understanding change in the media economy september 2007

Understanding Change in the Media Economy

September 2007

2

Adjusted National and Local Ad Revenue

3.6%

8.0%

2.6%3.2%6.4%

14.4%

18.4%

8.2%

12.8%

1.5%

2.0%1.7%

3.4%2.2%

2.6%

-6.6%

10.3%9.4%

7.6%

7.4%

7.7%

9.4%

4.8%

-3.1%

6.8%

7.8%7.6%

8.3%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

1981

A

1982

A

1983

A

1984

A

1985

A

1986

A

1987

A

1988

A

1989

A

1990

A

1991

A

1992

A

1993

A

1994

A

1995

A

1996

A

1997

A

1998

A

1999

A

2000

A

2001

A

2002

A

2003

A

2004

A

2005

A

2006

A

2007

E

2008

E

Our View of the World

• Follow the Money• Media (as we know it) is a slower growing business

Source: MAGNA Global Research

2006 US Media Revenue Growth:

+1.7%

3


• Follow the Money• Fortune 500 advertisers increasingly emphasize non-

media marketing (much more than new media!)

Source: MAGNA Global Research, Company Reports

28.4%

24.9%

22.4%

17.9%

12.3%

10.6%

6.8%

6.2%

6.0%

3.4%

3.2%

1.2%

1.1%

-13.4%

-2.8%

-20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%

CVS

Alltel

H&R Block

Walgreen's

Staples

Colgate-Palmolive

Kellogg's

VF Corp

Ford

Clorox

Coca-Cola Enterprises

Wendy's (Systemwide)

GMAC

Kimberly Clark

Hershey

Sample Average:+8.6%

2006 Annual Advertising Expense Growth

4


•“Packagers” (Networks, Publishers): Fulcrum of the Industry

MediaPackagers

Producers DistributorsCreators

ConsumersAdvertisers

$

$$ $

$

Devices / Access Points

$

Source: MAGNA Global

$

Industry Structures Held Together By Regulations,Economic Efficiency and Copyright Law

5


•Advertising Drives Packagers’ Economic Incentives

•Importance depends upon unit of analysis

Advertising as % of Packager Revenues

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

100.0%

2001 2002 2003 2004 2005

Radio

Online

Newspapers

Television

Magazines

Source: MAGNA Global Research, OPA, IAB, RAB, NAA, Company Reports

6


Traditional Medium Equivalent / Ad-Supported Revenue Driver

Radio/Music TV Online/Print Out-of-Home Marketing Services

Other Marketing

Ind

ivid

ual o

r Corp

ora

te B

eh

avio

r Driv

er

UGC Production

Social Content Consumption

Niche Content Consumption

New Place Consumption

Asset Management

Content-on-Demand

Information Seeking

Commerce / Shopping

Game Playing

•Venture capital activity reflects expectations of change


7


0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

% o

f U

S H

ou

seh

old

s

US Digital Cable, Satellite andTelcoTV Households

US DVR Subscriptions

US VOD Households

US Broadband Households

US Satellite RadioSubscriptions

US HD Subscriptions

US Digital TV Shipments

US Mobile PhoneSubscriptions

•And Although New Platforms Are Proliferating…


8


•…Wholesale Change Typically Takes Decades

9

Overview

•Why Study Change?

•The Consumer and Change

•How Marketers Are Changing

•What Does All of This Mean?

10

“Narcissus mistook his own reflection

in the water for another person. This extension of himself by mirror numbed his perceptions until he became the servomechanism of his own extended…image. The nymph Echo tried to win his love…but in vain.

He was numb.”

– Marshall McLuhan

Why Study Change in the Media Economy?

