October 14, 2014 Companies: AAPL, AMZN, AOL, CBS, CCO, CMCSA, DIS, DISCA, FB, GCI, GOOG/GOOGL, LAMR, MSFT,

NLSN, NWS, P, SBGI, SCOR, SNI, SSP, TRBAA, TWTR, TWX, VIA/VIAB, YHOO, YUME

1 1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

2015 Traditional Advertising Budgets Depart to Digital

REPORT UPDATE Rachel Dangermond

racheldangermond@blueshiftideas.com

Summary of Findings

Digital media buyers and sellers are experiencing an increase in

advertising spending, especially for social, mobile and online

video. Google Inc. (GOOG/GOOGL), Facebook Inc. (FB), Twitter

Inc. (TWTR), Google’s YouTube and Pandora Media Inc. (P) are

gaining the most from this trend. Digital advertising is pulling

spending from traditional media, in particular TV budgets.

Network and cable TV buyers said scatter spending remains soft;

however, some said the money is not shifting to digital but rather

has remained in advertisers’ coffers as they seek flexibility in

spending. Comcast Corp.’s (CMCSA) NBC and The Walt Disney

Co.’s (DIS) ABC are doing better than peers News Corp.’s (NWS)

Fox and CBS Corp. (CBS).

Spot TV sellers and buyers said demand in political markets has

beat expectations, but these are few in number compared with

the general market for which core advertising growth has been

spotty at best across the country. Some markets are feeling the

effects of Pandora’s pull among advertisers seeking local digital

opportunities as well as the trend toward bringing advertising,

social and search in-house.

Newspaper advertising sources were mixed, but the overall

marketplace continues to struggle as the medium vies against

more formidable competitors. Newspapers with strong digital

platforms are gaining more dollars.

Out-of-home (OOH) advertising remains a mixed story. A few

markets have experienced a spending increase this year, but

most have been challenged by weak national spending and a

fragmented local market.

Banks have begun spending on branding in local markets in a

few media platforms. Fast food, retail, beverages and automotive

remain weak spenders in traditional media but are allotting more

dollars to digital.

2015 promises to be more of the same as in 2014, with digital

ad spending growing in the low double digits and spot TV,

newspaper and OOH vying for local dollars. Programmatic

advertising is widely used for online buying, but

agencies/advertisers are pushing to move newspaper, TV and

OOH into the arena.

Research Question:

Will digital advertising continue to grow at the expense of television?

Silo Summaries

1) Internet/Digital Agency Executives Blueshift began seeing a jump in digital spending in Q4 of

2013—at the same time sources were citing a downward

trend in TV ad spending. These five sources reconfirmed

that digital advertising spending has continued to grow

because of share shifts from linear TV budgets, as well as

an increase in programmatic purchases. The growth also

is a result of NLSN’s Online Campaign Ratings, which has

provided better metrics for advertisers to evaluate their

media plans. Digital is expected to grow at a similar pace

in 2015, and programmatic buying will increase as well.

Social, mobile and online video continue to be the most

popular venues for digital dollars, and GOOG, FB, TWTR,

AMZN, P and DIS are the biggest beneficiaries.

2) Network TV/Cable Agency Executives These five sources confirmed that the market continues

to be soft year to year and reported sluggish fourth-

quarter spending in the scatter market. However, two

sources believe the money that was held back in the

2014–2015 upfront market will return in the first quarter

of 2015. Rates for the second half of this year are flat or

slightly higher for scatter vs. upfront.

3) Local Broadcast Advertising Executives Of these 10 sources, those located in areas with

important political elections are seeing better-than-

expected spending, but those in markets with no

contested races said core advertising spending has been

weak year to year and that major categories are sluggish.

These sources blamed Pandora as well as more share

shifts to digital advertising. Kentucky, Idaho, Colorado,

the Carolinas and Texas are seeing demand spike in

certain markets, and rates are up 10% to 25% year to

year.

4) Newspaper Advertising Executives These three sources said their newspapers continue to

struggle as advertisers favor digital options. Newspapers

with strong digital platforms are growing, but the revenue

from digital still represents only one-fourth of the overall

total. Rates for one source were up slightly year to year.

5) Out-of-Home Agency Executives Five of these six sources had a rough third quarter. The

fourth quarter looks better but will not help full-year

numbers. National advertisers are spurning OOH

inventory, and vendors are having to rely on local

advertisers at a time when the latter are shifting dollars

to digital platforms.

1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

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Advertising Update

Background

Sources for Blueshift Research’s July 15 report on second-quarter advertising spending and subsequent Sept. 17 update said

network and local spot TV both were seeing weaker spending as national advertisers focused on making digital a larger

percentage of their media plans. Digital spending in social, mobile and online video had taken dollars out of traditional TV

budgets during the fourth quarter of 2013 and the first two quarters of 2014.

Current Research In this next study, Blueshift Research assessed whether TV spending was increasing in the local markets in light of political

advertising and whether the scatter market was rebounding from the last few quarters of weakness. We employed our pattern

mining approach to establish six silos, including 29 primary sources (26 repeat sources) composed of group buyers, directors

of advertising, general managers and industry experts. Our sixth silo comprises five secondary sources focused on digital

trends that include programmatic advertising:

1) Internet/digital agency executives (5)

2) Network TV/cable agency executives (5)

3) Local broadcast advertising executives (10)

4) Newspaper advertising executives (3)

5) Out-of-home agency executives (6)

6) Secondary sources (5)

Next Steps

Blueshift Research will continue to provide quarter and mid-quarter updates on advertising trends, particularly on share shifts

and the growth of programmatic media buying.

Silos

1) Internet/Digital Agency Executives Blueshift began seeing a jump in digital spending in fourth quarter of 2013—at the same time sources were citing a

downward trend in TV ad spending. These five sources reconfirmed that digital advertising spending has continued to grow

because of share shifts from linear TV budgets, as well as an increase in programmatic purchases. The growth also is a result

3Q14 Spending 3Q14 Rates 4Q14/2015

Visibility

Digital Media

Network TV/Cable

Local Broadcast

Newspaper

Out-of-Home

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Advertising Update

of Nielsen Holding N.V.’s (NLSN) Online Campaign Ratings (OCR), which has provided better metrics for advertisers to

evaluate their media plans. Digital is expected to grow at a similar pace in 2015, and programmatic buying will increase as

well. Social, mobile and online video continue to be the most popular venues for digital dollars, and Google, Facebook,

Twitter, Amazon.com Inc. (AMZN), Pandora and Disney are the biggest beneficiaries. AOL Inc. (AOL) and Yahoo! Inc. (YHOO)

are helped by legacy spending, but will not see the same benefits from this shift to digital.

KEY SILO FINDINGS Spending and Rates

- Digital ad spending continues to grow in the low double digits year to year as advertisers increasingly shifted

spending to social, mobile and online video.

- Programmatic is helping to keep costs stable, but is not driving down rates.

Visibility

- 2015 is expected to continue to see more programmatic and digital spending.

- Facebook is expected to introduce video to its platform in a more meaningful way in 2015, which could attract more

advertising dollars. Also, Facebook is benefitting from the rise in programmatic spending.

1. Director of digital for a top-five media agency; repeat source

At the beginning of 2013, this executive said digital was growing 10% and that the spending was shifting from print

advertising. Now at the end of 2014, digital growth has ramped up to 10% to 15% year to year, and the biggest shift is

coming from broadcast. Facebook and Twitter are benefitting from the mobile growth, an area advertisers have been

coveting for years and now finally have a place to put their mobile dollars. The rise of programmatic buying is creating

downward pressure on pricing for publishers as well as spot and network TV sellers.

Spending and Rates

“Digital advertising budgets are up 10% to 15% year to year. While the shift

is still coming out of print budgets, the biggest shift is that dollars now

coming from broadcast.”

“There are now metrics in place that give buyers much more confidence to

shift broadcast dollars. Nielsen was a huge factor with OCR, which provides

ratings and guarantees and helped buyers’ confidence. Before it was video

dollars shifting within digital, and now much greater dollars are coming from

broadcast. We are seeing large advertisers publicly acknowledging these

shifts. Kraft, Walmart, Mandalay, Unilever and P&G have been big

broadcast spenders and are now moving dollars to digital.”

“In addition to ratings, the growth in programmatic ads has also been a big

factor for the money shifting out of spot and network television. There is

also pressure downward on pricing because of programmatic.

Programmatic facilitates buying and billing, also for publishers. The open

exchange may be selling Glam [now Mode Media] or ESPN [owned by

Disney and The Hearst Corp.] ... which is helping protect the premium

pricing. The benefit to publishers is that they know what inventory is selling

on a guarantee basis, but the downside is negotiating for that privilege of

being part of a network at a reduced price. The opportunity is to further

monetize inventory, and the warning is that it makes premium less attractive as pure inventory.”

“We are increasing our spending on Facebook by 15% to 20% and on Twitter by 25% to 30%. For Twitter, it is partly

because marketers have more confidence in buying promoted tweets, and there are certain segments that are time-

sensitive, like movies and retail that have weekend critical-release dates. Also helping Twitter is 1) the growth in

mobile, 2) the ability and awareness of geofencing and targeting, 3) Twitter’s product offering like Twitter for TV,

which is credited for a large amount of its growth, and 4) the uptick overall in social platform spending. There is

much more focus on it now. I don’t know if this is sustainable, but we still have a long way to go.”

Visibility

There are now metrics in place

that give buyers much more

confidence to shift broadcast

dollars. Nielsen was a huge

factor with OCR, which provides

ratings and guarantees and

helped buyers’ confidence.

Before it was video dollars

shifting within digital, and now

much greater dollars are

coming from broadcast.

Director of Digital

Top-five Media Agency

1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

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Advertising Update

“What is aiding Facebook’s growth is mobile; 60% of its revenue is coming from mobile. I only access Facebook on

mobile. Facebook’s mobile is growing by a large extent, but Facebook needs to watch out for oversaturation. ... On a

pure reach basis Facebook is working, but as far as being performance-driven, it is not as good.”

“YuMe [Inc./YUME] as a video network is seeing strong growth. Torrential is building up their mobile platform. The

problem with YouTube is that many companies are building their own channels on it, and now there are

microcompanies like Zephyr that can insert a dynamic ad inside a video so it bypasses YouTube’s revenue chain all

together. It is an ad inside the ecosystem, but YouTube doesn’t get paid.”

