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Great presentation from a direct marketing perspective.
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Outlook 2010: What to Expect inDirect & Digital Marketing
Bruce BiegelManaging Director
January 14, 2010New York, New York
• Market Intelligence
• Strategy Consulting
• Transaction/Diligence Support
• Industry Insight:Publishing &Tactical Execution
Winterberry Group & Petsky Prunier LLC: Maximizing Shareholder Value of Companies in the Marketing Sector
Sell-Side Representation
Corporate Divestitures
Capital Raising & Private Placements
M&A Advisory
Fairness Opinions
•
•
•
•
•
Our Transition in Media and Technology Over the Past Decade; By Simplifying Our Lives, We Have Complicated Them Tenfold!
2000 2009TV channels in average U.S. household 61 130
% of U.S. households with a DVR 3% (2003) 25%
Daily time spent online (U.S. Internet users) < 30 min. 3-4 hours
% of U.S. households with broadband connection 5% 65%
Web sites indexed by Google 1 billion 1 trillion
Global Google searches per day 10 million 300 million
Global e-mails sent per day 12 billion 247 billion
% of U.S. adults who bought a product online 28% 55%
% of Internet users on a social networking site 5% 75%
% of U.S. adults who own a mobile phone 50% 85%
Text messages sent in the U.S. per day 400,000 4.5 billion
Sources: AMA/Carat, Forrester/Magna, Media Metrix (The Media Audit), New YorkTimes/Gallup, Nielsen, Pew Internet & American Life Project
Agenda
• What happened in 2009?• What to expect in 2010:
Forecasts and trends in direct and digital marketing
• Ten things to think about in 2010: Strategies for marketers and suppliers
Outlook 2010
“”
Marketing Budgets Fell an Estimated 15.6% in 2009
of marketers faced budget cuts in 1H09
of marketers saw budgets hold steady
of marketers expected further cuts as of August, compared with 49% in early 2009
Source: Association of National Advertisers, July 2009 Marketer Survey
We learned quite a bit this year as we reduced our ad budget, and, while we will
spend more in 2010 than we did in 2009, there is no
reason for us to immediately put everything back in place
that we had prior to the economic environment
becoming so challenged. – Jeffrey Hennion,
EVP & CMO
62%
32%
40%
Marketers, Faced With Budget Cuts, “Followed The Consumer” and Reallocated Spending in 2009
Source: WG Survey (2009)
46%
54%
55%
91%
Direct Mail: Non-catalog
Broadcast: TV & Radio
Direct Mail: Catalog
Print: Newspaper & Magazine
Survey of Marketers & Service Providers in 2009:“Which channels are capturing or losing share of marketing budgets?”
Capturing
Losing
50%
50%
71%
72%
Online Display Advertising
Mobile Marketing
Search (Keywords & SEO)
E–Mail
A 5% Decline in “Above-the-Line” (ATL) Channel Spending in 2008 Accelerated in 2009, Falling Another 18%
2009E U.S. “ATL” Advertising Spending $110.0BB
Television:$48.0BB
Newspapers:$25.8BB
Magazines:$15.6BB
Radio:$14.1BB
Outdoor:$6.1BB Cinema:
$0.5BB-5.0%
-13.8%
Source: WG Analysis, 2010Note: Arrows reflect percentage change in spend, by channel, from 2008 levels
-20.7%
-18.8%
-25.7%
-12.7%
-18.4%
In the Midst of Recession, Digital Still Grabbed $500MM of Growth
Direct Mail:$43.7BB
Teleservices:$39.4BB
DR Broadcast:$22.8BB
Digital:$26.5BB
DR Print:$15.5BB
Other:$2.4BB
1.6%
-22.4%
-16.8%
-10.0%
2009E U.S. “Direct & Digital” Advertising Spending $151.2BB
Insert Media:$0.8BB
-11.0%
-14.1%
-5.7%Source: WG Analysis, 2010Note: Arrows reflect percentage change in spend, by channel, from 2008 levels
-11.3%
95.6 100.9 102.7 96.1 80.1
35.3 35.3 35.1 34.2 32.328.9
102.5
020406080
100120140160
2004 2005 2006 2007 2008 2009
Annu
al P
iece
Vol
ume
(BB)
Standard Class First Class DM
Substantial Declines in U.S. Direct Mail Volumes Began In Q4 2008—And Have Only Recently Begun to Abate
Source: WG analysis of data from USPS Household Diaries
136.9BB 128.4BB 109.0BB
Y-o-Y Change
137.6BB136.2BB130.8BB
-16.6%-6.4%
0.2%1.5%5.5%
-10.5%-5.6%-2.7%-0.4%-0.1%
U.S. Direct Mail Volume, 2004-2009 (BB of Pieces)
Make No Mistake: 2009 Brought a “Market Correction” to Direct Mail
$48.3$51.7
$55.6 $54.8$52.6
$43.7
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
2004 2005 2006 2007 2008 2009U.S.