11

The Consumer and Change in the Media Industry

•Δ in Technology = Hundreds of New Media Alternatives

TARGETING•Broadcast•Unicast

THROUGHPUT•Stream•Download

ACCESS•Push•Pull

LAST-MILE•Unwired•Wired

CONSUMPTION•Home•Portable

PRODUCTION•Professional•Amateur/UGC

12


• New Media Can Dramatically Affect an Industry• Digitization drove music industry change• Affected production, distribution and consumption

Source: MAGNA Global, RIAA

6,000

8,000

10,000

12,000

14,000

16,000

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Rev

enu

es (

$000

s)

TotalDigitalSales

RetailSales

Manufacturers' Shipments of Recorded Music

Napster Launched (June 1999)

BitTorrent, Kazaa, Grokster, etc. active

iTunes Launch (March 2003)

13


• New Media Can Dramatically Affect an Industry• Total Online employment ads: 0 to 25% of sector in 10

years• Total market shrank ~20%

Source: McKinsey, NAA, Monster Worldwide

14

No

Yes for some of the time or no for most of the time

Yes for some most of the time or yes for all some of the time

Often for most people under most circumstances

Yes for all people under virtually all circumstances


• But Internet Won’t Replace All Platforms

General Print

YP Radio TV

Sufficient Range of ContentSufficient Technical QualityEquipment SubstitutionSufficient Customer ServiceEfficient NavigationCheaper to SubstituteIncreased Convenience

SUMMARY

Limited TV content available today

Internet can’t deliver high res video well

IPTV: no STB integration

QoS is critical for video

Hard to navigate to find audio/video

Online bandwidth=more cost than free media

Print and radio are typically portable

Print is tactile

Prospects for online media substitution

limited by drawbacks relative to traditional

media


15


•Change Within TV Will Also Be Slow to Come•Porting content from internet to set-top box: hard!•…With agreement from cable/satellite operators: easy!•Getting agreements from cable/satellite operators:

hard!

16

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

2002 2003 2004 2005 2006

TV

Radio

Consumer Internet

Newspapers

Consumer Magazines

Search

Mill

ion

s o

f P

ers

on

-Ho

urs

Per

Yea

r

2.9bn

36.6bn

53.7bn

57.0bn

292.5bn

466.5bn

Total US Population: Hours Spent With Media

Source: MAGNA Global, US Census, Veronis Suhler, OPA


•“Old” Media Remains Pervasive and Dominant

17

Source: MAGNA Global, WARC, InternetWorldStats. Weekly reach figures for France and UK, daily for other countries. Reach definition for magazines = issue reach in France, Italy and Spain. Internet reach typically = % of population online monthly per Nielsen NetRatings, ITU and other sources as of June 30 2007 (except for US = March 31, 2007)


•…In Established Markets…

Media Reach By Country

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

100.0%

TV

Rad

io

New

spap

ers

Mag

azin

es

Inte

rnet

18


•…And Emerging Ones

Source: MAGNA Global, WARC, InternetWorldStats. Weekly figures for Brazil and Russia. Russia, China and India magazines are issue reach figures. Indian TV and radio = daily, newspapers = issue. Chinese TV = weekly and radio = daily. Internet typically = % of population online monthly per Nielsen NetRatings, ITU and other sources as of June 30 2007

Media Reach By Country

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

100.0%

TV

Rad

io

New

spap

ers

Mag

azin

es

Inte

rnet

19


•This Holds True For Young Audiences As Well

Young Audiences' TV Viewing Trends

15.0

17.0

19.0

21.0

23.0

25.0

27.0

29.0

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

Ho

urs

of

Vie

win

g P

er W

eek

P2-5

P6-11

P12-17

P18-34

Source: MAGNA Global analysis of Nielsen Media Research data

20


•In the US and Around the World

Source: WARC

TV Reach: Adults and Teens

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

100.0%

UK

Ger

man

y

Fra

nce

Italy

Spa

in

US

Bra

zil

Rus

sia

Indi

a

Chi

na

Adults

Teens

21


•Business Model, Tech. Issues Deter Change …(For Now)

Popularity of Disney Content Available on iTunes Jan-May 2006

0

1,000

2,000

3,000

4,000

5,000

Disney Content: iTunes Downloads (Paid) Disney Content: Broadcast/Cable Viewers(Free/Subscription)

Un

its

in m

illio

ns

TV “Popularity Factor”: 1,175x Vs. iTunes

Note: Download data as reported by Disney for its content made available from iTunes from January to May 2006Estimates total number of gross impressions on television for content available through streaming experiment for the period of comparison based upon data from Nielsen