“We are taking a bigger interest in Pinterest.”

“Amazon is getting into ecommerce, and we are working with CPGs [consumer packaged goods]. But Amazon’s effort

to monetize is slower going, and there are a number of restrictions due their safeguarding the user experience.”

“Ello is not part of our experience.”

2. CEO of a top-five digital agency; repeat source

The trend toward mobile consumption has led advertisers to seek out more opportunities on mobile devices, which is

benefitting social platforms such as Facebook and Twitter, as well as Apple Inc. (AAPL). More advertising dollars are

shifting from linear to digital video and increasingly on platforms that are mobile.

Spending and Rates

“Digital spending was up 15% to 20% year to year in the third quarter because mobile has accelerated the spending

and mobile is Facebook. It’s also because of better devices as well as YouTube and other streaming solutions.

Mobile drives streaming audio, streaming video and time of engagement.”

“We are seeing strong trends towards video and classifying anything. Social these days is tricky because of the rise

of mobile and the increase around opportunities in video and digital. We group text, image and video in its own group

and audio in its own group. Social for us is an image or video world vs. a straight social media investment.”

“Our video investments continue to grow, programmatic has grown, and search is very strong. Of these areas if there

are huge percentage shifts, they are to Facebook and Twitter. Everyone realizes that two things have happened: 1)

everyone has a computer in their pocket and 2) people have the processing capability and connection speeds to

stream video. Ad players, ad formats and Facebook already have in-stream

with autoplay video functionality.”

“Twitch—Amazon’s recent billion-dollar acquisition in watching other people

play games—is the fourth largest video site on the web. It’s about who has

scale and who can play video. We are better storytellers in these types of

formats.”

“The idea of premium pricing will become a very challenging concept. If you

talk about niche audiences like YouTube where you can trendline the rise

and fall of YouTube stars, the audience that was valuable two years ago is

not the same personal brand you are buying against today. If I buy ABC

primetime, it is different than when I buy a YouTube channel built on back

of individual who is of the taste of the moment but won’t be two years from

now. Niche audiences that shift to the degree they do makes it hard to

convince YouTube advertisers these units are premium.”

Visibility

“We are just now moving from buying full album to buying singles to now streaming our own collections to a world

where streaming is the answer. ... We went through a period where artists would not release content to Apple, and

we are there again. I think we are going to get to a place quickly where access and frequency are going to be

increasingly important. Pandora is out in the news with Lexus and a pop-up concert series cross-targeting certain

artists ... which has amazing potential to transform who tours where, how artists evolve. The streaming will only get

bigger and bigger and more important in the next couple of years.”

“AOL and Yahoo will not take the lead. It is really hard to slow and then accelerate again in the digital space. The old

adage is no one gets fired for buying TV, and now no one gets fired now for buying Google or Twitter. ... Yahoo and

AOL could have very long and stable existences that earn a profit every year and pay off their shareholders. ... But

they will not be superstars because they not woven into the infrastructure of everyone’s day-to-day life. Apple,

AOL and Yahoo will not take the

lead. It is really hard to slow

and then accelerate again in

the digital space. … They will

not be superstars because they

not woven into the

infrastructure of everyone’s

day-to-day life.

CEO, Top-five Digital Agency

1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

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Advertising Update

Amazon, Google and Facebook are. If you are not one of those four, you take your second-row seat and be OK with

that.”

“We take a different view on the world these days we classify in terms of audio, video and text, and we are

structurally moving to a place where moving from television to digital has less interesting meaning than it did two

years ago. ... Audiences are going from linear to digital, and we are a ‘follow the people’ business. And the people are

less in traditional environments and even more so with cable than network. Live programming has never been more

popular. ... We are shifting away from less-popular niche audiences to more popular niche audiences that happen to

be on YouTube, associated with videos that have nothing to do with networks we have previously placed with.”

3. Partner of a midsize digital agency specializing in social media; repeat source

Budgets have grown exponentially, and the dollars are being taken out of traditional media such as print, TV, radio and

magazines. Pricing has remained relatively flat, but 2015 holds promise of more premium products that will command

premium pricing, such as Facebook’s video platform.

Spending and Rates

“Our growth rates continue to be up 30% to 40% year to year, with more dollars funneling into social and broader

digital.”

“The paid media products in social are starting to win out, and more dollars are coming in. Large brands are

allocating more dollars on a regular basis. I’m not necessarily seeing it with the smaller brands, but large advertisers

are starting to put more in social and they are getting more attention from the platforms that are working with them.”

“We exceeded our growth rate above 35% and are not seeing much of a slowdown.”

“The additional dollars are coming from traditional places, from print, TV,

radio, magazines. I was recently at a conference where the CMO of eTrade

said they were spending 10% less on TV this year. That is a huge number.

There is a move to digital.”

“Rates are flat, but there are more sophisticated products coming into the

market that are going to take a premium. We are doing more holiday stuff,

more back-to-school stuff, and more flights and more campaigns. We are

seeing higher priority and bigger campaigns.”

“The stuff that is always on we have on [Facebook’s] Exchange.”

“Facebook has the lion’s share of our budgets, and then Twitter. After

Facebook and Twitter we do other platforms such as Pinterest to Tumblr

and a few others.”

Visibility

“Video is what everyone is waiting for with Facebook. They are being very

mindful about it, and there are going to be a lot of eyes on it. They are

running tests with entertainment clients. It will be a real high-value premium

product.”

“YouTube does not consider themselves a social platform. They are a video site and more a portal than anything

else. There is no feed and conversation even though there is a tremendous social halo element there. The music

streaming sites are not social, but they are on our radar. Pandora has effectively replaced radio spots and is very

good at local advertising. Spotify is doing a good job with branded integration.”

“Video eventually will be the premium buy on Facebook, but otherwise there is not any premium inventory except

getting into the feed. Sponsored posts are the driver. If you are looking at mobile, the really expensive stuff that

tends to drive a lot of revenue are the app installs. They are direct-focused and quantifiable. ... There is a ton of

inventory driving app install. Facebook is dominating the app install and premium pricing.”

“I don’t see it slowing down in 2015. There will be more premium products when [Facebook’s] Instagram rolls out

their ad products. Twitter will make moves to keep up, and then there is Facebook’s video. No one cares about

display, but they still do it.”

The additional dollars are

coming from traditional places,

from print, TV, radio,

magazines. I was recently at a

conference where the CMO of

eTrade said they were spending

10% less on TV this year. That

is a huge number. There is a

move to digital.

Partner, Midsize Digital Agency w/

Social Media Specialty

1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

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Advertising Update

4. SVP/director of digital planning for a top-10 media agency

Spending growth is coming from existing digital advertisers and from new business, pushing spending up 30% year to

year overall. The agency has seen an “evergreen” trend in the last few years, with advertisers consistently spending in

digital media channels. Facebook is benefitting greatly from the rise in programmatic. Spending is up for Twitter, Google

and Disney as well.

Spending and Rates

“Our third-quarter and fourth-quarter budgets are up 30% year to year for different reasons. ... We’ve been growing

significantly 30%, and our total budgets year to year are up. Organic growth, specific to digital, is up a bit, with a

handful of variables. We have a lot of entertainment clients that are doing gangbusters and are generating great

ratings. ... We also represent folks like financial leaders, and their businesses are doing well, which leads to

increased spending. We benefit from those dynamics with digital being a heightened focus for advertisers. Come

fourth quarter when the seasonal advertisers are in, our world gets pretty congested and pricing goes up as a result.

This is true across the board.”

“Rates in the biddable space and search, programmatic and publisher-direct certainly go up. Even if we have huge

amount of moment going into the fourth quarter, there might be caution or concern because the market shifts

become very loud and because of new product introductions. However, first through third quarter was great. Fourth

will be a little bit of a different beast because it draws the attraction of a lot of advertisers, and it makes rates less

than favorable.”

“The notion of endless inventory commoditizing rates is a display view. Anyone optimizing towards performance [is]

not being honest if they say costs are down. Programmatic is good at

making good decisions, so we see media increase in value. For example,

video is on the up, while paid social inventory is leveling outside of

Facebook and Twitter because there are so many ad executions out and it

makes people compete against one another. On the large, though, we are

seeing rates level.”

“The first three quarters grew organically up 10%-plus year to year, and a lot

of that was driven by the success of prior year of business and ... growing

momentum in digital advertising space. Above and beyond that, we have

new business and brought on some marketers who are seeing a growing

trend in terms of consistent market presence after a history of a loud burst

and then quiet. We are starting to layer on more advertisers that are out

there all the time. Three years ago it was common practice that when

business got hurt or the market went down the advertisers would start to

withdraw, but now we are seeing evergreen investing in digital.”

“The way we prioritize our digital spending is that the biggest uptick is 1)

astronomical growth around programmatic, growing like a weed. It hits

everything, but it is the lion’s share of our paid social efforts, a little bit of

mobile. 2) Mobile at large, second in growth, with a lot of momentum; 2013

saw our largest mobile investment. It went up 50% year to year, and now

another year we are pretty close to up 20% to 25%. Search is really big,

which is more the result of people becoming more comfortable with metric

and performance and accountability. Programmatic, mobile, search and

social are our top four.”

Visibility

“We are having a lot of discussion about what is actually occurring in linear and digital spending. The strong belief is

that dollars are coming to digital media channels from the linear space, particularly television, and they are also

coming from select digital channels. There are microtrend dollars coming from display that are feeding to video, but

because of the significant growth across all digital media, the lion’s share of the belief is that marketers are taking a

hard look at their television budgets and are reallocating.”

“One other thing that is happening that gets lost in the discussion is that big marketers are going to shift our mix. We

see a lot of this in the RFPs for new partnership and trends point to significant budget adjustments to digital. What

The strong belief is that dollars

are coming to digital media

channels from the linear space,

particularly television, and they

are also coming from select

digital channels. There are

microtrend dollars coming from

display that are feeding to

video, but because of the

significant growth across all

digital media, the lion’s share

of the belief is that marketers

are taking a hard look at their

television budgets and are

reallocating.

SVP/Director of Digital Planning

Top-10 Media Agency

1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

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Advertising Update

cable and broadcast networks know is that some of that [upfront] will occur on their assets and they are still on the

receiving end of the investment.”

