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Emerging Media ForecastJune 2007
2
EMERGING MEDIA IN CONTEXT
Traditional Medium Equivalent / Ad-Supported Revenue Driver
Radio/Music
Information Seeking
Commerce / Shopping
Individual or Corporate Behavior Driver
TV Online/Print Out-of-Home Marketing Services
Other Marketing
UGC Production
Content-on-Demand
Social Content Consumption
Niche Content Consumption
New Place Consumption
Asset Management
Game Playing
•Venture capital activity reflects expectations of change
Source: MAGNA Global
3 Source: MAGNA Global, US Census, Veronis Suhler, OPA
EMERGING MEDIA IN CONTEXT•But “Traditional” media dominates by wide margin
050,000
100,000150,000200,000250,000300,000350,000400,000450,000500,000
2002 2003 2004 2005 2006
TV
Radio
ConsumerInternetNewspapers
ConsumerMagazinesSearch
Mill
ions
of P
erso
n-H
ours
Per
Yea
r
2.9bn36.6bn
53.7bn
57.0bn
292.5bn
466.5bn
Total US Population: Hours Spent With Media
4
EMERGING MEDIA IN CONTEXT•And young audiences are not abandoning traditional media
Young Audiences' TV Viewing Trends
15.0
17.0
19.0
21.0
23.0
25.0
27.0
29.0
1991
-92
1992
-93
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
Hou
rs o
f Vie
win
g Pe
r Wee
k
P2-5
P6-11
P12-17
P18-34
Source: MAGNA Global analysis of Nielsen Media Research data
5
EMERGING MEDIA IN CONTEXT•“Packagers” (networks, publishers) continue to drive industry
MediaPackagers
Producers DistributorsCreators
ConsumersAdvertisers
$
$$ $
$
Devices / Access Points
$
Source: MAGNA Global
$
Industry Structures Held Together By Regulations,Economic Efficiency and Copyright Law
6
EMERGING MEDIA IN CONTEXT
• So although emerging media = emerging opportunities…
• …look beyond early adopters
• Change is constrained for most media• Business model issues• Limits to market appeal• Difficulty to change behavior• Negative utility with more choice
7
SEARCH
•Media search tools have existed in many forms
8
SEARCH
•Three players have come to dominate online search
9 Source: MAGNA Global, US Census, IAB
SEARCH
•E-commerce is a key driver of search spending•When does search become too large a share of revenue?
Search Spending as % of E-Commerce Sales
0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%
1Q00
A
2Q00
A
3Q00
A
4Q00
A
1Q01
A
2Q01
A
3Q01
A
4Q01
A
1Q02
A
2Q02
A
3Q02
A
4Q02
A
1Q03
A
2Q03
A
3Q03
A
4Q03
A
1Q04
A2Q
04A
3Q
04A
4Q
04A
1Q
05A
2Q
05A
3Q
05A
4Q
05A
1Q
06A
2Q
06A
3Q
06A
4Q
06A
1Q
07A
10 Source: MAGNA Global, US Census, Veronis Suhler
SEARCH
•And search spend reflects effectiveness for SMEs and dot-coms
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
2002 2003 2004 2005 2006
Search
Newspapers
ConsumerMagazinesConsumerInternetTV
Radio
Advertising Dollars Spent Per Hour of Media Consumption
$0.07
$0.30
$0.90
$0.34
$2.44
$0.12
11
SEARCH
•Paid search to exceed $11 billion in 2008•Led by more searches per person and better monetization
Paid Search
$6,799.0
$8,770.7
$11,094.9
$0.0
$2,000.0
$4,000.0
$6,000.0
$8,000.0
$10,000.0
$12,000.0
2006A 2007E 2008E
(In m
illio
ns)
+29.0% +26.5%
Annual Growth
Source: MAGNA Global, IAB/PWC
12
EMERGING OUT-OF-HOME
•Platforms include cinema, digital billboards and retail networks
13
EMERGING OUT-OF-HOME
•More digital billboards and new digital networks drive growth•But most activity remains at the local level
Source: MAGNA Global
Emerging Out-of-Home Advertising
$1,090.5
$1,371.8
$1,711.0
$0.0$200.0$400.0$600.0$800.0
$1,000.0$1,200.0$1,400.0$1,600.0$1,800.0
