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April 25, 2014

MAGNA GLOBAL’S ADVERTISING FORECASTS US Media Owners Advertising Revenues to increase 6.0% in 2014

Digital Media and Television will capture the bulk of that growth

Affordable Care Act and Political Ad Spend To Boost Local Media Owner Revenues

Digital Media Now Bigger Than National TV, Set to Surpass All Television by 2018

The MAGNA GLOBAL advertising forecasts are based on independent research that examines media suppliers’ revenue trends as well as macro-economic data. They are updated on quarterly basis.

Top Stories

• MAGNA GLOBAL is forecasting US media owners advertising revenues to grow by +6.0% this year, to $168bn. This is an increase from our previous forecast of +5.5% (December 2013).

• The main drivers include an improved economic outlook in the US and incremental advertising spend generated by non-recurring 2014 events: Sochi Olympics, Mid-Term Elections, FIFA Soccer World Cup, and communication on health insurance following the implementation of the Affordable Care Act in various states.

• Television will benefit the most from the non-recurring events of 2014, with advertising revenue growth of +8.3%, following a stagnation in 2013 (-0.6%).

• Digital media advertising revenues grew by +17% in 2013 to $43 billion. Within digital, mobile-based ad sales grew +110% (vs. +8% for desktop-based advertising) to reach 17% of total digital media revenues. Another driver was social media advertising that grew +53% to $3.6bn.

• With a 27% market share in 2013, digital media are now bigger than national TV, but still significantly smaller than television as a whole (40% market share). MAGNA GLOBAL is forecasting digital media advertising sales to increase by +14.4% in 2014 and ultimately outgrow total television by 2018.

• Print advertising will continue to decrease by approximately -7%, while radio revenues will be flat and outdoor media will grow by +3.7%.

• Amidst economic recovery and decreasing unemployment, we expect underlying advertising growth to accelerate further in 2015, at +4.6%, excluding P&O.

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2013: Digital Media Reaches 27% of US Market Share in a Total US Ad Market Growing +2.4%

Across all core media categories (TV, radio, digital media, print, out-of-home), media owners generated an estimated $158.5bn in ad sales in 2013. Advertising revenue growth was stronger than expected in the second half of the year, leading us to revise the full-year growth from +1.3% to +2.4%.

The 2013 growth was mostly driven by digital media (+17.0%). Television revenues were flat (-0.6%), which is a decent performance for an odd-numbered year without major political spending or Olympics (“P&O”) having to compare with a record incremental P&O spend in 2012. Excluding the effect of P&O spending, television ad sales grew by +4.3%, which is more than the previous year. Out-of-home media was the only traditional media category to grow (+4.3%), driven by digital formats and digital-place-based media. Meanwhile, radio, magazines and newspapers suffered a decrease in ad revenues: -1.2%, -5.1% and -8.2% respectively.

Digital media advertising (all platforms, all formats) attracted $42.8bn of media spend in 2013, reaching a market share of 27%. It is now bigger than print advertising (newspapers & magazines) and national television ($41.2bn), but it remains smaller than total television (national plus local, broadcast plus cable: $63.5bn), and will remain so for a few more years. Our current long-term scenario has digital media ad revenues growing by an average +12% between 2014 and 2018, reaching $74bn in 2018, while total television ad sales will grow by +3% over the same period, also to reach $74bn. At that point television and digital media will both control 38% of total ad dollars, leaving less than 24% to all other media channels (print, radio, outdoor). By comparison, digital media advertising is already bigger than total television in seven of the 72 international markets monitored by MAGNA GLOBAL including the UK, the Netherlands, Germany and Australia. This shows the strength and resilience of television in the US compared to other advanced ad markets, despite the current plateauing in viewing.

The migration of ad dollars towards mobile digital platforms is accelerating, with social media being the main catalyst.

Mobile-based advertising (display, search, and video) grew by +110% to $7.1bn, in line with previous expectations, while desktop-based internet advertising grew by “only” +8%. Mobile-based ad impressions (smartphones and tablets) already generate 17% of digital media dollars. In terms of formats, search remains the number one revenue generator as ad sales grew by +18% to $22.7bn (mobile +83%, non-mobile +9%). Video grew by an estimated +31% to $3.1bn (desktop +19%, mobile +300% from a low base). Finally, display revenues grew by +16% to $12.1bn. Within “display”, growth was driven almost entirely by social media advertising (+53% to $3.6bn) and also by mobile: +167% for mobile-based social advertising. Facebook generated 45% of its global ad sales through mobile devices in 2013 (53% in the last quarter). By contrast, “Traditional” banner display campaigns on desktop internet are now a mature format, barely growing (+3%) in 2013.