“Google’s Preferred offering this past upfront was not predominately driven by mobile, and the sales packages were

desktop-based. A lot of people like ourselves passed on the opportunity. ... There was a question of how much reach

it represents. It wasn’t a viable alternative. With the fluidity model, networks are the beneficiary of a strong upfront ...

and now cable networks are big beneficiary of that approach as well. You see pockets of growth that are driven by

YouTube, but from a percentage standpoint it is disproportionately a premium video marketplace that is still

networks and now more so cable networks. There are some like Fox that have struggled, and some cable networks

like Viacom [Inc./VIA/VIAB] and [Time Warner Inc.’s/TWX] Turner have struggled, but it’s a trend that we are seen

over the past two years. The real upticks are in cross-platform spending, and it helps out in securing premium

placement, which drives performance.”

“Display is one area where people have scratched their heads and wondered what they are getting out of it. It had

been network buying in the past or publisher-direct buying. Now most people are eyeing transitioning all of it to the

programmatic space. The whole issue of click baiting ... has marketers not convinced. The transition to a data-heavy

management style where dollars trickle away from those not adopting the SSP [supply side platform] model ... these

companies that are not transitioning to automated way to liquidate are getting hurt significantly. A lot of folks are

going public and showing some of their margins, click bait and ad fraud.”

“Google touches so many aspects of business. Disney with ESPN and ABC Family is taking share for sure, because of

the nature of what we do, which is a lot of sports activity. Beyond those guys, Amazon is a biggie for us because of

our entertainment clients, and they have interesting offerings. Apple is not big for us, but Facebook is.”

“Facebook is going to have a great year next year. They are not a huge percentage of our overall investment, 20% to

30% growth, not purchased directly through Facebook but through programmatic.”

“Twitter is growing rapidly and growing a little more quickly than Facebook because they launched so many new ad

solutions. The problem that I have with Twitter is they are more expensive, a little bit more, and they haven’t always

had the flexibility to source through different channels [so] it takes longer for clients to get exposed to it.”

“Pandora is a staple, a consistent part of our mix. We buy them a couple of ways. Our audio team buys for digital

audio. We lean on them for all major initiatives for custom advertising solutions. They have been a strong partner for

a long time. They are not growing as significantly as other vendors because they’ve been with us a while but they are

certainly not declining. They are doing well from an audio standpoint.”

5. President of a top media consulting firm; repeat source

This ex-CEO of a large media agency and now top consultant believes TV’s model is already under siege and that digital

spending is growing at the sake of TV budgets. Digital spending is up 5% to 10% and is expected to post similar growth

into 2015.

Spending and Rates

“Digital budgets are up 5% to 10% mainly in the areas of social, video and audio. The share shifts were coming

mainly from magazine and newspaper and are now coming from broadcast TV.”

“It is clear that political is vigorously embracing digital video, audio and social [including email] because they are

given better audience targeting capabilities. It is hard to say at this point whether that spending is coming directly out

of TV budgets as a replacement, additional budget or whatnot. I continue to hear that broadcasters are not getting

the buys they expected and they don’t know why. I do: The buying side is using more data intelligence to determine

the relative value of potential buys, and local TV news ads skew predominantly older and broad [adults 35 to 64

years old] across an entire DMA [direct marketing association]. This is not always what a candidate needs or wants

given the robust data that calls out desired audiences more precisely.”

“There is a cyclical aspect to spending ups and downs, but I believe there is a harmonic wave concentrating

structural changes as well. This has been a long time coming—too long. There is something approaching an

equilibrium between traditionally defined media buckets, such as TV, vs. digital. Data shows digital ad spending in

aggregate to be on par with TV advertising in its form.”

“There is a replacement effect or equality effect going on between budgeting from marketers and an agency

budgeting for things. This is something approaching an equilibrium, which is a transfer of equality from TV to digital.

And within that top-to-top comparison there is also in the digital realm, a fast progression of what we used to call

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Advertising Update

online video becoming scaled to audience that are approaching TV-sized audiences. We have some person’s niche

as another’s scale.”

“Aside from that ... there is the intelligent approach to political spending, which is much more targeted, honed in on

audiences. And digital online video in particular is a much better place for that to resonate better, vs. a relatively

dumb TV ad that resides in a two- to three-hour news blocks that whole swaths of people don’t even watch anymore.

... Online video is going to be a much more rationale place to find [younger] folks.”

Visibility

“[Gaming site] Machinima now aggregates monthly unique views approaching 1 billion a month and translates it to

the audience and ratings in the Nielsen TV world. Machinima would have been seen as a No. 3 or No. 4 cable

network targeting males 18 to 34. That direct comparison is in the realm of TV/digital, where the medium formerly

known as TV is starting to equate to digital. You are creating TV ads or video ads on video sites that can be more

creative, flexible and shareable. ... On the 10- and 15-second spots, these are completely transferrable.”

“YouTube is more than happy to accept your 10- and 15-second ads—just as accepted as a unit of currency as in TV.

It is easy creatively to move those units from one entity, TV to digital. Some of the circles are becoming more

concentric. The amount of spending in digital is coming toe-to-toe with TV;

the reason why you put one in one or the other is specific—sight, sound,

motion in TV. Yet digital has all these others elements: targeting,

addressability and feedback loop. There is a reason why you would choose

putting dollars in one or the other, but go a couple of levels down and you

actually see commingling and harmony among these two somewhat

separate opportunities that are starting to come together. Now ad units are

interchangeable, and the dynamics of all of that are becoming much easier

to shift.”

“In the early days of all this, brand marketers looked at relative efficiency of

traditional media and saw a quick place to get big audiences relatively

quickly. Broadcast networks like to hold onto that notion, outdated as it

might be, but the ugly truth is that broadcast TV audiences are no longer

the only places to get scaled audiences in a world where scale is becoming

smaller and more targeted and more detailed.”

“Digital is a dress rehearsal for TV of the future. Anything that is nonlinear is going to be delivered in an IP-like

structure. Anything digital is conceivably doable in TV/video environments.”

“CBS and broadcasters are benefitting to the extent they can from a newfound second revenue stream ... to the

point where that revenue is greater than advertising sales. But it’s fair to say that this is a regulatory perspective that

doesn’t last too much longer.”

“The medium of TV as classically defined is less relative to younger audiences. Sports wants to lean back. ...

Alternate distribution and consumption environments are not defined yet. TV networks, stations don’t know how to

monetize these things, so they are focused on monetizing what they know or they retire before it all goes away. The

future of TV stations is not affiliating with broadcast network brands but localism taken to a much more extreme.”

2) Network TV/Cable Agency Executives These five sources confirmed that the market continues to be soft year to year and reported sluggish fourth-quarter spending

in the scatter market. However, two sources believe the money that was held back in the 2014–2015 upfront market will

return in the first quarter of 2015. Rates for the second half of this year are flat or slightly higher for scatter vs. upfront, but

should improve next year.

KEY SILO FINDINGS Spending and Rates

- Spending is relatively flat to down in broadcast and cable network advertising.

- Scatter rates are flat compared with upfront and are expected to remain so during 4Q14.

Visibility

Digital is a dress rehearsal for

TV of the future. Anything that

is nonlinear is going to be

delivered in an IP-like structure.

Anything digital is conceivably

doable in TV/video

environments.

President, Top Media Consulting Firm

1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

9

Advertising Update

- First-quarter scatter spending and rates are expected to pick up compared with the fourth quarter of this year.

- The TV dollars that were not spent in upfront are expected to return to the TV market, but buyers are in no rush to

buy and greatly desire flexibility.

1. Director of digital network sales for a large media company; repeat source

This source has not seen a spending shift from linear to digital TV within the company, but said the shift is happening in

the marketplace. Digital spending is up in the low double digits year to year and expected to continue at this rate into

2015. Digital video sites such as YouTube have gained dollars from cable networks as advertisers seek reach and

frequency. Cable dollars were weaker in the upfront market.

Spending and Rates

“Spending is up 15% to 25%. TV budgets are flat, but digital is up off a much smaller base.”

“We haven’t seen one win out over the other [linear vs. digital]. I can definitely confirm the spot market has been

soft. The overall TV marketplace has been softer than we would have liked to have seen. Digital has been strong for

us, but we haven’t seen a pronounced shift from linear to digital. Digital continues to grow very well, but most of the

linear money that is down and going to digital is largely from other companies. A number of cable networks that took

it on the chin in the upfront saw most of those dollars go straight to digital. Advertisers are looking at cable and

finally recognizing the cheap units they get in cable represent a lot of frequency, but put it into digital. It gives more

reach and frequency.”

“A majority of the dollars are tied to video. I heard through the marketplace

that the biggest beneficiary of cable being down was YouTube. Advertisers

took cable money and put it on YouTube; and then AOL and Yahoo, who are

doubling and tripling budgets; and then players like us with network digital

who continue to grow at healthy rates but are small on percentage base but

big on a dollar.”

“The move to Nielsen OCR and ComScore [Inc./SCOR]’s vCE has really been

a big part in helping shift TV dollars into digital because it gives you a

somewhat common metric. ... Those demo audience metrics have helped

move significant budgets without a doubt.”

“There is a bifurcated marketing place, even within some of the same large

advertisers and definitely in the large agencies. One large path makes

digital look like TV, but there is a huge marketplace that is programmatic. Make my video more valuable by making it

more targeted or drive the price down to make it super efficient. Both of those marketplaces are making really

valuable reasons for shifting budgets.”

“Two worlds are colliding, one where metric is common to TV, and a separate path, which is programmatic. Agencies

are spending programmatically for 1) automating process and making easier, 2) adding targeting which adds more

value and 3) drive cheap eyeballs. At a macro level, common TV metrics and programmatic have caused this shift.”

Visibility

“What you are seeing from CMOs [chief marketing officers] is they are catching up. Five years ago P&G was saying,

‘We’ll shift 5% to 10% to digital and now shift 25%.’ Other marketers are catching up with that so a little bit of a

tipping point that other marketers have been behind and now have to lurch forward and catch up. There is enough

audience behavior that finally has reached a tipping point as well. This is a behavior that is now not going back. ...

Video viewership is here to stay, and we need to take a look at our media mix.”

“Social continues to be a place where marketers are trying to figure it out. A lot of advertisers are paying for paid

social promotions. Twitter Amplify and Facebook have a similar product that you can push promoted posts, and you

can spend money behind that but a much smaller percentage.”

“Mobile is one of those deceiving things as well because it depends on what you are calling mobile. From video, we

have 45% of our video viewership happening from mobile, but the majority we don’t sell as mobile, we sell as video.