2006A 2007E 2008E
(In m
illio
ns)
+25.8% +24.7%
Annual Growth
14
SOCIAL NETWORKING
•Social sites emerged in late 90s as potential substitutes for portals•But post-Geocities, emphasis has been on social connectivity
15
SOCIAL NETWORKING
•Growth is mostly share gains from other publishers •Historically monetized as residual internet traffic
Social Networking and Total Internet Page Views
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000Ja
n-06
Feb-
06
Mar
-06
Apr-
06
May
-06
Jun-
06
Jul-0
6
Aug-
06
Sep-
06
Oct
-06
Nov
-06
Dec
-06
Jan-
07
Feb-
07
Mar
-07
Apr-
07
May
-07
Page
Vie
ws
Social Networking: + 98.6%
Total Internet: + 2.6%
Source: MAGNA Global analysis of Comscore data
16
SOCIAL NETWORKING
•Social Network growth slowing, but will exceed $1 billion in 2008•Dollars driven by volume of inventory and better monetization
Source: MAGNA Global
Social Network Advertising
$276.0
$685.0
$1,020.0
$0.0
$200.0
$400.0
$600.0
$800.0
$1,000.0
$1,200.0
2006A 2007E 2008E
(In m
illio
ns)
+148.2% +48.9%
Annual Growth
17
ONLINE VIDEO
Source: MAGNA Global, RIAA
6,000
8,000
10,000
12,000
14,000
16,000
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Rev
enue
s ($
000s
)
TotalDigitalSales
RetailSales
Manufacturers' Shipments of Recorded Music
Napster Launched (June 1999)
BitTorrent, Kazaa, Grokster, etc. active
iTunes Launch (March 2003)
•New media can dramatically affect an industry•Music industry often cited as case study for the video industry
18
ONLINE VIDEO
Source: McKinsey, NAA, Monster Worldwide
•New media can dramatically affect an industry•…and classified advertising provides another example
19
No
Yes for some some of the time or no for most most of the time
Yes for some most of the time or yes for all some of the time
Often for most people under most circumstances
Yes for all people under virtually all circumstances
ONLINE VIDEO
General Print YP Radio TV
Sufficient Range of ContentSufficient Technical QualityEquipment SubstitutionSufficient Customer ServiceEfficient NavigationCheaper to SubstituteIncreased Convenience
SUMMARY
Limited TV content available today
Internet can’t deliver high res video well
IPTV: no STB integration
QoS is critical for video
Hard to navigate to find audio/video
Online bandwidth=more cost than free media
Print and radio are typically portable
Print is tactile
Prospects for online media substitution limited by drawbacks relative to
traditional media
•But TV won’t be impacted as other media (yet!)
Source: MAGNA Global
20
ONLINE VIDEO
•Conventional TV popularity: 90x vs. Online in 2011?•Yes, if last year’s online growth rates persist
Source: MAGNA Global, Accustream
145.8x
119.8x99.2x
82.7x69.4x
58.6x
0.0x20.0x40.0x60.0x80.0x
100.0x120.0x140.0x160.0x180.0x200.0x
25% 30% 35% 40% 45% 50%Different Scenarios:
Assumed 5-Year Compounded Annual Growth Rate of Online Video
Popu
larit
y Fa
ctor
of C
onve
ntio
nal
TV in
201
1
2006 Growth Rate Was 38.8%
Above Trend
Below Trend
21
ONLINE VIDEO
•Online video spend growing >50% annually, but <1% of all TV•Significant increase in supply and advertiser interest driving results
Source: MAGNA Global
Online Video Advertising
$235.0
$365.5
$560.0
$0.0
$100.0
$200.0
$300.0
$400.0
$500.0
$600.0
2006A 2007E 2008E
(In m
illio
ns)
+55.5% +53.2%
Annual Growth
22
ADVANCED TV
•Advanced TV (VOD, RFIs, iTV) has been slow to emerge•User experience remains poor•Content is better, but limited•Advertising infrastructure still under construction!
