publishing and advertising 2013

Current Environment ............................................................................................ 1

Industry Profile .................................................................................................... 12

Industry Trends ................................................................................................... 15

How the Industry Operates ............................................................................... 24

Key Industry Ratios and Statistics................................................................... 32

How to Analyze a Publishing or Advertising Company................................ 34

Glossary................................................................................................................ 40

Industry References........................................................................................... 46

Comparative Company Analysis ...................................................................... 48

This issue updates the one dated October 20, 2011. The next update of this Survey is scheduled for October 2012.

Industry Surveys Publishing & Advertising Joseph Agnese, Publishing & Advertising Analyst

April 12, 2012

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Topics Covered by Industry Surveys

Aerospace & Defense

Airlines

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Apparel & Footwear: Retailers & Brands

Autos & Auto Parts

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Computers: Storage & Peripherals

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Financial Services: Diversified

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Investment Services

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Oil & Gas: Equipment & Services

Oil & Gas: Production & Marketing

Paper & Forest Products

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Publishing & Advertising

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Retailing: General

Retailing: Specialty

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Supermarkets & Drugstores

Telecommunications: Wireless

Telecommunications: Wireline

Transportation: Commercial

Global Industry Surveys

Airlines: Asia

Autos & Auto Parts: Europe

Banking: Europe

Food Retail: Europe

Foods & Beverages: Europe

Media: Europe

Oil & Gas: Europe

Pharmaceuticals: Europe

Telecommunications: Asia

Telecommunications: Europe

Tobacco: Europe

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S&P CAPITAL IQ INDUSTRY SURVEYS (ISSN 0196-4666) is published weekly. Reproduction in whole or in part (including inputting into a computer) prohibited except by permission of S&P Capital IQ. To learn more about Industry Surveys and the S&P Capital IQ product offering, please contact our Product Specialist team at 1-877-219-1247 or visit getmarketscope.com. Executive and Editorial Office: S&P Capital IQ, 55 Water Street, New York, NY 10041. Officers of The McGraw-Hill Companies, Inc.: Harold McGraw III, Chairman, President, and Chief Executive Officer; Jack F. Callahan, Jr., Executive Vice President and Chief Financial Officer; John Berisford, Executive Vice President, Human Resources; D. Edward Smyth, Executive Vice President, Corporate Affairs; Charles L. Teschner, Jr., Executive Vice President, Global Strategy; and Kenneth M. Vittor, Executive Vice President and General Counsel. Periodicals postage paid at New York, NY 10004 and additional mailing offices. Postmaster: Send address changes to S&P Capital IQ, Industry Surveys, Attn: Mail Prep, 55 Water Street, New York, NY 10041. Information has been obtained by S&P Capital IQ INDUSTRY SURVEYS from sources believed to be reliable. However, because of the possibility of human or mechanical error by our sources, INDUSTRY SURVEYS, or others, INDUSTRY SURVEYS does not guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.

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INDUSTRY SURVEYS PUBLISHING & ADVERTISING / APRIL 12, 2012 1

CURRENT ENVIRONMENT

Secular pressures offset more stable economic environment

A favorable cyclical environment led to improved advertising trends throughout 2010 and early 2011; however, the trend reversed in mid-2011. Despite a slowly improving macroeconomic environment, the recovery in newspaper advertising has stalled. We anticipate that circulation declines will persist and think secular issues facing newspapers will continue to play out in the form of significant decreases in print classified advertising, which dropped 10.7% in the first nine months of 2011, according to the Newspaper Association of America (NAA), a trade group. We believe newspaper circulation revenues contracted in 2011 and will continue to do so in 2012, partly as a result of continued industry efforts to intentionally reduce third-party circulation, and despite efforts to increase paid circulation. We see a continued emphasis on controlling costs via staff reductions and reduced benefit packages. While comparisons were more difficult in 2011 due to significantly higher paper pricing, despite lower newsprint usage, we believe comparisons will ease in 2012 on increased advertising demand from the Summer Olympics and the US presidential election.

Adverse secular impacts (i.e., advertising dollars following consumers to digital alternatives) and the decline in circulation continued into the first nine months of 2011, despite efforts to retain customers. In response, newspaper publishers continued to cut costs as a means of supporting margins. Areas targeted for cost reductions include paper and production (e.g., reducing the width of newspapers, consolidating printing facilities, and reducing print operations), manufacturing and distribution, and circulation (eliminating unprofitable circulation in areas outside of newspapers’ core markets). In addition, companies looked at opportunities to outsource and/or centralize such functions as production, circulation, finance, information systems, customer call centers, and advertising operations. We expect newspaper companies to continue expanding their Internet platforms in 2012 through acquisitions and by moving more of their proprietary content online.

Advertising demand remained soft in the first nine months of 2011 Publicly traded newspaper companies reported ongoing weakness in advertising revenues in the first nine months of 2011. According to statistics compiled by the NAA, total newspaper advertising revenues (including print and online) in the first nine months of 2011 declined 7.6%, year over year, compared with the 6.9% drop in the first nine months of 2010. Total print advertising expenditures declined 9.7%, year over year, in the first nine months of 2011. Growth in online advertising slowed to 6.2%, year over year, in

Table B12: Newspaper Ad Expenditures

NEWSPAPER ADVERTISING EXPENDITURES

------------------- EXPENDITURES (MIL.$) ------------------- -------------- YEAR-TO-YEAR % CHANGE --------------

YEAR NATIONAL RETAIL CLASSIFIED ONLINE TOTAL NATIONAL RETAIL CLASSIFIED ONLINE TOTAL

2011* 2,733 8,437 3,592 2,344 17,106 (11.0) (8.8) (10.7) 8.3 (7.6)2010* 3,069 9,256 4,024 2,164 18,513 (4.2) (10.0) (9.0) 9.7 (6.9)

2010 4,221 12,926 5,648 3,042 25,838 (4.6) (9.1) (8.6) 10.9 (6.3)2009 4,424 14,218 6,179 2,743 27,564 (26.2) (24.2) (38.1) (11.8) (27.2)2008 5,996 18,769 9,975 3,109 37,848 (14.4) (10.7) (29.7) (1.8) (16.6)2007 7,005 21,018 14,186 3,166 45,375 (6.7) (5.0) (16.5) 18.8 (7.9)2006 7,505 22,121 16,986 2,664 49,275 (5.1) (0.3) (1.9) 31.4 (0.3)2005 7,910 22,187 17,312 2,027 49,436 (2.1) 0.8 4.2 31.5 2.52004 8,083 22,012 16,608 1,541 48,244 3.7 3.1 5.1 26.7 4.52003 7,797 21,341 15,801 1,216 46,155 8.1 1.7 (0.6) … 4.72002 7,210 20,994 15,898 … 44,102 2.9 1.5 (4.4) … (0.5)2001 7,004 20,679 16,622 … 44,305 (8.5) (3.4) (15.2) … (9.0)2000 7,653 21,409 19,608 … 48,670 13.7 2.4 5.1 … 5.1*First three quarters of year; percentage changes are from same period in previous year.Source: Newspaper Association of America.

2 PUBLISHING & ADVERTISING / APRIL 12, 2012 INDUSTRY SURVEYS

the third quarter of 2011, from 8.0% in the second quarter—both figures were lower than the 10.6% year-over-year growth in the first quarter of 2011. While all major advertising categories (national, retail, classified, and online) experienced significant improvement in revenue trends through the end of 2010, contraction continued in each traditional category in the first nine months of 2011, with online being the only category to show growth. Advertising demand appeared to soften in 2011, reflecting clients’ increased concerns regarding the lack of macroeconomic visibility.

The ongoing fragmentation of advertising markets among various media and the growth of digital media pose significant risks to newspaper publishers. As consumers shift their attention to multiple news formats, advertisers continue to diversify spending by allocating greater portions of their spending budgets away from print publications and toward faster growing media.

Advertising revenue is generally based on audience levels and demographics, price, service, and advertising results. Growing competition stemming from the development of alternative media sources hurt newspapers’ ability to attract and retain advertisers and consumers, and to maintain or increase advertising rates. Other factors that have hurt advertising revenue include high unemployment levels, declining home sales prices, and other macroeconomic challenges affecting consumers.

To enhance their competitive position, newspapers are seeking to maintain and improve their reputations while differentiating themselves by offering quality journalism and content. While timeliness is very important to consumers (and is what drives electronic demand for news), newspapers continue to seek to stand out by providing more detailed analyses of news events. Below, we note some major factors that have influenced publishing advertising for the various categories.

Retail. Retail advertising is the largest advertising category for newspapers, contributing 57.2% of newspaper print advertising and 49.3% of total print and online advertising revenues in the first nine months of 2011. Overall, almost all of the retail segments witnessed a decline in spending, year over year, in the first nine

months of 2011, except apparel and accessories, which increased 9.2% (due primarily to growth in the second and third quarter). The two largest retail segments—general merchandise (with a 22.4% share of total retail advertising) and finance (with a 19.3% share)—registered year-over-year declines of 18.9% and 4.1%, respectively. To support the margins impacted by spiraling commodity prices, retailers reined in their marketing budgets, which resulted in lower ad spending. Ongoing housing market weakness continued to hurt department store and home-related advertising throughout 2011.

Classifieds. The classified category contributed 24.3% of total print newspaper advertising and 21.0% of total print and online advertising revenues in the first nine months of 2011. This category contracted the most over the past 10 years, with revenues falling 71% from a peak of $19.6 billion in 2000 to $5.6 billion in 2010. In the third quarter of 2011, the category reported a decline of 12.9%, year over year.

Automotive and real estate remained the weakest classified segments in the first nine months of 2011, declining 10.3% and 20.2%, respectively, year over year, compared to declines of 9.3% and 20.3% in the first nine months of 2010. These segments were affected largely by the Japanese tsunami in March 2011 and continued weakness in the US housing market. Recruitment, which was the only segment to show an upward trend during the first quarter of 2011, saw revenues drop about 4.9% in the third quarter. Nevertheless, for the first nine months of 2011, recruitment revenues dropped only 0.9%, versus a 7.1% decline in the comparable period a year earlier.

National. The national advertising category contributed 18.5% to print advertising revenues and 16.0% of total print and online advertising revenues in the first nine months of 2011. National advertising has

Table B03: Top 15 Categories by Ad Spending

AD SPENDING BY CATEGORY(Ranked by 2010 total US ad spending)

TOTAL AD SPENDING (MIL.$)

CATEGORY 2009 2010 % CHG.

Retail 15,082 15,632 3.6Automotive 7,165 8,371 16.8Personal care 5,718 6,408 12.1Restaurants 5,429 5,559 2.4Wireless service providers 5,475 5,368 (2.0)Prescription drugs 4,896 4,463 (8.8)Movie studios 3,642 3,574 (1.9)Household products 2,224 2,369 6.5Beverages 1,385 1,531 10.5Credit cards 808 1,408 74.3Beer marketers 1,249 1,247 (0.2)Source: Advertising Age.


historically been more volatile than retail advertising, rising faster during economic expansions and falling more sharply during contractions. National advertising revenues weakened in the first nine months by 11.0%, year over year, versus a 4.2% decline in the prior-year period. We expect significant secular pressures to affect this category as national advertisers pull back their spending on print advertising and shift their marketing budgets toward digital media.

Online. In the first nine months of 2011, online advertising revenues represented 13.7% of total newspaper advertising revenues. Online remained the only advertising category to show growth in the first nine months of 2011, when it increased 8.30%, a slower pace than the 9.71% growth seen in the prior-year period.

We expect publishers to continue to generate a greater proportion of their revenues online, helping leverage their cost structures and thus increase the likelihood of profitability. In our view, companies that are ahead of peers in switching to digital content (such as The New York Times Co., with 27.7% of advertising revenue from digital sources in full-year 2011) are likely to be ahead of pure-play newspapers in generating growth in earnings per share (EPS) in this beaten-down sector.

Circulation weakens as readers shift online Since 1990, newspaper circulation has been in a steady decline, with the drop accelerating in recent years, particularly among the top 25 metropolitan-area newspapers.

The March 2011 FAS-FAX report, published by the Audit Bureau of Circulations, reflected some changes that have been made in the methods of calculation. Total paid circulation changed to total average circulation, which will now include paid and verified print and digital editions. Digital editions (previously reported as electronic editions) will include more detail on replica and non-replica editions. Total average circulation will also include a separate category of branded editions. Further, there have been changes in the paid and verified reporting methods. Due to these changes, it is difficult to compare the September 2011 reported figures with

those of the earlier period.

The changes that the Audit Bureau has made show just how important the Internet has become as a distribution medium for publishers, who are increasingly focusing advertisers’ attention on the ability of newspapers to reach consumers in print and digital form.

The overall negative circulation volume trend reflects adverse cyclical and secular factors. Secular factors include intense competition for readership due to the development of new media

formats (e.g., mobile devices) and from other free non-print competition (such as broadcast TV and radio). As a result, more people are choosing to receive part or all of their news content from sources other than print newspapers. We believe newspaper circulation revenues contracted in 2011, partly because of continued industry efforts to intentionally reduce third-party circulation, and despite efforts to increase paid circulation.

MACROECONOMIC ENVIRONMENT STABILIZES

In 2011, we did not see any signs of a sustained recovery in the US economy. Two years after the recession officially ended, the outlook for strong growth remains uncertain. A continued high unemployment rate, improving but still weak consumer sentiment, and continuing softness in the housing market signal a disturbing weakness that exposes the US economy to an increased risk of a recession in the second half of

TOP 10 US NEWSPAPERS(For six months ended September 30, 2011)

TOTAL TOTAL

AVERAGE DIGITAL

NEWSPAPER CIRCULATION DIGITAL EDITION CIRCULATION

Wall Street Journal 2,096,169 Wall Street Journal 537,469USA Today 1,784,242 New York Times 380,003New York Times 1,150,589 New York Daily News 165,441New York Daily News 605,677 Newsday 112,486Los Angeles Times 572,998 Detroit Free Press 96,439San Jose Mercury News 527,568 Denver Post 84,304New York Post 512,067 New York Post 70,866Washington Post 507,465 Houston Chronicle 69,715Chicago Tribune 425,370 USA Today 52,396Dallas Morning News 409,642 Minneapolis Star Tribune 50,883Source: Audit Bureau of Circulation.


2012. In fact, as of March 2012, S&P Capital IQ saw a 20% chance of a recession beginning in the second half of this year.

GDP. Growth in real gross domestic product (GDP) slowed to 1.7% in 2011, from 3.0% in 2010. While the 2011 fourth-quarter data finally showed some improvement in the US economy, this was not enough to support expectations for a bounce in growth for the full year. As of February 2012, Standard & Poor’s Economics (which operates separately from S&P Capital IQ) was projecting an improved recovery for 2012, with 2.1% growth in each of the first two quarters, 1.6% in the third, and 1.9% in the fourth, to bring full-year 2012 growth to 2.1%.

Unemployment. The US unemployment rate remained at elevated levels in the first, second, and third quarters of 2011, reaching 8.9%, 9.0%, and 9.1%, respectively. However, the year ended with a drop in the unemployment rate to 8.7% in the fourth quarter. As of February 2012, Standard & Poor’s Economics was estimating that the unemployment rate would drop further in 2012, to 8.4%, down from 8.9% in 2011 and 9.6% in 2010.

Consumer prices. The Consumer Price Index (CPI) rose significantly in 2011, up 3.1% compared to 1.6% in 2010. In 2011, growth in packaged food ad demand was weak: clients decreased marketing budgets in the face of margin pressures from rising food cost inflation, resulting in a 4.4% decline in food and candy spending, according to Kantar Media. As of February 2012, Standard & Poor’s Economics expected the CPI to be 2.1% for 2012.

Consumer spending. Consumer spending, which accounts for about two-thirds of GDP, grew 2.2% in 2011. Given that wages have also been stagnant and that US consumers are exhibiting a newfound parsimony, we think consumer spending may be adjusting to a “new normal.” Moreover, the dramatic remaking of vast swathes of the US economy during the recent recession has likely resulted in a new equation: not only how much businesses spend on advertising, but also where they spend the dollars allocated to advertising. As of February 2012, Standard & Poor’s Economics was estimating that consumer spending would grow 2.0% in 2012.

Consumer confidence. The Conference Board’s Index of Consumer Confidence showed positive consumer confidence in the first half of 2011 with readings in the range of 60–70. However, the index dropped to 45.2 in August and to 40.9 in October, due to concerns over the Eurozone crisis and the continued weak macroeconomic recovery. In the last two months of 2011, the index showed marked improvement, at 55.2 and 64.8, respectively, for November and December. In February 2012, the index increased to 70.8, up from 61.5 in January, and close to the level seen in February 2011. According to the Board, consumers were more optimistic about the near-term outlook for the economy and the employment situation.

Interest rates. After gaining some momentum in the first quarter of 2011 (when it reached 3.75% on February 8), the yield on the 10-year Treasury bond (a good proxy for long-term interest rates) declined significantly and ended the year at 1.89% on December 31. With the Fed’s announcement in August 2011 that it would keep the federal funds rate close to zero for the next two years, we do not expect to see any rebound in interest rates in the short term.

NEWSPAPERS MOVE TO PAID ONLINE MODELS

Large newspaper publishers are making progress in efforts to charge their audiences for online content, as an increasing number of readers have abandoned print publications in favor of digital alternatives. Although cyclical pressures eased significantly in 2010, secular pressures stemming from the shift of advertising revenues to the Internet continue to hurt newspaper publishers’ top lines.

In trying to maximize both reach and advertising revenues, print publishers face a delicate balancing act within their online businesses. Publishers are cautiously examining the possibilities of instituting differing kinds of accessibility to their websites’ content. In this way, newspaper publishers are moving forward in their efforts to monetize their online content. Most newspaper websites that used to be free are now testing


the feasibility of these paid models. The paid models include monthly charges for access, daily passes, and micropayments (fees to access individual articles, geared mostly to search-directed site visits), as well as a mixture of free and fee-based access. Sites that target niche markets with specialized content for which competition is limited have experienced success within a paid-content model. Such examples include the Wall Street Journal and the Financial Times.

However, for non-specialized news sites, which may provide redundant general news content, risks are high, as competition from free news sources is intense. In June 2010, the Times of London began charging customers for full access to its site. In October 2009, Cablevision Systems Corp. (owner of Newsday) began implementing a paid model for online access to Newsday.com, while offering online access at no charge to existing newspaper customers, and users of its television, Internet, and phone services. The company is using its print offering as a form of differentiation from competitors.

The New York Times opts for the metered model… In March 2011, The New York Times Co. launched a metered model for NYTimes.com, with the intention of creating a second revenue stream while preserving NYTimes.com’s advertising business. The company began charging only its heaviest users (those who view over 20 pages per month) for content, while preserving free access for those who pay for the print edition and light users who utilize news aggregation services. Readers who come to NYTimes.com articles through links from search, blogs and social media (such as Facebook and Twitter) will be able to read those articles, even if they have reached their monthly reading limit. However, for some search engines, users will have a daily limit of free links to articles.

As part of its paid content model, the New York Times charges $15 for four weeks of full and unlimited access to NYTimes.com on any device and to the NYTimes app for smartphones (Blackberry, iPhone, or Android-powered phones). The company charges $20 for four weeks of access to NYTimes.com and access from its app for iPad and Times Reader 2.0; $35 buys access through all devices and apps for four weeks.

To increase the accessibility of its content on NYTimes.com, the company offered an additional login to subscribers to share with their household members. We believe that subscriptions for the print edition rose after the company launched this model, as these readers gain free online access. The company expects to capitalize on the model in the long run. In 2011, NYTimes.com had an average of 33 million users in the US and about 48 million globally.

In October 2011, the company also moved to a paid subscription model at the Boston Globe, with access being made available to BostonGlobe.com for print subscribers at no cost, while the company charges others $3.99 a week only for the online access. The website, which is completely subscription-based, will feature newspaper content along with breaking news that used to be available free at Boston.com. However, the company will continue to operate Boston.com, which will feature some free articles from the Boston Globe, blogs, photo galleries, sports coverage, and breaking news. At the end of the fourth quarter of 2011, there were a total of 16,000 subscribers to BostonGlobe.com and the Boston Globe’s e-reader and replica editions. Also in October, the company launched digital subscription packages at the International Herald Tribune. At the end of the fourth quarter of 2011, there were a total of 406,000 paid subscribers to its digital subscription packages, including the e-reader and replica editions.

For the fourth quarter of 2011, The New York Times reported a 7.1% year-over-year decline in total advertising, as digital advertising decreased 4.9% and print advertising dropped 7.8%.

We note that companies that adopt a paid online model risk declining traffic levels, which would likely hurt the advertiser base and advertising rates, and result in an overall decline in online revenues. However, by adopting a metered model (allowing readers access to a limited amount of free content), the New York Times hopes to monetize its most loyal viewers, while also preserving advertising revenues generated by the viewership support of lighter users.

…as others look to adopt paid content strategies During its 2011 fourth-quarter earnings call in January 2012, Gannett Co. Inc. announced its plan to introduce a new subscription model in six markets. The paid content model will provide subscriptions to the


Internet, mobile, e-reader, and tablet formats, with an option to decide the frequency of the home delivery print edition. The model will restrict digital access for non-subscribers to a few free articles per month (ranging from five to 15 such articles), based on the website. The company plans to introduce the model on more than 80 community newspapers and websites by the end of 2012. Gannett expects the new model to increase revenue by $100 million per year, beginning in 2013.

In August 2011, during its 2011 second-quarter earnings call, E.W. Scripps Co. revealed its plans to introduce a metered model, which it would roll out over the next 12 months. The company will maintain free online access for print subscribers, but plans to launch a paid model for mobile applications on different devices. The company said it is testing subscription models for some of its newspapers and bundling strategies, in which it bundles access to a number of media offerings (newspapers, smartphone and tablet applications, and websites) into one subscription price.

Also in August, The Onion, a satirical news publication, announced that it was testing a metered model under which users who view more than five articles per month will be charged a monthly fee of $2.95, or an annual fee of $29.95. The paid content model was being implemented first for its international users, but could be expanded to include its domestic readers in the future, subject to a positive response overseas.

In March 2011, A.H. Belo Corp.’s Dallas Morning News adopted a premium subscriber model, in which premium digital content is available only to paying print or digital subscribers. In contrast to the New York Times, the Dallas Morning News provides free smartphone and iPad apps to print subscribers. For non-print subscribers, digital access is available for $9.99 per month.

PUBLISHERS HAVE HIGH HOPES FOR ELECTRONIC READERS

Strong growth of the electronic reader (e-reader) market in the first nine months of 2011 is providing a significant opportunity for publishers to try to monetize their content offerings. According to the Worldwide Quarterly Media Tablet and eReader Tracker report from International Data Corp. (IDC), a global technology research firm, in the third quarter of 2011, “eReaders enjoyed 165.9% year-over-year growth as the devices continue to grow in overall popularity.” According to IDC, the growth will continue in the last quarter with the introduction of new products and price cuts from major vendors. The report noted that the introduction of products such as Amazon’s $79 entry-level Kindle and $99 touch-based Kindle led to price cuts in the market.

Products such as Apple’s iPad, Barnes & Noble’s Nook, and Amazon’s Kindle have received worldwide acceptance, dominating the e-reader market. The availability of these new portable electronic devices is encouraging consumers to move away from traditional print platforms and toward viewing material on digital screens. The e-reader market is growing quickly, with sales estimated at 10.3 million units in 2010 and 24.1 million units in 2011, according to Forrester Research.

Growth and acceptance of electronic readers present a significant opportunity for print publishers. The ease with which publications can be disseminated and read on wireless reading devices (including tablets and smartphones) is likely to increase consumption, boost reach, and grow revenues. Additionally, growth of electronic markets is leading to a significant reduction in costs for print publishers through a reduced inventory carrying risk, lower distribution costs, and decreased raw material costs (less paper).

Though the e-reader market looks attractive, it may not compensate completely for the decline in print sales. An April 2011 press release from IHS iSuppli, a market research firm, stated, “Book revenue for U.S. publishers, including both e-books and paper books, will decrease at a compound annual growth rate (CAGR) of 3% from 2010 to 2014. This marks a shift from the previous period of 2005 to 2010, when revenue grew slightly. The overall weakening will be spurred by a 5% decrease in the CAGR of physical book sales from 2010 to 2014. While e-book sales will soar by 40% during the same period, such an increase won’t be sufficient to compensate for the contraction of the larger physical book market.”