You can say you have this much mobile or you say you have audiences consuming video on mobile. Fewer marketers

today are creating mobile budgets vs. audience budgets.”

“Look at CBS. ... The only thing they have is Thursday night football, and they only have that for one year. Meanwhile,

their average age continues to go up each year, because the same people are watching the same shows. ... From a

Advertisers are looking at cable

and finally recognizing the

cheap units they get in cable

represent a lot of frequency,

but put it into digital. It gives

more reach and frequency.

Director of Digital Network Sales

Large Media Company

1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

10

Advertising Update

metric standpoint they are losing a portion of their audience every year because they are going over 45, getting

older, and digital viewership tends to be driven by the younger demo of what you want to buy. ... They in the last 12

months could sell VOD [video on demand, with ad space for sale]. VOD audience growth and viewership present a

new avenue they can sell. From digital standpoint it continues to grow so they’re like, ‘Yay, free money.’ They might

feel positive about new channel VOD and digital because it’s all relative. If they were selling $50 million last year and

can sell $75 million this year, it’s good. But their main revenue stream is dying off.”

“ABC is a little different; they got an early start on mobile, and mobile coming into its own so they have a real strong

tablet presence. Their audience is younger than CBS’ and is digital-savvy ... NBC will do well in the fourth quarter

again with The Voice. NBC with the Olympics had a platform. ABC is positioned. CBS is challenged because it’s

growing old. Fox’s programming looks awful, and they really struggled in the upfront. They have a tough road. They

have a good show in Gotham, and maybe that will become their platform. You have to have multiple pieces though.”

2. President of network television for a top-five media agency; repeat source

The fourth quarter is soft, but scatter spending should pick up in the first quarter of 2015 because advertisers did not

commit all dollars in the upfront. That money cannot be expressed in digital channels because the demographics that

advertisers want are not well represented in terms of digital ad units. First-quarter scatter should see rates increase year

to year.

Spending and Rates

“Fourth-quarter scatter is coming in very late. It is 50% ordered right now, but it will be soft. No one is dropping or

adding.”

“Scatter needs to develop, but [consider] what was sold out in the upfront, with a soft market. Also, the fourth

quarter is always softer because no one knows what their liability is yet.”

“Scatter rates are flat to up 5% over upfront.”

“We are spending more in scatter than last year because we saw more

people pull out of the upfront, and they will definitely show up in scatter.”

Visibility

“In the first quarter, I think we will start to see premiums and more money in

scatter. Why would you hold back money when all you need is a network to

be down 10% in ratings, rather than the 8% they guaranteed and then

inventory tightens up? Especially with this past upfront being a buyer’s

market, the adjusted base was more than they needed. ... There was $50 to

$100 million held back. If all that money came back, it would be chasing

fewer units. Where else would this money go? There is a limit to what you

can put online ... because there are fewer rating points in the marketplace.”

“It’s not just because broadcast is down or that cable lost 2.5% of its audience; it also is the demographic. There are

zero [people] 35 and older online. For 18- to 24-year-olds, it is 10% max. If you think about television broadly—it

being about building reach and awareness, which is always the goal—when people have a video budget, what is the

proper mix to build reach and not endless frequency? There might be a separate digital video budget, but the goal is

not necessarily building awareness but rather engagement and response. That’s off to the side. There is a different

task for each medium. Digital is not a big reach and awareness-building channel.”

“I’m not just defending TV. Look at the variables. I’m not concerned if money is going to digital. I buy video and linear,

but these types of shifts cannot be managed.”

“Every year every network leaves a certain percentage. Fox is down 20%; no one accounts for a 20% drop-off unless

you think your schedule sucks.”

“It is a mixed bag in terms of categories. Auto peaked; they had good three-year run off of 2009, 2010 when

spending dropped so much and cooled off. P&G always sends false ‘we’re cutting TV by 20%,’ and every year they

don’t. Wireless peaked a few years ago, but was replaced by Amazon Fire and Google. It is a mixed bag in terms of

CPG, pharma and OTC [over-the-counter drugs] really taking off, then going down a little bit. Spending in these

categories is flat to up slightly spending. Fast food has been dominated by McDonald’s and Burger King. They had a

fairly healthy run in national TV in 2013 vs. 2012. Fast food was up. Then more people in the category have popped

We are spending more in

scatter than last year because

we saw more people pull out of

the upfront, and they will

definitely show up in scatter.

President, Network Television

Top-five Media Agency

1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

11

Advertising Update

up like Sonic, which was a regional player but expanded in national. Hardees and Carl’s Jr. have also been pretty

active. But Burger King is unpredictable, and now McDonald’s sales aren’t doing that well.”

3. Group director of network television for a top-five media agency; repeat source

Two clients put more money into TV in the fourth quarter based on particular business launches. However, scatter rates

are flat compared with upfront, and advertisers are waiting until the last minute to make purchases. The first quarter is

expected to see some additional spending in scatter, but the source was unwilling to predict whether premiums for

scatter buys would occur.

Spending and Rates

“Fourth-quarter scatter spending is flat year to year.”

“Again, what we are seeing is that people are holding onto their dollars later. I have one client still waiting to see if he

wants to buy NFL this weekend, and one major advertiser with a major announcement that will go in the next 10

days, and it will go everywhere.”

“We were not holding this money back. A lot of this hasn’t been planned scatter. These are things that my advertisers

just had a launch that did very well, and now they want to add to it. Another is a new launch, and they want to make

sure they get it out there. We were not sitting on scatter dollars for specific reasons. Upfront for us was down 10%,

and some dayparts are down 15% to 20%.”

“It should be flat or minimal increases for scatter inventory. I know that for the NFL specifically, two of the networks

are at upfront price and a third is looking at a premium. I’m sure they will take the number we give them though.”

“It is still a buyer’s market, in particular in the fourth quarter. Prime is competing against the NFL, and there are NFL

avails. With the addition of CBS on Thursday night, there are 7% more GRPs [gross rating points] in the NFL

marketplace, adding a little to why there are avails now and there are still people buying close to the vest.

Advertisers don’t see the penalty for waiting.”

Visibility

“First quarter, we will not be spending more for one of these clients. I don’t know what the first quarter looks like

yet.”

“We have one client doing a digital collaboration, so I assume it would be spending in scatter too. But I don’t know

what the tipping point is because there is an endless supply.”

“Everybody is benefitting—broadcast and cable. Some networks like [Discovery Communications Inc.’s/DISCA] TLC

did poorly in the third quarter and are using a lot of their unsold inventory to make good for 2013–2014 upfronts.

Their fourth-quarter inventory is at a premium, so we go around those people. ... Fourth-quarter sales favor NBC. ...

Fox doesn’t have GRPs but is happy where they are. ... CBS is undersold, ABC is undersold.”

4. Director of broadcast research for a large TV network; repeat source

The switch from TV to digital is happening, but these segments should complement rather than replace each other.

Spending and Rates

“There is absolutely, most definitely a shift in advertising spending to digital.”

“I don’t know where it is coming from, but clearly there is a desire to go more into digital and to use it in conjunction

to bring on more viewers to linear TV—to attract a different audience, as a complement.”

“Networks will not be able to recoup the dollars digitally. It appears to be

going to social, mobile and online video.”

Visibility

“Digital advertising will be used more as a complement to television rather

than as a substitute.”

“[Internet and television] need to work in concert with each other as

opposed to one replacing the other.”

“We haven’t seen the drop in viewership; we have seen a drop in the

universe, in TV penetration. It is just above 96% declining consistently as

There is absolutely, most

definitely a shift in advertising

spending to digital.

Director of Broadcast Research

Large TV Network

1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

12

Advertising Update

they have introduced broadband-only homes and the universe is declining. Those that are watching TV are still

strong. The universe looks like TV viewing has gone down, but at worst it has stayed the same. Some of it is cutting

the [cable] cord. Broadband-only homes are increasing 0.1% to 2.1%, and next month will be 2.2%. There are all

kinds of different strategies [to] hold the viewers through commercial breaks as much as possible. We are selling C3

ratings. I believe putting on previews, trivia games or contests is the key. ... People are binge-watching and at their

convenience. There is no more urgency, which is why sports and news are DVR-proof and in high demand by

advertisers.”

5. Director of national broadcast for a large, independent buying agency

The source cited no shift from linear to digital channels and said TV continues to be the mainstay of client budgets.

However, spending has been softer for smaller clients year to year. The agency is budgeting for mid-single-digit rate

increases in the first-quarter 2015 scatter market year to year; but the source believes the rates will be softer.

Spending and Rates

“Spending is up low double digits year to year, with large clients adding to budgets and new business.”

“We are not personally experiencing the shift of linear television dollars to digital. The trades are reporting it heavily,

but they are looking for stories, such as the ongoing one that television is dead. That said, I do think a lot of

advertisers were down in this year’s upfront ... because more advertisers are looking for flexibility. The stock market

right now is inexplicably high, and there is hesitation and nervousness.”

“Advertisers are spending more in digital but not necessarily taking it out of print, radio and OOH. We hear that a

certain amount has to be spent in programmatic, but no one is selling television programmatically yet. It’s just all

headlines.”

“Programmatic is selling unwired cable, and I’ve been buying that for years.

Why add in a third party and now pay more for it? A lot of clients are not

entirely aware of what their options are. The biggest story of programmatic

and why some big agencies are pushing it is because they have undercut

their commission fees so much to get business that they don’t have the

bodies to do the work. They want to automate.”

“We’re small, and we’ve been growing every year all through downturn. We

have been doubling every year in size, adding new clients. The ones we

have, the bigger ones have upped their budgets, but the smaller clients are

not increasing because of the economy not because they are moving dollars

elsewhere. The small clients are struggling, We did have one who cut linear

entirely to do 100% digital, but that was a small budget. On top of that, this

client is using a lot of the TV money to create a new TV campaign to spend

half for 2015 and the other half for digital tests.”

“I have five clients that have dot-com in their name, and they all believe in

television as the main driver of their business. When they cut their television budgets and put it into digital, it hurts

their business. It’s been a fairly soft market for nearly two years, and it has been a buyer’s market, not down but soft.

The reason is that advertisers have not been hurt in scatter for the previous two years and because the economy is

in a so-so state, so we can hold off some of our upfront spend. If it works in digital, great, and if programmatic takes

off, great; we’ll do that too. This all leaves more inventory to sell in scatter.”