Spe
ndin
g on
DM
($BB)
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%Y-o-Y Growth in Mail Spending (%
)
Direct Mail Spending Year-over-Year GrowthSource: Winterberry Group analysis of data from the Direct Marketing Association and various other sources
2009 Y-o-Y Decline:16.8%
2008 Y-o-Y Decline:
4.1%
2007 Y-o-Y Decline:
1.4%
Source: Winterberry Group analysis of data from Mintel Comperemedia
Volume Deterioration Skewed Toward Traditionally Heavy DM Users; Mail Doing Better in Other Markets
(27.8)%Banking(7.2)%
Investments(23.8)%
Credit Cards(60.1)%
Technology(29.9)%
Automotive(31.1)%
Mortgage & Loans (68.3)%
Telecom13.1%
Insurance2.5%
Travel/Leisure11.3%
2009 U.S. Direct Mail Volume Y-o-Y Change, By Vertical
“
” Culmination of events have irrevocably changed the direct mail industry
Recession Driven Budget Cuts
Continuing E-mail Substitution
Multiple Forces Converged in 2009 to Depress Mail Spending and Volume
Virtually every element of the mailing industry has been experiencing the effects of
reduced employment, reduced spending and reduced
consumer confidence…this movement toward electronic alternatives will also cause
continued downward pressure on mail volume
into coming years.– Jack Potter,
Postmaster General
Credit Card, Auto & Tech Industry Pullback
Consumer Preference for Digital Media Rising
% Global Reach (Across Internet Users)
Five Digital Trends in 2009
• “Year of social adoption” (though not spending yet)• Massive consumer adoption (top three
social networks have grown to rank globally in the top 15 sites, by reach)
• Slight decline in marketing spend due to unproven ROI
• Proliferation of “smart phones” drives mobile marketing opportunity• Increasing consumer adoption of “smart
phones” as utilization grew 72% this year• Large % increase in marketing spend as
marketers followed consumer migration to mobile devices for web content /applications
1
2
5% 5%
30%
#2#5#13
Five Digital Trends in 2009 (Cont’d)
• Rise of the audience buying in display • Slight decline in spending after 2H 2008 slowdown
due to recession-driven budget declines• Search – Did Bing matter?
• 2H09 search volume increased as consumers sought out holiday retail sales (retail being one of Bing’s specialties)
• Slight increase spending as marketers (and their agencies) emphasized SEO and improved tools leading to SEM keyword reduction
• E-mail and social media integration• Slight increase in spending as social media
adoption increases consumer dependence on e-mail as a primary online communication method
3
4
5
Impact of 2009
• Severe pricing pressure across services, data and campaign production and execution
• Reductions in staffing to compensate for revenue declines• Significantly increased purchase/license cycles for technology
providers• Profit declines inhibit investment in capabilities and operating
efficiencies• Lack of capital availability and confidence constrains M&A activity, with
the exception of early-stage VC funding
• Recession drove budget declines and shift from acquisition to retention• Delay in marketing technology investments• Longer test periods, more channels activated• Staff reductions despite increased marketing complexity
Suppliers
Marketers
Agenda
Outlook 2010
• What happened in 2009?• What to expect in 2010:
Forecasts and trends in direct and digital marketing
• Ten things to think about in 2010: Strategies for marketers and suppliers
Real GDP growth resumes, forecast up 3% in 2010, outlook will drive increases in marketing investment• 3Q 2009 marks “The End of Recession”• Economists expect that U.S.