Publishers desire a healthy competitive environment within the e-reader market. However, expansion into this market comes with risks. If a single device maker were to consolidate a majority of the market,


publishers could face a significant threat as they might eventually be forced to decide between lower prices or losing access to their market—an outcome likely to result in increased pricing pressure. As things currently stand, most e-books are compatible with a number of text formats, and many e-books are compatible with a number of operating systems. In addition, there is at least one way to purchase a book and be able to read it on up to five different e-readers (Adobe offers a product for this).

Although Apple’s iPad is categorized as a tablet, it continued to command a leading position in the e-reader market. According to IDC, Barnes and Noble Inc.’s Nook took the lead in e-books from the former market leader, Amazon.com’s Kindle, in the first half of 2011. Publishers hope increased competition from other players, including Sony Corp. (Reader) and Google Inc., among others, will eventually help open up the market and give publishers leverage over the device makers. In July 2011, iRiver announced its partnership with Google Books, which will enable iRiver, a South Korean consumer electronics company, to offer Google’s eBook Platform on its new e-reader, the Story HD, which is priced in the same range as Nook and Kindle, thus further increasing the competition. With expectations for significant growth in the e-reader market, newspaper and magazine publishers are hoping its popularity will help them monetize online content offerings. Publishers are working to establish a convenient and superior reading experience in an effort to entice readers to purchase content through the devices. Audio and visual capability may enable publishers to charge customers for added features, such as embedded video or music.

Apple and Google unveil digital subscription services In early 2011, Apple unveiled a new subscription service for digital content on its iPhones and iPads. (Before this iPad subscription service was available, consumers were only able to purchase iPad editions of content on a monthly basis or a daily edition of a newspaper.) While there is hope that an Apple subscription service will become a major revenue driver for newspaper publishers, it comes with caveats and limitations: Apple will charge a revenue-sharing fee of 30% of sales for use of its iTunes store It will limit the availability of iTunes subscription customer information (such as names, email

addresses, and credit card numbers), which publishers could use to help generate advertising revenue and target new offers to readers, unless consumers actively choose to share their information with publishers

Apple will allow companies to sell digital content directly from their own sites and not pay any revenue-sharing fees, but the content cannot provide a link to Apple, and the price of the content available on iTunes must be the same or lower than that provided on a company’s site.

In February 2011, Google began offering its own subscription service called One Pass, allowing customers to use one account to pay for access to publications on the Internet and across digital devices. Google will charge publishers 10% of revenues, letting them control pricing. Additionally, Google will allow publishers to have access to customer data so that they can market better in the future.

Book publishers sign deals with e-reader companies The six largest book publishers have signed agreements with Apple to offer books through its iPad electronic reader. Random House Inc. (a division of Bertelsmann AG) was the last to sign an agreement in early March 2011. The other five book publishers had all quickly signed agreements with Apple in 2010: Hachette Book Group (a division of Hachette Livre), HarperCollins Publishers Inc. (News Corp.), Macmillan Publishers Ltd. (privately owned), the Penguin Group (Pearson plc), and Simon & Schuster Inc. (CBS Corp.).

Under agreements with Apple, Apple receives 30% of the sales price and publishers take 70%. This is based on an “agency model”—the concept that the publisher sets the price and sells directly to the consumer, while the retailer gets a commission from each sale.

In August 2011, a class action lawsuit was filed against Apple and some of the publishers it has agreements with, charging that they “colluded to increase prices for popular e-book titles to boost profits and force e-book rival Amazon to abandon its pro-consumer discount pricing.” The lawsuit is expected to result in reduced e-book prices without affecting the growth of e-book sales.

Amazon, in contrast, initially had been using a “wholesale model” with publishers for digital book sales. Under this arrangement, Amazon had set a price of $9.99 on digital titles for its Kindle, taking a loss on the


difference between the wholesale and the retail price. The company planned to use the attractive sales prices to entice consumers to purchase its Kindle e-reader, essentially subsidizing losses on books with profits from e-reader sales. While publishers were to receive higher wholesale payments (in line with what booksellers

typically pay for print editions) under Amazon’s original deal than under the iPad arrangement, Amazon controlled the final selling price of the books it sold.

While Amazon’s agreement is more likely to result in greater growth in volumes sold initially (due to more aggressive retail pricing), publishers were concerned that if Amazon gained significant market power, it would eventually push for (and receive) lower wholesale pricing. Meanwhile, publishers feared the lower sales prices for digital books were weakening pricing power of physical books, which account for the vast majority of current sales and sell at significantly higher prices than digital books.

Book publishers are looking for competition within the e-reader market to help them retain pricing power. They welcomed the arrival of

Apple and its competing product, as it allowed them to gain greater leverage in future pricing negotiations with competitors. Following the launch of Apple’s iPad, Amazon was forced to re-negotiate with book publishers due to the risk they might withhold books.

SUPREME COURT CAMPAIGN FINANCE RULING BENEFITS AD SPENDING

In January 2010, the Supreme Court ruled that money spent by corporations and unions on supporting or opposing candidates cannot be restricted. This ruling in the Citizens United case reversed the McCain-Feingold law that prohibited corporations and unions from running ads within a certain period prior to elections. As a result, ad spending leading up to the US midterm elections in 2010 increased significantly from the level reached in the midterm elections in 2006. S&P Capital IQ Equity Research believes the easing of restrictions on corporate political spending will have favorable implications for future political advertising spending as well, including future presidential elections.

Borrell Associates Inc., a research and consulting firm, estimates that $4.2 billion was spent on political advertising in 2010, double the $2.1 billion spent in 2008—a presidential election year, when spending would normally be higher than in a midterm year like 2010. If current projections hold, this year’s elections will be the most expensive in US history.

While most political spending is not directed at print media, Borrell estimated that newspapers got about 8% of the total spending in 2010 and are best positioned to capture dollars from local and state political candidates. Publishers’ political revenues tend to benefit when there are a number of issues to vote on or when there are more close races, because efforts to influence those elections often mean increased spending. The long-term outlook is less clear, however, as the potential exists for Washington to enact counter legislation that would restrict corporate and union spending. However, we believe that with the Citizens United ruling in place, political spending will surge in 2012, a presidential election year. GroupM, an advertising media company, in its biannual worldwide report released in December 2011, predicted a 6.4% increase in global ad spending in 2012, largely due to the Summer Olympics and the 2012 US political campaigns and elections, European football, and the tremendous recovery in Japanese advertising. We also think that global ad spending will reach record levels in 2012.

Table H01: Publishers’ Net Book Sale Growth

25.5

8.4

(4.7)

(15.6)

(17.5)

(35.9)

117.3

(40) (20) 0 20 40 60 80

Audiobooks,downloaded

E-books

Religious

Children's/Youngadult hardcover

Adult massmarket

Adult tradepaperback

Adult tradehardcover

PUBLISHERS' NET BOOK SALE GROWTH—2010-11(In percent)

Source: Association of American Publishers.

120


MAGAZINES: ADVERTISING FLAT AS SALES SLIP

In 2011, the number of ad pages in consumer magazines declined 3.1%, year to year, according to Publishers Information Bureau (PIB), a compiler of industry data. Based on rate cards (posted prices that are often discounted), ad sales for consumer magazines increased slightly by about 0.04% in 2011.

Magazines experienced ad revenue and page growth in three of 12 major advertising categories in 2011, reflecting both easier comparisons and increased spending. The three fastest growing categories, based on page gains, were toiletries and cosmetics; apparel and accessories; and financial, insurance and real estate. Apparel and accessories gains were driven by ad spending on luxury brands, as well as ads for jewelry, watches, and footwear. Improvement in banking, insurance, investment, and credit card business, contributed to the growth in financial. Increased spending on recession-resistant segments of cosmetics, perfumes, and hair products, helped the toiletries category. The three weakest categories were food and food products; home furnishings and supplies; and public transportation, hotels, and resorts.

In the year ahead, we expect the recovery in consumer magazine

advertising to continue, but at a more moderate pace. We think that slow economic growth, combined with adverse secular trends (increased digital versus print consumption of magazines), should continue to hurt magazine ad demand in 2012.

ADVERTISING: QUADRENNIAL BENEFITS TO BOOST 2012 AD DEMAND

Spending on measured media in North America (of which about 96% is from the US and the remainder from Canada) rose 2.6%, to $161.7 billion, in 2010, according to ZenithOptimedia. (The measured media category includes television, radio, press, cinema, outdoor, and Internet; it excludes direct mail, promotions, and other categories.) The forecasting group, in its December 2011 report, projected that ad spending would rise by 3.5% to $165.5 billion in 2011. While the Winter Olympics and midterm Congressional elections, combined with easier comparisons, led to significant sales growth in 2010, comparisons will be more difficult in 2011. Growth should continue to accelerate around the world in 2012, when a 3.6% increase in ad spending in North America to $171.5 billion is projected.

Globally, ZenithOptimedia projected growth of 4.7% in advertising in 2012, following 3.5% growth in 2011. Internet advertising is expected to lead the way again, though rising at a lower rate of 15.7% (versus

Table B11: Magazine Ad Page Leaders

MAGAZINE AD PAGE LEADERS(Ranked by 2011 ad pages)

TOTAL AD SPENDING

--- TOTAL AD PAGES --- ----------- (MIL.$)† -----------

MAGAZINE 2010 2011 % CHG. 2010 2011 % CHG.

1. People 3,556 3,357 (5.6) 1,014.3 996.8 (1.7)2. New York Magazine 2,473 2,608 5.5 188.2 203.6 8.13. Bride's 2,671 2,603 (2.5) 217.9 222.4 2.14. In Style 2,512 2,545 1.3 367.7 389.8 6.05. Vogue 2,306 2,510 8.8 342.2 389.6 13.86. Elle 2,287 2,316 1.2 307.1 331.2 7.87. New York Times Magazine* 2,250 2,204 (2.1) 262.9 258.8 (1.5)8. Flex 2,497 2,051 (17.9) 36.2 29.4 (19.0)9. Economist 2,045 1,986 (2.9) 126.8 126.0 (0.7)

10. Texas Monthly 1,632 1,813 11.1 61.9 69.9 12.811. Forbes 1,845 1,772 (3.9) 252.9 255.1 0.912. US Weekly 1,697 1,727 1.8 333.0 354.2 6.413. Harper's Bazaar 1,794 1,656 (7.7) 206.7 201.4 (2.6)14. Bridal Guide 1,558 1,598 2.5 65.8 69.9 6.215. Real Simple 1,640 1,554 (5.2) 276.9 278.6 0.616. Bloomberg Business Week 1,291 1,537 19.0 172.7 223.4 29.417. Fortune 1,539 1,526 (0.9) 195.3 204.0 4.518. Glamour 1,624 1,502 (7.5) 320.6 311.7 (2.8)19. Sports Illustrated 1,567 1,494 (4.7) 572.0 576.5 0.820. Muscle & Fitness 1,705 1,483 (13.0) 92.2 84.5 (8.4)21. Vanity Fair 1,431 1,477 3.2 236.2 261.2 10.622. Cosmopolitan 1,475 1,462 (0.9) 376.6 399.2 6.023. Better Homes & Gardens 1,739 1,439 (17.2) 843.7 725.0 (14.1)24. Family Circle 1,693 1,435 (15.2) 443.9 392.1 (11.7)25. Marie Claire 1,518 1,379 (9.1) 532.7 511.5 (4.0)†Based on rate cards, whose prices may exceed what advertisers actually paid. Mayexclude internet advertising. *Sunday magazine.Source: Magazine Publishers of America.


a 13.9% gain in 2011), for an overall advertising market share of 17.6% (up from 15.9% in 2011). Television advertising, with its 40.4% projected market share (up from 40.2% in 2011), is expected to rise 5.1% (versus a 4.3% increase in 2011) to $193.7 billion.

Rounding out the forecaster’s estimates, newspapers’ share of advertising is expected to dip to 18.7% in 2012 (from 20.0% in 2011), with spending down 1.8% (versus a decline of 3.3% in 2011). Magazines’ share is projected at 8.9% (down from 9.4% in 2011), with ad spending down 1.0% (versus a 1.4% decline in 2011), while radio’s share is projected at 7.0% (down slightly from 7.2% a year earlier), with ad spending up only 2.3% (2.8%). Outdoor’s share is projected at 6.9% (up from 6.8% in 2011), with ad spending growth of 5.2% (up from 4.9% in 2011); cinema’s share is projected to be stable at 0.5%, though with a rise in spending of 5.0% (versus an increase of 5.6% in 2011).

Internet ad spending share continues to advance In recent years, online spending has been the fastest growing of all direct marketing channels, driven largely by advertisers’ desire to tap the rapid growth of the online retail market. In the first half of 2011, US Internet advertising revenues were up 23% (versus an increase of 11% in the prior-year period), according

to a report from the Interactive Advertising Bureau (IAB), a trade association, and PricewaterhouseCoopers LLP. In the third quarter of 2011, Internet revenues reached a record level of $7.8 billion, up 22%, year over year, reflecting a more stable economic outlook and easier comparisons. Among various media advertising categories (e.g., newspapers, broadcasting), S&P Capital IQ believes the Internet will continue to gain market share in ad spending over the next few years.

The largest portion of online advertising in the first half of 2011 continued to be from keyword search, which garnered a 49% share (or $7.3 billion) of Internet advertising in that period, up 27% from the year-earlier period. Display advertising had a 37% share and grew 27% in the first half of 2011, including digital video advertising sales of about $891 million, up 42% from in the same period in 2010. Classifieds revenue represented only 8% of online advertising and was down 2% in the first half of 2011. Lead generation revenues accounted for 5% ($805 million) of the total in the first six months of 2011.

Internet advertising continues to be concentrated, as 10 major players generated more than 72% of the revenues in the second quarter of 2011. Retail advertisers contributed 23% of total Internet

spending in the first half of 2011, followed by telecom companies (14%) and financial services (13%). In addition to providing another way to target and reach consumers, the Internet offers the transparency and accountability that advertisers seek. Webmasters can track the number of “page views”—connections made to a website over the Internet or another network—on a given site. In addition, search engines can be used to monitor the kinds of searches that viewers conduct, generating valuable consumer data. For example, a web surfer interested in airfares is also likely to want information on hotels at the requested destination and perhaps rates on car rentals. A job seeker may be interested in professional training opportunities. Tracking search patterns enables advertisers to target their ads more effectively.

Table B09: Top 10 Advertisers, by Medium

TOP 10 ADVERTISERS, BY MEDIUM(Ranked by 2010 ad spending)

COMPANY 2009 2010 % CHG.*

MAGAZINES

1. Procter & Gamble Co. 957.7 1,096.9 14.52. L'Oreal 393.1 566.1 44.03. General Motors Corp. 275.9 409.6 48.54. Kraft Foods 293.2 347.3 18.55. Pfizer 318.0 333.3 4.86. Johnson & Johnson 323.3 293.4 (9.2)7. Nestlé 236.7 285.3 20.58. Time Warner 242.4 260.4 7.49. Merck 248.6 233.1 (6.2)

10. Unilever 289.5 227.8 (21.3)NEWSPAPERS

1. Macy's 535.9 470.5 (12.2)2. Verizon Communications 475.5 291.0 (38.8)3. General Motors Corp. 632.5 245.6 (61.2)4. News Corp. 200.7 235.0 17.15. Fry's Electronics 206.9 227.8 10.16. AT&T 257.9 214.9 (16.7)7. Procter & Gamble Co. 188.0 202.7 7.88. Sears Holdings Corp. 167.7 157.4 (6.1)9. Target 146.1 142.2 (2.7)

10. Comcast 170.0 131.8 22.4*Based on unrounded data. Source: Advertising Age.

TOTAL AD SPENDING (MIL.$)


Fragmentation yields opportunity for ad agencies Because new media are essentially uncharted territory, advertisers as well as agencies are still exploring this segment’s marketing potential, which may be immense given the reach, immediacy, and possibilities for customization that it offers. The increased use of digital advertising on the Internet and other forms of interactive media have led to the creation of a large number of agencies specializing in one or more areas, such as e-mail or mobile communications.

While the proliferation of new media outlets has hurt traditional media, advertising agencies have benefited from the trend, in our view. As the number of media advertising alternatives grows, it becomes increasingly difficult for advertisers to know where best to spend their advertising budgets. Thus, one of the main functions of an advertising agency has become advising clients on how to get the best return on investment for their advertising budgets. The increased complexity creates an opportunity for agencies to add value for clients by providing informed opinions on how advertising dollars should be apportioned across various alternatives.

As advertising has become more fragmented and advertisers place greater emphasis on measuring returns for their advertising spending, the larger agencies have diversified their revenue streams to capture new sources of revenue, including direct marketing and event promotion.

Consolidation among ad agencies The advertising industry has also had its share of consolidation in recent years, which has led to a concentration of ad spending among fewer, more powerful players. Such shifts have provided many new opportunities for large advertising holding companies, which have responded in part by acquiring independent agencies. Consolidation among independent agencies is an ongoing trend as well.

Perceived low barriers to entry make it relatively easy for creative talents to launch their own agencies, causing an inherent oversupply in this segment. Independent agencies are more vulnerable than their holding company counterparts to shifts in market conditions, and the loss of a single major account can force an agency to close entirely or be sold to a competitor.

Due to the recession, merger and acquisition (M&A) activity has moderated, with fewer and smaller deals being done. In June 2011, WPP plc acquired a 70% stake in F.biz Ltda., Brazil’s largest independent digital ad agency. The company also revealed its plans to spend between $300 million and $400 million in acquisitions in 2012, in line with the $381 million spent in 2011, to expand in emerging markets and new media. Over the longer term, we expect the consolidation trend to continue, especially among those agencies that specialize in new media or focus on emerging markets.


INDUSTRY PROFILE

New delivery systems change the mix for publishers and advertisers

The publishing industry continues to focus on the delivery of information and entertainment to consumers, often supported by advertising. However, changes in the delivery of published material—largely involving the Internet—have brought many new industry entrants, including such large companies as Google Inc. and Amazon.com Inc. As a result, traditional definitions of the publishing industry are in flux. We see traditional print product providers increasingly aiming for distribution and revenue from various forms of digital delivery.

The three main forms of print publishing are newspapers, magazines, and books, all of which are increasingly providing content on the Internet or through digital platforms such as electronic readers (e.g., Amazon’s Kindle). The potentates of print increasingly face competition from other Internet publishers that have eschewed ink and paper altogether.

While traditional print publishers remain a major presence, including their development of popular websites, we think the publishing industry’s barriers to entry have dropped dramatically. With no need for printing presses or postage, a new publishing website can be started with very little capital. With lower delivery costs, electronic publishers can rely less on advertising dollars to support their ventures.

In addition, search engines and aggregators of web-based information enable consumers to sift and choose among thousands of publishing sites. As a result, consumers often find free material to read that in the past

Table B06: TOP 25 COMPANIES BY US AD SPENDING

TOP 25 COMPANIES BY US AD SPENDING—2010(Ranked by total ad spending, in millions of dollars)

TOTAL AD

COMPANY MAGAZINE NEWSPAPER OUTDOOR TV RADIO INTERNET OTHER* SPENDING†

1. Procter & Gamble 1,096.9 202.7 3.3 1,851.8 17.7 168.8 1,273.7 4,614.72. AT&T 49.3 214.9 51.2 1,515.9 144.4 139.6 873.7 2,989.03. General Motors 409.6 245.6 17.5 1,202.6 56.0 240.0 697.7 2,869.04. Verizon Communications 87.1 291.0 69.6 1,106.1 154.3 169.2 573.7 2,451.05. America Express 63.2 130.3 22.2 227.8 45.8 132.0 1,601.3 2,222.66. Pfizer 333.3 65.9 0.6 831.3 32.1 46.4 814.5 2,124.17. Walmart Stores 191.9 45.2 3.2 524.3 80.6 58.0 1,152.1 2,055.38. Time Warner 260.4 96.8 62.4 698.6 31.9 63.2 831.0 2,055.39. Johnson & Johnson 293.4 40.8 1.4 805.0 6.7 49.8 829.3 2,026.5

10. L'Oréal 566.1 38.9 1.8 536.5 0.6 8.9 825.9 1,978.811. Walt Disney 178.1 87.7 36.3 546.1 58.5 186.9 838.0 1,931.712. JPMorgan Chase 59.6 92.1 36.3 272.7 62.1 37.2 1,356.6 1,916.713. Ford Motor 144.7 20.1 3.9 809.8 32.9 145.4 758.1 1,914.914. Comcast Corp. 107.3 131.8 53.9 708.7 211.9 165.1 473.7 1,852.515. Sears Holdings 29.5 157.4 0.9 470.7 29.2 14.6 1,076.3 1,778.616. Toyota Motor 140.1 31.4 17.2 795.6 6.0 131.3 613.9 1,735.717. Bank of America 37.2 34.7 11.0 220.9 3.8 78.6 1,166.5 1,552.618. Target Corp. 102.9 142.2 14.5 337.5 25.2 27.7 858.0 1,508.019. Macy's 84.8 470.5 4.6 281.0 34.0 14.9 527.3 1,417.020. Sprint Nextel 79.5 45.1 13.3 594.6 12.2 241.1 414.1 1,400.021. Unilever 227.8 42.2 2.0 510.7 8.2 35.5 552.9 1,379.222. Anheuser-Busch InBev 40.6 2.5 34.3 446.4 25.3 11.7 797.1 1,357.923. Berkshire Hathaway 152.5 19.6 30.0 648.9 102.8 13.7 376.2 1,343.624. News Corp. 54.0 235.0 32.0 466.1 84.4 79.4 368.5 1,319.525. J.C.Penney 51.4 102.3 1.5 214.5 24.5 19.8 903.0 1,317.0

* Estimated unmeasured media, which includes direct marketing, promotion, Internet paid search, and other forms of spending not tracked in measured media. †Totals may not add due to rounding.Source: Advertising Age.


would have either been unknown to them or required a purchase. However, even when published material is seen as free, it may be preceded or accompanied by advertising.

US consumers still spend billions of dollars annually on printed books, magazines, and newspapers, mostly in the form of single-copy purchases or subscriptions. In addition, we see millions of hours and billions of dollars being directed toward Internet access and various digital reading devices. Nevertheless, much of the financial support for newspapers and magazines comes from advertisers looking to attract readers to their products. Overall, for traditional print publishing, we estimate that advertising represents roughly 80% of revenues for US newspapers, 55% for consumer magazines, and up to 100% for some other publications, such as business trade magazines.

NEWSPAPERS: AN ADVERTISING MAGNET

Newspaper advertising revenues totaled $23.9 billion in 2011 (versus $25.8 billion in 2010), according to the Newspaper Association of America. In 2010, among mass media that sell advertising space, newspapers had the third largest share of advertising across measured media in the US (after network television and consumer magazines). Circulation declined 4.2% to 39.1 million in 2009 (latest available) and is fairly concentrated among the largest papers: the 20 biggest US newspapers account for about 25% of average weekday circulation.

The biggest parent companies account for a disproportionate share of newspaper circulation. The top five newspaper companies own more than 300 daily newspapers. The largest newspaper company in terms of circulation and newspaper revenues is Gannett Co. Inc., which owns 83 US dailies.

MAGAZINES: FRAGMENTED, BUT WITH SOME BIG PARTICIPANTS

Thousands of consumer and business magazines are published in the US, but we believe that a relatively small number account for much of the industry’s circulation and advertising revenue. A small group of companies, some of which also have other media properties, own many of these leading publications. According to the MPA (formerly the Magazine Publishers of America), 20,707 consumer magazines were published in North America in 2010.

According to the MPA, paid circulation revenues totaled $8.8 billion in 2010. The vast majority of circulation is from subscriptions, which generated $6.2 billion (71% of paid circulation) in revenue. Single copy circulation generated the remaining $2.5 billion of revenues in 2010.

BOOK PUBLISHING: A CONCENTRATED CORE

Traditionally big book buyers, Americans continue to spend more on books than on any other medium except cable TV. According to the Association of American Publishers Inc. (AAP), a book publishing trade group, total sales for the trade, higher education and professional/scholarly publications markets (which excludes K-12 data) for its members in the January-May 2011 period fell 5.1%, to $2.97 billion, from $3.13 billion in the same period in 2010.