Visibility

“There are always certain networks with inventory issues, which affects demand. Football is still strong, and there is

tons of inventory available. A lot of the small cable networks did OK in the upfront. ESPN, [Time Warner’s] TBS are

now like high-priced CPM networks, so advertisers cut these and moved to Discovery’s lesser networks. Discovery

got hurt, but their smaller nets did well. [Comcast’s] Bravo got hurt and [Comcast’s] USA didn’t do so well, but their

small networks did. Some small cable networks got hurt pretty badly but with the parent networks did well. ... Those

prime-time CPMs are not much cheaper than network.”

“We are telling our clients that we are planning for mid-single digital increases over scatter to be safe and to not miss

our communication goals. We’re not sure. The truth is it might be flat [compared] to upfront. We are playing it safe

The biggest story of

programmatic and why some

big agencies are pushing it is

because they have undercut

their commission fees so much

to get business that they don’t

have the bodies to do the work.

They want to automate.

Director of National Broadcast

Large, Independent Buying Agency

1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

13

Advertising Update

and close to the vest. There’s some modeled inflation in there, but we want to reserve the right to inform you that it

might change.”

3) Local Broadcast Advertising Executives Of these 10 sources, those located in areas with important political elections are seeing better-than-expected spending, but

those in markets with no contested races said core advertising spending has been weak year to year and that major

categories are sluggish. These sources blamed Pandora as well as more share shifts to digital advertising. Kentucky, Idaho,

Colorado, the Carolinas and Texas are seeing demand spike in certain markets, and rates are up 10% to 25% year to year.

2015 will be a nonpolitical year and is not expected to see a ramp up in core spending.

KEY SILO FINDINGS Spending and Rates

- Spending is flat to down except in markets where political is hot and heavy.

- Rates are flat except in political markets, where pricing is up 10% to 25% year to year.

Visibility

- Fourth quarter is benefitting from the political spending in certain markets. Retailers are picking up spending in

some markets as well.

1. General sales manager for a network affiliate station group; repeat source

The quarter was better than expected because of political dollars. However, core advertising was down in the mid-single

digits year to year throughout the first three quarters and is expected to improve in the fourth quarter only because of

weak year-to-year comparisons.

Spending and Rates

“We had estimated we would bring in $15 million in political. Now we’re doing $30 million, with 85% of it coming

from a senate race. The spending is going strong September through November.”

“Core will be down mid-single digits in the third quarter, but because of political we are doing better than expected.”

“Third-quarter rates are up 20% to 25% year to year.”

“The first half of 2014 was down 4%, and the third quarter was down 6.5%. The trend continues from first half to

second half. The fourth quarter will be lapping a big cancellation we received last year, so it should be an up quarter.

We have been in a down cycle with our core because we had a healthy last

year, and one of our biggest players cut back at the end of the year due to a

merger.”

Visibility

“The edict that Ford put out is they will only reimburse 50% of advertising

for digital. They used to be 35% of our business and are now 27%. Imports

are going the same way, especially with Honda and Acura. I had a meeting

with a local GM dealer who said there are multiple problems in auto, but

they are not seeing ROI in their digital investment. Buyers are increasingly

buying programmatically. Tier 3 dealer-direct money is coming, but

manufacturer money is dwindling.”

“I’m nervous yet cautiously optimistic. We have a robust digital offering, way ahead of the country; maybe three or

four stations boast what we have. We have the equivalent of an in-house agency, handling multiple platforms. It was

growing exponentially and now slowing with growth of up 8% to 10%, with it being about 12% to 15% of our revenue.”

“Political is pacing off the charts. Spot is being placed later and later. We start our quarters with low pacing.”

“Fast food if weakening. I don’t know if it is cyclical or if it has just fallen off. McDonald’s is rebranding. Healthcare

was a huge hit, insurance is up, retail is fine, and telecom is dwindling, but that is a Time Warner issue.”

Political is pacing off the

charts. Spot is being placed

later and later. We start our

quarters with low pacing.

General Sales Manager

Network Affiliate Station Group

1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

14

Advertising Update

2. General manager of a private station group

Improving internal conditions have helped strengthened spending overall. The third quarter benefited from political

spending, and the fourth quarter is seeing active auto spending, particularly in digital advertising.

Spending and Rates

“The third quarter was up 15% year to year.”

“Our political spending is better than expected.”

“Auto is at an all-time high in spending in regular television because part of it used to go to newspaper.”

“We sell a lot of digital advertising—in particular, a lot of mobile to auto dealers. They certainly are active here.”

“Spot TV is very market-specific. If you sell Fords and need to sell a lot and are a volume dealer, the only mass-

market option you have is network TV, because cable is so fragmented and newspaper is not a mass medium

anymore.”

Visibility

“Fourth quarter will be up year to year and is pacing strong.”

“National dollars in local markets. Even TVB [Television Bureau of Advertising] will tell you that we have had a

resurgence here. It’s difficult to say what is going on trendwise. Some TV stations are more viable than others. The

market is in flux.”

“What’s fundamentally happening is stations that are traditional network affiliates with strong news get the majority

of the dollars. It is hard to have enough demo points. We are in a funny position though because we were formerly a

third-place station that is now a dominant, so you can’t buy around us. Our salespeople really way in advance

prepared for this political onslaught. We do have some advertisers who have said to us, ‘We’ll be back after the

election.’”

“September and October always have a bump up in traditional spot because some people don’t want to be in that

environment. Political dollars are absolutely tremendous. I guess it is better than expected, with a few U.S. senate

races that are tight.”

“The fourth quarter is robust again because we’ve had a string of spectacular rating points. It’s difficult to say how

much is it that people need us; it’s nice position to be in. ... We’re probably not typical. I can’t say we have had any

drop in any category.”

3. General sales manager of an unaffiliated station; repeat source

The second half of 2014 is better mainly because the station is up against a weak year-to-year comparison. However, the

station is challenged to compete with networks offering live sports.

Spending and Rates

“We expected to be up 7% to 8% in the third quarter because we are lapping weak comps.”

“Rates are mostly flat year to year.”

“NBC made more money on the Olympics than any year in the past. The

most deep desire by advertisers is for live sports, and regular prime-time is

decreasing across the country. Most people across the national are

watching at time deferred, so they don’t need to watch when a program is

aired.”

“This year the market was up 2% in the third quarter, while the second

quarter was down 1% and third quarter is up 7% to 8%. That is the market

correcting itself because it was down 10%. The fourth quarter could be up

2% to 3% year to year. 2014 without the Olympics is up 1% to 2%. With the

Olympics more network affiliates are close to the market, but we are an

independent station and are being challenged by the industry’s desire for

live sports.”

“Rates are not changing that much. The market has not been in high

demand.”

The most deep desire by

advertisers is for live sports,

and regular prime-time is

decreasing across the country.

Most people across the

national are watching at time

deferred, so they don’t need to

watch when a program is aired.

General Sales Manager

Unaffiliated Station

1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

15

Advertising Update

“Nationally, some of the advertisers that are down in spending are Sprint, AT&T, other telecom, DISH Network.

Automotive is flat. Some manufacturers are up and some down. Nissan is down because they had new product

launches last year. Home improvement has been strong, and medical is a huge category. We get a lot of local

business from healthcare, like major healthcare systems or hospitals.”

Visibility

“Fourth quarter will be up low single digits year to year.”

“CBS and NBC will do better because of NFL sports. ABC is not doing well in this market.”

“I don’t think anyone expected this year to be like it was, or the impact that NBC’s Olympics would have across the

country. It hit hard. Obamacare never came in the way it was expected, those millions of dollars that were supposed

to start. It is still not a healthy market. But no one is surprised by that.”

4. General sales manager of a local station group; repeat source

Core advertising is down 1% for 2014 overall, but political spending has come in way over expectations. This was the first

time that significant spending has occurred on digital inventory. Dollars will shift to programmatic but at a slow and

measured pace.

Spending and Rates

“Rates with political have dayparts up double, up 100% vs. last year because of political. Rates are up 60% vs. last

year. 2014 with political is up 28% year to year. The market will be $326 million gross this year.”

“We will have a record year for this state, literally $80 million gross in the market ... with two big contested races. ...

We thought our market would be $45 million gross ... but we got a ton of candidate money, ton of PAC money and

issue money.”

“Our disclosure is that low rates are immediately preemptible, but

candidates are now at the top of the rate card. ... We are only obligated to

give them the lowest rate for a certain amount of time. When candidate

money came in, we were already sold out of that inventory, so they come

back with ‘At what level can I buy in to have the best chance of staying?’

And they buy in at the top or second to the top level.”

“This is the first political cycle that we are getting political digital orders at

$30,000 a shot. This is the first time we have seen political spend remotely

substantial digital dollars. It was almost none before.”

“Halfway through this year, total Internet in broadcast only represented

4.7% of the TV market, so 5% or less across the board. Both are rising

exponentially. I’m trying to convince clients to let me take their TV money

that is not clearing and put it into preroll online. A handful of clients are

starting to buy in and say eyeballs are eyeballs, even if they are online. We

tried it last cycle, but now it’s getting definitely better.”

“Categories that are nonpolitical: No. 1 is foreign auto, which is off by $1 million because of political. No. 2 is legal,

attorneys spending. No. 3 is cable TV. No. 4 is financial, and then No. 5 is fast food. Billing is off on all of them.

Banks are starting to bank on interest rates being decent next year, but we are not buying that it is going to be true.”

“If you have the political, it is big and unexpected, but it is super ‘feast or famine’ out here.”

Visibility

“Budgeting for next year is not too optimistic. Digital still is 5% or less. In talking to a Ford dealer about how 50% of a

co-op has moved into digital, he boiled it down to $40 per car. [It was] $83 per car, before most went into broadcast

media, and now out of the $85 on profit, half needs to be on digital media. The car dealers are saying that is not

working for them. Honda’s CMO moved all their money to cable. The auto market is up 1% through this time of year.

Honda is down 8%, and they’ve already backpedaled on that already. Everybody wants to be positive, but we are not

ready to buy it.”

“We are not doing [programmatic] at all right now. We’ll do a test or two in 2015, which won’t begin until 2016.

2016–2017 will be when we first start feeling the effects. It will start next year in 2015 at first with 10%; by 2016% it

will be 20%, in 2017 30%. Our biggest concern is local broadcasters and whatever system is developed to do it.