unemployment rate will peak between 10.0% and 11.0%
• Corporate attention will shift from cost control to revenue expansion—that is, customer acquisition—to drive growth
• Consumer caution likely to continue through at least 1H10
2010: Marketers Encounter a Somewhat Healthier Economy
Focus on the economy slowed 2009 regulatory initiatives; watch for the following in 2010:• Online Privacy and Behavioral advertising
guidelines - Self-regulation guidelines in 2009 likely to
become government regulation in 2010• Fight over “Freedom of Speech” over new
blogging disclosure rules• Tightening of telemarketing consent rules • Consumer protection initiatives including
“Red Flag” rules for identity theft and consumer financial protection implementation
2010 Also Ushers In a More Active Regulatory Agenda
Spending to Fall Across Traditional “Above-the-Line” (ATL) Channels, Though Growth Returns for Television
2010E U.S. “ATL” Advertising Spending $108.8BB
Television:$50.7BB
Newspapers:$23.4BB
Magazines:$14.6BB
Radio:$13.5BB
Outdoor:$6.1BB Cinema:
$0.5BB-4.4%
-6.2%5.6%
-9.2%
Source: WG Analysis, 2010Note: Arrows reflect percentage change in spend, by channel, from 2009 levels
0.0%-0.5%
-1.2%
Direct and Digital Channels: Digital to Accelerate, Mail to Stabilize
2010E U.S. “Direct & Digital” Advertising Spending $153.9BB
Direct Mail:$43.7BB
Teleservices:$39.5BB
DR Broadcast:$23.6BB
Digital:$28.7BB
DR Print:$15.0BB
Other:$2.6BB
8.3%
-3.6%
Source: WG Analysis, 2010Note: Arrows reflect percentage change in spend, by channel, from 2009 levels
Insert Media:$0.8BB2.4%
3.8%
0.1%
6.1%
0.0%
1.8%
Direct Mail 2010 Spending Flat, Though Volumes Will Rise Slightly
Acquisition mail starts to recover; retention mail declines as e-mail presents viable low-cost alternative• Financial services led the way down;
will rebound slightly along with retail and auto
• Better use of analytics, database management and hygiene restrains piece volume growth
• Excess production capacity to keep costs in check
• Postal rate freeze in 2010 should help mailers keep postage costs at bay
Impact on Direct Mail Suppliers in 2010
In 2010, direct mail suppliers should expect:• Further consolidation among direct mail production providers • Stabilization in list pricing as acquisition mail returns• Additional dependence on workshare to adjust to decreased volumes
Going forward, direct mail suppliers should focus on:• Integration of single platform
cross-channel execution capabilities; Print, PURLS, Social and Email
• Targeting and analytics capabilities that enable highly targeted campaigns in a lower-volume environment
Digital Marketing Continues to Grow and Take Share From Traditional
Consumer digital media consumption passes 30% share of all media• Consumer adoption of social media
plateaus• Increasing standardization of digital
metrics leads to broader adoption• Marketers focus on digital channel
integration and optimization• Marketers’ staffing gaps delay more
aggressive shift in spend; internal execution silos begin to fall
• Supplier capabilities continue digital shift to capture demand and profit opportunity in emerging channels
$0
$50
$100
$150
$200
$250
$300
$350
$400
2006 2007 2008 2009E 2010E
DigitalBTLATL
U.S. Advertising and Marketing Spending, by Share of Approach ($BB)
5% 6%7%
8.3% 9%
Source: Winterberry Group analysis of various sources, 2010
54% 55%55%
56% 56%
41% 40% 38%35.7%
35%
Search spending projected to accelerate 6.4% to $15.6BB in 2010, up from 0.8% in 2009 • More spending shift from
traditional media channels, driven by predictable ROI
• Increased adoption by SMB marketers (local search)
• Focus on picture and video searchgrows as rich media proliferates
• Unresolved issues around ownership of audiences to challenge engine/publisher relationships
Search: No Slowdown in Sight for 2010
$0
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$10
$15
$20
$25
$30
$35
2006 2007 2008 2009E 2010E
SearchAll Other Digital
Search Spending vs. Other U.S. Digital Channels, 2006-2010E ($BB)
49% 45% 44% 45% 46%
51%55%
56% 55%54%
Source: WG Analysis, 2010
E-mail: Rumors of Its Death Have Been Greatly Exaggerated
E-mail spending projected to grow 8.6% to $1.4BB in 2010, largely due to:• Marketer shift to lower-cost media• Relatively high ROI of e-mail campaigns• Growing overall effectiveness,
especially with regard to “integrated” campaigns launched in conjunction with direct mail, events and outdoor
• Increasingly effective integration with social, e-commerce and mobile channels, driven by improved cross-media platforms
• Deeper and more actionable marketing databases (for both acquisition and retention purposes)
Display spending projected to grow 9.2% to $9.3BB in 2010 following slight decline in 2009, driven by:• Marketers focus on following the
audience, shifting spending from traditional media
• Publishers’ improved ability to attribute traffic sources and monetize inventory
• Emerging targeting and optimization approaches enable “data-enriched” display ads for better effectiveness
Display: Is It the Next Big Acquisition Channel?