Compared with other industries, book publishing is not highly concentrated. Of the more than 87,000 book publishers in the US, most are small mom-and-pop desktop operations. However, larger firms have been gaining market share, and a handful of publishers dominate certain industry segments. Educational publishing is one such highly concentrated sector. It is dominated by Houghton Mifflin Harcourt Publishing Co., McGraw-Hill Education (a unit of the McGraw-Hill Companies Inc.), Pearson Education Inc. (a unit of Pearson plc), Scholastic Corp., and John Wiley & Sons Inc.

Other categories dominated by a relatively small number of giants include adult and children’s trade books, mass-market paperbacks, and religious books. According to BISG data, the top five trade publishers—Random House Inc. (a division of Bertelsmann AG), HarperCollins Publishers Inc. (News Corp.), the Penguin Group (Pearson plc), Simon & Schuster Inc. (CBS Corp.), and Time Warner Book Group (Time Inc.)—account for roughly 50% of total sales of trade books (adult, children’s, and mass-market


paperbacks). Thousands of other publishers also participate in these segments because the barriers to entry are not as high as in educational publishing, where only the biggest can compete.

ADVERTISING: CONTINUED EVOLUTION

Media services provider ZenithOptimedia, as of December 2011, estimated that global spending on major media would grow by 3.5% in 2011, to $464 billion and 4.7% in 2012, to $486 billion. Global growth in 2012 is expected to benefit from the summer Olympics, the European Football Championship, and the US Presidential and other elections, as well as Japan’s recovery from the effects of the earthquake in March 2011. Online advertising is estimated to grow from 15.9% in 2011 to 21.2% in 2014 and is expected to drive overall spending. However, continued sluggish traditional media spending, particularly in North America, may hamper industry growth. With risks to a global recovery, such as high debt in the developed world, persistent unemployment in the US, severe political problems, and natural calamities, ZenithOptimedia does not believe advertisers will be fully confident that the economic recovery can be sustained. As a result, it expects growth through 2013 to remain below its long-term trend rate of 6%.

ZenithOptimedia anticipates North American ad spending will rise only 3.6% in 2012. It believes that stronger advertising spending in Asia-Pacific will counterbalance softening in the US and Europe. ZenithOptimedia forecast 7.2% growth in Asia-Pacific for 2012. However, Middle Eastern advertising will continue to decline owing to political disruptions. In 2011, North America accounted for an estimated 35.3% of the global advertising market, followed by Asia-Pacific (26.7%), Western Europe (21.7%), Latin America (7.2%), Central and Eastern Europe (5.6%), and the rest of the world (2.5%). (See the accompanying table for details.)

Holding companies set the tone Advertising is a global industry dominated by multinational holding companies that offer a wide array of services. According to Advertising Age, approximately 65% of US ad agency revenues are controlled by four agency networks. These are US-based Omnicom Group Inc., London-based WPP Group plc, US-based Interpublic Group of Companies Inc., and Paris-based Publicis Groupe SA. These companies are also the largest agencies worldwide, with WPP being the leader, followed by Omnicom, based on their 2010

Table B13: GLOBAL AD SPENDING FORECAST

GLOBAL AD SPENDING FORECAST

--------- ADVERTISING EXPENDITURES (MIL. $) ---------- ------------ PERCENT OF TOTAL ------------

2010 2011 2012 2013 2014 2010 2011 2012 2013 2014

REGION*

North America 161,707 165,464 171,455 177,742 185,623 36.0 35.6 35.3 34.8 34.3Western Europe 101,862 103,722 105,785 108,795 112,427 22.7 22.3 21.8 21.3 20.8Other Europe 23,373 25,355 27,387 30,147 33,340 25.6 5.5 5.6 5.9 6.2Asia Pacific 114,832 121,058 129,769 139,302 150,791 5.2 26.1 26.7 27.2 27.9Latin America 31,248 33,110 35,089 37,802 40,960 7.0 7.1 7.2 7.4 7.6Africa/M. East/ROW 15,676 15,596 16,439 17,607 18,054 3.5 3.4 3.4 3.4 3.3

TOTAL 448,697 464,304 485,924 511,394 541,194 100.0 100.0 100.0 100.0 100.0

MEDIUM*

Newspapers 94,600 91,495 89,868 88,785 88,446 21.3 20.0 18.7 17.6 16.5Magazines 43,741 43,122 42,681 42,464 42,186 9.9 9.4 8.9 8.4 7.9Television 176,627 184,290 193,735 203,608 215,737 39.9 40.2 40.4 40.3 40.3Radio 32,017 32,903 33,667 34,827 35,923 7.2 7.2 7.0 6.9 6.7Cinema 2,313 2,442 2,564 2,732 2,916 0.5 0.5 0.5 0.5 0.5Outdoor 29,824 31,291 32,928 34,559 36,350 6.7 6.8 6.9 6.8 6.8Internet 63,979 72,842 84,267 97,764 113,281 14.4 15.9 17.6 19.4 21.2

TOTAL 443,100 458,385 479,710 504,738 534,839 100.0 100.0 100.0 100.0 100.0*The totals by medium are lower than the totals by region since the regional table includes figures for a few countriesfor which spending is not itemized by medium. ROW-Rest of world.Source: ZenithOptimedia's December 2011 forecast report.


worldwide revenues. Japan-based Dentsu Inc. is the fifth largest marketing organization in the world, but unlike its larger competitors, it is an agency brand, not a holding company.

In addition to the multinational conglomerates, the industry has many boutique firms that specialize in such areas as consulting, media planning and buying, direct marketing, customer relationship management (CRM), e-commerce, and public relations. Firms may specialize in a particular field, such as health care, financial or human resources communications; recruitment advertising; sports or entertainment marketing; field marketing (on-site—at a store or shopping center, for example); event marketing; digital and interactive marketing; or directory and business-to-business advertising.

Finally, companies may manage activities such as brand identity, promotions, custom publishing, research, databases, lectures (managing/procuring distinguished speakers for corporate and organizational appearances), and so forth. There are many other specialties as well.

Competition among agencies is fierce, and clients can change agencies with relative ease. The fact that barriers to entry are low—virtually any creative talent can start an independent agency—adds to the challenge. Over the past 20 years, many specialty agencies have extended their market reach, attracting major accounts from their global competitors. In addition, new agencies have been able to parlay their creative work into major accounts won from their more established competitors.

INDUSTRY TRENDS

Among the major print media, we believe newspapers faced the earliest large disruption from new, digitized ways of delivering material to consumers. In our view, this is because newspapers are especially vulnerable to competition from the timely information and search capabilities that the Internet offers. Also, with local newspapers, a significant portion of their content is in the form of listings or short items that can be replicated and provided more conveniently on the Internet. Looking ahead, as Internet access becomes increasingly mobile (e.g., wireless networks, smart phones), we expect that the amount of reading time and advertising dollars allotted to traditional newspapers will continue to decline.

Initially, magazines held up better against Internet competition, partly due to the appeal of their specialized subject matter (e.g., sports, business, hobbies) and visual content. In addition, magazines often provide lengthier articles, with more depth and context, than what is available in newspapers. In our view, online reading is generally more suited to shorter pieces. However, in 2010, we saw a continued decline in magazine advertising market share, which we attribute to advertisers following consumers to digitized electronic media.

For books, the biggest early impact of the Internet was the way that websites such as Amazon.com created huge electronic product catalogs, providing access to many items that could not be found readily in local

Table B10: TOP 10 GLOBAL MEDIA AGENCIES

TOP 10 GLOBAL MEDIA AGENCIES

WORLDWIDE REVENUES------ US REVENUES ------ OUTSIDE US REVENUES

COMPANY HEADQUARTERS 2009 2010 % CHG. 2009 2010 % CHG. 2009 2010 % CHG.

1. WPP Group London 13,598 14,416 6.0 4,440 4,786 7.8 9,158 9,630 5.22. Omnicom Group New York 11,721 12,543 7.0 6,178 6,683 8.2 5,542 5,859 5.73. Publicis Groupe Paris 6,287 7,175 14.1 2,911 3,451 18.6 3,376 3,724 10.34. Interpublic Group New York 6,028 6,532 8.4 3,372 3,710 10.0 2,655 2,822 6.35. Dentsu* Tokyo 3,113 3,600 15.6 97 218 125.3 3,016 3,381 12.16. Aegis Group* London 2,109 2,257 7.0 388 434 11.8 1,720 1,823 5.97. Havas Suresnes, France 2,010 2,069 3.0 639 676 5.8 1,371 1,393 1.68. Hakuhodo DY* Tokyo 1,512 1,674 10.7 10 9 (13.3) 1,502 1,665 10.99. Acxiom Corp. Little Rock, AR 782 785 0.4 639 623 (2.4) 143 162 12.9

10. MDC Partners Toronto/New York 545 698 28.0 456 583 27.8 89 115 29.1*Figures are estimated.Source: Advertising Age.


retail outlets. However, a shift in the way consumers view their reading material has been slower to occur with books. In our view, comfortable reading of longer-form publications on a screen is more likely to require special features (e.g., ease of holding and viewing the reading device, page turning capability) that computers may lack. However, with development of new electronic reading devices, we expect books to be read increasingly in digital form. Consumer interest should be augmented by the ability of a portable book reader to store many titles at the same time.

Long term, we expect that readership and advertising will continue to shift toward digital platforms, at the expense of traditional print media. This is likely to follow demographic patterns, with younger consumers more likely to rely on computers and portable digital devices for information and entertainment.

MEDIA MAGNETS—PULL VERSUS PUSH

Historically, we saw programmers, packagers and advertisers pushing content at consumers—content that was to be used at specific times in particular formats. Today, however, consumers increasingly pull the information and entertainment they want, using a growing assortment of electronic devices (such as e-readers, tablets and iPods) that enable them to read, watch and listen at their convenience.

In some ways, we see print publishing on a path that looks similar to what the broadcasting industry experienced during the past several decades. The availability of additional bandwidth (cable for broadcasting; the Internet for reading) has made targeted programming and advertising much more achievable. There are differences as well. The broadcasting industry was generally able to require payment (in the form of monthly cable subscriptions) for what was offered. In addition, we believe that while broadcasting audiences have become more fragmented, TV in particular still provides advertisers with much larger viewership for individual shows than what is likely to be available from an Internet site at a given point in time. On the web, people are much less likely to follow a

programmer’s schedule for when to tune in. However, according to an article published in April 2011 in Advertising Age, a review of the Internet and TV ad spending data in the past decade reveals that the gap between the two is narrowing, owing to the faster growth of Internet advertising. This is happening on a global basis as well, according to data from ZenithOptimedia (see the accompanying chart for details).

Value-oriented, but still trendy In our view, an increased ability on the Internet to compare prices, coupled with a weaker economy, is threatening the worth of various consumer brands. We see increased consumer emphasis on value, or price, indicated by growing market shares for store-brand (private label) products, which tend to be less expensive than national brands. Furthermore, we think that consumers’ many media choices, their propensity to multitask, and their emphasis on quick access to information has diminished the attention they pay to some advertising, and even their willingness to view an unsolicited message.

However, we also see social networks and digital media making it easier and faster to identify and share information about hot new products. As a result, styles are likely to change more rapidly, creating additional advertising opportunities for the right products. Preferences are changing rapidly, thus demanding continuous innovation and consumer-focused services from publishers to survive.

We also believe that growing interactivity, including links to shopping sites and customer reviews, should enhance the appeal of advertising. However, we think that the role of traditional stores is changing. We

Chart H02: GLOBAL TV VS. INTERNET ADVERTISING

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GLOBAL TV VS. INTERNET ADVERTISING (As a percent of total advertising)

Source: ZenithOptimedia.


believe that consumers are increasingly visiting a store to get the look and feel of a product, but then making the purchase online, based on price. We see stores increasingly in the role of catalog showrooms.

Internet suited to both current and past information We believe that consumers’ interest in timely information has led to newspaper websites generally attracting more Internet usage than those of magazines. Based on number of visits in December 2011, the New York Times had the leading market share (3.5%) among print media websites, according to Hitwise data provided by marketingcharts.com. Gannett Co. Inc.’s USA Today (2.8%) ranked second, followed by Time Warner Inc.’s People magazine (2.3%) and the Washington Post (1.7%). Of the top 10 print media websites, five were newspapers and five were magazines.

In addition, websites make it easier to provide access to publishers’ archives (past issues), and to provide features such as online social networks for people who share an interest. By doing so, there is opportunity to build customer loyalty. Online marketing can also cut the cost of selling subscriptions, reducing publishers’ reliance on more costly postal mailings to potential subscribers.

We think the Internet’s ability to keep track of consumers’ interests and usage creates both advantages and concerns. Publishers and advertisers should be able to more effectively target audiences that have shown interest in their products. However, the gathering and storage of personal information raises questions about privacy and how such data might be used.

More voices and opinions We see the publishing industry being populated with new voices, especially through entrepreneurial or personal websites. We see this leading to further audience fragmentation, as people seek out and gravitate toward others who share their interests or opinions. In addition, personal information that would have once been confined to a private journal or diary is now on public display.

In the past, the publishing industry was largely limited to industry professionals. Now, low-cost technology increasingly provides opportunities for self-publishing, with outlets ranging from an Internet blog to a newsletter produced on a home printer.

With so many more publishers available, we see this heightening the issue of whom to trust for information and well-reasoned opinions. We see the Internet creating a more level playing field, with increased quantity and varying quality of published material.

NEWSPAPER PUBLISHERS LOSING AD MARKET SHARE

According to Kantar Media, a provider of competitive advertising and marketing information, newspapers experienced a 3.8% decline in measured media advertising spending in the first nine months of 2011, following a 2.9% drop in the same period last year. All other media sectors, except freestanding inserts (FSIs), experienced growth in the first nine months of 2011. Outdoor experienced the most growth (8.6%), followed by Internet advertising (2.8%), television (2.3%), magazines (1.5%), and radio (1.2%). Measured media are those weighed by outside sources, such as Nielsen Media Research Inc., Arbitron Inc. and others; they include TV, radio, newspapers, magazines, outdoor, and the Internet. Total measured media advertising increased at a rate of 1.5% in the first nine months of 2011, compared to a rise of 6.4% in the same period last year.

In 2010, newspapers had a 21.4% share of measured media advertising in the US, which is expected to decrease to 16.5% in 2014, according to ZenithOptimedia. In 2008, newspapers received 25.0% of the total ad pie. The declining trend in newspaper ad share extends back more than five decades, with the growth of broadcast television stations in the 1950s and 1960s; of cable television in the 1970s, 1980s, and 1990s; and the strength of the Internet and other new media since the mid-1990s. We do not expect the downtrend to end in the foreseeable future.


EXPANDING PORTAL PARTNERSHIPS

To combat audience fragmentation, publishers have been expanding their web presence through partnerships and other initiatives.

The Newspaper Consortium In November 2006, a newspaper consortium led by A.H. Belo Corp., E.W. Scripps Co., Lee Enterprises Inc., and Hearst Corp.’s newspapers partnered with Yahoo! Inc. in a deal that signaled the newspaper industry’s recognition of the need to cooperate with its web-based competition. The consortium, which included seven publishing companies and 176 US newspapers, aimed to accelerate web advertising growth for Yahoo and the consortium by tapping their respective strengths: Yahoo’s national audience and newspapers’ local content.

The initial phase of the partnership gained traction in 2007 as newspaper advertisers became able to post jobs on Yahoo’s HotJobs online recruiting site. Essentially, the agreement allows newspapers to sell online advertising inventory for a national job recruiting network using their existing sales force. Newspaper publishers pay a wholesale advertising rate to Yahoo HotJobs, and pocket the difference between the rate they charge clients and the rate they pay Yahoo. Newspaper sales representatives also gain a more comprehensive product to sell to clients. For Yahoo, benefits include additional inventory sales and more listings on HotJobs, which makes the site more valuable to recruiters, job seekers, and, ultimately, advertisers. In February 2010, Yahoo sold HotJobs to Monster Worldwide Inc. for $225 million, but protected the privacy of users by giving them the option to transfer personal details to Monster. After the sale, newspapers have continued to work with HotJobs.

The consortium has continued to grow, expanding to 264 papers across 44 states with the addition of the McClatchy Co. in April 2007. By September 2009, the partnership reached 800 papers, equivalent to 32% of all US daily circulation and 41% of all US Sunday circulation. Notably, Gannett Co. and Tribune Co. have not joined the consortium, as they are co-majority owners of Careerbuilder.com, which competes with HotJobs. The New York Times Co. also has not joined the consortium, but it did contribute 16 regional papers to the consortium in November 2007 (though not its flagship New York Times newspaper).

The consortium agreement allows Yahoo’s sales force to sell newspaper advertising inventory to national advertisers, while the newspapers’ sales forces can sell Yahoo’s local inventory to their advertisers. This phase of development will include all forms of advertising, instead of just help-wanted ads. Newspapers will benefit from greater access to national advertisers, which in the past were generally not interested in buying ads in local newspapers. Traditionally, to advertise nationally through local newspapers, an advertiser would have to call the ad sales representatives of newspapers across the United States.

Yahoo, however, will make it easy for advertisers to buy national print advertising by effectively aggregating these local newspapers into a national network, a process that will also create incremental advertising opportunities for newspapers. In turn, Yahoo will gain local content that it otherwise could not create on its own, which will draw more eyes to its website and generate incremental local advertising revenue.

We believe that newspapers need to generate incremental revenue sources by leveraging their competitive advantage of local content creation, and we think the agreement with Yahoo is a good start. Although online advertising is usually cheaper than print advertising, and print customers that become online customers thus generate less revenue, the alternative of losing a print customer altogether is far less appealing. We note that there is more operating leverage for online operations relative to print operations; thus, as online revenue increases, we believe segment profitability will grow quickly.

quadrantONE In February 2008, Tribune, Hearst, Gannett, and The New York Times announced the industry’s latest online partnership with the creation of quadrantONE, a sales organization that sells the online inventory of media companies participating in the initiative. The initiative has a reach of over 500 local news and information sites across the country. Members contribute guaranteed premium online ad inventory, which is then sold to national advertisers. Member companies benefit by creating a unified online platform with significant reach that is attractive to national advertisers, just as the Newspaper Consortium benefits by


creating a national platform for print advertising. In February 2011, quadrantONE launched the Q-Exchange, which will enable all four publishers to monetize their inventory via Real Time Bidding. Following the launch, the publishers limit the inventory purchase through the exchange, quadrantONE, or directly from publishers, thus eliminating the purchase via any other network. This would enable the publishers to generate more revenues from its audience. However, this will serve as a platform for ad networks (which earlier acted as intermediaries) to benefit from the publishers’ local audience network.

USED BOOK MARKET A GROWING CONCERN FOR COLLEGE PUBLISHERS

The used book market has always been a concern for book publishers. This is particularly true for publishers of college textbooks and materials, given that roughly three-quarters of used book sales in the US are college sales. According to the 2011 College Store Industry Financial Report from the National Association of College Stores (NACS), the average price of a required college text decreased to $52 in 2009–10 from $57 in 2008–09 for used textbooks, compared with an average cost for new textbooks of $62 in 2009–10, compared to $64 in 2008–09.

The disparity in prices has fostered a strong market for used textbooks. The availability of used books can reduce the demand for a new title within two or three years of its initial publication—and sometimes sooner. To counter this, textbook publishers typically issue new editions every few years, although this has not slowed demand for used books. The NACS reports that used texts usually sell out before new ones. Used books are attractive not only to students but also to college bookstores.

College publishing hurt by free online dissemination College textbook publishers are up in arms about illegal downloads of course materials. The use of electronic course materials has soared in recent years, and most US universities employ course-management systems that let professors post course outlines, reading requirements and homework assignments online. One of the most common uses for such electronic systems on campuses is to provide students with online copies of published articles and textbook chapters.

The use of online teaching tools has grown since the late 1990s, a trend that is expected to continue. The Book Industry Study Group (BISG), a nonprofit industry group that sets standards and conducts research, notes that the dental schools of the State University of New York at Buffalo and the University of Texas Health Science Center are unique in that each mandates that students use only digital books. However, the BISG also says that studies show most college students prefer their textbooks in print rather than in a digital format.

Online teaching tools and growth in the used book market have become sticking points for college publishers, which have seen their sales gains remain modest in recent years despite healthy college enrollments and rising textbook prices.

Although illegal downloads and used books are culprits, we believe that increases in college tuition and other costs—as well as cuts in government subsidies, which have forced students to economize on book and materials purchases—are also to blame. While exported books typically carry lower price tags than books sold in the US market, unit sales in the export market are expected to rise only modestly, from 6.4 million units in 2006 to 6.9 million units in 2012.

Textbook rentals: the wave of the future? In July 2005, California Public Interest Research Group (CALPIRG), a nonprofit watchdog group, released Affordable Textbooks for the 21st Century: A Guide to Establishing Textbook Rental Services, a report that provides a 12-step process to set up a textbook rental system on any campus. The report includes case studies from colleges that already have set up rental systems. In 2005, about 25 US colleges had textbook rental programs, some in operation for more than a century.

CALPIRG stated in its report that rental systems benefit students, colleges, and college bookstores. The average college student could see his or her textbook costs drop up to 85% per year. The report also states that, as such programs grow, they will put pressure on publishers to change their pricing practices.


In response to concerns raised over the high prices of college textbooks, the Higher Education Opportunity Act (H.R. 4137) was passed in 2008, providing $10 million for grants to support textbook rental pilot programs. Beginning in 2009, textbook rental programs began to spread across the US. In August 2009, Cengage Learning, one of the largest textbook publishers in the US, announced it would start renting books on several hundred titles to students at a 40%–70% discount from the sale price. Follett Higher Education Group, a bookstore manager, offers a textbook rental program in the 860 campus bookstore locations it manages in the US and Canada.

Barnes & Noble College Booksellers LLC, a wholly owned subsidiary of Barnes & Noble Inc., said at the beginning of the 2009 fall semester that it was pilot testing a rental program in three of its 636 campus bookstores. As of August 2010, the company expanded the rental program to hundreds of its stores across the US. Barnes & Noble’s rental program offers savings of up to 70% of the cost of a new print textbook, the option of returning rental books either to the campus bookstore or by mail, a variety of payment options (including financial aid and campus debit cards), and the ability to highlight and take notes in rented books.

In July 2011, Amazon also introduced its Kindle textbook rental service, which offers discounts up to 80%. The rental terms range from a month to a year and provide an option to extend. In addition to the highlighting and note-taking ability, this service enables the user to keep the highlighted notes even after the rental term expires. Books are available to rent at one-third or one-half of the original price, reducing the rising cost burden for college students.

MAGAZINES: CIRCULATION LARGELY FROM SUBSCRIPTIONS

In 2010 (latest full year for which data is available), circulation for 522 magazines audited by the Audit Bureau of Circulations (ABC), a member organization that examines and compiles magazine industry data, totaled 325.2 million, according to the Magazine Publishers of America (MPA). This total included two titles with circulations of more than 10 million, another 35 magazines with circulations of at least two million, plus 54 additional titles at one million or more. According to ABC, subscription circulation for these 522 magazines totaled 292.2 million in 2010 (90% of total copies), while single-copy sales amounted to 33 million (10%).

For the magazine industry, single-copy sales are in a long-term decline. In 2010, single-copy sales for the 522 ABC-audited titles were down 8.7% (an improvement over the prior year’s decline of 17.2%), while subscription circulation was down only 5.9%.

At newsstands, the cover price is often higher than what subscribers pay on a per-copy basis. In addition, single-copy prices have risen more rapidly than subscription prices over time. The MPA reported an average single-copy price of $4.91 in 2010, up 27% from 2001. By comparison, the average subscription cost $29.29 in 2010, an increase of 16% over the same nine-year period. In 2010, subscriptions represented 71% ($6.2 billion) of circulation revenues, while single-copy sales accounted for 29% ($2.5 billion), according to the MPA.