22


•Most Consumers Want Big Screen / Lean-Back Experience

•Except for sampling and office-time consumption•Even the best programming = small number of online

viewers

Note: Streaming data as reported by Disney for broadcast network content made available from ABC.com during May and June of 2006Estimates total number of gross impressions on television for content available through streaming experiment for the period of comparison based upon data from Nielsen

Popularity of ABC Content Available on ABC.com May-June 2006

0

50

100

150

200

250

ABC.com Content: Streams (Free) ABC Content: Broadcast (Free)

Un

its

in m

illio

ns

TV “Popularity Factor”: 41x Vs. Free Streams


23


•Conventional TV Popularity: 90x vs. Online in 2011?

•But impact, opportunities for engagement and commerce allow new platforms to “punch above weight”

Source: MAGNA Global, Accustream

145.8x

119.8x

99.2x82.7x

69.4x58.6x

0.0x20.0x40.0x60.0x80.0x

100.0x120.0x140.0x160.0x180.0x200.0x

25% 30% 35% 40% 45% 50%Different Scenarios:

Assumed 5-Year Compounded Annual Growth Rate of Online Video

Po

pu

lari

ty F

acto

r o

f C

on

ven

tio

nal

T

V in

201

1

2006 Growth Rate Was 38.8%

Above Trend

Below Trend

24


• Do Consumers Want to Time-Shift TV, Anyway?• The DVR “threat” is generally overstated• TV via DVR in DVR homes is limited at an aggregated

level

Source: MAGNA Global Analysis of Nielsen Data, 4Q06

9.4% 9.3% 9.7% 8.8% 6.3% 7.2%9.3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Monday Tuesday Wednesday Thursday Friday Saturday Sunday

Per

cen

tag

e o

f M

inu

tes

Vie

wed

7 DayPlayback

LiveViewing

Average: 8.5%

25


• Although The Impact Can Be Significant• In DVR HHs, prime time AD18-49 use = 20%, 30%

for Network• But there are many other ways to reach AD18-49 on TV

Source: MAGNA Global Analysis of Nielsen Data, 4Q06

21.8% 23.0% 26.5% 20.0%12.4% 15.8%21.5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Monday Tuesday Wednesday Thursday Friday Saturday Sunday

Per

cen

tag

e o

f M

inu

tes

Vie

wed

7 DayPlayback

LiveViewing

Average: 20.1%

26


• Over Any Time Frame, Non-Skipped TV Impressions Rise


0%

20%

40%

60%

80%

100%

120%

2006 2007 2008 2009 2010 2011

Nat

ion

al T

V C

on

sum

pti

on

Ind

ex Increase Due toPopulation Growth

Increase Due toHousehold TVConsumptionGrowth

Baseline - Today'sTV ConsumptionLess DVR Usage

-3%

+5% +5%

+7%

27


• So Although New Media = New Opportunities…

• …Look Beyond Early Adopters

• Change is constrained for most media• Business model issues• Limits to market appeal• Difficulty changing consumer behavior• Negative utility associated with expanded choice

28


•…We Must Place New Media In Its Proper Context•Perceived state of new media often reflects spin from

vendors and press seeking to capitalize on hype

29


•And Question the Drivers…•Certain behaviors may vary wildly between age groups

89% 90%

67% 66%79% 78%

54%

28%40%

14%

30%

13% 17%5% 9% 6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

18-29 50-64 18-29 50-64 18-29 50-64 18-29 50-64 18-29 50-64 18-29 50-64 18-29 50-64 18-29 50-64

Ever Send/ReadEmail

Ever Get NewsOnline

Ever ResearchProducts/Services

Ever Send InstantMessages

Ever Use ChatRooms

Ever DownloadVideo Files

Ever Create a Blog Ever Play OnlineGames

% o

f O

nli

ne

Res

po

nd

ents

Source: Pew Internet Life Project

30


Internet Usage

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

<$30k $30k - $75k >$75k

Household Income

Ho

use

ho

lds

Usi

ng

in

Pas

t 30

Day

s

•…of Media Consumption•Others may be income-driven

Source: MRI

31

How Marketers Are Changing


Paid Search

$6,799.0

$8,770.7

$11,094.9

$0.0

$2,000.0

$4,000.0

$6,000.0

$8,000.0

$10,000.0

$12,000.0

2006A 2007E 2008E

(In

mill

ion

s)