We’ve learned our lesson. We aren’t going to live by the agency deciding. It’s our inventory, so you want to make your

This is the first political cycle

that we are getting political

digital orders at $30,000 a

shot. This is the first time we

have seen political spend

remotely substantial digital

dollars. It was almost none

before.

General Sales Manager

Local Station Group

1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

16

Advertising Update

job easier. Then we are going to develop the software and have a major say in it. That is where the discussions are

right now. How much are we going to let you have access to, and how are we going to let you have access? A lot has

to happen to get this off the ground, and it won’t roll out until the back half of next year.”

5. Executive vice president of a local, top-three media agency; repeat source

The local market is “ho-hum” except where political spending is occurring. Broadcast sellers are upset because the tools

to buy Pandora now are the same as in broadcast. These tools are what is gaining Pandora more dollars from large

national agencies. Year-to-year local broadcast budgets are down as clients shift their budgets to other media.

Spending and Rates

“Local broadcast budgets are flat to down 5% year to year because of a combo of economic weakness and clients

shifting dollars to other things. More flexibility is what clients want. Advertisers have moved to making commitments

only six to eight weeks out in spot and six to nine months for network. Political is strong. But overall the markets are

ho-hum.”

“What’s happening now is that the Pandora ratings now appear in agency buyers’ tools and big agencies and buyers

are now seeing those ratings. What would have been a broadcast exclusive buy is now shifting to Pandora. In spot

TV, it is soft, but I don’t think I can point to one thing specifically as to why, other than general malaise. Things that

really drive it like auto and retail seem to be spending a little bit less, coupled with those marketers that are shifting

to digital. They have to be because auto is about lead generation and retail

is customer loyalty; digital fills these needs. Again, this is from a big national

agency perspective.”

“We were ahead of the curve with Pandora, which is now 10% to 11% of our

audio budgets. The broadcasters are besides themselves because of these

Pandora ratings being in the buyer’s tool; there is a lot of noise about it. A

propaganda war is going on, saying this is not a comparable rating. But the

MRC [Media Rating Council] has accredited Triton streams of Pandora, so

what is there to argue? Broadcasters feel that they have this big voice, but

they no longer do.”

Visibility

“Spot TV budgets are seeing declines—exactly where they are going, I don’t know. No one is saying, ‘We are moving

spot TV to digital’; we don’t hear that. I think that clients overall are feeling that the analytics and targeting behind

digital are better. They have some idea of how their ad dollars are working for them. ... Logically the money is moving

to digital. It’s relatively easy to buy spot TV.”

“There is no local TV being bought programmatically now, but we anticipate we will. I don’t know about network. ...

When you see programmatic buying, it is referencing online and/or online video; it’s not really for linear. There is no

tool yet. The inventory is not on a platform, so there is not a way to buy it.”

“I don’t know about next year yet. We are working through 2015 planning, and it is a work in progress.”

6. SVP/group director of local media for a large, independent buying agency; repeat source

Spending is flat year to year, and only a few markets have tighter inventory because of political spending.

Spending and Rates

“Spending is flat year to year.”

“Political is only affecting a few markets across the country.”

“The rates we are paying in political hot markets are 10% to 15% higher year to year, but otherwise flat.”

Visibility

“Spending will continue to be flat year to year.”

Auto is about lead generation

and retail is customer loyalty;

digital fills these needs.

Executive Vice President

Local, Top-three Media Agency

1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

17

Advertising Update

7. Managing director of a midsize media agency; repeat source

This media agency has acquired new clients, so it went from a flat first half of the year to being up in the low double digits

in the second half. However, the agency has moved to more programmatic buying and is seeing lower rates across the

board for the media it is buying.

Spending and Rates

“We are in growth mode with new clients, so our spending is up 20% year to year in the third quarter.”

“Rates are down. We are doing a lot more programmatic buying, with 40% to 50% of our budgets going that way.”

“Rates are a fraction of what they were for premium publishing.”

“We are buying mostly display through programmatic, and our total investment levels are up because our clients are

more and more shifting dollar there.”

“The mobile stuff we still buy through programmatic vendors depends on if

we have a mobile responsive site or a mobile site that we are driving users

to. We are buying on Facebook Exchange and finding it is pretty much the

same kind of a thing. We are using data and targeting elements that

Facebook is able to identify using their platform and deliver ads. But the

problem is the CPM is ridiculously low and the response level is ridiculously

low. We understand that we are getting some other value for being there.

We see in some cases we do increase traffic to a website even if not

clicking on Facebook ads. The CPC is low relative to premium display.”

Visibility

“We will be up about the same in the fourth quarter.”

“Cable is strategically appropriate for the clients we have because they are in certain geographic areas. We do not

buy Pandora. We do buy traditional radio for retail.”

“The reason we are moving money to digital is that we have figured out how to make it work for them and build a

program, walk through the path to purchase rather than one spot for TV. And we’ve been telling our clients to think

like a publisher and build an audience that they own so they don’t have to constantly pay a third party. We are

starting to look into programmatic in other media channels as a way to automate the process more so than to do

real-time bidding—TV and radio and print. TV more than radio has moved there quicker.”

8. Media buyer of a large, independent media agency; repeat source

Client budgets are flat year to year on average, and political advertising shutouts have been limited to a handful of

markets. Rates have remained flat except in hot political markets.

Spending and Rates

“Our budgets for some clients are up, and some are flat. We don’t anticipate

we can hold rates flat, so we try to give a buffer and say it will be up 3% to

4% year to year. But in reality we are holding budgets flat to up slightly.”

“We have a handful of markets that we are experiencing a shutout, but the

majority we are not experiencing that. ... We’ve had a couple of clients and

have gotten them on the air within a week, but we had to pay bump rates; it

wasn’t too, too high. Rates are up 3% to 4% year to year. There have not

been a lot of increases this year, and we don’t anticipate a lot next year.

Yes, we paid bump rates, and depending on the program maybe some were

up 20% to 25% ... but we got the specs at the last minute and got them on

the air. You can justify paying that with no lead time.”

Visibility

“2015 will be flat to up low single digits year to year.”

“Pandora is on fire. It changed recently. We’ve come to compare it to

traditional media. If it is a heavily online audio market, it is obviously part of

our buys. We are putting about 10% to 25% of our radio budgets there and

Rates are down. We are doing a

lot more programmatic buying,

with 40% to 50% of our

budgets going that way.

Managing Director

Midsize Media Agency

Pandora is on fire. It changed

recently. We’ve come to

compare it to traditional media.

… It is uncluttered, and they are

only serving, depending on

what you are listening to, two

units every half hour. The

potential is there to have

retention.

Media Buyer

Large, Independent Media Agency

1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

18

Advertising Update

including it as a station on a buy. Or we buy a daypart on Pandora and buy it like cable. It is uncluttered, and they are

only serving, depending on what you are listening to, two units every half hour. The potential is there to have

retention.”

“Pandora has new product launches we have seen that can be a premium buy depending on the market, and then

you have to decide if the premium is worth the smaller environment. We translate their CPM to our CPP and weigh it

case by case depending on the client’s objectives. It totally depends on the demo, geo, population and size of the

market. If it were 30% to 40% higher than terrestrial, we’d need to think about it, but it is worth a 10% premium.

We’re starting to see inventory tightening. ... Some of our clients have big enough budgets to spend on both Pandora

and terrestrial.”

9. Media buyer of a midsize media agency; repeat source

This buyer expects the weeks closer to the elections to be the toughest to buy, with rates going up as much as 10% year

to year. Otherwise, budgets are flat and rates are slightly up. The market should remain tight as political spills into the

eight weeks during which retailers advertise the most for the holidays.

Spending and Rates

“Spending is flat year to year, and rates are slightly higher.”

“The market is tighter than before politicals, but there is still room to move. Right before the elections, a week or so

before, it will be hot and heavy, but we’re not having issues in October. At the end of October into the first week of

November will be tougher because that will be when everyone releases their dollars countrywide. It totally varies by

market and where there are tight races.”

Visibility

“Once we finish with politicals, then we run into the hard eight [weeks] in the fourth quarter with retailers schlepping

their holiday stuff. It will most likely stay tight, with rates higher year to year. In some markets [they will be] as high as

up 10%.”

“Our clients are dictating that we put more 15% more spending into digital, which for us is up 18% to 20%.

10. Radio executive, past media buyer and current industry expert; repeat source

Political dollars did not come in as expected and were mostly flat year to year in major markets. The only area of strength

was from TV and cable networks hawking their programs.

Spending and Rates

“National is still pretty soft but a bit better than the first half of the year.”

“Telecom is especially soft although network TV tune-in ads on radio have really made a comeback this year vs. last

year.”

“Political is not going to be as big for radio as was earlier expected.”

Visibility

“It’s up low single digits in a few markets, but I’m not even sure if I’d take that to the bank.”

4) Newspaper Advertising Executives These three sources said their newspapers continue to struggle as advertisers favor digital options. Newspapers with strong

digital platforms are growing, but the revenue from digital still represents only one-fourth of the overall total. Rates for one

source were up slightly year to year. Visibility into 2015 shows a continuation of 2014 trends.

KEY SILO FINDINGS Spending and Rates

- Spending is relatively flat for newspaper sources.

1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

19

Advertising Update

- 1 said rates are flat to up year to year.

Visibility

- The industry appears to have found its bottom and now expects to grow either slowly or through digital inventory.

1. Director of sales of a daily regional newspaper in the Southeast; repeat source

This sales director is seeing the year end where he had forecast it back in January: up 2% year to year.

Spending and Rates

“The full year will be up 2% year to year with rates up 5%, getting us back to pricing we had prerecession.”

“Business is good. August was up 12% year to year, but September flattened out. ROP [run of print] is the strongest it

has been in a long time, and the market may be seeing a swing back to print. Advertisers that haven’t been in the

paper in a while, for two or three years, are spending decent money.”

“Clients have moved money out of print and all these different areas to

social media, and now reports are coming back that it’s not driving sales. It

might drive image or branding but not sales. It isn’t going away, but there is

a reconsideration of keeping some spending in print.”

“Aldi’s ... has run a preprint every other week with four pages that tells what

is on sale. Now suddenly we got an order from them for six full-page ads for

six consecutive weeks. That’s different. And they are not buying Facebook

ads but put it in the local market in print media.”