Fewer ad pages in consumer magazines We also see a long-term decline in the number of advertising pages in consumer magazines. In 2011, the number of advertising pages declined by 3.1%, after falling only 0.1% in 2010. Time Inc.’s People had the largest number of ad pages (3,356; down 5.6% from 2010), followed by New York Magazine (2,608 pages; up 5.5%) and Brides (2,603; down 2.5%). Meanwhile, among the seven Sunday newspaper magazines listed separately, New York Times Magazine had the largest number of ad pages (2,204), down 2.1% from the same period last year. Based on rate cards, gross magazine advertising revenue in 2011 totaled $20.1 billion, almost flat with the total revenues in 2010. Topping the list in gross ad revenue in 2011 were People ($996.8 million; down 1.7%) and Better Homes and Gardens ($725.0 million; down 14.1%).

According to the Publishers Information Bureau (PIB), a compiler of industry data, in 2011, three of 12 magazine advertising categories had more ad pages and seven of 12 had higher gross ad revenue. This included a 12.7% rise in financial, insurance, and real estate ad pages, a 5.5% increase in apparel and accessories, and a 17% drop in food and food products.


With thousands of titles being published, each year brings hundreds of magazine launches and closures. In 2011, 239 new US or Canadian magazines were introduced, while 152 closed, according to data compiler mediafinder.com. In comparison, 2010 saw 193 new launches and 176 closures.

Other trends or factors facing the magazine industry include the prospect of higher postage costs, along with reduced delivery frequency (including the possible termination of regular Saturday delivery to homes). In addition, cost-conscious consumers are more likely to read magazines at libraries or other public places, which would likely cut into personal purchases. While library patronage is likely to rise at times, libraries may be under financial pressure to reduce the number of titles they carry.

ELECTRONIC PUBLISHING: AN EVOLVING OPPORTUNITY

Publishers are positioning themselves to take advantage of the expanding revenue opportunities presented by the proliferation of devices such as handheld and laptop computers, and cell phones.

Electronic versus print Electronic editions of a publication often include articles published in the print version, though most offer features not available in the printed products. Depending on the publication and the online service, online subscribers may be able to interact with writers and editors via e-mail or electronic bulletin boards. Some host online conferences that give users an opportunity to chat with editors or noted personalities.

The extent to which readers of a printed publication will switch to an electronic version of the same publication is hard to predict, but a number of factors are supporting the switch. The proliferation of personal digital assistants (PDAs) and other electronic devices has increased the convenience and portability of online publications. Electronic versions of books or magazines may contain sound and video clips not available in the printed form. In addition, electronic information, which can be cut and pasted from one file to another, is a valuable resource for researchers, students, and writers.

Online publications have the potential to attract new readers who otherwise might never have examined the print version. Computer users are more likely than the general population to read a newspaper or magazine, and computer services give them access to media outside their region or their usual interests.

News online Most of the nation’s newspapers and magazines operate websites. In addition, the major wire services, government news services, TV and radio broadcasters and nontraditional publishers are operating thousands of web-based news sites. Through paid subscriptions, listing fees, advertising, or all three, e-publishing is growing and profitable for many companies. Dow Jones & Co. Inc.’s Wall Street Journal Online is the largest paid subscription news site on the web, with more than 500,000 digital subscriptions as of March 2011 (latest available), and hundreds of thousands more who have access through paid print subscription plans. In March 2011, the company reported 200,000 subscribers that are using services via mobile devices, of which it added 150,000 new online subscribers in the previous12-month period.

ADVERTISING FIRMS STRUGGLE

One of the advertising industry’s major challenges is to keep up with the rapid development of new technologies that have given consumers an ever-growing source of entertainment and media. In their quest to reach consumers, ad agencies are increasing their service offerings and targeting new demographic groups, among other efforts.

New media choices exploding Agencies’ traditional means of reaching consumers are rapidly giving way to new methods of engaging a target audience. The proliferation of new technologies—digital video recorders, mobile phones, the Internet, portable media players such as tablets, e-readers, iPods, wired and wireless games, and others—provides marketers with many additional opportunities to reach consumers. These changes also pose challenges, however, since agencies can no longer simply rely on traditional mass media.


All told, we believe advertising agencies have benefited from this trend. As the number of media advertising alternatives increases, advertisers find it more challenging to determine how best to allocate their advertising budgets. Because one of the main functions of an advertising agency is to advise clients on how to get the best return on investment for their advertising budget, the increased complexity creates an opportunity for agencies to add value by providing informed opinions to clients on how advertising dollars should be apportioned across various alternatives.

Well aware of this trend, advertisers are shifting more of their spending to new media and technologies. ZenithOptimedia sees Internet advertising increasing its share of global advertising to 15.9% in 2011 and 21.2% by 2014, more than triple its market share of 6.4% in 2006. Internet advertising, with a 14.2% share, surpassed magazine advertising, with a 9.8% share, in 2010. Given current trends, Internet advertising will likely surpass newspaper advertising’s market share in 2014. New media also pose the risk that new competitors will emerge to challenge the holding companies and traditional agencies. In recent years, this has chiefly referred to Google, but also to Yahoo! and Microsoft.

Diversifying beyond advertising Agency networks have worked hard in recent years to round out their service portfolios to capture more of the much larger sums spent on overall marketing communications than on advertising alone. Moreover, media advertising is just one component of a broad range of marketing services. Among all channels, market research and direct and interactive marketing are growing at the fastest rates. Regardless of size, most advertising companies are focusing on higher-growth, non-advertising businesses, such as market research, media planning, interactive media, and customer relationship management, or CRM.

Multinationals such as WPP Group plc, Publicis Groupe SA, Omnicom Group Inc. and Havas Group have evolved into all-encompassing marketing organizations that offer much more than just advertising. WPP, for example, derives 60% of its revenues from non-advertising sources. The company’s numerous acquisitions have spanned a wide range of marketing services categories. Within the next 10 years, WPP hopes to increase its non-advertising business to two-thirds of total revenue.

Developing targeted multichannel marketing strategies Multichannel marketing involves the strategic planning and implementation of advertising via multiple channels to reach as many consumers as possible. Ideally, each channel’s advertising should complement the other’s. For example, a web address in a print advertisement should generate traffic for a company’s website, which, in turn, should lead to a consumer’s e-mailed request for information, and, ultimately, an online sale. An online sale should generate future direct e-mail and traditional mail promotions, and so forth.

The increased availability of accurate consumer data from tracking and marketing research firms has enabled advertisers to better target their audiences. It is now possible to microtarget select segments of the population in the development of multichannel marketing campaigns, thus improving the effectiveness of those campaigns.

Shifts in viewing habits threaten TV advertising The effectiveness of the classic 30-second TV commercial has come into question now that viewers have new ways to avoid watching TV ads. Subscriptions for video on demand (VoD) and digital video recording (DVR) services are growing fast. Such devices enable viewers to store TV programs and watch them at their leisure, skipping commercial breaks if they choose; according to Forrester Research, a technology research company, an estimated 70% of DVR users skip TV commercials during playback. According to Nielsen, DVR penetration in the US was estimated at 42.2% of total viewers and 39.7% of households as of February 2011, up from 15.0% of viewers and 13.5% of households in February 2007. Although this poses a serious threat to traditional TV advertising, marketers are looking for ways to create new opportunities within the medium. The completion of the switch to digital TV broadcasting and the continued rollout of digital cable services afford advertisers the opportunity to more effectively target and connect with viewers. In addition, Nielsen Media Research has launched new ratings services used to determine ad rates based on both live commercial viewing and DVR playback.


The ad industry is testing methods of keeping viewers interested in commercials and preventing them from avoiding commercials altogether. As one way to address this issue, advertisers are taking a financial stake in programming. In the 1940s, consumer goods giant Procter & Gamble Co. (P&G) was the first to do this: it created radio and TV soap operas that targeted specific consumer segments. More recently, P&G has been an important partner with CBS Corp. in the production of the hit reality series Survivor. The Coca-Cola Co. has been a major partner in the production of another hit TV show, American Idol.

According to the data from Kantar Media, TV ad spending rose by 2.3% year over year in the first nine months of 2011. Though the network TV sector declined by 5.7% and spot dropped by 2.7%, syndication and cable TV grew by 17.2% and 9.9%, respectively

Multiculturalism provides new opportunities Marketing to Hispanics is the most active multicultural effort among advertising agencies, and Hispanic agency revenue growth outpaces that of traditional agencies. Kantar Media reported that Hispanic media ad spending increased 8.4% in 2010, compared to a 6.5% increase for the total US ad market. The ad spending trend from 2003 to 2010 in the Hispanic market continued to outperform on a relative basis.

The Hispanic population is the fastest growing ethnic group in the United States. According to figures released by the US Census Bureau, the total US Hispanic population represented 16.3% of the total population (per the 2010 census) and is projected to grow by 42% between 2008 and 2020, rising to 19.4% of the US population.

According to Advertising Age, the top five spenders on Hispanic advertising in 2010 were Procter & Gamble, Verizon Communications, AT&T, DirecTV and McDonald’s Corp. Combined, they spent approximately $714 million on Hispanic-targeted advertising in 2010. Television garners the majority of all ad outlays, representing 70.5% of spending in Hispanic media in 2010, according to Advertising Age’s Hispanic Fact Pack. Newspapers were in second place, at 10.4%, while radio advertising represented 8.7%. Hispanic Fact Pack ranked Dieste, a unit of Omnicom group, as the largest agency in revenue terms, followed by GlobalHue and Bravo Group, a WPP unit. WPP believes it has the top Hispanic marketing firm in the US with its Bravo Group unit. With a customer portfolio that includes Del Monte Foods Co., Nestlé SA and Kraft Foods Inc., Bravo Group has maintained its leadership position in Hispanic marketing. In the direct marketing category, ADVO Inc. has implemented a bilingual ad program that targets Hispanic consumers in select markets.

Consolidation trend continues Advertisers are increasingly trying to concentrate their ad spending with fewer agencies; by doing so, they are better able to control ad spending by taking advantage of bulk media discounts. Two events causing companies to review their media accounts include mergers with other companies, and a focus on reducing the number of brands supported by advertising. Besides gaining from bulk discounts, cost savings are also generated internally, as advertisers devote fewer employees to managing external advertising agencies.

Consumer goods company Unilever is an example of a company focused on maximizing its advertising outlays by reducing the number of brands it supports. Over the past decade, Unilever has reduced its total number of brands to about 400, from 1,400. The concentration of ad spending by advertisers on fewer brands both heightens ad agency competition and raises advertisers’ expectations.

PepsiCo. Inc. and Anheuser-Busch InBev offer an example of companies consolidating their marketing functions to save on costs. In an expansion of a purchasing agreement they signed in October 2009, the two companies in early 2010 began to make joint approaches to media concerns in an effort to save on media costs and marketing.


HOW THE INDUSTRY OPERATES

Publishing companies and advertising agencies share some similar operating characteristics, including a dependency on labor and advertising. The industries also possess various unique operating drivers, however, so following the discussion of common features, we discuss each industry separately.

COMMON FEATURES OF PUBLISHERS

Newspapers, magazines and books are the print publishing industry’s three main products. Newspapers and magazines generate income from a mixture of advertising revenue and circulation revenue (from subscriptions and single-copy sales), while book publishing revenue is derived primarily from sales to readers. In addition, we see each of the print publishing industries being affected by migration of readers to digital or electronic media platforms. Meanwhile, for their traditional print products, we see distribution channels, paper costs and other expenses varying from sector to sector.

Labor intensity All three segments of the publishing business are labor intensive. Newspaper and magazine publishers employ reporters, editors, researchers, copy editors, proofreaders, art directors, photographers, graphic artists, copywriters and illustrators on a full-time, part-time or freelance basis. In addition, some newspapers and magazines maintain correspondents or bureaus in news centers around the world or in major US cities outside their local markets. Book publishers employ some of these same categories of workers, particularly editors, copy editors, graphic artists, proofreaders, illustrators and researchers. Most book authors are under a publisher’s contract, not part of its salaried staff.

Magazine and book publishers usually outsource their printing and distribution functions, whereas newspaper publishers usually print in-house. Magazine and book publishers also maintain advertising sales staffs, circulation sales staffs, production personnel, and subscriber services personnel.

Circulation and advertising Books, magazines and newspapers compete for readers and buyers based on content, service and price. Newspapers may compete for readership with other metropolitan, suburban and national newspapers. Magazines compete to a large extent with similarly focused periodicals. Books compete for readers by subject matter. All three forms of publishing are up against other media for the consumer’s time and money.

Newspapers and magazines also compete for advertising. This contest is based on circulation levels, readership demographics, price (measured in cost per thousand readers, or CPM), geographic coverage, and effectiveness (gauged by consumer response).

Paper: publishers’ raw material The major raw material essential to publishing is paper: coated and uncoated publication paper for magazines (body paper), newsprint for newspapers, and various book-grade papers for books. Publishers usually sign multi-year contractual agreements with major paper manufacturers to ensure adequate supplies of paper for their planned publishing requirements. Newspaper publishers also often centralize the purchase of newsprint for all of their properties. In addition, some newspaper holding companies have equity interests in newsprint suppliers.

Much of the impact of rising or falling paper prices is borne by the publisher, although the printer can also make or lose money by buying ahead and maintaining inventories of paper. (For more details on paper supplies and prices, see the Paper & Forest Products issue of Industry Surveys.)

Production Most newspaper production is performed on company-owned presses, whereas most magazine publishers’ printing is done by unrelated third parties under long-term contracts.


Published books are typically manufactured by outside printers, but often on paper supplied by the publisher. Book manufacturing contracts are generally signed on a title-by-title basis. When the publisher does not supply paper to the printer, the printer buys in bulk from paper producers.

Distribution: getting the product out National and regional newspaper distribution is most often contracted out to third parties. Local newspaper distribution (whether through home delivery or to newsstands) is increasingly contracted out to third parties, although many newspapers still maintain their own fleets of trucks. Book distribution uses all classes of mail or bulk shipments by freight carriers. Magazine publishers usually sign multi-year contracts with unrelated third parties for national, regional or market-by-market newsstand distribution services. Subscription copies are mailed through the postal system.

NEWSPAPERS

Newspaper revenues come largely from advertising (both from print and online editions) and circulation. Some newspaper publishers also derive some revenue from commercial printing, electronic information and publishing, as well as from selling their news to others.

Competing for the advertising dollar Newspaper advertising is sold in several ways. A full run of press (ROP) ad is printed on a newspaper page and included in all editions. In a zoned part-run, an ad is printed on a newspaper page, but included only in editions slated for a particular area (e.g., the “eastern suburbs”). Preprints or inserts are advertisements that are printed separately and inserted in a newspaper.

US newspapers compete for ad dollars with “shoppers” and direct mail. Shoppers (or “penny-savers”) are free-distribution publications delivered directly to consumers’ homes on a weekly, biweekly or monthly basis. Direct-mail products include samples, magazines, catalogs, coupon packs, circulars, and so on; these are delivered by the US Postal Service or by private carriers. Shoppers and direct mail typically get 100% market penetration without duplication in targeted areas; they also provide guaranteed delivery and concentration in the area the advertiser wants to reach.

The popularity of shoppers and printed direct mail has been aided by numerous factors. These include the drop in newspaper penetration rates over the years, rising advertising rates, relatively cheap third-class postage rates, the availability of demographic information keyed to postal zip codes, and relatively low production costs.

The newspaper industry has responded to these challenges by pricing preprints on a par with third-class postage, pushing preprint sales, and increasing the frequency and number of Sunday supplements and special magazine editions. In addition, many newspapers are publishing their own free-distribution papers; some have even acquired their own chains of shoppers.

These subsidiary marketing programs are called TMC (total market coverage) or ADS (alternate distribution systems). They are designed to attract advertisers with a guarantee of 100% market coverage—significantly higher than the typical daily newspaper’s market reach of less than 60%. Adding a TMC or an ADS program allows a newspaper publisher to get the advertiser’s message to people who are not part of its readership.

Newspapers operate independently, but together Most daily newspapers operate independently of their parent companies. Editorial policies and business practices, for example, are established by local management in most cases. In this way, a publisher can meet the needs of the individual areas served by its newspapers.

For corporate-owned newspapers in physical proximity to one another, publishers often combine certain operations. In an effort to improve efficiencies and cut costs, for example, accounting or payroll functions may be consolidated. Where markets overlap, newsgathering and other activities also may be shared.


Quarterly revenues of the newspaper industry vary with seasonal influences. Generally, advertising results in the second and fourth quarters are higher than in the first and third quarters due to heavy ad spending around Easter, Thanksgiving, and year-end holidays.

MAGAZINES

Factors affecting magazine publishers’ revenues include advertising, circulation, and brand extension programs.

Circulation determines ad rates Magazines usually sell three primary types of advertising: run of press (ROP), mail order, and insert. Most magazine advertising pages and revenues are derived from ROP ads, which are printed within the magazine.

Advertising rates are based on each magazine’s average per-issue circulation, usually stated as cost per thousand (CPM). Readers’ response to advertisers’ products and services, the effectiveness of the magazine’s sales team, and the quality of customer service are factors affecting advertisers’ demand for ad space in a particular magazine.

In addition to circulation statistics, advertisers always demand to know the readership of both free-distribution and paid-circulation magazines. Often, readership is highest among paid-circulation magazines. That makes sense because a person is more likely to read a magazine if he or she has paid for it. However, there are plenty of exceptions. For example, in-flight magazines in the seat-back pouches of airplanes have a huge readership.

Building readership Subscriptions are usually a magazine’s largest source of circulation revenues. They may be generated through direct-mail solicitation, agencies, insert cards, or other means. Newsstand sales, including single-copy sales at supermarkets, drugstores, and other retail outlets, are another important source of circulation revenues for most magazines. (Sweepstakes promotions, which used to account for around one-third of new subscriptions, have virtually disappeared after allegations of deceptive marketing.) Magazine publishers are increasingly using specialized titles and local and regional editions to boost circulation and readership.

Subscriptions. Publishers often entice subscribers with discounts from the stated cover price or with premiums. While discounts and giveaways do attract subscribers, they do not necessarily provide additional readers—people who read the publication after buying, borrowing or obtaining it through other means—and the number of ultimate readers is what advertisers care about. Editorial content, therefore, is crucial to maintaining a loyal readership. Readers must perceive the magazine as valuable and worth the investment of their time and money.

Newsstand sales. For magazine publishers, newsstand sales are lucrative. The average subscription price per copy of a typical consumer magazine is generally only 40% of the newsstand cover price. Thus, a subscriber typically pays about $1.60 per copy for the same magazine that sells for $3.95 on the newsstand.

Brand extensions: money trees for magazines For decades, magazines have created brand extensions by producing goods or services that complement and expand the franchise of an existing product, or by licensing their name to manufacturers. For instance, a consumer magazine may create related publications or merchandise (such as books or online products) bearing the magazine’s name. A magazine publisher might generate additional revenues from other ventures, such as contract (or custom) publishing. A business magazine or newspaper might offer trade shows, books, or business information services.

CONSUMER BOOKS

General (or consumer) book publishing is a broad category that includes all kinds of books, both hardcover and softcover, with the exception of educational (elementary through high school, or el-hi, and college). Included in the consumer book category are adult and juvenile fiction and nonfiction (or trade books),


religious books, professional books, and mass-market paperbacks. Consumer books represent roughly 70% of publishers’ net sales in any given year.

Fundamental factors In the realm of consumer book publishing, important factors include per-unit costs, author advances and acquiring rights, return rates, and remainders.

Per-unit costs. Per-unit costs are largely a function of print run size. For example, per-unit costs for mass-market paperback publishers are low compared with most other categories, because the number of copies printed is large—often more than 500,000 in the first run. In addition, these books are usually made of less expensive materials than some other types of books, such as art books or textbooks. Paper grades can differ widely in weight and quality, and therefore price. Mass-market books are also smaller than most other books and thus use less paper and material.

A specialized professional book printed in a small quantity might incur the same plant costs as a general-interest title expected to sell many copies. For the book with a short run, fixed costs are spread over a smaller number of books, raising the cost per unit. As material costs vary with the level of output, the cost of materials such as paper and ink is influenced by product demand.

Today, noneducational publishers typically limit the first print run of a hardcover book to 5,000 to 75,000 copies, although a new book by a best-selling author or on a popular topic can be given a first run of two million or more copies.

Author advances and acquiring rights. Costs to cover author advances and to acquire rights affect a publisher’s profitability. Buying the rights to an unreleased book by a popular author or the paperback rights to a successful hardcover title can cost well into the millions of dollars. These expenses are often higher for publishers of adult trade and mass-market paperbacks than for other publishers, such as those of professional or educational books. Such contracts can be viewed as fixed costs to be spread over high-volume output.

Return rates. Trade and paperback publishers generally print far more copies than they expect to sell to the book-buying public, and permit retailers to return unsold books for a full refund. Returns, which entail handling, freight, processing and disposal, are costly. Both publishers and retailers spend millions of dollars to ship unsold books back and forth. On average, retailers return roughly 30% of all publishers’ book shipments in any given year, although the actual percentage varies widely by category. Publishers of mass-market paperbacks incur a higher rate of returned books than any other segment.

A major determinant of return rates is the relative size of a publisher’s backlist and frontlist (discussed below). A publisher with many backlist titles usually has much lower returns than does a publisher that emphasizes new fiction, because a frontlist title, by definition, is new to the market, and the demand for it has not been tested. Meanwhile, publishers have a prior selling history—a yardstick—with books on the backlist; for this reason, backlist titles, such as The Adventures of Huckleberry Finn, see far fewer returns than new titles. While backlist sales generally are not large, they are steady and predictable.

Remainders. Publishers tend to reduce the price of hardcover books drastically after a certain period, in a process known as remaindering. Remaindered books are offered for sale to discount bookstores, jobbers, and other vendors. Paperbacks often are shredded and recycled.

Publishing catalogs A book publisher’s catalog falls into two major categories: the frontlist and the backlist.

The frontlist. This is a publishing company’s catalog of new books. In trade publishing, it is estimated that only one of every five new books succeeds. Therefore, a small number of bestsellers typically subsidize a large number of less profitable (or unprofitable) titles. In addition, subsidiary rights from the frontlist (such as royalties from paperback reprints) can make a significant contribution to a publisher’s profits.


The backlist. The backlist comprises a publishing company’s catalog of books that have already appeared in a first edition and have been, or will be, issued in subsequent editions. It is the industry’s bread and butter, in that its unit sales and revenues are usually predictable. Thus, no matter what frontlist sales are like, the backlist gives publishers a measure of economic security. On average, about 25%–30% of a publisher’s sales come from backlist titles. For some publishers, however, the backlist consistently provides more than 70% of sales.

Backlist books are lucrative partly because print runs are planned in advance, so there are fewer costly returns. Such works require no additional editing and very little promotion. The main expenses are manufacturing, and, occasionally, a new jacket design. Thus, while there are no hard statistics, the backlist generally provides a wider profit margin than the frontlist. However, publishers need to invest in new frontlist titles, as today’s frontlist is the wellspring of tomorrow’s backlist.

Distribution channels Retailers and other distributors buy books directly from publishers or from book wholesalers. Retail outlets typically account for 35% or more of publishers’ domestic sales of general consumer books. Direct sales to consumers, through mail order and book clubs, account for about 20%. These channels are followed by sales to college bookstores (17%), schools (15%), libraries and other institutions (excluding elementary and high school libraries; 10%), and all others (3%).

EDUCATIONAL PUBLISHING

Educational publishing comprises elementary through high school and college texts. It excludes medical, nursing and other health sciences textbooks published by medical publishers, which are generally considered professional books.

High capital stakes restrict el-hi competition The process of developing instructional materials for elementary and secondary schools is complex, time consuming and expensive. A full-scale instructional program in any given subject area, such as history or mathematics, usually consists of a series of textbooks and ancillary materials in various formats, such as workbooks and study aids.

A publisher whose textbooks do not make the grade among buyers can lose many millions of dollars in upfront spending. Moreover, after a school text is purchased, it may not be replaced for several years. However, when textbook orders do come, the quantities are large.

Heavy capital demands and erratic income flow serve as barriers to entry that have tended to keep the educational book publishing industry concentrated, as only well financed firms can afford both the upfront costs and the periodic big losses.

El-hi sales run in cycles Elementary and secondary school textbooks and materials are usually sold to school systems on a contract basis, with the majority of deliveries made during the contract’s first few years. School systems acquire their books through one of two means. Under the open territory method, both the choice and the actual purchase of textbooks are made entirely by the local school districts or individual schools. There are no statewide purchasing schedules or state-selected lists of textbooks. Under the state adoption method, local school districts select textbooks from a menu approved by the state adoption agency. The state board issues curriculum guidelines in each subject area and schedules the purchase of new books and materials.

