The Advertising Economy

February 2009
 New Realities

“I Found A Flaw…”

2 www.MagnaInsights.com
 Once Upon a Time, Marketing = Media + Creative

•Traditional media was primary (sole?)

venue for communications objectives

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 But Fragmentation Fractured That Proposition

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 Music Was The Canary In The Coal Mine
•Digitization changed production, distribution and consumption

Manufacturers' Shipments of Recorded Music

18,000
Total
Digital
16,000
Sales
Revenues ($000s)

14,000 Retail
Napster Launched Sales
12,000
(June 1999)
10,000 BitTorrent, Kazaa,
Manufact
Grokster, etc. active urers'
8,000 iTunes Launch
Shipment
(March 2003) s
6,000
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
5 Source: Magna, RIAA www.MagnaInsights.com
 And DVRs Were To Be The Last Nail In The Coffin

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 With A Digital Revolution Blooming In The Aftermath

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 But Traditional Media Never Died

“Television is the
worst form of
advertising, except
all the others that
have been tried”

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 But Traditional Media Never Died
•New advertisers rely on it for mass branding effects

Top 10 Network TV Advertisers

1987 2007
1 McDonald's 1 AT&T Wireless
2 KFC 2 Verizon
3 Burger King 3 Sprint
4 Miller Lite 4 McDonald's
5 Budweiser 5 Home Depot
6 AT&T 6 T-Mobile
7 Wendy's 7 Subway
8 American Express 8 Toyota Tundra
9 Miller High Life 9 Lowes
10 Advil 10 Wendy's

9 Source: Magna analysis of TNS-CMR data www.MagnaInsights.com

 But Traditional Media Never Died
•Large brand-based advertisers: focus on reach…

Network TV Prime Time Reach - Live Only Adults 18-49

96.17% 96.72%
100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
2002 2007

10 Source: Initiative Analysis of Nielsen Data www.MagnaInsights.com

 But Traditional Media Never Died
•…And frequency

Total US Population: Hours Spent With Media

Millions of Person-Hours Per Year

600,000
TV
539.0bn
500,000
Radio
400,000
Total Internet
300,000
241.3bn
Newspapers
200,000
56.9bn
Consumer
100,000 51.3bn Magazines
0 37.0bn Search
2005 2006 2007 2008 2009 2010 1.8bn

11 Source: Magna, US Census, Veronis Suhler, OPA www.MagnaInsights.com

 But Traditional Media Never Died
•This is true in established markets…

Media Reach By Country

100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%

Magazines
Newspapers

Internet
Radio
TV

12 Source: Magna, WARC, InternetWorldStats. Weekly reach figures for France and UK, daily for other countries. Reach definition for magazines = issue reach in France, Italy and Spain. www.MagnaInsights.com
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)
 But Traditional Media Never Died
•…And emerging ones

Media Reach By Country

100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
Radio

Internet
TV

Newspapers

Magazines
13 Source: Magna, WARC, InternetWorldStats. Weekly figures for Brazil and Russia. Russia, China and India magazines are issue reach figures. Indian TV and radio = daily, newspapers www.MagnaInsights.com
= 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
 But Traditional Media Never Died
•It also holds for young audiences…

14 Source: Magna analysis of Nielsen Media Research data www.MagnaInsights.com

 But Traditional Media Never Died
•…In the US and around the world

TV Reach: Adults and Teens

100.0%
90.0%
80.0%
70.0%
60.0% Adults
50.0%
40.0% Teens
30.0%
20.0%
10.0%
0.0%

Brazil
Italy
Germany

China
UK

US
Spain

Russia

India
France

15 Source: WARC www.MagnaInsights.com

 But Traditional Media Never Died
•Reflected in actual usage
• Conventional TV popularity: 100x vs. Online in 2011?

16 Source: Magna, Accustream www.MagnaInsights.com

 Consequences of Reach and Frequency Paradigm

•Models that were well-designed…

20 YEARS AGO

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 Consequences of Reach and Frequency Paradigm

•…For an era of homogenous media platform access…

20 YEARS AGO

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 Consequences of Reach and Frequency Paradigm

•…May not be as well-suited for a world of Web 2.0%…

TODAY

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 Consequences of Reach and Frequency Paradigm

•…Which will reach some audiences and miss others

TODAY

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 Drivers of Online Spend: Endemics, New Businesses

•Largest advertisers drive TV, smaller advertisers drive online

21 Source: Magna analysis of TNS-CMR data www.MagnaInsights.com

 Drivers of Online Spend: Endemics, New Businesses

•…Who benefit from a Democratization of Advertising

Ad Expenditures By Small Businesses
5.8 55.0

Billions of Ad Expenditure $ by
Expenditures
Millions of US Corporations

Corporations With <$10mm

5.6
45.0
With <$10mm Assets

5.4
5.2 35.0

Assets
5.0 Small Businesses
25.0
4.8
4.6 15.0
4.4
5.0
4.2
4.0 (5.0)
94

95

96

97

98

99

00

01

02

03

04

05
19

19

19

19

19

19

20

20

20

20

20

20

22 Source: Magna analylsis of IRS data www.MagnaInsights.com

 Drivers of Online Spend: Endemics, New Businesses

•Reflecting effectiveness for SMEs…

Advertising Dollars Spent Per Hour of Media Consumption

$10.00
$9.39 Search
$9.00
$8.00 Newspapers
$7.00
$6.00 Total Internet
$5.00
Consumer
$4.00 Magazines
$3.00 $0.94 TV
$2.00 $0.58
Radio
$1.00 $0.33
$0.00
$0.10
2005 2006 2007 2008 2009 2010 $0.08

23 Source: Magna, US Census, Veronis Suhler www.MagnaInsights.com

 Drivers of Online Spend: Cheap Reach For SMEs

1979 2009
Mass
Target
$100mm $1,000mm
Spend

Niche
Target $10mm $1mm
Spend

Source: Magna. Note: Figures are illustrative www.MagnaInsights.com

 Emerging Media: Systemic Growth Requirements

•Beyond search, emerging media = small business today

2008 Emerging Media Advertising

$12,000.0

$10,000.0

$8,000.0
(Millions)

$6,000.0

$4,000.0

$2,000.0

$0.0
Search All Other Emerging Media

25 Source: Magna, IAB www.MagnaInsights.com

 Emerging Media: Systemic Growth Requirements

•Impacting “gut” decisions

= ?
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 Emerging Media: Systemic Growth Requirements

•Establishing better infrastructure

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 Emerging Media: Systemic Growth Requirements

•Re-aligning organizational structure

PR / Corporate
CEO Communications

Other Corporate
COO
Functions

Operating Operating Operating Direct / CMO / Central Retail

Division Division Division Online Sales Marketing Distribution

Product Product Product

Branding Branding Branding Creative Media Other
Development Development Development

Marketing, PR, Marketing, PR, Marketing, PR,

Retail, Sales Retail, Sales Retail, Sales

28 Source: Magna www.MagnaInsights.com

 Emerging Media: Systemic Growth Requirements

•Focusing on people, not pages (or ratings)

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 Emerging Media: Systemic Growth Requirements

•Assessing value, not cost

Top 10 DMAs National Network

$>$
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 Emerging Media: Systemic Growth Requirements

•Transforming data into actionable insights

= +
?
31 www.MagnaInsights.com
Contact:

Brian Wieser, CFA

Tel: 646-865-2260
Email: brian.wieser@magnainsights.com

www.MagnaInsights.com