Artwork Source: AdExchanger.com
”
“Audience Segmentation + Behavioral Targeting = Relevance = Enhanced Share of Spending
The overarching benefit [of targeted ads] is relevancy. Relevancy means that the
consumer has a more appropriate experience and
reduces intrusiveness…On the business side, relevancy for an advertiser means better results,
and hence, for a publisher, better yield on inventory.
– Jeff Hirsch CEO
Source: Winterberry Group analysis of data from eMarketer (2010)
$0
$2
$4
$6
$8
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2006 2007 2008 2009E 2010E
Behaviorally-Targeted Display Ad SpendOther Display Ad Spend
U.S. Behaviorally-Targeting Spending, as Percentage of Online Display
Advertising Spending,2006-2010 ($BB)
7.2%8.2% 9.5% 11.4% 14.8%
• Impending Regulation: Self regulation vs. legislative regulation
• Disclosure/Consumer Education:Do consumers know they’re being “tracked” and “targeted” for marketing?
• Transparency: Do marketers know where their ads are placed?
• Attribution: Ability to track display as influencer on search, lead gen and site traffic
• Complexity: Friction between “moving pieces” of data, platforms, networks, agencies, etc.
Display: Challenges Remain
82%
77%
66%
59%
55%
18%
23%
34%
41%
45%
65 to 89
50 to 64
35 to 49
25 to 34
18 to 24
Age o
f Res
pond
ent
No Yes
Do you want Web sites to show you ads tailored to your interests?
(U.S. consumer response)
Source: University of Pennsylvania/UC Berkeley survey (2009)
66% of U.S. ConsumersSay NO to “tailored”
advertising
As online display evolves, agencies will be tasked with:• Developing strategies and budgets for effective display
usage for both branding and direct response marketing• Integrating Demand Side Platforms (DSP) into the
media-buying process and driving attribution metricsData and analytics providers will need to manage and incorporate:• New data sets comprised of “intent” and “in-market” data
(combined with portal, co-op and other offline data sets)• Audience segmentation within online display• Ad exchange and data exchange tools and processes• Web analytics data to feed into optimization cycles
How Will Marketing Service Providers Support the Display (R)evolution?
Online Display Campaign Execution
Value Chain
Measurement & Reporting
Pricing / Valuation (e.g. Yield Management)
Ad Delivery (via Networks/Exchanges)
Creative
Audience Targeting/ Data Utilization
Campaign Strategy / Planning
Social Marketing: All That Traffic, Show Me The ROI
Social media spending projected to grow 13.2% to $1.2BB—$900MM (75%) of which is included in display—then slow going forward. Growth will hinge upon:• Marketer ability to measure impact of
social on engagement and conversion• Bifurcation of social landscape into
“listening” and “marketing” platforms, each fulfilling distinct (but complementary) roles
• Availability and expertise of marketing staff and suppliers to lead social efforts (and to make money!)