Twenty-one states use the adoption process to buy elementary and high school textbooks. California adopts textbooks through the eighth grade, but grades nine to 12 are open territory. The other states are open territory states (plus the District of Columbia, which is also an open territory region). Over an adoption cycle, adoption states—including such major purchasers as Texas, Florida and California—account for the bulk of textbook purchases. In any given year, however, adoption sales may fall below open territory sales.


School districts in adoption states buy all their books by subject matter and grade level essentially at the same time and according to a schedule, although they rarely lump purchasing for every subject in one year. The adoption cycle is significant to publishers because it tends to concentrate spending. After states purchase their books, spending falls sharply until the next cycle begins.

While sales in the el-hi market have always depended on enrollment growth, textbook adoption cycles and government funding levels, it is often the funding levels that are the most volatile and the most difficult to predict. For example, notwithstanding the renewed federal government commitment to education in the form of the No Child Left Behind Act of 2001, spending on school materials was hampered in ensuing years by shortfalls in state and local budgets across the country. Since fixed-cost items (such as contracted teacher and support staff salaries, administration, transportation, and building maintenance) account for the bulk of school budgets, any budget shortfalls are likely to be felt most in discretionary spending areas, such as materials, which includes textbooks.

College publishing has high profit margins College texts are the most profitable line in the book publishing industry. Production costs are comparatively low, and cover prices are relatively high. Unit sales are far smaller than in the elementary or secondary school textbook markets. For this reason, college texts typically are more expensive than consumer-oriented books or el-hi textbooks. El-hi instructional programs, which are usually organized in series and sold to a number of states, must meet specific pedagogical and governmental guidelines requiring numerous reviews and revisions. College textbooks are not subject to such scrutiny.

ADVERTISING AGENCY FUNDAMENTALS

Ad agencies work with advertisers (their clients) and the media (their suppliers) to design and implement marketing campaigns. Advertisers usually sell goods or services, although they may be government organizations or public service advertisers.

Ad agencies analyze the market for a particular product or service, create the appropriate communications strategy to convey the agreed-upon message, and choose the most effective media for reaching the desired market. Agencies also negotiate and place orders with the media in accordance with their clients’ budgets.

Types of agencies The principal firms in this industry are general ad agencies and boutique firms. However, individual agencies and boutiques often operate under the umbrella of a larger holding company, forming a full-service agency network.

Full-service agency groups. Under a holding company structure, a full-service agency group offers a complete range of ad services, from creative work, production work and account handling to media planning, buying and post-buy analysis. Frequently, certain agencies in the group concentrate on media planning and buying (media independents), while other agencies handle account services, creative work and production.

At the larger holding companies, the parent company provides strategic direction as well as centralized services, such as finance and acquisition support, real estate expertise, legal counsel, and investor relations. With this structure, the separate agencies and operating companies can focus on their clients’ marketing and advertising challenges. The parent company usually does not get involved in ad campaigns or other client marketing programs, which are planned, developed and executed independently and confidentially within each agency.

General advertising agencies. Whether independent or part of an agency group, general ad agencies plan and create marketing campaigns and place ads in various media. Planning consists of identifying and analyzing the market for a particular product or service, evaluating alternative methods of reaching the target market, and choosing the media or promotional efforts that will most effectively reach that particular market. Media include broadcast television, cable TV, magazines, newspapers, direct mail, radio, yellow pages (or directories), the Internet, outdoor displays (billboards, public transportation, bus shelters, etc.), and others. After the campaign is created, the agency places orders for time or space in the selected media.


The functions of a general ad agency include interacting with clients (i.e., account services), designing ad campaigns (creative), making the actual ads (production), advising on placement (media planning), and booking and coordinating the appearance of the ad (media buying).

Boutiques. A full marketing program includes not only traditional advertising, but also other efforts to boost product awareness and ultimately sales. Although most boutiques operate independently, many are owned by large holding companies, and their activities are often coordinated with those of affiliated ad agencies. Boutiques often specialize in particular marketing services. The various kinds of boutiques are detailed below.

Direct marketing/direct response agencies provide strategic planning, creative services, database design and management, media buying, fulfillment services, and list buying/management. Direct marketing is any direct communication to a consumer or business that is designed to elicit a response. Responses can include an order, a request for further information, and/or a visit to a store or business to purchase a specific product or service. Direct marketing may use one or more advertising media, such as telephone marketing, direct mail, or the Internet. Because advertisers are able to track customers’ responses, they gain valuable information on purchasing preferences, demographics, and spending patterns.

Public relations (PR) agencies provide services that include media relations, marketing support, corporate communications, crisis management, advertising and marketing communications, and internal communications. The goal is to build a favorable image of a corporation, its brands and its products. Similarly, when the reputation of a company’s major brand is threatened, PR attempts to control the severity or extent of the damage.

Branding/logo/identity consultants are agencies that provide the following services: brand strategies, name development, corporate identity, package design, retail design, and brand valuation, among others.

Sales promotion companies provide services that include promotional marketing, premium design and production, and marketing communications. Sales promotion companies usually concentrate on developing ideas for product promotion separate from media advertising or direct marketing. Examples include cents-off coupons and/or rebates, and the production of items with company logos (e.g., toys, shirts, hats, golf balls, or pens).

Field marketing agencies provide many services, from product manufacturing to delivery. They are directly involved in putting the product in the consumer’s hands. This can include any of the following services: merchandising, point-of-sale product demonstration and coupon distribution, telemarketing, and warehouse distribution, among others.

Interactive agencies are the newest in the ad industry, having emerged in response to the rapid growth of online interaction. Interactive agencies design and monitor websites for their clients, as well as produce a multitude of Internet marketing services. Interactive agencies also produce freestanding kiosks (commonly seen in the cosmetics and automotive industries), where consumers can design their own products online or find information about a particular product.

Specialty agencies concentrate on one product area (such as financial, health, or medical) and provide numerous services to their clients. These include financial services advertising, financial notices (tombstone) placement, financial printing, medical/pharmaceutical advertising, pharmaceutical print items and/or videos, placement of recruitment ads in various media, and the like.

Sports marketing companies provide sponsorship and sports marketing consultancy; event management and ownership; athlete representation; sports TV programming; the production, sale and distribution of sports TV rights globally; and the management of global sports circuits and events.


New products a plus Product introductions are good news for ad agencies and advertising media, for a number of reasons. First, the absolute number is very high: thousands of new products (including brand extensions) are introduced annually. Second, new products typically require larger promotional budgets than do established brand-name products or extensions of existing brands. In many instances, new products differ little from existing products, so heavy promotion is especially important. Finally, with 10% to 20% of new product introductions succeeding, the universe of established products vying for consumer attention continues to grow, despite the demise of many once-familiar products each year.

Client relationships crucial Developing and maintaining client relationships is essential in the ad industry. In some cases, smaller agencies exist solely because of one or two big accounts—thus, maintaining good client relationships is vital to their continued operations.

An ad agency’s indirect customers are the consuming public. Ultimately, an advertisement’s success or failure depends on whether it reaches the target market and encourages consumers to buy more products. Therefore, not only does the agency have to sell its services to the direct client, but it must also persuade the consumer to accept the client’s product or cause.

Contracts between agencies and their clients customarily provide for termination by either party on relatively short notice (typically 90 days). Clients are thus able to move from one agency to another with relative ease. This arrangement puts unyielding pressure on the agency to find and keep the best creative talent.

Clients prefer not to be represented by an agency that handles competing products or services for other advertisers. Consequently, an agency must be careful not to enter into a new client agreement that conflicts with any existing clients. However, some client overlap will occur in specialty agencies that focus on advertising for a specific industry (e.g., financial or medical recruitment agencies). These agencies hone their industry experience, and their clients capitalize on the agency’s knowledge of the industry.

To minimize conflicts, agencies often seek clients in “open categories of business”—that is, in industries where the agency does not already have a presence. When pitching to a client in an open category of business, the agency must develop the skills and knowledge necessary to service the client. Investing in the resources to gain this knowledge can be costly, so the agency must evaluate the financial impact of pitching in an open category of business before taking on such an endeavor.

Compensation arrangements Clients increasingly require their agencies to provide return on advertising investment metrics. After resisting for many years, agencies have finally agreed to replace a traditional commission-based fee structure with fee-based remuneration for their creative work. Clients also are clamping down on markups for third-party work, once a profitable industry practice. Other drains on profits are stricter invoicing arrangements and low interest rates, which make placing media payments in short-term deposit accounts less profitable.

Cost-plus fee. This kind of contract is negotiated for an overall flat fee based on the annual cost of servicing an account, in addition to out-of-pocket production expenses that are billed at cost plus an agreed-upon markup percentage.

Sliding scale fee. Contracts negotiated for a sliding scale fee are based on the volume of services provided to the client. Sliding scale arrangements generally include an initial fee, with decreasing rates for services as predetermined thresholds are met.

Fixed-rate commission. In a fixed-rate arrangement, if the agreed-upon rate is 10%, then the agency’s fee will be 10% of all monies spent.


Seasonality Seasonality is a factor in the timing and level of advertising spending, and therefore agency revenues. Advertising spending tends to be higher during the second and fourth quarters of the calendar year. Fourth-quarter spending is usually highest, as advertising ramps up during the holiday season.

Competitive environment Ad agencies face competitive pressures from two directions: broad-based global companies and regional niche companies. Frequently, they must also compete with clients’ in-house ad and marketing departments.

Competition among large agencies presents a challenging situation because most clients prefer not to be represented by an agency that handles products or services for competing advertisers. The ad industry has sidestepped this difficulty by forming agency groups, in which the agencies remain independent and may compete with one another, even though they are owned by the same parent company. As a result, these larger agencies gain advantages of scale relative to their smaller peers, including greater media buying power, a broader creative pool, deeper managerial bench strength, and increased financial stability.

Regionally focused agencies often position themselves as more closely attuned to local and regional markets, at lower costs and with better customer service. Some have adopted the integrated marketing concept, in which traditional ad services are supplemented by sales, marketing and promotional services not traditionally offered by ad agencies.

There are also numerous small, privately held advertising firms. Barriers to entry are low in the industry, since ad and marketing businesses generally do not require significant capital for start-up. The industry is labor intensive, so employee compensation and related occupancy costs are the major cost categories.

KEY INDUSTRY RATIOS AND STATISTICS

We see various types of macroeconomic, demographic and industry-specific data being helpful for measuring and forecasting the shape and trends of the publishing and advertising industries. We outline some of these tools below.

Advertising spending. Historical and projected advertising sales can serve as an indicator of general health for various media, including newspapers and magazines. It is also important to look into the health of the various categories to which various media outlets are exposed. For example, newspapers may receive

a sizable amount of their advertising from local retailers, while specialized magazines may be more dependent on product manufacturers (e.g., recreational goods) that are looking to sell to the publication’s target audience. Historical and projected data are reported by various trade magazines and at the websites of industry associations and research providers. The health of media ad spending contributes to the pace and direction of revenues at various ad agencies.

Table B07: RELATIONSHIP BETWEEN ECONOMIC FACTORS AND ADVERTISING EXPENDITURES

RELATIONSHIP BETWEEN ECONOMIC FACTORS AND ADVERTISING EXPENDITURES

PERSONAL

CONSUMPTION CORPORATE PRETAX ADVERTISING

EXPENDITURES PROFITS EXPENDITURES†

YEAR BIL. $ INDEX* BIL. $ INDEX* BIL. $ INDEX* BIL. $ INDEX*

2011 15,094.4 171.7 10,726.4 181.2 1,942.8 239.1 154.9 110.72010 14,526.5 165.2 10,245.5 173.1 1,800.1 221.6 161.6 115.52009 13,939.0 158.5 9,866.1 166.7 1,362.0 167.7 161.6 115.52008 14,291.5 162.5 10,035.5 169.6 1,248.4 153.7 157.5 112.62007 14,028.7 159.5 9,772.3 165.1 1,510.6 185.9 170.2 121.62006 13,377.2 152.1 9,301.0 157.2 1,608.3 198.0 179.3 128.12005 12,623.0 143.5 8,803.5 148.7 1,456.1 179.2 175.1 125.22004 11,853.3 134.8 8,270.6 139.7 1,246.9 153.5 166.2 118.82003 11,142.2 126.7 7,804.1 131.9 977.8 120.4 161.5 115.42002 10,642.3 121.0 7,439.2 125.7 872.2 107.4 152.3 108.82001 10,286.2 117.0 7,148.8 120.8 784.2 96.5 149.8 107.02000 9,951.5 113.2 6,830.4 115.4 819.2 100.8 147.2 105.21999 9,353.5 106.4 6,342.8 107.2 856.3 105.4 156.7 112.01998 8,793.5 100.0 5,918.5 100.0 812.4 100.0 139.9 100.0

*1998=100. †Measured media. Source: US Department of Commerce; †ZenithOptimedia.

GROSS DOMESTIC

PRODUCT


Consumer confidence. The most widely followed consumer confidence survey is conducted by the Conference Board, a private, nonprofit research organization that polls 5,000 representative US households to gauge consumer sentiment. A high level of consumer confidence generally signals that people feel good about the economy, their job prospects, and their future earnings ability. Rising index levels may indicate that consumers expect further economic growth in the months ahead, which generally bodes well for publishers’ advertising and circulation sales. Even when confidence levels are relatively low, the comparatively low cost of print publications versus other forms of entertainment should bolster their appeal to consumers, in our view.

Cost-per-thousand (CPM). This refers to the price of reaching 1,000 households or readers with an advertisement. It can be used as a measure of cost efficiency, enabling advertisers to compare opportunities in various media. In addition, changes in CPM pricing may be used as a gauge of pricing power for a particular medium or publication.

Currency exchange rates. Revenues and earnings from international operations, which are generally denominated in local currencies, are subject to the risks of currency exchange rate fluctuations. For US companies, financial results from international markets would be translated back into dollars, with a weaker dollar generally being favorable. In our view, among major publishing and advertising categories, we see major ad agencies as the most likely to be affected by currency fluctuations, due to their broad geographic scope. Various US magazine publishers have extended their brands into foreign markets, which also could cause them to have some currency exposure. In general, we see US newspaper publishers as being much less likely to be affected by exchange rates, since the bulk of their operations are in the US.

Demographics. Measuring the size and growth rates for various parts of the population should be useful in projecting changes in book, newspaper and magazine readership, including the manner in which reading material is accessed. For example, we believe that consumers under the age of 35 are more likely than their older counterparts to seek and consume reading material on computers and other digital platforms. Older consumers are likely to have more appreciation for traditional printed products.

Demographic data can be particularly helpful in getting a general idea of the long-range growth prospects for various segments of the economy and in understanding certain target markets. Sources of population data include the US Census Bureau (http://www.census.gov) and Ad Age magazine. These statistics play central roles in both television and radio advertising, particularly when a market is highly segmented. The growth rate and size of key age groups and other categories (such as married couples, grandparents, or working mothers) can determine how much advertising money a segment will attract and which broadcast medium is best suited to reach that segment. Statistics on key groups are available from the US Census Bureau and magazines such as Ad Age.

Gross versus net revenues. For the publishing industry, advertising and subscription revenues can be reported in a number of ways. In general, we see gross revenues being based on rate cards (i.e., posted prices), while net revenue is a better reflection of what a publisher actually receives after discounts have been applied. Following negotiations over price, we think that a publisher’s net ad revenue is often much less than gross revenue. However, we believe that gross revenue may often be easier to compute, especially for individual publications, since it would not require disclosure or estimates of price discounting.

Local and regional economies. For publications whose target audience is largely within a particular locality or region, the economic health of that geographic area is likely to affect advertising trends within that market. We would expect factors such as employment levels, consumer income, retail sales and store openings to have an impact on advertising demand.

Measured media. These are the various advertising platforms for which audience or distribution data are compiled. Major examples include television, radio, newspapers, magazines, and the Internet. Other forms of marketing, such as direct mail and promotional activity, are considered to be unmeasured media.

Paper inventories. Although we see published material and readership increasingly moving to digital platforms, paper is still an important cost component for many publishers. Monthly statistics and other information on pricing trends, manufacturing capacity, and exports and imports of newsprint, coated paper,


and uncoated paper are provided by the US Department of Commerce, Pulp & Paper Week magazine, and the American Forest & Paper Association.

Real growth in gross domestic product (GDP). Reported quarterly by the US Department of Commerce, real GDP measures the change in the nation’s output of goods and services, adjusted for inflation. It thus indicates the overall health of the country’s economy. We see advertising as both a stimulus for and a reflection of consumer spending, which accounts for roughly 65%–70% of US GDP.

School/college enrollment trends. Trends in elementary, high school and college enrollment are essential for projecting textbook sales. Enrollment levels influence demand for textbooks, particularly for college textbook sales. A primary source of enrollment data is the National Center for Education Statistics (http://nces.ed.gov), a US Department of Education agency that collects and analyzes education-related data.

According to estimates from the Census Bureau and the Department of Education, two developments are boosting school enrollments. The first is rising immigration: the immigrant population nearly tripled between 1970 and 2000, and by 2003, more than one of every five students had at least one parent who was foreign born. The second factor is the “echo boom,” the 25% increase in the birth rate that occurred between the mid-1970s and 1990, reflecting children born to the post-WWII baby boom generation.

Student enrollments (both public and private, from elementary through high school) were projected to reach 55.6 million in the fall of 2011 (a 4% increase over the 53.4 million in 2000), and increase to 55.8 million in the fall of 2012. However, enrollments are projected to reach about 58.6 million in 2019. Enrollment in degree-granting institutions has risen steadily from 8.6 million in 1970 to a projected 19.7 million in 2011, and this figure is forecast to grow to approximately 22.4 million in 2019.

HOW TO ANALYZE A PUBLISHING OR ADVERTISING COMPANY

While each industry has unique aspects to analyze, there are also a number of significant common factors among publishers and ad agencies.

THE ECONOMY INFLUENCES ADVERTISING DEMAND

Newspapers, magazines and ad agencies are significantly affected by the demand for advertising, which in turn is influenced by overall economic activity. During periods of prolonged economic decline, corporate revenues fall and companies reduce costs to maintain profits. Since cutting fixed costs or personnel can be difficult, ad budgets often are among the first expenses to be cut. This hurts both advertising agencies that create and buy ads on behalf of their clients, as well as the media outlets that sell their advertising inventory. Conversely, during periods of economic prosperity, the overall level of advertising usually rises.

For many publishers, we think that economic conditions at the local or regional level can have a greater influence on advertising demand than do conditions affecting the nation at large. This is particularly true for newspapers, many of which have a much narrower geographic focus than magazines.

In addition, we view some industries as being more economically sensitive than others, which is likely to cause relatively large swings in related ad spending. Examples include the housing and auto industries. In addition to economic factors, we see newspaper and magazine publishers being vulnerable to changes in technology and reading patterns. We think that time spent retrieving information on the Internet is often at the expense of traditional print publications. Where readers go, advertisers are likely to follow.

For ad agencies, a diversified client base should help provide some protection from economic declines or downturns in specific industries. We also note that the world’s largest agencies derive a substantial portion of revenues from many regions outside their home country; thus, the effect of a weak US economy may be offset by strength in overseas economies, for example.


Circulation and book purchases It is harder to quantify the impact of the economy on newspaper and magazine circulation or on general book purchases. On the one hand, periods of recession or high unemployment may force some consumers to cut back on discretionary purchases of newspapers, magazines and books. On the other hand, during such hard times, consumers may view these relatively inexpensive purchases as even more important, while they reduce what they spend on theater tickets, restaurants, and other expensive items.

College book-buying trends are also strongly affected by economic conditions, because a growing proportion of the student population is nontraditional (i.e., older than age 25). Inasmuch as this trend benefits trade schools and two-year colleges, it also bolsters sales of professional and vocational books. During difficult economic times, school enrollment rises as unemployed workers return to acquire new skills or to hone current abilities. Because a slow economy often means fewer job prospects, more graduating high school seniors may consider entering college or trade school. At the same time, however, students generally have fewer dollars to spend on textbooks and related literature. Thus, many will buy fewer books, if possible, or they will purchase used books.

With respect to elementary through high school (el-hi) textbooks, more than 90% of the funding for these purchases comes from state and local governments. Thus, economic conditions at the state and local levels play a large part in el-hi school spending.

Competitive environment The level and type of competition in a market can affect competing advertising media unevenly. Therefore, in addition to considering overall advertising health, it is important to consider competitive factors. We see newer digital media, such as the Internet, providing both new distribution opportunities and increased competition for print publishers. We see growing penetration of broadband Internet access opening the way for further fragmentation of the media and advertising pie.

For publishers, other parts of the competitive landscape include cable companies, local TV and radio stations, and national TV and radio networks. In some markets, paid circulation publications also face challenges from other print media such as free newspapers, which look to bolster advertising demand through the circulation they generate.

ANALYSIS OF MANAGEMENT

Making an assessment of the quality and experience of a management team can give an analyst important insight into the direction of a company. An analyst should consider the following factors when assessing the quality of a company’s management.

Long-term or short-term focus. Do managers have a long-term focus on the overall health of the business, or do they seem preoccupied with short-term results? For example, a long-term view might be attributed to a company that focuses on customer satisfaction ratings or reader engagement and reach statistics regardless of the cyclical status of the environment.

Executive pay. Is the executive pay structure aligned to shareholder interests? If executives receive significant compensation regardless of their performance, that would be an indicator that pay incentives are not properly aligned.

Management results. What is the management team’s track record for guiding the company? Does it have a long-term vision for the company and strategic plans to reach that vision, or does the company’s direction often change?

Management structure. Does the company’s management structure make sense for its business? Ad agencies, for example, are structured differently than other companies. Most corporations are structured around product lines, brands, services, or other business units; ad agencies, by contrast, are structured around client accounts. Because clients come and go, and account needs change, openness and flexibility are important aspects of an ad agency’s culture.


Financial indicators A thorough review should be undertaken that compares a company’s performance on various financial indicators versus its peers, including revenue growth, cash flow yield, operating margin, and balance sheet data. However, it is not sufficient to simply analyze the relative position of a company versus its peer group; the health of the overall industry must also be considered.

The newspaper industry, for example, generally boasts strong operating margins and cash flow yields compared with other industries. Over the past few years, however, these ratios have generally declined, and newspaper stock prices have fallen in tandem. Thus, it is vitally important to understand both the direction in which financial indicators are moving and a company’s overall positioning relative to its peers.

MAGAZINES AND NEWSPAPERS

The major factors affecting the business health of most magazine and newspaper publishers are advertising and circulation revenues (sales of individual publications via single-copy newsstand sales as well as by subscription). The analyst must consider the revenue mix of advertising versus circulation, as well as the composition of each revenue category.

Revenue mix A company in which ad revenue predominates over circulation will benefit from a strong advertising environment. Conversely, a publisher that depends more on circulation than on ad revenue will be strongly affected by changes in sales patterns and pricing, for subscriptions as well as for single-copy sales.

Typically, newspapers receive about 80% of their revenues from advertising and 20% from circulation. Magazine publishers exhibit more pronounced differences, with no norm for revenue and circulation breakdowns. On average, magazines receive 60%–65% of their revenues from circulation, but individual titles vary widely from that range. For instance, one magazine may derive 50% of its revenue from advertising and 50% from circulation, while another may receive 90% or more of revenue from advertising or circulation alone. Periodicals that are distributed free of charge are commonly controlled circulation publications, which are highly targeted to a specific audience.

Advertising mix Among newspaper publishers, the portion of advertising revenue contributed by classified, retail and national advertising can influence results. For example, if total newspaper advertising is expected to grow 10% at a time when classifieds are projected to rise by only 4%, then a publisher heavily weighted with classified advertising might not be expected to do as well as the industry as a whole.

When looking at an individual newspaper or magazine publishing company, the analyst should determine if anything in its market or advertiser mix might affect whole categories of advertisers. Who are the company’s major advertisers? Is the mix diversified, or is it weighted heavily toward one product or industry? In general, the more diverse a publication’s advertisers, the greater its ability to weather the ad market’s vagaries.

If major advertisers include large local department stores or other businesses, are these companies in the process of consolidating? The amount spent on advertising by a merged business is usually less than the total spent by the individual firms before the merger.