+29.0% +26.5%

Annual Growth

Social Network Advertising

$276.0

$685.0

$1,020.0

$0.0

$200.0

$400.0

$600.0

$800.0

$1,000.0

$1,200.0

2006A 2007E 2008E

(In

mill

ion

s)

+148.2% +48.9%

Annual Growth

Online Video Advertising

$235.0

$365.5

$560.0

$0.0

$100.0

$200.0

$300.0

$400.0

$500.0

$600.0

2006A 2007E 2008E

(In

mill

ion

s)

+55.5% +53.2%

Annual Growth

Mobile Advertising

$55.0

$105.0

$194.0

$0.0$20.0$40.0$60.0$80.0

$100.0$120.0$140.0$160.0$180.0$200.0

2006A 2007E 2008E

(In

mill

ion

s)

+90.9% +84.8%

Annual Growth

•Advertisers Increasingly Place Money Against New Media

32


•But Emerging Media Leaders Are New/Smaller Advertisers

•Does under-utilization by brand-based advertisers imply a change waiting to happen?

•Or an environment where small companies are better structured to compete?


2011E Ad-Supported Media Revenues

0 10,000 20,000 30,000 40,000 50,000 60,000

OUTDOOR

NEWSPAPERS

B2B MAGAZINES

CONSUMER MAGAZINES

YELLOW PAGES

LOCAL CABLE

SYNDICATION

NATIONAL CABLE

NETWORK TELEVISION

LOCAL TELEVISION

RADIO

INTERNET (Ex-Search)

INTERNET (Search)

$mm

Internet: Millions of small businesses and “Endemics”(Amazon, EBay)

TV: 200 advertisers = 75% of market

33


•New Media Is Often Less Efficient For Large Advertisers

•Illustrative example of optimized media spend for QSR advertiser

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

$50 $350 $650 $950 $1,250 $1,550 $1,850 $2,150 $2,450 $2,750 $3,050 $3,350 $3,650 $3,950 $4,250 $4,550 $4,850

Media Spend (000s)

Inc

rem

en

tal

Re

ve

nu

e G

en

era

ted

(0

00

s)

LOCAL TV

NATIONAL TV

PRINT (FSIs)

ONLINE (BANNERS)

= Actual 2005= Optimized 2005

ResultsMedia spendIncremental revenue generatedReturn per dollar invested

Actual$3,500$10,300$2.9

Optimized$2,700$11,200$4.1

Flat Line = Diminishing Returns

34

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

2002 2003 2004 2005 2006

Search

Newspapers

Consumer Magazines

Consumer Internet

TV

Radio

Total US: Advertising Dollars Spent Per Hour of Media Consumption

$0.07

$0.30

$0.90 $0.34

$2.44

$0.12

Source: MAGNA Global, US Census, Veronis Suhler


•While Search Spending Reflects Effectiveness For SMEs

•Search has created new markets (small advertisers!)

•Few mass marketers spend much on search today

35

Source: MAGNA Global, US Census, IAB


•And Now Reflects Large Share of E-Commerce Sales

•Search will likely be driven by e-commerce

•Impact of search and branding? Mobile search?Search Spending as % of E-Commerce Sales

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

1Q00

A

2Q00

A

3Q00

A

4Q00

A

1Q01

A

2Q01

A

3Q01

A

4Q01

A

1Q02

A

2Q02

A

3Q02

A

4Q02

A

1Q03

A

2Q03

A

3Q03

A

4Q03

A

1Q04

A

2Q04

A

3Q04

A

4Q04

A

1Q05

A

2Q05

A

3Q05

A

4Q05

A

1Q06

A

2Q06

A

3Q06

A

4Q06

A

1Q07

A

36


LimitedAdvertiser Budgets

Mass ConsumerAdoption

SubsidizedContent Pricing

Media InfrastructureDeployed Alone

UnsubsidizedContent Pricing

Niche ConsumerAdoption

DeeperAdvertiser Budgets

Media Deployed withAdvertiser Infrastructure

•Not All New Media Platforms Will Gain Traction

37


Source: MAGNA Global Research, Company Reports

Advanced TV Advertising

$107.0

$140.0

$178.0

$0.0$20.0$40.0$60.0$80.0

$100.0$120.0$140.0$160.0$180.0$200.0

2006A 2007E 2008E

(In

mill

ion

s)