Faced with the competition of digital media and the absence of non-recurring drivers, national television proved resilient in 2013. The -0.6% decrease in full-year revenue translates into a +4.3% if we neutralize the $639m of Olympic ad sales and the $2.7bn of political ad spend that generated incremental sales in 2012. TV continues to lose viewers to digital media but at a slow rate. For instance, in the all-important fourth quarter (the first quarter of the “broadcast year”), English-Speaking broadcast networks declined by an average -5% in ratings in 4Q14 (6.5 to 6.2) but the drop was notably smaller than the year before (7.2 to 6.5) (primetime excluding sports, adults 18-49). With the plateau of cable networks viewing, overall TV viewing declined by

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approximately -4% in that quarter. This erosion of supply is more than offset by increases in prices, especially when considering the most sought-after dayparts and programs (primetime and sports). Driven by Cost-Per-Thousand inflation and despite a dip in ratings, network television thus managed to increase its advertising revenues in that last quarter. On a full year basis, English broadcast networks saw their revenues drop by -2.2% to $14.0bn, but that would have been +2.4% if excluding the Olympics from the 2012-2013 comparison. On a normalized basis, this was in fact a better performance than 2012 (0%) but below that of the previous odd-numbered year (2011: +4.6%). Spanish-speaking broadcast networks benefitted from a strong second half and full year revenues grew by +9.7% to $1.4bn. Syndication advertising revenues remained flat at +0.5% ($2.0bn). Finally cable networks continued to increase their share of television ad revenues by growing +6% to $24.7bn. Cable networks now account for 59% of national television advertising, compared with 33% for the five English-speaking networks. With Cable and Spanish TV growth offsetting the decline of English networks and syndication, national TV as a whole grew by +3.0% in 2013, or +4.6% excluding the Olympic effect.

Local television was faced with the quasi-absence of political spending following the bonanza of 2012. However, the sector was helped by other dynamic categories - automotive in particular - and it keeps gaining market share from print and radio in the local media market. Total ad revenues decreased by -7.1%, which would translate into a +3.7% underlying growth (excluding the incremental political spend of 2012).

2014: Acceleration to +6.0% Driven by Non-Recurring Events

The US economic environment continues slowly towards recovery as business and consumer confidence strengthened in the first quarter of 2014. In February 2014, the Philadelphia Fed’s Survey of Professional Forecasters (SPF) upgraded its 2014 and 2015 real GDP growth forecasts to +2.8% and +3.1% (compared to +2.6% and +2.8% previously), despite the fact that short term activity (Q1) looks weaker than previously expected. Looking at the two economic indicators that MAGNA GLOBAL is using in its forecasting model, Industrial Production expectations for 2014 increased significantly from +3.0% to +3.7%, and Nominal Personal Consumption (PCE) is expected to grow by +4.2%, in line with previous expectations. The February 2014 numbers from the Bureau of Labor Statistics showed a decreasing unemployment rate at 6.7% (a five-year low). Consumer confidence (University of Michigan) indexed 80 in the first quarter of 2014, gradually recovering from the Fall of 2013 dip that was attributable to political uncertainty, but still at some distance from the six-year-high level reached in the Spring of 2013 (index 84).

In that context we are increasing our forecast for US advertising growth in 2014 and 2015. Driven by economic recovery and non-recurring events (political spending, Sochi Olympics and, to a lesser extent, the FIFA World Cup and the Affordable Care Act implementation), media owners advertising revenues will increase by +6.0% this year (+3.9% excluding P&O) (our previous forecast was +5.5%). For 2015, the underlying growth will accelerate to +4.5%, which will translate to +2.4% given the absence of P&O (+0.1% compared to our previous forecasts).

In 2014, the advertising market will continue to shift to digital media as we predict another year of double-digit growth (+14.4%); newspapers and magazines will continue to lose market share and ad dollars (-7.3% and -7.1% respectively), while radio should be flat (-0.1%) and outdoor will continue to grow (+3.7%).

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Television will benefit the most from the non-recurring drivers (+8.3%) despite a relatively low demand in the first quarter, reflected by relatively low costs in the national TV “scatter” market. That weakness of demand was partly caused by the temporary economic slowdown and possibly by the extreme weather conditions affecting the sales and marketing expenditures of three major spending categories (retail, auto, restaurants). We believe that demand will gradually pick up across the year and that political spending alone will provide $3bn of incremental revenues to local television in Q3 and Q4. Spanish television will also benefit from the non-recurring soccer FIFA World Cup, hosted by Brazil this summer. Although this event is approximately five times smaller than the Olympics in terms of advertising sales potential, soccer is already very popular in the Hispanic community and steadily growing among other demographics too. To capitalize on this trend, both Univision and ESPN will be broadcasting all 64 games live, for the first time in the US. In addition to getting the bulk of political spend in the mid-term elections, local television will benefit this year from incremental spending from insurance companies, healthcare institutions and government, in connection with the introduction of the Affordable Care Act; combining the two drivers, we expect the segment to grow revenues by +16% on a full-year basis.

Digital Media spend will grow by +14.4% across most segments: search (+15%), video (+25%), social (+45%), but non-social display formats will be hit by lower demand and a negative pricing dynamic, so that advertising sales will stagnate (0%) and even decline (-6%) on desktops. The volume of programmatic and automated buying will increase by +38% to $11bn. By the end of the year it will represent approximately 60% of display-related digital media transactions in the US.