Are other advertisers, such as new car dealers, following their customers to the suburbs? If so, is the publisher also following its advertisers by offering zoned or targeted editions? Consider the economic and competitive conditions of local markets that have an impact on the health of advertising segments such as used car dealerships or real estate.

Timely information on advertising statistics and trends can be obtained from such sources as Advertising Age magazine, ZenithOptimedia’s Advertising Expenditure Forecasts, the Newspaper Association of America, and the Magazine Publishers of America. However, we caution that definitions may vary on what is included in various categories and in how such data as advertising revenue are measured (for more on this, see the “Key Industry Ratios and Statistics” section of this Survey).


Circulation mix When assessing the health or the growth prospects of a magazine or newspaper publisher, it is important to examine the proportion of newsstand versus subscription sales. Subscription sales provide a fairly secure circulation rate base, while newsstand (single-copy) sales generate more revenue per copy. It is also important to note the quality of a newspaper publisher’s circulation numbers. Does the publisher count a significant portion of circulation as coming from third parties, such as hotels, or from distribution areas hundreds of miles outside the major city that the newspaper serves? In recent years, local advertisers have determined that third-party circulation and long-distance distribution are less valuable to them than local subscriptions and newsstand sales. Sales trends in the two latter categories affect a company’s revenues.

At present, newsstand sales of magazines and newspapers are experiencing a long-term decline. Subscription sales revenues are also slowly declining, despite higher prices charged by publishers.

Knowing a publication’s audience demographics helps the analyst understand trends in the publisher’s financial results. One might ask, for instance, whether subscribers to a magazine are trickling away because its readership is aging or perhaps migrating to the Internet. What is management doing to replace those readers? What are the characteristics of the new demographic target, and how fast will the new audience of readers grow? What editorial or platform changes are necessary to attract the new demographic?

Book publishers For book publishers, revenue from unit sales is the main source of income. Beyond that, it is important to analyze a company’s sales mix.

Unit sales. Book publishers depend on unit sales rather than advertising, so the kinds of markets targeted by the company must be considered. Does the firm sell to businesses and professionals, children, trade groups, or other markets? Are its products printed books, software programs, or both? Each market segment has its own dynamics. In any given year, demand for various types of books can vary widely. For example, adult trade hardcover sales might be soft one year, but juvenile trade might be strong—boosted, for example, by a new installment in a best-selling series, such as the recently concluded Harry Potter series. Other segments tend to ebb and flow in multi-year cycles, such as grade-school publishing.

Product mix. It is essential to distinguish between types of publications when looking at a book publisher. An educational publisher’s sales do not correlate with those of trade or general publishing. Even within the educational publishing field, college sales may flounder while elementary sales surge, or vice versa. As explained in the “How the Industry Operates” section of this Survey, state adoption cycles play key roles in el-hi publishing. Demographics, economic conditions, recruitment efforts and other factors affect college enrollments and college textbook sales.

Demographic trends and economic cycles can affect trade, general, professional and other noneducational book segments in various ways. For example, demographic trends now favor rising book readership in general, but an economic slowdown can affect gift giving (and thus juvenile trade books) and discretionary purchases (adult fiction).

On the expense side With respect to expenses, publishers have some costs in common. Book, magazine and newspaper publishers alike bear costs for labor, paper, production and distribution.

Labor costs. Personnel expense is the largest cost item for publishers. Some of the questions that should be asked are: Is the company downsizing or expanding? What will average wage hikes be? What proportion of the work force is unionized? Are contracts up for renewal? How fast are benefit costs rising?

It is important to determine the ratio of personnel costs to revenue (or to total costs) and to compare these ratios with those of peer companies. Analysts should look at the direction of cost ratio trends, both for individual publishers and for the industry as a whole.


Paper costs. Paper is the second largest cost item for a typical publisher; as such, its pricing trends are critical to a publisher’s profit margin. As paper is a cyclical commodity, its prices can change rapidly. The analyst should find out what each company is paying on average for paper, and compare these amounts with list prices and peer averages. Many paper users are able to negotiate discounts on quoted list prices from manufacturers, a practice that is particularly common during soft paper cycles. More often than not, the size of these discounts is significant. Although publishers may keep only one or two months’ paper inventory on hand, many negotiate longer-term contracts at set prices. Thus, paper price increases and decreases will not affect such publishers until their contracts expire and come up for renegotiation.

Look at paper-consumption patterns on both an industrywide basis and a company-by-company basis. If one publisher cuts pages or frequency, trims page size, or closes publications, its paper usage will decrease and so will its costs. The launch of a new magazine obviously will raise a publisher’s paper usage and thus its paper costs. Strong advertising demand requires more pages per issue, also boosting usage.

Production and distribution costs. In addition to paper, production costs include such items as ink and machinery, or—if printing and production are farmed out—printers’ fees. Postage and other distribution costs are also key factors affecting profits for all sectors, although the impact of these cost items varies by company. For example, a magazine publisher with a large subscription base will be more affected by a hike in postage than a publisher largely dependent on newsstand sales.

The analyst should take note of capital spending plans. Is the publisher planning (or in the midst of) plant expansion or modernization? Is it playing catch-up with its peers, or is it in step with or ahead of the crowd in terms of its physical operations? What industrywide upgrades are publishers preparing for or talking about?

AD AGENCIES AND HOLDING COMPANIES

For an ad agency, creativity is the key to winning and maintaining clients. After all, no matter how well an ad or marketing program is put together, if it does not move consumers to act, it has failed. In turn, the key to continually developing innovative ad campaigns is having employees capable of doing just that.

At the heart of the agency: employee issues Given the importance of personnel in service-related businesses, it should come as no surprise that an ad agency’s largest cost is its personnel. Typically, wages and salaries account for 55%–60% of expenses, and range from 50% to about 70%, depending on the agency. Thus, hiring and maintaining the best managers, creative talent, planners, and other staff is an expensive and competitive proposition, and agencies vie fiercely for the best and most talented employees.

As a result of the central role of human resources in this industry, agencies must focus on both recruitment and retention to be successful. A strong relationship often forms between a client and an account executive who has remained on the account for several years, and it is not uncommon for an account to follow an executive who has been lured away by a competing agency or who has decided to start his or her own agency.

An indication of a company’s creative success that helps measure the effectiveness of its hiring practices can be gleaned from how many industry awards it has won compared with its peers. Industry awards include the Gold Lion, Palme d’Or and Grand Prix (Cannes Lions International Advertising Festival); the ECHO (Direct Marketing Association, for direct marketing); the O’Toole (American Association of Advertising Agencies); the ADDY (American Advertising Federation, for excellence in advertising); the Effies (New York American Marketing Association, for ad effectiveness); and the Clio (The Nielsen Co., for excellence in advertising).

Occupancy costs After direct employee costs, occupancy (office space) is the second highest expenditure for the typical ad agency. Quite simply, ad agencies need office space to conduct their business. Occupancy costs per employee, square footage per employee, and comparisons with historical occupancy and square footage are key measures when comparing an agency’s operating efficiencies with those of its peers. Some agencies have moved to a “virtual office” concept, where employees share workspaces and are equipped with cell phones to conduct business at home, in the office, on the road, or out of town.


Revenue composition An agency’s client list is an important indicator of how it can expect to fare. For example, while an economic slump would hurt most advertising segments, the direct-to-consumer drug and remedy segment might experience relatively strong spending, partly because of new drugs and new therapy campaigns, but also because of the generally recession-proof nature of consumer spending on drugs. Therefore, an agency or group with several clients in these areas would probably outperform its peers.

Product diversity is another important consideration. Many of the largest agencies generate significant revenues from nontraditional sources, such as special events promotion and public relations management. Revenues from these sources may be less cyclical than those from creating advertising and buying ad space. It is also important to understand an agency’s digital capabilities, since that is a strongly growing ad segment.

Compensation structures When analyzing revenues, it is important to determine what percentage of a company’s business is based on billings, as opposed to other fee arrangements. Under the billings-based arrangement, an agency’s compensation is calculated as a fixed percentage of the client’s total spending (or total billings for media placements and the like). Thus, agencies benefit from rising media prices and from growing media budgets. Conversely, significant cutbacks in client spending can greatly reduce agency income.

Key performance measures When evaluating an ad agency, comparative analysis is important. Agencies can be benchmarked against other agencies based on annual reports and other company documents or material published by trade organizations such as the American Association of Advertising Agencies. In addition, creativity awards, such as the Clio, are highly visible and may be used as benchmarks.

In addition to the performance indicators mentioned in the financial indicators section, analysts may also consider the following: occupancy trends, comparisons of square footage to headcount, payroll as a percentage of revenue, liquidity/cash management, pretax income growth, and effective tax rates.

Other areas that may be monitored are work force utilization (chargeable ratios measure billable time spent on a marketing or advertising program), employee turnover, professional fees paid to consultants, average days billings in accounts receivable, and age of receivables. With this information, the analyst can determine the health of the agency business and run comparative analyses with results of competitors.

EQUITY VALUATION

The price-to-earnings (P/E) ratio—the price of a stock divided by its annual earnings per share—is one of the most widely used valuation measures. It is useful for comparing a company with others in the same industry and other industries. The P/E ratio gives investors an idea of how much they are paying for a company’s earning power. Investors typically afford a company a higher P/E ratio if its earnings are expected to grow more rapidly than those of its competitors.

Over the past 10 years, stocks of the major publishing companies have tended to have P/E ratios below those of the broader stock market. This reflects the greater perceived investment risk by investors, given secular pressures due to shifting advertising spending to digital alternatives.

In the case of major advertising agencies, the P/E value can be understated due to the significant levels of leverage utilized within the industry. As a result, the ratio of the enterprise value (EV) to earnings before interest, taxes, depreciation and amortization (EV/EBITDA) is a better reflection of valuation. This ratio takes into account the total value of the company’s equity and debt in relation to its ability to generate cash flow (EBITDA).


GLOSSARY

Above-the-line advertising—Generally refers to advertising using the five major media (newspapers, magazines, television, radio, and outdoor). Recently the term has come to include Internet advertising, though this may also be classified as “below-the-line.” (See Below-the-line advertising.)

Advertising—A paid public message, often delivered through a mass media outlet, with the goal of promoting sales of a product and/or service, or encouraging some other action by the audience, such as voting for a certain candidate in an election.

Advertising allowance—Money a manufacturer gives to another member of the distribution channel (wholesaler, distributor, sales representative, value-added reseller, retailer, etc.) to advertise the manufacturer’s product, service, or brand.

Advertising medium—A vehicle (such as television, radio, newspapers, or magazines) for conveying an advertising message.

Advertorial—A print or web advertisement designed to look like a news story. The television or radio equivalent is known as an infomercial.

Ancillary products and services—Items or services (in addition to magazines) that are sold or marketed by magazine publishers at trade shows and conferences, such as books, tapes, special issues, coffee mugs, etc.

Audience—All people, households, or organizations that read, view, or hear a particular marketing communication vehicle.

Audience duplication—The overlap of people, households, or organizations that might read, view, or hear an advertisement or other marketing communication more than once if it is carried by a combination of media vehicles.

Audit—Objective confirmation by independent organizations (such as the Audit Bureau of Circulations or Business Publications Audit Inc. in the US) of circulation figures, web site impressions, and other records, which publications use to promote their business.

Audit report—The official findings of an audit bureau as a result of its examination of a magazine’s records for a particular year or other stated period of time.

Average net paid circulation—A term often used by audit bureaus to indicate the average number of copies of a publication sold per issue. It equals the total circulation of all issues during the audit period divided by the number of issues in the audit period.

Backlist—A publisher’s catalog of books in print: books that have appeared in a first edition and have been or will be issued in subsequent editions.

Banner ad—On the web, a standard advertisement (either static or animated) that normally, though not necessarily, appears near the top of a web page. The term generally indicates an ad of a particular size (the industry standard is 468 x 60 pixels).

Below-the-line-advertising—Refers to advertising by means other than the five major media (newspapers, magazines, television, radio, and outdoor). Examples include direct mail, sponsorship, merchandising, trade shows, exhibitions, sale literature, and catalogs. (See Above-the-line advertising.)

Boilerplate—Prewritten, standardized copy used whenever a particular marketing communication requirement arises; it eliminates the need for original writing when such requirements arise frequently. It may also be written to adhere to legal or company standards.

Boutique agency—An ad agency that focuses on just one or a few services. It might, for example, just produce videos.

Brand manager—The manager responsible for the marketing and advertising of a given brand.


Broadsheet newspaper—A standard- or large-size newspaper. Measurements vary, but a standard broadsheet newspaper page is 21.5 inches deep and 13 inches wide, with six columns of editorial and run-of-press display advertising. (See Tabloid.)

Bulk circulation—Distribution of multiple magazine copies sent to an individual addressee.

Bulk sales—The purchase of five or more copies of a periodical for distribution to promote the buyer’s business or professional interests (e.g., hotels that give away newspapers).

Business press/business publication—Publications with content that is specific to a business, industry, occupation, or profession, rather than directed to a general consumer audience.

Buying service—A company primarily engaged in buying media space or time for advertising purposes.

Card rate—The list price for advertising as it appears on the media outlet’s rate card. Discounts against this rate may be available, depending on volume purchased and current supply and demand.

Checkout display—In newsstand sales, the coveted display space at the checkouts of supermarkets, convenience stores, and other mass outlets. In addition to a per-copy discount off cover price and the retail display allowance, publishers at checkouts generally pay per-pocket display fees to have their magazines, newspapers, or books displayed at checkout. (See Retail display allowance; Per-pocket fee.)

Circulation—The number of copies distributed of a periodical publication, often expressed as an average per issue over six months.

Classified advertising—Locally placed, typically brief, text-only newspaper ads organized by category, such as real estate for sale or help wanted; also, display-type advertisements in various categories.

Click-through—A measure of activity at a given place on the web. A click-through is counted if a viewer selects a web page ad, thereby triggering the link assigned to it. The click-through rate is the number of times a web page ad is selected as a percentage of the number of times the ad is displayed.

College books—Hardcover and softcover textbooks, workbooks, review books, and bundled electronic software for two- and four-year colleges, and graduate and professional schools.

Contra—A product or service (such as advertising time or space) that is exchanged for another service (such as printing, accounting, or any other service) rather than for cash.

Controlled circulation—Distribution of a free magazine or other publication to a list of people, households, or organizations restricted by some defining characteristic, such as occupation, industry, or hobby.

Co-op advertising—The joint funding (e.g., by retailers and manufacturers) of marketing communications activity.

Copyright—The exclusive legal right, granted by the US Copyright Office, to reproduce, publish, and sell the matter and form of a literary, musical, or artistic work.

Cost per thousand (CPM)—A measure used when quoting costs for an advertising media: for example, per thousand banner ad impressions on the web, per thousand viewers of a TV commercial, or per thousand readers of a print ad.

Creative director—An ad agency employee who supervises all workers involved in the production of advertising, including art directors, graphic designers, and copywriters.

Custom publishing—A collection of material gathered specifically for publication to a targeted audience.

Customer relationship management (CRM)—A concept based on maximizing profitability by enhancing relations with customers. For advertising and marketing companies, this entails event marketing, brand design, and direct, field, and promotional marketing.


Database marketing—Using electronic databases to identify markets and fine-tune messages. The data can come from the client’s internal sources (retail checkout, order entry, sales lead tracking, or accounts receivable) or from outside sources (such as third-party market research databases).

Desktop publishing—Designing and producing books, magazines, and other printed matter using a personal computer; used to some extent by nearly every publishing entity today.

Direct mail—All direct response advertising sent via mail or other delivery service and addressed to specific individuals; includes catalogs, cards, card decks, letters, brochures, pamphlets, flyers, audio and videotapes, diskettes, and promotional items.

Direct marketing—Any communication sent to a consumer or business recipient designed to generate a response, such as a request for information (“lead generation”), an order for merchandise (“direct order”), and/or a visit to a store to make a purchase (“traffic generation”). It must include sufficient product information for the recipient to make a purchase decision, as well as a response mechanism (phone or mail order contact; store locations and hours of operation).

Display advertising—Any advertising in a newspaper other than classified; depends upon a variety of visual and copy elements to present its message.

Elementary school—A school classification set by state and local practice, comprising any span of grades not above grade eight. Preschool or kindergarten is included under this heading only if it is an integral part of an elementary school or a regularly established school system.

El-hi books—Hardcover and paperback textbooks, workbooks, and supplements for elementary through high school. These materials are usually sold to school systems on a contract basis, with most deliveries made during the contract’s first few years.

Fact sheet—A single sheet containing information about a product, service, company, or event, without high-pressure sales talk or flowery language.

Frontlist—A publisher’s catalog of first-edition books in print.

Fulfillment—Tasks involved in creating, updating, and maintaining an active subscriber list; these include renewals, input of new subscribers, address changes, and cancellations.

Fulfillment house—A company or division of a magazine publisher that responds to and tracks orders sold through direct mail or electronic mail.

Full run—Ads that appear in all editions of a newspaper.

General advertising—Display advertising by national advertisers that promotes products or brand names on a nationwide basis.

General interest magazine—Magazine whose editorial content is general in nature and thus can potentially appeal to most men and women.

Grace copies—Copies sent after a subscription expires. Magazine publishers often send one or two grace copies per expiration.

House agency—An advertising agency that is owned and operated by the advertiser.

Image advertising—Promoting an overall perception of a company, product, or service rather than touting specific attributes. It is generally used to position a product relative to the competition; for example, to create an image of a luxury brand.

Insert—Preprinted literature (usually advertising) that is placed inside a newspaper or magazine. (See Run of press.)

Integrated marketing communication—Using a mix of all appropriate marketing communication disciplines, media, and vehicles in a well-coordinated campaign to achieve a unified objective or set of objectives.


Make-goods—Advertising time or space set aside to compensate marketers when broadcast audiences or print circulation fall short of levels promised. Thus, media “make good” on their earlier promises.

Marketing communications—All strategies, tactics, and activities used to send sales messages to targeted recipients, through whatever media channels are used.

Mass marketing—The distribution of sales communications through mass media to all residents in a geographic area. The mass market is the broader population, although mass media can provide access to narrower audiences that have some common characteristics or who are drawn by a shared interest in the media content.

Mass-market paperback—A subcategory of trade books; fiction and nonfiction softcover books, for adults or juveniles, with at least 50% of copies distributed to such mass-market outlets as newsstands, drugstores, chain stores, and supermarkets. These are also called rack-sized paperbacks, measuring approximately 4.5 inches by 7 inches. (See Trade books.)

Media kit—A package of information distributed by a media outlet to sell its advertising space. The kit typically includes information about the media vehicle, advertising rates, information about the audience it can deliver, mechanical specifications for ads, closing dates, and so on.

Net paid circulation—A term used in the Audit Bureau of Circulations (ABC) audit reports and publishers’ statements referring to total paid circulation, either through single-copy newsstand sales or through subscription sales.

Outdoor—Any form of advertising visible outside the home, such as posters placed on billboards, street furniture (kiosks and bus stops), and mass transit.

Paid circulation—Distribution of a publication via paid subscription or newsstand sales. Editorial content tends to attract an audience with certain shared characteristics, though the publisher does not restrict readership. (See Controlled circulation.)

Part run—Advertising appearing in select editions or zones of a newspaper.

Penetration—The percentage of a market that an individual medium or vehicle reaches. Alternatively, the percentage of the market that a particular advertising message reaches, regardless of the media vehicles used.

Per-pocket fee—An extra fee paid to retailers for each pocket (or slot) that its magazines take up at the checkout counter.

Plug—A positive mention of a company, product, service, and/or event in any media vehicle.

Professional book—A highly-specialized book (including electronic versions) used by people working in business, law, medical, technical, scientific, or educational professions, and created primarily for practitioners, researchers, or teachers. This category includes scholarly books from commercial and not-for-profit academic publishers, but excludes textbooks for professionals or books published by university presses.

Promotion—A special event or an incentive (such as a coupon or free product sample) designed to stimulate near-term sales and raise product awareness and/or acceptance.

Psychographics—A “psychological biography” that marketers compose from statistics denoting the attitudes and lifestyles of a particular market segment.

Public relations (PR)—Communicating information about an organization and/or its products and services to audiences beyond prospective customers; specifically, other groups that the organization wishes to influence, such as investors or governments.

Publicity—Mass communications for which the originating organization usually makes no direct payment to the media outlet. Publicity builds awareness of and/or fosters an attitude toward a particular company, product, and/or service.

Publisher—Oversees the profitability of a publication (by setting the direction editorially and visually), determines target markets, manages staffing and production, and controls resources and budgets.


Rate base—Average circulation level, which many publishers guarantee to advertisers. Advertisers use the rate base to calculate their cost per thousand (CPM).

Rate card—A printed list of standard advertising rates (card rates) for a publication, radio or television station or network, website, or other ad vehicle.

Rating point—One percent of all television households. Rating points are used to measure the percentage of households viewing a particular station at a particular time.

Reach—The number of individuals or households within a specific target audience that see a particular marketing message. It can be stated as a percentage of the target audience.

Response rate—The rate of responses received from a direct marketing campaign (typically the percentage of recipients who responded to a mailing).

Retail ad—Display advertising from local merchants, such as department and grocery stores.

Retail display allowance (RDA)—In single-copy sales, it is more or less standard for the retailer to be offered a percent discount or set dollar amount off the cover price of a magazine, in theory, for guaranteeing adequate display of the magazine on the mainline or at the checkout. The RDA is paid to retailers on top of the traditional national retail discount off the cover price.

Returns (books)—Unsold books returned by retailers to publishers, usually for a full refund. For publishers, gross sales minus returns equal net sales. The return ratio equals returned books as a percentage of gross sales.

Returns (magazines)—In single-copy sales, magazines that are distributed but not sold. In many instances, unsold copies are returned to the wholesaler, who processes and records them, then issues credit records, shreds the copies, and verifies, by affidavit, that the returned copies have been destroyed.

Rights—A publication’s ability to legally publish a writer’s work, noted in terms of frequency, location, medium, distribution, and period of time.

Run—Total number of copies printed.

Run of press (ROP)—Generally refers to newspaper or magazine advertisements placed near editorial copy, as opposed to inserts or preprints.

Sales promotion—All forms of paid communication that are attributed to a sponsor, but are not advertising or selling. Examples include cents-off coupons, samples, demonstrations, and point-of-purchase materials.

Secondary school—A school instructing students in grades above the elementary level and ending with (or below) grade 12. In a “6-3-3” plan, junior high (or middle) school consists of grades seven, eight, and nine, and senior high school consists of grades 10 through 12. In a “6-2-4” plan, junior high school consists only of grades seven and eight, and grade nine is the start of the senior high school grades.

Shelter magazines—Magazines focused on home decorating and maintenance, gardening, and food.

Single-copy sales—Copies of a magazine or newspaper sold individually at retail outlets; also referred to as newsstand sales.

Spam—The use of e-mail systems to send large volumes of unsolicited and unwanted e-mail to address lists compiled without the recipients’ consent. Spam is generally reviled and is illegal in some jurisdictions.

Standardized tests—Printed or electronic standardized tests used in grade schools, colleges, graduate and professional schools, and for admissions, certification, employment, etc.

Subscription reference books—Hardcover and paperback reference books sold by subscription.


Tabloid—A newspaper or business paper about half the page size of a broadsheet, typically 10 inches wide and 15 inches deep. (See Broadsheet newspaper.)

Total market coverage (TMC)—Distribution of a newspaper intended to reach 100% of a market’s total population (not just subscribers) in order to attract advertisers. Also known as an alternate distribution system (ADS), TMC usually involves a weekly or monthly shopper.

Trade books—Adult and juvenile books, both hardback and paperback, published for the general consumer. Most are marketed directly through trade channels (such as bookstores) and libraries, or through wholesalers and jobbers.

Trade magazine/publication—A publication focused on a specific industry, business, technical, or scientific audience. Also called a business-to-business or specialized business magazine.

University press books—Hardcover and softcover books, plus electronic versions, published by university presses and not-for-profit presses affiliated with the Association of American University Presses.

Unpaid copies—Publications distributed to readers free of charge; also, circulation distributed at a price too low to qualify as “paid” according to the ABC.

Viral marketing—Advertising sent via e-mail, in the form of attachments or web links. Attachments may be text, images, or video clips. The success of viral marketing campaigns depends largely on the rate at which e-mailers forward the messages to others.