+30.8% +27.1%

Annual Growth

•Infrastructure Places Significant Limits on Market Size

38


•While Some Platforms Simply Lack Broad Interest

Game-Related Advertising

$187.2

$216.9

$238.6

$0.0

$50.0

$100.0

$150.0

$200.0

$250.0

2006A 2007E 2008E

(In

mill

ion

s)

+15.9% +10.0%

Annual Growth

39


•But Large Advertisers Experimentation Persists

•Looking for the “pony” (somewhere!)

VOD/Long-FormBranded cable TV channel that offers programming to consumers on-demand

Sponsorship of existing on-demand content

•Enhanced / Interactive TV•Telescoping

•Request for information

•Polling/Voting/Surveys

EPG/VOD BumpersProgramming & sponsorship

opportunities

Addressability• Serve/target spots to the HH/set-top

40

What Does All of This Mean?

•For marketers: Hundreds of new ways to reach consumers

•Many = incremental opportunities to engage

•Others = new dayparts to reach consumers

•Some = new markets for new types of marketers

•New opportunities for upstart brands to compete?

•Potential to organize around niche/micro-markets

•For suppliers: few platforms achieve mass scale

•Conventional media will dwarf new media for long time

•New promotional opportunities to reach niche audiences

•Low barriers to entry = need for aggregators

41

Why Study Change in the Media Economy?

Contact: Brian Wieser, CFATel: 917-542-7008 Email: [email protected]

43

Appendix 1: Assessing Venture-Stage Companies

Key Business Model Components

Revenue Model

Components

Advertising Infrastructure Components

•Financing •Advertising •Unduplicated/unique reach

•Alliances •Content •Uniform technological standards

•Complementary Tech •Commerce •Establishment of creative formats

•Consumer Expectations

•Services •Smooth buying process

•Barriers to Entry •Provision of robust user data

•Openness of Systems •High-quality service / product standards

44

Appendix 2: Key Success Factors of Emerging Media

DRIVER

SECTOR KSFs (BEYOND INFRASTRUCTURE/BARRIERS-ENTRY)

Beh

avio

ral

UGC Production •Integration with other social media tools

Social Content Consumption

•Network effects of deep traffic among target market

Niche Content Consumption

•Identification of under-reached niches and superior content choices

New Place Consumption •Assessment of whether or not consumers desire content type in new place

Asset Management •Integration with existing processes, participation of reps from all parties in eco-system

Content-on-Demand •Systems must be intuitive and allow for navigation of millions of assets•Willingness to cede economics to distributors or suppliers

Information Seeking •Improvements on existing search models•Market expansion: application to brand-based advertising metrics•Systems must be intuitive and allow for navigation of millions of assets

Commerce / Shopping •For consumer facing sites: Price, quality, ease of use relative to competition•For B2B services: relationships with publishers / retailers

Game Playing •Novel content available across multiple platforms, new audience market expansion

Med

ium

Radio/Music •Availability of portable net-connected devices and services•Ability to micro-target consumers

TV •Conventional TV: 2-Way Plug&Play, National Interconnect, Widespread OCAP deployment•For Online TV: PC-TV content porting, net neutrality and enough existing last-mile bandwidth

Online/Print •For All Print: Superior content•For Physical Print: Development of better e-ink technologies, or “electronic paper”•Integration of ad-platforms across as much of addressable universe as possible

Out-of-Home •Efficient management of content assets

Marketing Services •Compelling new models for suppliers and buyers which respect elements of status quo

Other Marketing •Use of mobile device as portable CRM or POS support

understanding change in the media economy september 2007

Documents

media industry new media

magna global slide

money media

media economy

riaa slide

expectations of change

consumption source

study change