Visibility

“Twenty-five percent of our income comes in November and December,

when our margins are 5% to 6%. Three percent to 5% is average. Most

papers have found some kind of bottom ground and are trying to build on

that. At least it is not slash-and-burn anymore; there is some stability. ...

Everyone across the board has cut dramatically their costs. The margins are

paltry compared to what they were, but there a lot of folks showing some

profits.”

“Real estate has been stronger than it has been in a long time. It was up

25% the last six months year to year, reflecting the housing market.”

“We’ve seen more legal ads—foreclosing on houses. It had been up for a couple of years when it was very strong.

Then legal had been down every month, but this year when we’ve seen it pick up and back to a normal level.”

“Preprints continue to be strong and growth is coming from big-box stores opening around here.”

“Google AdWords: We sell $100,000 in a week, but only net $30,000. If I had sold $100,000 in regular web

advertising, I would keep all that, but the more you venture out into the social media platform, the more you pressure

your margin.”

2. Vice president of advertising for a daily regional newspaper in the Midwest; repeat source

Digital growth is up while print is flat to down year to year. This newspaper has

had clients shift money to digital, and has experienced its own growth in digital

revenue. Programmatic is becoming a larger percentage of sales.

Spending and Rates

“Spending on print is flat to down, with digital revenue up in the low double

digits year to year.”

“Money is shifting to digital is exactly what is happening. Consumers are

shifting there, and it is where they get their content. It is the multiscreen

concept, and our friends in the TV world are trying to package when you are

sitting on the couch watching TV and have your mobile and tablet out. It is

no secret how our consumers are consuming our products, and we think

Clients have moved money out

of print and all these different

areas to social media, and now

reports are coming back that

it’s not driving sales. It might

drive image or branding but not

sales. It isn’t going away, but

there is a reconsideration of

keeping some spending in

print.

Director of Sales

Daily Regional Newspaper, Southeast

Twenty-five percent of our

revenue is now digital. Our big

clients, retail and auto, are

migrating to digital. Auto and

recruitment are two really strong

digital areas where it outperforms

print from a dollar standpoint.

VP of Advertising

Daily Regional Newspaper, Midwest

1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

20

Advertising Update

the fragmented platforms are driving it. Video is an emerging category and especially in a tight political market when

a lot of our advertisers getting pushed out. This may be the first time significant campaigns are web-only. If it

happened before, it was small with some political advocacy that usually starts with print. But now it starts digital and

web-only or for two months digital only.”

“Pricing is flat in some units, but where niche audiences are, it makes it increasingly easy to raise rates.

Visibility

“Twenty-five percent of our revenue is now digital. Our big clients, retail and auto, are migrating to digital. Auto and

recruitment are two really strong digital areas where it outperforms print from a dollar standpoint.”

“Programmatic is becoming moving more of our inventory.”

3. Sales director of a daily local newspaper in the Midwest; repeat source

This newspaper market has had a challenging year, which began with the bad weather in the first quarter. Comcast now

is taking share from the paper, and 2014 overall is expected to be down in the mid- to high single digits compared with

2013.

Spending and Rates

“We are down 10% year to year in the third quarter and will most likely be

the same in the fourth quarter. I would be happy if the full year was down

5% year to year.”

“The third quarter was terrible because the economy was still falling apart

and everyone was cutting back. The spending is not going away. It’s more

that advertisers are cutting spending in half and spending less frequently. I

am hearing that they are moving dollars to TV, to spot TV.”

“We’re seeing a lot of competition from Comcast. They do this now and

then, where they offer free production and a bunch of spots for $200. ...

This hurts us, but it shows they must be hurting to be running these

ridiculous packages.”

Visibility

“Banks are still spending on branding to keep their customers, so we are

seeing some strength there.”

5) Out-of-Home Agency Executives Five of these six sources had a rough third quarter. The fourth quarter looks better but will not help full-year numbers.

National advertisers are spurning OOH inventory, and vendors are having to rely on local advertisers at a time when the latter

are shifting dollars to digital platforms. Vendors expect to focus on raising rates, but current rates are flat year to year.

KEY SILO FINDINGS Spending and Rates

- Spending was down in some markets in the third quarter but up in others for the fourth quarter.

- Rates are relatively flat as most vendors have focused on occupancy.

Visibility

- If the fourth quarter’s improvement sticks, this would bode well for a decent first quarter next year.

1. Account executive from a large OOH company; repeat source

This source is in a tough market. Growth has occurred during some quarters this year, but any optimism has been

tempered by a particularly challenging fourth quarter.

We’re seeing a lot of

competition from Comcast.

They do this now and then,

where they offer free

production and a bunch of

spots for $200. ... This hurts

us, but it shows they must be

hurting to be running these

ridiculous packages.

Sales Director

Daily Local Newspaper, Midwest

1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

21

Advertising Update

Spending and Rates

“Third-quarter revenue is up 7% year to year, but the year has been challenging. I was beginning to get more

optimistic, but this next quarter is challenging.”

“This year is going to be mixed. I think the fourth quarter is going to be very challenging to say the least, as we are

not getting the national proposals we need to get in. We definitely think the national weakness is part of a bigger

trend, that they are looking for different types of things like digital and different programs.

“Occupancy levels are high. We are at 90%, but rates are only up slightly year to year.”

“Bulletins and posters are up.”

“Fourth quarter, we have the biggest budget we have ever had in this market in years. To say that it is ludicrous is an

understatement. We made our first quarter [up 7%], barely missed the second quarter [down 7%], made the third

quarter [up 7%], and we are getting annihilated in the fourth quarter.”

“I don’t think too many markets will make their fourth quarters.”

“Beverages suck, auto has been stable. Healthcare is good ... but nothing to do with plans or programs. Fast food

has been pretty darn good, very good actually. Retail is nothing.”

Visibility

“The COO has a powerful digital network, but they have a massive bond in 2017 and then one again in 2018. Who

knows if they will make that bond payment because it’s $16 billion? No one has any faith they will make it.”

“In 2014 we have pretty much made most of our quarters. That is an improvement, but when you are going to miss a

quarter by a million dollars, you can’t consider this growth.”

2. General sales manager for a large, private OOH company in the Northeast; repeat source

This source’s summer was worse than expected. Still, the fourth quarter has shown signs of hope, and that optimism is

trickling into first-quarter 2015 expectations.

Spending and Rates

“We’ll be up 4% to 5%, but we were expecting to be up this full year 12%. We’ve played the occupancy game the past

two years [85%], and now we are trying to drive growth through rate.”

“After first quarter, where we had double-digit growth, the second and third quarters were flat to up 1% to 2%. We

seemed to have weathered the bad snowstorm, but when we get out of the first quarter, we didn’t know how bad

spring and summer could be. Well, they were pretty bad. The car industry got pounded. ... Our big manufacturers cut

back.”

“Entertainment was doing well with sports and entertainment venues.

Healthcare cut back a little bit. We were worried about Obamacare, but if

not for our healthcare partners we would have been in worse situation.”

“We are starting to see banks back on billboards ... because they are going

back after customers. Banks are seeing that the economy is coming back a

little bit. People are buying a car or two, consolidating a little bit of debt.

Some of these banks that have done nothing in three years are requesting

information.”

“Third-quarter weakness was not clients asking for credit or cancellations,

but more that business that was projected was cut back or never

materialized. Digital is the only product line showing signs of life, and we

are putting focus on integrated static with digital. We hired someone to

help.”

Visibility

“Four quarter should be up 4% to 5% because the largest week that we put

in since 2013 was last week.”

“What we are seeing in the way of meetings and questions is that the fourth quarter bodes to be a good one, and we

are hoping it will translate into a good first quarter.”

“We are seeing more advertisers shifting money to online, taking money out of print and radio and putting into

online. We can do Instagram, a natural complement, but we’ve never talked them. We are going to try to complement

Banks are seeing that the

economy is coming back a little

bit. People are buying a car or

two, consolidating a little bit of

debt. Some of these banks that

have done nothing in three

years are requesting

information.

General Sales Manager

Large, Private OOH Company

Northeast

1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

22

Advertising Update

online offerings. Lamar [Advertising Co./LAMR] and smaller local players that are here every day are going after this

business.”

“OOH still is doing well. 2015 will be better than 2014. Our recruiting has been better. Our market is 98% local, so if

national goes south, we don’t have a hiccup. But we need to take the market another $5 million in the right

direction, and that might mean we need to go outside of our market.”

3. General sales manager for a large, private OOH company in the Southeast; repeat source

This market experienced a rough middle of the year. The third quarter was down in the mid-single digits. However, the

fourth quarter is showing an improvement, which bodes well for first quarter of 2015. Rates are up with new business.

This sales executive is more optimistic than he has been all year.

Spending and Rates

“Third quarter is down 5% to 6% ... but I’m more optimistic now.”

“We are doing more hard work on our part going after local dollars.”

“Any national activity is slim to none. 2014 will be up 3% year to year, with our first quarter and fourth quarter

making the year.”

“There is regional softness, and different regions are in different states of recovery. We are coming off of some pretty

huge years, and you can’t in the current economy grow at 15% a year. But some parts are down like the Midwest, the

Northeast. No market is up over 9% year to year, and there are varying degrees of up and down. The Southeast has

the most strength, with two markets up 9%.”

Visibility

“QSR [quick-service restaurants] and auto spending are making the fourth

quarter look better. Three are in the planning stages that weren’t there 30

days ago. Wendy’s came in with something they didn’t have planned, but

more spending has come from Chick-fil-A, Subway and Burger King.”

“Digital is growing because it is so easy to do it on the face of it. People are

still putting money in digital, and because it is so much cheaper than

traditional media, they are saving some money too. ... People are looking to

make the impression; they still need their name in the marketplace. But a

really truly dynamic campaign—people don’t see the need for that like they

did 10 to 15 years ago. Those type of campaigns happen less and less.”

“Pandora is one that the shine is coming off of a little bit. ... They buy for the

teenagers just about to make their college decision, but they don’t buy for

parents who are the larger part of the buy.”

“We are getting some political dollars, minor campaigns, not a huge

amount. We are looking at larger races here, but if we get it, it would be last minute.”

“TV is doing well here. We are getting spillover from that because political is getting nasty.”

“Our occupancy in the fourth quarter is 70%; we were below that in the third quarter.”

“Rates are up 3% to 5% on new business. Some of the decreases in occupancy were bad deals going away, and we

didn’t want to renew.”