In terms of spending categories, MAGNA GLOBAL is expecting telecoms and pharmaceuticals to show robust ad growth; Automotive, Food, and Personal Care are expected to expand their advertising expenditures moderately; advertising spending in Finance, Restaurants, Technology and Cinema are forecast to be flat or down.

Vincent Letang, Director of Global Forecasting at MAGNA GLOBAL, said: “Three elements are combining to generate robust advertising growth in 2014: economic recovery, the usual even-numbered year drivers of political and Olympic spending, and other non-recurring events that will specifically benefit television: the FIFA Soccer World Cup and the Affordable Care Act launch. Meanwhile the growth of mobile and social advertising will more than offset the stagnation of traditional, desktop-based digital formats.”

Our next forecast update (US and global) will be published in June 2014.

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TABLE 1: US Media Owners Ad Revenues (Core Media) - Key Findings 2013 With P&O Ex P&O

Advertising Revenues ($bn) 158.5 158.2

growth 2.4% 4.4%

previous forecast (Dec'13) 1.3% 3.4%

2014 With P&O Ex P&O

Advertising Revenues ($bn) 168.0 164.3

growth 6.0% 3.9%

previous forecast (Dec'13) 5.5% 3.4%

2015 With P&O Ex P&O

Advertising Revenues ($bn) 172.0 171.7

growth 2.4% 4.5%

previous forecast (Dec'13) 2.3% 4.4% Source: MAGNA GLOBAL, April 2014

TABLE 2: US Media Owners Advertising Revenues By Media Category (year-on-year growth, including P&O)

Category 2012A 2013A 2014E 2015E

Total TV 8.2% -0.6% 8.3% -1.1% Digital Media 14.3% 17.0% 14.4% 12.8% Of which Mobile 108.9% 110.2% 66.9% 46.2%

Of which Desktop 9.3% 7.5% 4.0% 2.1%

Newspapers -8.5% -8.2% -7.3% -6.4% Magazines -8.0% -5.1% -7.0% -8.2% Radio 1.2% -1.2% -0.1% 1.3% OOH 4.1% 4.3% 3.7% 4.8% Total Core Media 4.7% 2.4% 6.0% 2.4% Directories -23.1% -27.3% -20.2% -26.8% Direct Mail -4.5% 0.9% -2.9% -5.7% Total Incl. DM 2.7% 1.5% 4.6% 1.2%

Source: MAGNA GLOBAL, April 2014

TABLE 3: US Media Owners Digital Advertising Revenues By Format and Platform (year-on-year growth forecasts)

2014 Mobile Desktop Total Search 55.2% 6.0% 15.4% Display 87.1% -1.9% 13.7% Video 91.3% 15.3% 24.8% Other 58.7% 2.0% 4.1% Total Digital Media 66.9% 4.0% 14.4% Of which Social 91.4% 12.3% 44.7%

Source: MAGNA GLOBAL, April 2014

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About MAGNA GLOBAL Advertising Research For more than 40 years, MAGNA GLOBAL forecasts have been the industry’s leading source for measuring and forecasting advertising revenues. MAGNA GLOBAL forecasts media owners’ advertising revenues in the US and around the world through financial analyses of media companies’ public filings, government reports, trade association data and local market expertise. MAGNA GLOBAL’s new methodology was introduced to the industry in 2009 and has redefined measurement for the advertising-supported media economy, delivering unparalleled authority and accuracy.

Our Global Media Suppliers Advertising Revenue Forecasts include television (pay and free), internet (search, display, video, mobile), newspapers, magazines, radio, cinema and out-of-home (traditional and digital). Our report monitors media suppliers’ revenues in 73 markets, including all major countries, representing 95% of the world’s economy. Three new markets have been added in the June 2013 report: Sri-Lanka, Pakistan and Kenya. Our forecasts are updated twice a year and available to our subscribers. Our US Advertising Revenue Forecast study includes detailed data for more than 40 categories of media on a quarterly basis from 1990 to 2012 and on an annual basis from 1980 to 2017, updated quarterly.

Please contact vincent.letang@magnaglobal.com for further details.

About MAGNA GLOBAL MAGNA GLOBAL is the strategic global media unit of IPG Mediabrands, comprised of two key divisions.

MAGNA GLOBAL Investment harnesses the aggregate power of all IPG media investments to create power and leverage in the market, drive savings and efficiencies, and ultimately make smarter, more effective media investments on behalf of our clients.

With a stated goal of reaching 50% automated buying by 2016, the team in North America invests across digital, programmatic, broadcast and all traditional media platforms and is therefore considered the most comprehensive buying and negotiating unit in the media industry. The architects of the MAGNA Consortium – a powerful committee of executives from A&E Networks, AOL, Cablevision, Clear Channel Media and Entertainment, ESPN and Tribune – MAGNA North America is also dedicated to shaping industry automation and audience specific buying.

MAGNA GLOBAL Intelligence has set the industry standard for more than 50 years by predicting the future of media value. MAGNA GLOBAL Intelligence produces more than 40 annual reports on audience trends, media spend and market demand, and ad effectiveness.

MAGNA GLOBAL has offices in 24 countries around the world. For more information, please visit www.magnaglobal.com or follow us @MAGNAGLOBAL.