percentages. But TV spending should fall back to earth in off-year 2009.

Longer term, direct marketing spending should maintain a steady 6.3% growth rate through 2011, topping out at around $137.8 billion. These increases will come as marketers increasingly invest in multi-channel efforts, according to Veronis Suhler.

DM's growth will keep it solidly in third place among the 19 communication industry segments Veronis Suhler tracks, when they are ranked by size: It will trail only professional and business information services and cable, satellite and regional bell operating company television services in terms of total dollars spent on communications.

A look at anticipated growth rates within specific channels speaks to opportunities and obstacles. Between now and 2011, growth in direct mail spending will quietly enable it to slip past telesales into first place. In 2007, marketers will spend $34.3 billion on direct mail, compared with $35.4 billion for telesales. But a combination of continued pressure in outbound telemarketing due to the federal do-not-call list and the availability of ever-more-powerful targeting mechanisms for mail will result in faster annual increases in mail spending.

By 2011, a 5.4% annual growth rate will push direct mail spending to $42.4 billion, while a sluggardly 4% yearly increase will result in telesales generating $41.5 billion.

Marketers, who in 2007 will lay out $20.5 billion for catalogs, will further augment their spending by 4.4% annually to $24.4 billion in 2011.

Direct response television is primed to increase its importance. As brand marketers embrace the value of adding response mechanisms to their spots, spending will jump from $5.1 billion in 2007 to an anticipated $6.7 billion in 2011 — a 7.1% annual growth rate, even faster than the 7% seen annually during the 2001-2006 period.

The forecast study notes that while long-form direct response television spots have traditionally been used to sell household items, other industries, such as the insurance and reverse mortgage fields, are embracing longer spots, taking advantage of its ability to provide more information than a 30-second commercial.

The big winner will be the Internet, which will have increases fueled by brand marketers realizing the power of direct. At a 19% annual growth rate, spending for online marketing will boom from its current $10.2 billion to nearly $20 billion.

Within national online advertising campaigns, marketers will spend $8.7 billion on keyword searches in 2007, a figure set to rise to $16.7 billion by 2011. Banner ads will pull $4.5 billion out of advertisers' pockets this year, and nearly $8.1 billion in 2011. And sponsorship revenue, on which marketers will spend $415 million this year, is seen as declining: By 2011, Veronis Suhler says that five years of double-digit percentage drops will cause this channel to pull in only $271 million.

Advertisers will spend $403 million on national e-mail campaigns in 2007, a figure that should more than double, to $821 million, in 2011.

IN-DEPTH LOOK AT ONLINE

Veronis Suhler draws distinctions between DM campaign-related online spending and total advertising spending. DM spending alone is a nice chunk of change — $10.2 billion — on Internet advertising alone, as mentioned above.

The larger picture, which involves all forms of advertising on the Web, is even nicer. Marketers will ante up $30.5 billion for all Internet advertising in 2007, according to Veronis Suhler. This includes $21.1 billion spent on national campaigns; $8.4 billion spent on local campaigns; $807 million lavished on social networks; and $196 million set aside for blog, podcast and RSS advertising.

A healthy whack of the $21.1 billion national advertisers will spend this year is set aside for keyword searches — $8.7 billion, in fact. Another $4.5 billion will be pushed toward display ads, while $3.9 billion is earmarked for classifieds. E-mail will account for $403 million, with the rest going for referrals, sponsorships and rich media campaigns.

Will these proportions hold for the future? Veronis Suhler sees growth rates in the high teens for nearly all of these through 2011. Referral campaigns, e-mail and search may grow a bit faster, while classifieds and rich media efforts lag. The one real loser is sponsorship opportunities. This is the only type of advertising forecast to actually fall in terms of the dollars spent on it.

There are several reasons for this. Sponsored e-mails, like other e-mails, may run into problems with filtering software that blocks, if not entire messages, important images and links. This is doubly so if whichever entity is responsible for broadcasting the messages does not use a dedicated server.

Furthermore, marketers will be wary of sponsoring social networks and consumer-generated content sites, largely because brand marketers aren't comfortable being placed near content that may be in violation of copyright laws, according to Veronis Suhler.

The tradeoff is that social network and blog, podcast and RSS advertisements are channels most likely to reach engaged Web users — a young, desirable audience.

Reflecting this, Veronis Suhler anticipates exponential growth if an outlet can establish its bona fides: Nearly 71% annually for blog, podcast or RSS streams, which should rack up more than $1.1 billion in ad spending in 2011 (up from $196 million in 2007), and a 51% increase, from $807 million to $2.7 billion, for spots within social networks.

Shifting from channels to strategies, it may be that loyalty programs have matured as a market — or it may be that DMers will continue to be successful in pushing their customers onto lower-cost electronic channels. Whatever the reason, spending on these efforts, which in 2007 amounted to just $2.1 billion, will increase by a miserly 1.9% throughout 2011, when marketers will spend $2.4 billion on them.

DM SPENDING GROWTH, 2006-2008

	2006	2007	2008
Catalog
Spending	19,686	20,479	21,338
Growth		4.00%	4.20%
Direct Mail
Spending	32,649	34,348	36,131
Growth		5.20%	5.20%
Internet*
Spending	8,255	10,161	12,325
Growth		23.10%	21.30%
Telesales
Spending	34,106	35,377	36,751
Growth		3.70%	3.90%
Television
Spending	4,744	5,076	5,446
Growth		7.00%	7.30%
Other**
Spending	2,065	2,240	2,434
Growth		8.50%	8.70%
Total
Spending	101,505	107,682	114,425
Growth		6.10%	6.30%
ALL DOLLAR FIGURES IN $MILLIONS * INCLUDES E-MAIL CAMPAIGNS AND WEB MARKETING ** INCLUDES MAGAZINES, NEWSPAPERS AND RADIO DIRECT RESPONSE MARKETING AND LIST MANAGEMENT SPENDING SOURCE: VERONIS SUHLER STEVENSON COMMUNICATIONS INDUSTRY FORECAST