Wholesalers—The companies that handle the physical distribution of magazines to retailers, process returns, and engage in marketing and in-store service. Wholesalers once served specific geographic territories; however, due to retail chains’ insistence, one or two major wholesalers are now responsible for magazine distribution to an entire retail chain, regardless of how far-flung its stores are.


INDUSTRY REFERENCES

PERIODICALS

Advertising Age http://www.adage.com Biweekly; marketing and advertising news.

Adweek http://www.adweek.com Daily; covers news and information about advertising, marketing, and media.

Book Industry Trends http://www.bisg.org/publications Annual study; provides analysis and predicts developments in the book publishing industry.

Broadcasting & Cable http://www.broadcastingcable.com Weekly; covers news in the television, radio, and cable industries.

Editor & Publisher http://www.editorandpublisher.com Weekly; coverage of developments in newspapers.

Publishers Weekly http://www.publishersweekly.com Weekly; covers book publishing and marketing.

The Wall Street Journal http://www.wsj.com Daily business newspaper; covers industry news and features in “Media & Marketing” section.

ONLINE RESOURCES

The Conference Board http://www.conference-board.org Disseminates statistics and makes forecasts on consumer sentiment and business trends globally.

Internet World Stats http://www.internetworldstats.com Internet data consolidator.

Newspapers.com http://www.newspapers.com Provides links to newspapers in the United States and around the world.

TRADE ASSOCIATIONS

The American Advertising Federation http://www.aaf.org Trade group that promotes advertising.

American Association of Advertising Agencies (AAAA) http://www.aaaa.org Represents US agencies; offers broad range of services, information, and expertise regarding the ad agency business.

American Booksellers Association http://www.bookweb.org Association of independently owned retail book stores; provides members with advocacy, information, research, and education services.

American Business Media (ABM) http://www.americanbusinessmedia.com Association of business information providers; provides monthly and quarterly data on advertising revenues for business-to-business magazines.

Association of American Publishers Inc. (AAP) http://www.publishers.org Trade group; lobbies on behalf of members and industry, sets standards, gives awards, and provides book publishing statistics.

Association of National Advertisers (ANA) http://www.ana.net Dedicated to marketing and brand building. Provides research, training, legislative assistance, and networking opportunities to more than 300 companies representing 8,000 brands. Publishes Trends in Agency Compensation, a triennial survey, and Advertiser, a magazine written by and for advertisers.

Cabletelevision Advertising Bureau (CAB) http://www.thecab.tv Represents cable system operators and programmers; provides advertising and marketing assistance to members and advertisers, compiles statistics, and promotes cable advertising.


The Direct Marketing Association (DMA) http://www.the-dma.org Represents more than 4,700 members worldwide, including users and suppliers in the direct, database, and interactive marketing fields.

The Interactive Advertising Bureau (IAB) http://www.iab.net Represents online, wireless, interactive television, and other emerging platform media; provides information and expertise to members and advertisers.

MPA—The Association of Magazine Media http://www.magazine.org Industry association for consumer magazines; lobbies on behalf of members and industry, compiles statistics, and conducts research. Its Publishers Information Bureau (PIB) division measures magazine advertising spending and advertising pages by category and title. Previously known as Magazine Publishers of America.

National Association of College Stores http://www.nacs.org Association of college stores; provides many member services, including advocacy, lobbying, research, information, education, and professional development services.

Newspaper Association of America (NAA) http://www.naa.org Trade association for newspapers; lobbies on behalf of members and industry, sets standards, gives awards, and compiles statistics. Conducts research and public relations for the industry; publishes Facts About Newspapers annually.

Radio Advertising Bureau (RAB) http://www.rab.com Represents radio broadcasters; provides advertising and marketing statistics, promotes favorable advertising climate, and assists stations in their marketing efforts.

Television Bureau of Advertising (TVB) http://www.tvb.org Represents television broadcasters; provides advertising statistics, and promotes a favorable advertising climate in the TV industry.

RESEARCH FIRMS

Audit Bureau of Circulations (ABC) http://www.accessabc.com Not-for-profit auditing organization supported jointly by publishers, ad agencies, and advertisers; its purpose is to verify the circulation statements of member newspaper and magazine publishers. Most daily newspapers are ABC-audited.

GfK MRI http://www.gfkmri.com Provider of multimedia audience research.

Kantar Media http://www.kantarmediana.com/intelligence Part of the Kantar Group, Kantar Media provides marketing communication and advertising expenditure information to ad agencies, advertisers, broadcasters, and publishers. Previously known as TNS Media Intelligence.

SRDS Media Solutions http://www.srds.com A leading provider of media rates and data.

ZenithOptimedia http://www.zenithoptimedia.com Media services group that is owned by communications and advertising company Publicis Groupe. Research includes data on advertising industry revenues.


COMPARATIVE COMPANY ANALYSIS

COMPARATIVE COMPANY ANALYSIS — PUBLISHING & ADVERTISING

Operating Revenues

Million $ CAGR (%) Index Basis (2000 = 100)

Ticker Company Yr. End 2010 2009 2008 2007 2006 2005 2000 10-Yr. 5-Yr. 1-Yr. 2010 2009 2008 2007 2006

PUBLISHING & PRINTING‡SSP § EW SCRIPPS -CL A DEC 776.9 D 802.4 D 1,001.8 D 2,517.1 2,498.1 A,C 2,513.9 A,C 1,719.4 (7.6) (20.9) (3.2) 45 47 58 146 145GCI [] GANNETT CO DEC 5,438.7 A,C 5,613.0 6,767.6 A,C 7,439.5 A,C 8,033.4 A 7,598.9 A,C 6,222.3 A,C (1.3) (6.5) (3.1) 87 90 109 120 129MHP [] MCGRAW-HILL COMPANIES DEC 6,168.3 5,951.8 6,355.1 6,772.3 6,255.1 6,003.6 4,281.0 A,C 3.7 0.5 3.6 144 139 148 158 146MDP † MEREDITH CORP JUN 1,387.7 1,408.8 D 1,595.2 D 1,616.0 D 1,597.6 A 1,221.3 1,097.2 2.4 2.6 (1.5) 126 128 145 147 146NYT † NEW YORK TIMES CO -CL A DEC 2,393.5 2,440.4 D 2,948.9 3,195.1 3,289.9 D 3,372.8 3,489.5 (3.7) (6.6) (1.9) 69 70 85 92 94

SCHL † SCHOLASTIC CORP # MAY 1,906.1 1,912.9 1,849.3 2,205.6 D 2,179.1 2,283.8 1,962.3 A (0.3) (3.6) (0.4) 97 97 94 112 111VCI † VALASSIS COMMUNICATIONS INC DEC 2,333.5 2,244.2 2,381.9 2,242.2 A 1,043.5 1,131.0 835.3 10.8 15.6 4.0 279 269 285 268 125WPO [] WASHINGTON POST -CL B DEC 4,723.6 A,C 4,569.7 4,461.6 A 4,180.4 3,904.9 3,553.9 2,412.1 7.0 5.9 3.4 196 189 185 173 162JW.A † WILEY (JOHN) & SONS -CL A # APR 1,742.6 1,699.1 1,611.4 1,673.7 1,234.9 A 1,044.2 A 613.8 A,C 11.0 10.8 2.6 284 277 263 273 201

ADVERTISING‡ARB § ARBITRON INC DEC 395.4 385.0 368.8 338.5 D 329.3 310.0 206.8 6.7 5.0 2.7 191 186 178 164 159HHS § HARTE HANKS INC DEC 860.5 860.1 1,082.8 A 1,162.9 1,184.7 1,135.0 960.8 A (1.1) (5.4) 0.0 90 90 113 121 123IPG [] INTERPUBLIC GROUP OF COS DEC 6,531.9 6,027.6 6,962.7 6,554.2 6,190.8 6,274.3 5,625.8 A 1.5 0.8 8.4 116 107 124 117 110LAMR † LAMAR ADVERTISING CO -CL A DEC 1,092.3 A 1,056.1 A 1,198.4 A 1,209.6 A 1,120.1 A 1,021.7 A 687.3 A 4.7 1.3 3.4 159 154 174 176 163OMC [] OMNICOM GROUP DEC 12,542.5 A 11,720.7 C 13,359.9 12,694.0 11,376.9 10,481.1 A 6,154.2 7.4 3.7 7.0 204 190 217 206 185

OTHER MAJOR PUBLISHERSMSO MARTHA STEWART LIVING OMNIMD DEC 230.8 244.8 284.3 A 327.9 285.8 209.5 285.8 (2.1) 2.0 (5.7) 81 86 99 115 100MNI MCCLATCHY CO -CL A DEC 1,375.2 1,471.6 1,900.5 2,260.4 1,675.2 A,C 1,186.1 1,142.1 1.9 3.0 (6.5) 120 129 166 198 147PSO PEARSON PLC -ADR DEC 8,716.5 A,C 9,092.3 A 7,033.2 A 8,258.7 A,C 8,102.7 A,C 7,040.2 A,C 5,916.2 A 4.0 4.4 (4.1) 147 154 119 140 137PRM PRIMEDIA INC DEC 232.2 257.9 304.1 314.8 D 849.3 D 990.6 A,C 1,691.0 (18.0) (25.2) (10.0) 14 15 18 19 50ENL REED ELSEVIER NV -ADR DEC 487.0 282.3 332.7 1,172.6 600.5 401.4 614.0 (2.3) 3.9 72.5 79 46 54 191 98

RUK REED ELSEVIER PLC -ADR DEC 526.4 344.4 377.2 1,305.7 671.8 433.1 619.1 (1.6) 4.0 52.9 85 56 61 211 109TRI THOMSON-REUTERS CORP DEC 13,070.0 12,997.0 11,707.0 A,C 7,296.0 A,C 6,641.0 A,C 8,703.0 A,C 6,514.0 A,C 7.2 8.5 0.6 201 200 180 112 102

OTHER COMPANIES WITH SIGNIFICANT PUBLISHING OPERATIONSDIS [] DISNEY (WALT) CO SEP 38,063.0 36,149.0 37,843.0 35,510.0 A,C 34,285.0 A 31,944.0 C 25,402.0 C 4.1 3.6 5.3 150 142 149 140 135DNB [] DUN & BRADSTREET CORP DEC 1,676.6 1,687.0 1,726.3 1,599.2 D 1,531.3 1,443.6 1,417.6 D 1.7 3.0 (0.6) 118 119 122 113 108TV GRUPO TELEVISA SAB -ADR DEC 4,672.5 4,009.4 3,468.2 3,807.1 A 3,512.4 3,056.2 C 2,162.9 8.0 8.9 16.5 216 185 160 176 162NWSA [] NEWS CORP JUN 32,778.0 30,423.0 A 32,996.0 A 28,655.0 A 25,327.0 A,C 23,859.0 A 13,400.7 9.4 6.6 7.7 245 227 246 214 189TWX [] TIME WARNER INC DEC 26,888.0 25,785.0 D 46,984.0 46,482.0 D 44,224.0 A,C 43,652.0 6,886.0 A 14.6 (9.2) 4.3 390 374 682 675 642

VIA.B [] VIACOM INC SEP 9,337.0 H 13,619.0 14,625.0 13,423.1 D 11,466.5 A,C 9,609.6 NA NA (0.6) (31.4) ** ** ** ** NA

BOOK RETAILERSAMZN [] AMAZON.COM INC DEC 34,204.0 24,509.0 A 19,166.0 14,835.0 10,711.0 8,490.0 2,762.0 28.6 32.1 39.6 1,238 887 694 537 388BKS † BARNES & NOBLE INC # APR 6,998.6 5,810.6 A 5,121.8 D 5,410.8 5,261.3 5,103.0 4,375.8 4.8 6.5 20.4 160 133 117 124 120

OTHER ADVERTISING AGENCIESCCO CLEAR CHANNEL OUTDOOR HLDGS DEC 2,798.0 2,698.0 3,289.3 3,281.8 A 2,897.7 A 2,666.1 C NA NA 1.0 3.7 ** ** ** ** NAWPPGY WPP PLC -ADR DEC 14,362.3 14,039.9 10,930.5 12,274.7 11,571.0 9,236.3 A 4,519.3 A 12.3 9.2 2.3 318 311 242 272 256

MARKETING SERVICESAPAC APAC CUSTOMER SERVICES INC DEC 326.0 293.2 248.8 224.7 224.3 239.8 464.4 (3.5) 6.3 11.2 70 63 54 48 48HPOL HARRIS INTERACTIVE INC JUN 168.4 184.3 238.7 211.8 A,C 216.0 197.0 A,C 51.3 12.6 (3.1) (8.6) 328 359 465 413 421INOC INNOTRAC CORP DEC 79.6 100.0 131.4 121.8 82.3 A 73.9 174.1 A (7.5) 1.5 (20.3) 46 57 75 70 47SGRP SPAR GROUP INC DEC 63.2 57.5 A 69.6 60.7 56.5 51.6 109.5 (5.4) 4.1 9.7 58 53 64 55 52VCI † VALASSIS COMMUNICATIONS INC DEC 2,333.5 2,244.2 2,381.9 2,242.2 A 1,043.5 1,131.0 835.3 10.8 15.6 4.0 279 269 285 268 125

Note: Data as originally reported. CAGR-Compound annual growth rate. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year. **Not calculated; data for base year or end year not available. A - This year's data reflect an acquisition or merger. B - This year's data reflect a major merger resulting in the formation of a new company. C - This year's data reflect an accounting change. D - Data exclude discontinued operations. E - Includes excise taxes. F - Includes other (nonoperating) income. G - Includes sale of leased depts. H - Some or all data are not available, due to a fiscal year change.


Net Income

Million $ CAGR (%) Index Basis (2000 = 100)

Ticker Company Yr. End 2010 2009 2008 2007 2006 2005 2000 10-Yr. 5-Yr. 1-Yr. 2010 2009 2008 2007 2006

PUBLISHING & PRINTING‡SSP § EW SCRIPPS -CL A DEC 29.0 (192.0) (632.3) (5.6) 397.2 222.6 163.5 (15.9) (33.5) NM 18 (117) (387) (3) 243GCI [] GANNETT CO DEC 567.3 355.3 (6,647.6) 975.6 1,160.8 1,211.3 971.9 (5.2) (14.1) 59.7 58 37 (684) 100 119MHP [] MCGRAW-HILL COMPANIES DEC 828.1 730.5 799.5 1,013.6 882.2 844.3 471.9 5.8 (0.4) 13.4 175 155 169 215 187MDP † MEREDITH CORP JUN 104.0 (102.5) 134.1 168.8 144.8 128.1 71.0 3.9 (4.1) NM 146 (144) 189 238 204NYT † NEW YORK TIMES CO -CL A DEC 107.7 1.6 (66.1) 108.9 (568.2) 265.6 397.5 (12.2) (16.5) 6,807.7 27 0 (17) 27 (143)

SCHL † SCHOLASTIC CORP # MAY 43.6 58.7 13.2 110.6 60.9 68.6 36.3 1.8 (8.7) (25.7) 120 162 36 305 168VCI † VALASSIS COMMUNICATIONS INC DEC 385.4 66.8 (207.5) 58.0 51.3 95.4 125.7 11.9 32.2 477.2 307 53 (165) 46 41WPO [] WASHINGTON POST -CL B DEC 306.9 92.8 65.7 288.6 329.5 314.3 136.5 8.4 (0.5) 230.8 225 68 48 211 241JW.A † WILEY (JOHN) & SONS -CL A # APR 171.9 143.5 128.3 147.5 99.6 110.3 58.9 11.3 9.3 19.7 292 244 218 250 169

ADVERTISING‡ARB § ARBITRON INC DEC 44.5 42.2 37.2 40.5 50.7 67.3 45.3 (0.2) (8.0) 5.5 98 93 82 89 112HHS § HARTE HANKS INC DEC 53.6 47.7 62.7 92.6 111.8 114.5 81.9 (4.1) (14.1) 12.3 65 58 77 113 137IPG [] INTERPUBLIC GROUP OF COS DEC 261.1 121.3 295.0 167.6 (36.7) (271.9) 358.7 (3.1) NM 115.3 73 34 82 47 (10)LAMR † LAMAR ADVERTISING CO -CL A DEC (40.1) (58.0) 9.7 46.2 43.9 41.8 (94.1) NM NM NM NM NM NM NM NMOMC [] OMNICOM GROUP DEC 827.7 793.0 1,000.3 975.7 864.0 790.7 498.8 5.2 0.9 4.4 166 159 201 196 173

OTHER MAJOR PUBLISHERSMSO MARTHA STEWART LIVING OMNIMD DEC (9.6) (14.6) (15.7) 10.3 (16.3) (75.3) 21.3 NM NM NM (45) (69) (74) 48 (76)MNI MCCLATCHY CO -CL A DEC 33.2 60.3 2.8 (2,726.6) 183.5 160.5 88.9 (9.4) (27.0) (44.9) 37 68 3 (3,066) 206PSO PEARSON PLC -ADR DEC 814.2 687.1 558.4 617.1 846.1 553.5 267.7 11.8 8.0 18.5 304 257 209 231 316PRM PRIMEDIA INC DEC 19.6 4.5 49.0 (55.7) (27.7) (63.0) (346.8) NM NM 332.3 NM NM NM NM NMENL REED ELSEVIER NV -ADR DEC 498.9 313.9 409.2 1,248.6 604.4 400.3 25.3 34.7 4.5 59.0 1,968 1,238 1,614 4,926 2,384

RUK REED ELSEVIER PLC -ADR DEC 503.3 315.3 352.3 1,238.2 626.8 403.9 16.5 40.8 4.5 59.7 3,059 1,916 2,142 NM 3,810TRI THOMSON-REUTERS CORP DEC 909.0 821.0 1,405.0 1,096.0 919.0 926.0 599.0 4.3 (0.4) 10.7 152 137 235 183 153

OTHER COMPANIES WITH SIGNIFICANT PUBLISHING OPERATIONSDIS [] DISNEY (WALT) CO SEP 3,963.0 3,307.0 4,427.0 4,674.0 3,374.0 2,569.0 920.0 15.7 9.1 19.8 431 359 481 508 367DNB [] DUN & BRADSTREET CORP DEC 252.1 319.4 309.5 292.7 240.7 221.2 73.6 13.1 2.6 (21.1) 343 434 421 398 327TV GRUPO TELEVISA SAB -ADR DEC 620.5 460.0 564.2 740.4 795.1 624.0 (82.2) NM (0.1) 34.9 NM NM NM NM NMNWSA [] NEWS CORP JUN 2,539.0 (3,378.0) 5,387.0 3,426.0 2,812.0 2,128.0 751.7 12.9 3.6 NM 338 (449) 717 456 374TWX [] TIME WARNER INC DEC 2,578.0 2,079.0 (13,402.0) 4,051.0 5,114.0 2,921.0 1,232.0 7.7 (2.5) 24.0 209 169 (1,088) 329 415

VIA.B [] VIACOM INC SEP 1,175.0 1,591.0 1,233.0 1,630.2 1,570.3 1,303.9 NA NA (2.1) (26.1) ** ** ** ** NA

BOOK RETAILERSAMZN [] AMAZON.COM INC DEC 1,152.0 902.0 645.0 476.0 190.0 333.0 (1,411.3) NM 28.2 27.7 NM NM NM NM NMBKS † BARNES & NOBLE INC # APR (73.9) 36.7 85.4 135.8 150.5 146.7 (52.0) NM NM NM NM NM NM NM NM

OTHER ADVERTISING AGENCIESCCO CLEAR CHANNEL OUTDOOR HLDGS DEC (87.5) (868.2) (2,851.1) 246.0 153.1 61.6 NA NA NM NM ** ** ** ** NAWPPGY WPP PLC -ADR DEC 902.0 707.6 641.9 924.5 853.6 625.5 371.1 9.3 7.6 27.5 243 191 173 249 230

MARKETING SERVICESAPAC APAC CUSTOMER SERVICES INC DEC 22.9 58.1 3.0 5.1 (30.5) (22.4) 16.7 3.2 NM (60.6) 137 348 18 31 (183)HPOL HARRIS INTERACTIVE INC JUN (2.2) (75.3) (84.7) 9.0 9.5 4.5 (20.9) NM NM NM NM NM NM NM NMINOC INNOTRAC CORP DEC (2.7) (22.7) 3.3 0.7 (5.3) (4.7) (21.6) NM NM NM NM NM NM NM NMSGRP SPAR GROUP INC DEC 2.2 0.5 0.1 (2.5) (0.6) 0.9 1.3 5.1 19.8 331.7 164 38 8 (192) (47)VCI † VALASSIS COMMUNICATIONS INC DEC 385.4 66.8 (207.5) 58.0 51.3 95.4 125.7 11.9 32.2 477.2 307 53 (165) 46 41

Note: Data as originally reported. CAGR-Compound annual growth rate. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year. **Not calculated; data for base year or end year not available.