4. General sales manager for a large, private OOH company in the Midwest; repeat source

The year will end on a flat note, with the second half making up for the sluggish first half. Overall, dollars have been

moved to online, and most traditional media are facing tougher conditions.

Spending and Rates

“Spending was down in the first half of the year, and we are making it up in the back half so that we will end the year

flat. That might not sound great, but considering the first half, we are where we had hoped to be entering this

period.”

Digital is growing because it is

so easy to do it on the face of

it. People are still putting

money in digital, and because it

is so much cheaper than

traditional media, they are

saving some money too.

General Sales Manager

Large, Private OOH Company

Southeast

1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

23

Advertising Update

“The year is going as I had expected and hoped: It’s been up and down. It was down more in the first half, and July

through the end of the year is pacing ahead over last year every month. Of course, we have weaker comps too.”

“I’m sure advertisers moving money to digital is part of the weakness we are experiencing, but it’s not glaring to me.

In general, we see a lot of fragmentation of all media dollars being

scattered in many different ways. This is a smaller local market, less agency

involvement, and everyone is guessing about what is going on. It’s

interesting that there used to be, when I was in TV, more confidence in the

media sellers in the market. What I feel now is not a lack of confidence but

more people willing to go at alone, especially in social media. A lot of

advertisers spend money to power up their Facebook presence. A lot of

people aren’t spending money who used to, because social media is mostly

free. ... We don’t discourage the use of social, but we tell clients, ‘Let’s

supersize what you are doing with Twitter. Run the Twitter feed on a digital

billboard where you get 2,000 impressions.’ ... Advertisers are seeking

more and more flexibility all the time.”

“All of our growth is coming from local business. There are no big national

surprises waiting for us.”

Visibility

“We not seeing competition from Pandora. We had one single client that we

lost our money to when he shifted it all to Pandora.”

“Our full-year growth won’t be impressive because the first six months were not good. There are not any mediums

killing it in this market right now—not radio or TV. The largest radio group is hovering around flat again this year. The

TV guys will get saved by political, but if you look at their core revenue they would be down this year.”

5. Director of OOH for a top-three media agency; repeat source

The agency’s large national ad budgets are down significantly year to year, which local sales managers have been

confirming for several quarters. Advertisers are looking to put more dollars in online and, in particular, mobile. However,

the market may improve in the near future if the industry offers better packages and more flexibility through

programmatic buying.

Spending and Rates

“We’re slow, and the industry is slow. Competitors are all wanting to cut a deal, and they are all looking for volume

because they need cash.”

“We’re down 10% in the third quarter year to year and expect to be down for 2014 overall 10% year to year. Rates

are flat year to year.”

“Out-of-home is not doing as well as it should. The industry needs to spruce up its bells and whistles. No one wants

to take to a client a media that could have been bought 10 years ago. Even how we are buying media is changing.”

“Categories are down across the board, but the big guys are causing the most weakness, like auto. Tech is not

spending the way it used to. Sure, Samsung and Apple are spending, but not like they used to. Fashion is weak. We

are not seeing the Gap and Ralph Lauren spending like before; I don’t even see beer anymore. ... Yes, McDonald’s

and Wendy’s are there but not like they used to be.”

Visibility

“Anything with digital is hot.”

“We are going into 2015 down 10% year to year, and I’m optimistic as the year goes by, things will start to pick up.”

“OOH needs to be packaged differently. I’d like to see more dayparting and not having to buy by four weeks but

instead two weeks out, which gives the client more flexibility. ... If we had this, we’d see more national buyers

because it is cheaper than national TV or radio. If you can take one rating point and buy five for the same price, it’s

worth it.”

“Advertisers are still interested in OOH, but I don’t think the agencies are serving it up. Everybody wants mobile and

online.”

“Programmatic could help OOH because it would allow buyers to buy last minute and help sellers sell off unsold

inventory. But they are reluctant to change from selling the old-fashioned way. The OOH companies have made a

There are not any mediums

killing it in this market right

now—not radio or TV. The

largest radio group is hovering

around flat again this year. The

TV guys will get saved by

political, but if you look at their

core revenue they would be

down this year.

General Sales Manager

Large, Private OOH Company, Midwest

1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com

24

Advertising Update

huge investment in salespeople, and they believe that their people can sell better than a system. ... The amount

available is negligible right now, but if they put it there, it would make for faster buying and flexibility for spenders.”

6. President of an independent OOH media agency; repeat source

Business has been up in the double digits year to year, but the source continues to be an outlier.

Spending and Rates

“Spending is up 35% year to year in the third quarter and 2014 overall. We were up 20% year to year in the first half

with new business and current clients upping their spend.”

“Rates are fair, mostly flat year to year. No one is off the chart with any increases because I think there is a lot of

competition.”

Visibility

“We will continue to buy a combination of digital and static boards.”

“I can’t say what to expect next year.”

Secondary Sources

These five secondary sources discussed programmatic buying growing exponentially at large agencies, and large national

advertisers bringing creative and social media platform management in-house. Also highlighted were large advertisers

working with social media platforms like YouTube and Facebook to create original content. Political spending is going to more

digital and programmatic rather than linear TV, even as 2014 has seen TV dominating political dollars.

Oct. 1 StreamDaily.tv article

Content is king, and every media company knows that, even if technology-driven. Facebook has been relying on its users

to create that content, but it now is generating content itself. This could help shift TV dollars into programmatic.

“Facebook will be the exclusive platform for a series of short films made by women based on the Twilight series.”

“The campaign called ‘The Storytellers—New Creative Voices of The Twilight Saga’ was announced Tuesday, and was

developed in partnership with Lionsgate, non-profit Women in Film, and Twilight Saga author Stephenie Meyer. The

campaign will see aspiring female filmmakers develop and produce videos based on characters from the book and

film franchise.”

“The campaign includes a multi-phase contest in which 5 people will be selected to produce and direct their projects

with the help of a production advance and the mentorship of a group of advisers. The female panelists are Meyer;

actresses Kristen Stewart, Kate Winslet, Octavia Spencer and Julie Bowen; Jennifer Lee, the writer and one of the

directors of Disney’s blockbuster Frozen; Catherine Hardwicke, the director of Twilight; and Cathy Schulman, the

president of Women In Film. The advisers will select the winning shorts that will premiere exclusively on Facebook

next year.”

“‘More people than ever before are creating, discovering and engaging with videos on Facebook,’ said Facebook’s VP

of partnerships, Dan Rose. ‘This collaboration with Stephenie Meyer, Lionsgate and Women In Film is a great

opportunity to engage Twilight’s massive global audience on Facebook through an innovative premium video

program.’”

Sept. 30 Cablefax article

AOL’s CEO acknowledged the rapid growth of programmatic. This advertising form now comprises 34% of AOL’s revenue.

“Programmatic advertising has grown from 4% to 34% of AOL’s revenue in a single year (2013-2014). ‘This is a

massive change for us,’ [Tim] Armstrong acknowledged. ‘We have to transform our company to deal with this amount

of data change overall.’”

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The other portion of the transformation equation involves cultivating talent. Armstrong and IAB today announced the

formation of the IAB Education Foundation, a nonprofit ‘devoted to the improvement of the talent pool in our industry

and the building of diverse employment,’ said Randall Rothenberg, IAB’s president and CEO.

Sept. 29 Broadcasting & Cable article

Programmatic buying is growing significantly at large agencies, which is commoditizing some pricing and also reducing

agency head counts. Programmatic is expected to become one-fourth of TV ad spending by 2018.

“Programmatic buying will account for $21 billion worth of spending on digital media in 2014, up 52% from last year,

according to a new forecast from Magna Global.”

“As it asserts itself in the digital world, programmatic has not been embraced yet in the TV business. While some

networks are at least testing selling digital video via computer, they are concerned that their premium television

inventory will become a commodity and prices will fall as they have for digital display ads.”

“Magna says it expects programmatic buying to continue to grow at an annual rate of 27% and reach $53 billion by

2018. The growth is being fueled by the desire to cut transaction costs through automation, the agency says.

Programmatic is also seen as a way for sellers to monetize more of their inventory, while it enables buyers to use big

data to make campaigns more efficient.”

“Magna says that there have been early developments in bringing programmatic buying to television and digital out-

of-home media. While they have potential to grow, ‘these developments are still nascent and represent a very small

percent of total spend,’ the agency says, citing other research putting programmatic at less than 1% of TV in 2013,

but growing to 20% by 2018 in the U.S.”

Sept. 29 Variety article

Large brand advertisers are building in-house marketing firms to create unique content and manage social media.

“Marriott International today announced the formation of an internal content studio through which it will develop,

produce and distribute a slate of entertainment projects that will include web series, short films, TV shows, music

events and movies.

“With 18 brands, Marriott is the world’s largest hotel company with over 4,000 hotels in 78 countries. Through its

individual properties, in-room TVs, websites, mobile platforms and reward program, Marriott certainly has the

network through which it can distribute entertainment.

“‘We’re saying we’re going to be the largest publishers of life style,’ said David Beebe, who is running the new studio,

and is now partnering up with producers on the first projects. ‘We’re going to be the Red Bull of this category. That’s

where we want to get to.’”

“‘Everyone understands that all of us today are really media companies and content publishers,’ Beebe said. ‘It’s

more about how do we do it?’”

“Three teams make up Marriott’s content studio, with a creative group overseeing the company’s campaigns, special

projects and short-form lifestyle related content. An entertainment team manages episodic story driven content,

while a live team is responsible for Marriott’s social media efforts and tapping into real-time trends and pop culture

conversations.”

Sep. 16 MediaPost article (see chart)

Digital political spending is growing. Most political agencies are using programmatic in 2014 midterms. Spot TV/cable

gets the lion’s share of spending, but spot radio and Internet/digital are attracting more dollars this midterm election.

“Spot TV/Cable will eat up most of the budgets, with 82% of agencies saying that’s where their clients will focus.

Internet/Digital and Spot Radio tied as the second most-used media, per a release. Spot TV (57%) and online video

(43%) offer the greater return on investment.”

“‘Our political shops are leveraging tools and social channels that are built for real-time marketing,’ stated Joy Baer,

president of STRATA. ‘Because of its ability to react instantly to changing market dynamics, programmatic buying is a

tremendous tool for political advertisers when trying to respond to an attack or get a message out right away.’”

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