CAGR: Compound Growth For Some, Compounding Problems For Others

To paraphrase Rupert Murdoch, the industry simply doesn’t know its own future, its the wild west out there.

Despite this sentiment, its worth looking closer at US advertising revenue projections for the next four years, spread across 10 platforms. The accompanying data is averaged out across sources such as Veronis Suhler and TNS.

Ignore the absolute figures - they never project accurately - but pay attention to the relativities between platforms and the Compound Annual Growth Rates (CAGR). Both indicate that even within the context of digital, there is an emerging hierarchy, with specific reference to mobile, entertainment media (gaming), and pure play Internet.

Off a low-base in 2007, mobile and entertainment media indicate the highest CAGRs for any media category, followed by the pure plays. The bullish nature of mobile’s CAGR, for example, is justified by simple anecdotal evidence that the radical interface (and menu selection) design offered by Apple’s iPhone is already encouraging higher mobile data usage amongst its users (well above non-iPhone users). Once the likes of Nokia and Motorola join in battle, mobile data rates will sky rocket. This is a guarenteed market outcome in 2008. The only variable likely to short-change the result is a lack of local compelling content (again).

Of concern to incumbent media is the near flatlining of advertising revenue growth. The outlook for newspapers, broadcast television and directories drags down the sector’s CAGR to an anaemic 4.6%. Interestingly, outdoor scores a CAGR of 10.4%, aided by the proliferation of touchscreeen and LCD technology (think about the visual madness of Bladerunner).

Pure-play Internet will continue to grow market share through ‘bargain-basement’ advertising rates (relative to TVC and print), and the optimisation of audience data and targeting capabilities. In fact, if stronger efforts are made to accelerate the implementation of behavioural targeting in 2008/2009, then its reasonable to add a few points to the CAGR for pure plays over the 2007-2011 period.