Spending Source: eMarketer (2009)
Mobile: Ready to Move from “Test” to “Rollout,” In Spite of Ongoing Bandwidth Concerns
Mobile spending projected to rise 27.1% to $2.2BB in 2010, driven by:• Increasing utilization (and adoption) of
mobile coupons via SMS and now search and display via smart phones
• Improved monetization of mobile apps(2.3BB app downloads in 2009)
• Growing roster of dedicated suppliers—primarily offering mobile e-mail and SMS/MMS support
• Availability of location-based targetingtechnologies and integration with retail
• Proven success of early adopters, inspiring other marketers into test modes
Growth is constrained by:• Data network bandwidth/speed• Platform/software diversity• Poor/inconsistent browsing
experience• Lack of marketer experience
with mobile campaigns
Growth in Digital Spending Driving Shift to Digital Capabilities in Database Marketing and Marketing Technology
Marketing automation platforms for campaign, workflow and operations management will see increased demand as agencies are pressured to become more efficient and cost-effective. Areas of growth include:• Media planning and buying platforms and
tools particularly for digital channels• Loyalty programs, which are increasingly
becoming digital• Analytics platforms for emerging digital
segments (e.g. social media monitoring/listening)• Online lead generation as acquisition returns
2009 M&A Summary: 2H09 Began Gradual Recovery After Slow 1H09, Though Valuations Remain Low In Line with Economic Risk
M&A slowed in 2009 with total transaction value (down 27% YOY). The market was characterized by:• Strategic buyers ruling, but
financial buyers returning to offer a variety of currency options (e.g. cash, equity, debt)
• Longer closing cycles due to more comprehensive diligence requirements
• Robust venture capital marketcontinuing for Web 2.0 second and third rounds and Web 3.0 “A” and “B” rounds
2009 Marketing Sector Transaction Value, by Segment
$26.2BB Total Value
Digital Media $4.1BB
Advertising & Promotion
$0.4BB
Interactive Advertising
$3.6BB
Marketing Services $2.3BB
Software & Information
$8.3BB
Out-of-Home &
Specialty Media $0.6BB
Marketing Technology
$6.1BB
Source: Petsky Prunier LLC
2007 2008 2009
2010 M&A Outlook: Much Stronger Year in M&A Ahead
Strong YOY growth is expected in 2010 M&A, driven primarily by strategic buyers as financing options improve• Strong 2H09 transaction activity
implies improved growth into 2010, as evidenced by transaction value doubling each quarter since 2Q09
• Improved stock markets open up the IPO markets and allow strategic buyers to leverage shares to complete deals
• Return of leverage financing for take-privates and PE firms
• Continued activity expected in mobile and Web analytics segments
$0
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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2007-2009 Marketing Sector Transaction Value, by Quarter
($BB)
Source: PetskyPrunier Deal Notes
Agenda
Outlook 2010
• What happened in 2009?• What to expect in 2010:
Forecasts and trends in direct and digital marketing
• Ten things to think about in 2010: Strategies for marketers and suppliers
2010
Ten Things to Think About in 2010
Mobile opportunities accelerate as growing adoption of smart phones and apps—combined with marketer andagency experience—allow for targeted and effective marketing
Local marketing dollars migrate online—from traditional budgets—as geo-targeting capabilities improve (via search, display and mobile)
Rate of consumer social adoption slows, but marketers increasingly understand how to use and manage social media (e.g. listening/monitoring, data collection, activation)
Death of the “digital” agency spurs the return of “Agency,” blurring lines between traditional, direct and digital agencies
1
2
3
Four Things We Think Are Going to Be Important in 2010
4
Four MORE Things to Think About in 2010
Consolidation will accelerate as top-line growth is driven through buying “good” companies in order to take market share of slow growing spend
Understanding the new data taxonomy is imperative for all direct marketing constituencies
Audience targeting in display—with online brand “assurance”—spurs shift of spend to the long tail of sites; thus, ad exchange buying grows
Globalization will become increasingly important as marketers and marketing services providers seek new geographies for growth
8
5
6
7
Two Things That Are No Longer Interesting in 2010
Economic recession is over, as U.S. GDP growth returned in 3Q09, dawning a very slow but steady jobless recovery
Do not mail legislation no longer as significant a threat as the primary discussion has shifted to digital channels and vertical advertising
9
10
Questions?
Bruce Biegel, Managing [email protected]
Presentation download available atwww.winterberrygroup.com/ourinsights