Advertising Infrastructure Components•Unduplicated/unique reach
•Uniform technological standards
•Establishment of creative formats
•Smooth buying process
•Provision of robust user data
•High-quality service / product standards
Source: MAGNA Global
23
ADVANCED TV
•VOD is largest component, followed by RFIs and other iTV•VOD likely generates $85mm in 2007, $105mm in 2008
Advanced TV Advertising
$107.0
$140.0
$178.0
$0.0$20.0$40.0$60.0$80.0
$100.0$120.0$140.0$160.0$180.0$200.0
2006A 2007E 2008E
(In m
illio
ns)
+30.8% +27.1%
Annual Growth
Source: MAGNA Global
24
MOBILE
•Mobile (WAP, video, SMS, LBS) attracts great interest, few $ today•Infrastructure issues potentially similar to advanced TV•Consumer proposition is being defined•Long-term opportunity to use mobile devices for CRM•Many new products compelling, but scale remains too small for
most national advertisers given their broader objectives
Source: MAGNA Global
25
MOBILE
•Growth driven in near-term by introduction of new supply •Carriers opening up “decks” and new mobile ad models
Mobile Advertising
$55.0
$105.0
$194.0
$0.0$20.0$40.0$60.0$80.0
$100.0$120.0$140.0$160.0$180.0$200.0
2006A 2007E 2008E
(In m
illio
ns)
+90.9% +84.8%
Annual Growth
Source: MAGNA Global
26
GAMING
•Gaming growth likely slower than for other new media•Many advertisers remain interested, but few invest
Game-Related Advertising
$187.2$216.9
$238.6
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
2006A 2007E 2008E
(In m
illio
ns)
+15.9% +10.0%
Annual Growth
Source: MAGNA Global
27
SUMMARY
•Annual emerging media growth = ~ 30% in 2007 and 2008
Source: MAGNA Global
EMERGING MEDIA AD EXPENDITURES (in millions) 2006A 2007E 2008E
Search $6,799.1 $8,770.9 $11,095.1• Annual Growth ------ 29.0% 26.5%Emerging Out-of-Home 1,090.5 1,371.8 1,711.0• Annual Growth ------ 25.8% 24.7%Social Networking 276.0 685.0 1,020.0• Annual Growth ------ 148.2% 48.9%Online Video 235.0 365.5 560.0• Annual Growth ------ 55.5% 53.2%Advanced TV 107.0 140.0 178.0• Annual Growth ------ 30.8% 27.1%Mobile Marketing 55.0 105.0 194.0• Annual Growth ------ 90.9% 84.8%Gaming 187.2 216.9 238.6• Annual Growth ------ 15.9% 10.0%
Total $8,749.8 $11,655.1 $14,996.7• Annual Growth ------ 33.2% 28.7%Less Estimated Duplication (Search via Social Networking) 0.0 (135.0) (250.0)Total Emerging Media $8,749.8 $11,520.4 $14,747.0• Annual Growth ------ 31.7% 28.0%
28
APPENDIX
•Emerging media services and devices forecasts
Source: MAGNA Global
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
% o
f US
Hou
seho
lds
US Digital Cable, Satellite andTelcoTV Households
US DVR Subscriptions
US VOD Households
US Broadband Households
US Satellite RadioSubscriptions
US HD Subscriptions
US Digital TV Shipments
US Mobile PhoneSubscriptions
29
NOTES ABOUT METHODOLOGY
• Estimates and forecasts reflect data for the United States only
• General methodology involves deriving “bottoms-up” estimates and forecasts for each supplier of media in each emerging media sector
• Estimates and forecasts include media expenditures (or approximate allocations) only, and exclude marketing services and related activities such as production of creative assets
Contact: Brian Wieser, CFATel: 917-542-7008 Email: [email protected]