Return on Revenues (%) Return on Assets (%) Return on Equity (%)

Ticker Company Yr. End 2010 2009 2008 2007 2006 2010 2009 2008 2007 2006 2010 2009 2008 2007 2006

PUBLISHING & PRINTING‡SSP § EW SCRIPPS -CL A DEC 3.7 NM NM NM 15.9 3.6 NM NM NM 9.5 5.7 NM NM NM 16.3GCI [] GANNETT CO DEC 10.4 6.3 NM 13.1 14.4 8.1 4.8 NM 6.1 7.3 30.1 26.7 NM 11.2 14.6MHP [] MCGRAW-HILL COMPANIES DEC 13.4 12.3 12.6 15.0 14.1 12.2 11.6 12.9 16.3 14.2 40.8 46.7 55.3 47.3 30.5MDP † MEREDITH CORP JUN 7.5 NM 8.4 10.4 9.1 6.1 NM 6.5 8.2 8.2 16.0 NM 16.5 22.1 21.5NYT † NEW YORK TIMES CO -CL A DEC 4.5 0.1 NM 3.4 NM 3.4 0.0 NM 3.0 NM 17.0 0.3 NM 12.1 NM

SCHL † SCHOLASTIC CORP # MAY 2.3 3.1 0.7 5.0 2.8 2.8 3.7 0.8 6.1 3.1 5.6 7.3 1.6 11.0 5.6VCI † VALASSIS COMMUNICATIONS INC DEC 16.5 3.0 NM 2.6 4.9 21.5 3.7 NM 3.9 6.8 123.0 129.3 NM 29.9 37.8WPO [] WASHINGTON POST -CL B DEC 6.5 2.0 1.5 6.9 8.4 5.9 1.8 1.2 5.1 6.6 10.6 3.2 2.1 8.7 11.3JW.A † WILEY (JOHN) & SONS -CL A # APR 9.9 8.4 8.0 8.8 8.1 7.2 6.3 5.3 5.8 5.6 20.2 23.2 21.3 24.2 21.4

ADVERTISING‡ARB § ARBITRON INC DEC 11.2 11.0 10.1 12.0 15.4 20.5 20.9 19.6 20.7 22.0 82.2 524.4 220.9 58.9 55.8HHS § HARTE HANKS INC DEC 6.2 5.5 5.8 8.0 9.4 5.8 5.2 6.7 9.6 12.0 12.8 12.6 16.4 20.5 21.2IPG [] INTERPUBLIC GROUP OF COS DEC 4.0 2.0 4.2 2.6 NM 1.9 0.8 2.2 1.2 NM 11.5 4.8 14.2 8.7 NMLAMR † LAMAR ADVERTISING CO -CL A DEC NM NM 0.8 3.8 3.9 NM NM 0.2 1.1 1.1 NM NM 1.0 3.7 2.6OMC [] OMNICOM GROUP DEC 6.6 6.8 7.5 7.7 7.6 4.4 4.5 5.5 5.2 5.1 21.3 20.6 26.3 24.5 22.1

OTHER MAJOR PUBLISHERSMSO MARTHA STEWART LIVING OMNIMD DEC NM NM NM 3.1 NM NM NM NM 4.3 NM NM NM NM 7.2 NMMNI MCCLATCHY CO -CL A DEC 2.4 4.1 0.1 NM 11.0 1.0 1.8 0.1 NM 3.6 17.0 54.1 1.2 NM 7.9PSO PEARSON PLC -ADR DEC 9.3 7.6 7.9 7.5 10.4 5.1 4.6 3.9 4.3 6.2 10.5 9.8 7.8 8.7 13.1PRM PRIMEDIA INC DEC 8.5 1.8 16.1 NM NM 8.7 1.7 18.1 NM NM NA NA NA NA NA ENL REED ELSEVIER NV -ADR DEC 102.5 111.2 123.0 106.5 100.7 32.4 27.6 21.3 49.2 31.7 34.4 30.3 22.6 51.2 33.2

RUK REED ELSEVIER PLC -ADR DEC 95.6 91.5 93.4 94.8 93.3 32.5 28.0 18.1 46.9 31.3 32.9 28.4 18.3 48.1 32.7TRI THOMSON-REUTERS CORP DEC 7.0 6.3 12.0 15.0 13.8 2.6 2.3 4.8 5.1 4.6 4.7 4.2 8.4 9.1 9.0

OTHER COMPANIES WITH SIGNIFICANT PUBLISHING OPERATIONSDIS [] DISNEY (WALT) CO SEP 10.4 9.1 11.7 13.2 9.8 6.0 5.3 7.2 7.7 6.0 11.1 10.0 14.0 14.9 11.6DNB [] DUN & BRADSTREET CORP DEC 15.0 18.9 17.9 18.3 15.7 13.8 19.2 19.1 19.4 16.2 NA NA NA NA NA TV GRUPO TELEVISA SAB -ADR DEC 13.3 11.5 16.3 19.4 22.6 6.0 5.0 6.3 8.9 10.8 18.9 15.4 17.5 22.3 26.6NWSA [] NEWS CORP JUN 7.7 NM 16.3 12.0 11.1 4.7 NM 8.6 5.8 5.1 10.5 NM 17.5 10.9 9.5TWX [] TIME WARNER INC DEC 9.6 8.1 NM 8.7 11.6 3.9 2.3 NM 3.1 4.0 7.8 5.5 NM 6.8 8.3

VIA.B [] VIACOM INC SEP 12.6 11.7 8.4 12.1 13.7 5.3 7.2 5.4 7.3 7.7 13.1 20.2 17.4 22.8 21.0

BOOK RETAILERSAMZN [] AMAZON.COM INC DEC 3.4 3.7 3.4 3.2 1.8 7.1 8.2 8.7 8.8 4.7 19.0 22.8 33.3 58.5 56.1BKS † BARNES & NOBLE INC # APR NM 0.6 1.7 2.5 2.9 NM 1.1 2.7 4.2 4.7 NM 4.0 8.6 12.1 13.2

OTHER ADVERTISING AGENCIESCCO CLEAR CHANNEL OUTDOOR HLDGS DEC NM NM NM 7.5 5.3 NM NM NM 4.3 3.0 NM NM NM 13.8 11.0WPPGY WPP PLC -ADR DEC 6.3 5.0 5.9 7.5 7.4 2.5 2.0 1.8 2.9 3.2 9.3 7.9 7.9 12.0 12.0

MARKETING SERVICESAPAC APAC CUSTOMER SERVICES INC DEC 7.0 19.8 1.2 2.3 NM 15.1 54.0 3.6 5.6 NM 20.7 85.9 8.8 18.0 NMHPOL HARRIS INTERACTIVE INC JUN NM NM NM 4.2 4.4 NM NM NM 3.6 3.8 NM NM NM 4.8 4.8INOC INNOTRAC CORP DEC NM NM 2.5 0.6 NM NM NM 4.5 1.0 NM NM NM 7.3 1.7 NMSGRP SPAR GROUP INC DEC 3.4 0.9 0.1 NM NM 11.9 2.6 0.5 NM NM 39.8 13.8 3.6 NM NMVCI † VALASSIS COMMUNICATIONS INC DEC 16.5 3.0 NM 2.6 4.9 21.5 3.7 NM 3.9 6.8 123.0 129.3 NM 29.9 37.8

Note: Data as originally reported. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year.


Debt as a % ofCurrent Ratio Debt / Capital Ratio (%) Net Working Capital


PUBLISHING & PRINTING‡SSP § EW SCRIPPS -CL A DEC 2.6 1.9 1.5 2.7 2.2 0.1 7.7 9.3 14.6 20.1 0.4 29.2 62.4 87.0 161.0GCI [] GANNETT CO DEC 1.3 1.2 1.1 1.4 1.4 51.1 64.5 75.1 29.6 36.4 956.4 NM NM NM NMMHP [] MCGRAW-HILL COMPANIES DEC 1.2 1.2 0.9 0.9 0.9 34.5 39.2 46.9 40.7 0.0 195.2 247.3 NM NM NMMDP † MEREDITH CORP JUN 0.9 1.0 0.9 0.9 0.9 23.8 36.1 30.7 27.3 38.5 NM NM NM NM NMNYT † NEW YORK TIMES CO -CL A DEC 1.7 1.0 0.6 0.7 0.9 60.2 56.0 53.4 40.8 49.1 282.4 NM NM NM NM

SCHL † SCHOLASTIC CORP # MAY 1.8 2.3 2.0 2.1 2.2 22.5 23.7 27.9 28.7 16.9 64.1 51.4 73.8 73.9 47.5VCI † VALASSIS COMMUNICATIONS INC DEC 1.6 1.3 1.2 1.3 1.5 53.5 84.4 91.8 79.0 60.3 235.2 739.0 872.0 757.8 144.2WPO [] WASHINGTON POST -CL B DEC 1.4 1.4 1.2 1.0 1.2 10.6 10.5 11.0 8.7 9.6 112.2 99.4 155.5 NM 305.1JW.A † WILEY (JOHN) & SONS -CL A # APR 0.7 0.7 0.7 0.6 0.7 22.0 38.6 52.2 46.5 55.0 NM NM NM NM NM

ADVERTISING‡ARB § ARBITRON INC DEC 0.7 0.9 0.7 0.6 1.0 0.0 69.0 120.6 12.7 0.0 NM NM NM NM NMHHS § HARTE HANKS INC DEC 1.0 1.5 1.3 1.5 1.6 10.4 28.8 36.2 35.3 26.8 NM 232.9 448.3 302.8 188.5IPG [] INTERPUBLIC GROUP OF COS DEC 1.1 1.1 1.1 1.1 1.1 36.0 37.1 41.9 46.7 53.1 222.2 223.7 292.6 361.7 412.0LAMR † LAMAR ADVERTISING CO -CL A DEC 2.0 1.4 1.5 2.1 2.1 72.6 72.9 73.8 71.6 54.1 NM NM NM NM NMOMC [] OMNICOM GROUP DEC 0.9 0.9 0.9 0.9 0.9 41.1 31.4 43.1 40.4 40.4 NM NM NM NM NM

OTHER MAJOR PUBLISHERSMSO MARTHA STEWART LIVING OMNIMD DEC 1.7 1.9 1.9 2.3 2.0 5.0 8.4 11.3 0.0 0.0 17.3 26.0 32.1 0.0 0.0MNI MCCLATCHY CO -CL A DEC 1.1 1.2 1.6 2.2 1.4 79.0 82.1 88.9 71.6 41.9 NM NM 974.4 546.0 592.9PSO PEARSON PLC -ADR DEC 1.9 1.9 1.7 1.4 1.4 24.0 28.5 26.8 20.0 22.6 98.5 131.0 153.2 157.1 165.6PRM PRIMEDIA INC DEC 1.0 0.9 1.1 1.0 1.1 177.5 185.0 165.6 213.4 152.1 NM NM NM NM NMENL REED ELSEVIER NV -ADR DEC 0.1 0.1 0.2 0.2 10.8 0.0 0.0 0.0 0.0 0.0 NM NM NM NM 0.0

RUK REED ELSEVIER PLC -ADR DEC 0.0 0.0 0.0 0.0 18.7 0.0 0.0 0.0 0.0 0.0 NM NM NM NM 0.0TRI THOMSON-REUTERS CORP DEC 0.7 0.8 0.8 3.0 0.9 24.7 24.5 23.0 22.7 24.3 NM NM NM 66.2 NM

OTHER COMPANIES WITH SIGNIFICANT PUBLISHING OPERATIONSDIS [] DISNEY (WALT) CO SEP 1.1 1.3 1.0 1.0 0.9 20.5 24.8 24.0 26.0 23.7 845.2 396.6 NM NM NMDNB [] DUN & BRADSTREET CORP DEC 0.7 0.9 0.8 0.8 0.8 306.0 445.1 1,684.0 251.4 735.4 NM NM NM NM NMTV GRUPO TELEVISA SAB -ADR DEC 1.8 2.1 2.2 2.0 1.9 50.6 51.9 43.3 37.8 33.2 176.5 119.2 100.0 95.9 83.9NWSA [] NEWS CORP JUN 2.0 1.5 1.6 2.1 2.1 31.3 30.9 27.4 23.6 24.4 144.0 234.8 255.4 144.4 168.7TWX [] TIME WARNER INC DEC 1.5 1.5 1.2 1.0 0.8 32.1 30.5 41.0 32.8 31.2 367.6 362.0 NM NM NM

VIA.B [] VIACOM INC SEP 1.3 1.2 0.9 0.9 0.9 41.7 42.6 52.7 52.6 50.8 639.5 979.4 NM NM NM

BOOK RETAILERSAMZN [] AMAZON.COM INC DEC 1.3 1.3 1.3 1.4 1.3 8.5 4.6 16.6 52.9 74.6 19.0 10.4 37.8 92.7 150.7BKS † BARNES & NOBLE INC # APR 1.0 1.0 1.2 1.2 1.3 29.6 25.3 0.0 0.0 0.0 NM NM 0.0 0.0 0.0

OTHER ADVERTISING AGENCIESCCO CLEAR CHANNEL OUTDOOR HLDGS DEC 2.0 2.1 2.0 1.7 1.4 43.1 42.9 35.8 54.1 59.5 321.5 294.6 332.0 378.4 745.6WPPGY WPP PLC -ADR DEC 0.9 0.9 0.9 0.9 0.9 33.3 34.9 36.8 27.6 21.7 NM NM NM NM NM

MARKETING SERVICESAPAC APAC CUSTOMER SERVICES INC DEC 3.0 2.5 1.0 0.9 0.7 0.6 0.7 0.0 25.8 15.9 0.9 1.3 NM NM NMHPOL HARRIS INTERACTIVE INC JUN 1.2 1.2 1.5 1.3 2.2 36.9 42.3 18.0 0.0 0.0 145.2 144.6 69.3 0.0 0.0INOC INNOTRAC CORP DEC 2.0 2.1 1.2 1.0 1.0 0.6 1.5 0.0 0.0 0.0 1.3 3.5 0.0 NM NMSGRP SPAR GROUP INC DEC 1.4 1.0 1.0 1.0 1.1 0.0 0.0 3.0 0.0 0.0 0.0 0.0 NM NM 0.0VCI † VALASSIS COMMUNICATIONS INC DEC 1.6 1.3 1.2 1.3 1.5 53.5 84.4 91.8 79.0 60.3 235.2 739.0 872.0 757.8 144.2



Price / Earnings Ratio (High-Low) Dividend Payout Ratio (%) Dividend Yield (High-Low, %)

Ticker Company Yr. End 2010 2009 2008 2007 2006 2010 2009 2008 2007 2006

PUBLISHING & PRINTING‡SSP § EW SCRIPPS -CL A DEC 47 - 25 NM - NM NM - NM NM - NM 21 - 17 0 NM NM NM 19 0.0 - 0.0 0.0 - 0.0 60.0 - 0.7 1.4 - 1.0 1.2 - 0.9GCI [] GANNETT CO DEC 8 - 5 11 - 1 NM - NM 15 - 8 13 - 11 7 11 NM 34 24 1.4 - 0.8 8.6 - 1.0 32.0 - 4.1 4.1 - 2.2 2.3 - 1.8MHP [] MCGRAW-HILL COMPANIES DEC 15 - 10 15 - 7 19 - 7 24 - 14 28 - 19 35 38 35 27 29 3.5 - 2.4 5.2 - 2.6 5.1 - 1.9 1.9 - 1.1 1.6 - 1.0MDP † MEREDITH CORP JUN 17 - 13 NM - NM 19 - 4 18 - 14 19 - 15 40 NM 28 20 20 3.1 - 2.4 8.3 - 2.7 6.6 - 1.5 1.4 - 1.1 1.3 - 1.0NYT † NEW YORK TIMES CO -CL A DEC 20 - 10 NM - NM NM - NM 35 - 21 NM - NM 0 0 NM 114 NM 0.0 - 0.0 0.0 - 0.0 15.2 - 3.5 5.4 - 3.2 3.2 - 2.4

SCHL † SCHOLASTIC CORP # MAY 24 - 17 19 - 6 NM - 34 14 - 10 25 - 17 27 19 86 0 0 1.6 - 1.1 3.2 - 1.0 2.6 - 0.8 0.0 - 0.0 0.0 - 0.0VCI † VALASSIS COMMUNICATIONS INC DEC 5 - 2 15 - 1 NM - NM 16 - 6 29 - 13 0 0 NM 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0WPO [] WASHINGTON POST -CL B DEC 16 - 9 51 - 31 NM - 46 29 - 24 24 - 20 26 88 125 27 23 3.0 - 1.6 2.9 - 1.7 2.7 - 1.0 1.1 - 0.9 1.1 - 1.0JW.A † WILEY (JOHN) & SONS -CL A # APR 16 - 12 18 - 11 25 - 9 20 - 14 24 - 18 22 23 24 17 23 1.8 - 1.4 2.1 - 1.3 2.8 - 0.9 1.2 - 0.9 1.3 - 1.0

ADVERTISING‡ARB § ARBITRON INC DEC 26 - 13 16 - 7 38 - 7 40 - 25 27 - 19 24 25 29 29 24 1.9 - 0.9 3.8 - 1.6 4.0 - 0.8 1.1 - 0.7 1.2 - 0.9HHS § HARTE HANKS INC DEC 19 - 11 19 - 6 18 - 5 22 - 12 22 - 16 36 40 31 22 17 3.1 - 1.9 6.7 - 2.1 6.8 - 1.7 1.8 - 1.0 1.1 - 0.8IPG [] INTERPUBLIC GROUP OF COS DEC 21 - 11 39 - 15 18 - 5 48 - 27 NM - NM 0 0 0 0 NM 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0LAMR † LAMAR ADVERTISING CO -CL A DEC NM - NM NM - NM NM - 87 NM - NM NM - NM NM NM 0 691 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 7.0 - 4.5 0.0 - 0.0OMC [] OMNICOM GROUP DEC 17 - 12 16 - 8 16 - 7 19 - 15 21 - 16 29 24 19 19 20 2.4 - 1.7 3.0 - 1.5 2.7 - 1.2 1.3 - 1.0 1.3 - 0.9

OTHER MAJOR PUBLISHERSMSO MARTHA STEWART LIVING OMNIMD DEC NM - NM NM - NM NM - NM NM - 44 NM - NM NM NM NM 0 NM 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 3.4 - 2.2MNI MCCLATCHY CO -CL A DEC 18 - 7 6 - 0 NM - 21 NM - NM 21 - 14 0 13 NM NM 25 0.0 - 0.0 25.7 - 2.2 87.1 - 4.2 5.9 - 1.7 1.9 - 1.2PSO PEARSON PLC -ADR DEC 16 - 13 17 - 10 21 - 12 24 - 18 15 - 11 53 61 87 77 48 4.2 - 3.3 6.3 - 3.6 7.5 - 4.2 4.3 - 3.2 4.3 - 3.3PRM PRIMEDIA INC DEC 12 - 6 43 - 16 8 - 1 NM - NM NM - NM 64 280 25 NM NM 11.3 - 5.2 17.5 - 6.5 40.6 - 3.1 30.7 - 10.5 0.0 - 0.0ENL REED ELSEVIER NV -ADR DEC 20 - 15 28 - 22 37 - 17 13 - 10 23 - 17 75 122 600 35 60 5.1 - 3.7 5.7 - 4.4 36.0 - 16.1 3.4 - 2.8 3.6 - 2.7

RUK REED ELSEVIER PLC -ADR DEC 22 - 16 30 - 23 48 - 21 14 - 11 23 - 18 72 116 692 33 56 4.5 - 3.3 5.0 - 3.9 33.4 - 14.4 2.9 - 2.3 3.1 - 2.4TRI THOMSON-REUTERS CORP DEC 36 - 29 36 - 22 23 - 11 28 - 22 31 - 24 106 113 59 58 62 3.7 - 3.0 5.1 - 3.1 5.5 - 2.6 2.7 - 2.1 2.6 - 2.0

OTHER COMPANIES WITH SIGNIFICANT PUBLISHING OPERATIONSDIS [] DISNEY (WALT) CO SEP 18 - 14 18 - 9 15 - 8 16 - 13 21 - 14 17 20 15 13 16 1.2 - 0.9 2.3 - 1.1 1.9 - 1.0 1.0 - 0.8 1.1 - 0.8DNB [] DUN & BRADSTREET CORP DEC 17 - 13 14 - 11 17 - 11 22 - 16 22 - 17 28 22 21 20 0 2.1 - 1.7 2.0 - 1.6 1.9 - 1.2 1.2 - 0.9 0.0 - 0.0TV GRUPO TELEVISA SAB -ADR DEC 20 - 13 23 - 11 24 - 11 20 - 14 18 - 10 0 122 30 44 10 0.0 - 0.0 10.9 - 5.4 2.8 - 1.3 3.1 - 2.2 1.0 - 0.5NWSA [] NEWS CORP JUN 18 - 12 NM - NM 11 - 3 23 - 17 25 - 17 14 NM 7 11 15 1.2 - 0.8 2.4 - 0.9 2.2 - 0.6 0.6 - 0.5 0.9 - 0.6TWX [] TIME WARNER INC DEC 15 - 12 19 - 10 NM - NM 21 - 15 18 - 13 37 43 NM 22 17 3.2 - 2.5 4.2 - 2.2 3.6 - 1.5 1.5 - 1.0 1.3 - 0.9

VIA.B [] VIACOM INC SEP 21 - 14 12 - 5 22 - 6 19 - 14 20 - 15 16 0 0 0 0 1.1 - 0.7 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0

BOOK RETAILERSAMZN [] AMAZON.COM INC DEC 72 - 41 70 - 23 64 - 23 88 - 32 NM - 56 0 0 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0BKS † BARNES & NOBLE INC # APR NM - NM 45 - 23 23 - 7 21 - 14 21 - 14 NM 156 58 28 26 6.3 - 3.0 6.8 - 3.5 8.4 - 2.6 2.0 - 1.4 1.9 - 1.2

OTHER ADVERTISING AGENCIESCCO CLEAR CHANNEL OUTDOOR HLDGS DEC NM - NM NM - NM NM - NM 45 - 33 65 - 43 NM NM NM 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0WPPGY WPP PLC -ADR DEC 17 - 12 17 - 8 23 - 8 20 - 15 19 - 15 34 43 46 31 26 2.9 - 2.0 5.1 - 2.5 5.7 - 2.0 2.0 - 1.5 1.7 - 1.3

MARKETING SERVICESAPAC APAC CUSTOMER SERVICES INC DEC 15 - 10 6 - 1 40 - 11 52 - 10 NM - NM 0 0 0 0 NM 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0HPOL HARRIS INTERACTIVE INC JUN NM - NM NM - NM NM - NM 41 - 23 46 - 28 NM NM NM 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0INOC INNOTRAC CORP DEC NM - NM NM - NM 16 - 6 72 - 22 NM - NM NM NM 0 0 NM 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0SGRP SPAR GROUP INC DEC 10 - 4 37 - 12 NM - 22 NM - NM NM - NM 0 0 0 NM NM 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0VCI † VALASSIS COMMUNICATIONS INC DEC 5 - 2 15 - 1 NM - NM 16 - 6 29 - 13 0 0 NM 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0


20062010 2009 2008 2007


Earnings per Share ($) Tangible Book Value per Share ($) Share Price (High-Low, $)


PUBLISHING & PRINTING‡SSP § EW SCRIPPS -CL A DEC 0.25 (3.56) (11.69) (0.09) 7.29 9.70 7.43 6.50 10.97 5.71 11.76 - 6.21 9.00 - 0.67 147.78 - 1.65 160.17 - 113.67 153.27 - 122.58GCI [] GANNETT CO DEC 2.38 1.52 (29.11) 4.18 4.91 (4.98) (7.66) (10.52) (7.62) (10.71) 19.69 - 11.65 15.99 - 1.85 39.00 - 5.00 63.50 - 34.34 64.97 - 51.65MHP [] MCGRAW-HILL COMPANIES DEC 2.68 2.34 2.53 3.01 2.47 (1.11) (1.21) (3.22) (2.26) 1.00 39.45 - 26.95 35.24 - 17.22 47.13 - 17.15 72.50 - 43.46 69.25 - 46.37MDP † MEREDITH CORP JUN 2.30 (2.28) 2.86 3.51 2.94 (7.78) (9.20) (11.56) (8.73) (11.35) 38.08 - 28.92 33.17 - 10.60 55.08 - 12.06 63.41 - 48.15 57.29 - 45.04NYT † NEW YORK TIMES CO -CL A DEC 0.74 0.01 (0.46) 0.76 (3.93) (0.14) (0.63) (1.45) 1.16 0.25 14.87 - 7.06 12.75 - 3.44 21.14 - 4.95 26.90 - 16.02 28.98 - 21.54

SCHL † SCHOLASTIC CORP # MAY 1.31 1.61 0.35 2.86 1.43 18.27 18.16 15.97 17.15 18.21 31.50 - 22.21 30.87 - 9.28 37.57 - 11.73 40.00 - 29.78 36.18 - 24.99VCI † VALASSIS COMMUNICATIONS INC DEC 7.84 1.39 (4.32) 1.21 1.07 (6.78) (16.02) (18.46) (19.32) 0.71 38.43 - 18.23 21.01 - 1.10 16.80 - 1.05 19.73 - 7.67 30.80 - 14.22WPO [] WASHINGTON POST -CL B DEC 34.28 9.78 6.89 30.31 34.34 103.24 97.63 89.89 144.13 143.64 547.58 - 295.56 495.60 - 300.16 823.25 - 320.00 885.23 - 726.93 815.00 - 690.00JW.A † WILEY (JOHN) & SONS -CL A # APR 2.86 2.45 2.20 2.55 1.75 (9.85) (13.41) (17.06) (19.44) (23.30) 46.44 - 34.96 43.56 - 26.19 54.75 - 18.74 49.79 - 36.34 41.80 - 31.60

ADVERTISING‡ARB § ARBITRON INC DEC 1.66 1.59 1.37 1.38 1.69 1.20 (0.33) (2.04) 0.30 1.57 42.55 - 21.21 25.36 - 10.57 51.50 - 9.90 55.63 - 34.81 45.80 - 32.68HHS § HARTE HANKS INC DEC 0.84 0.75 0.98 1.28 1.41 (2.26) (2.63) (3.38) (2.30) (1.00) 15.84 - 9.60 14.48 - 4.50 17.96 - 4.43 28.78 - 15.50 31.00 - 22.35IPG [] INTERPUBLIC GROUP OF COS DEC 0.57 0.20 0.57 0.29 (0.20) (2.42) (3.01) (2.92) (3.17) (3.59) 12.25 - 6.21 7.77 - 3.08 10.47 - 2.57 13.94 - 7.91 12.83 - 7.79LAMR † LAMAR ADVERTISING CO -CL A DEC (0.44) (0.64) 0.10 0.47 0.42 (12.71) (13.73) (14.52) (13.34) (6.82) 40.04 - 23.83 32.23 - 5.35 48.48 - 8.69 71.54 - 46.67 66.42 - 44.99OMC [] OMNICOM GROUP DEC 2.74 2.54 3.20 2.99 2.52 (15.79) (11.89) (12.75) (10.60) (9.28) 47.88 - 33.50 39.99 - 20.09 50.16 - 22.02 55.45 - 45.82 53.03 - 39.38

OTHER MAJOR PUBLISHERSMSO MARTHA STEWART LIVING OMNIMD DEC (0.18) (0.27) (0.29) 0.20 (0.32) 0.86 0.94 1.05 1.91 1.46 7.45 - 4.25 8.84 - 1.60 9.99 - 2.51 22.50 - 8.75 23.21 - 14.76MNI MCCLATCHY CO -CL A DEC 0.39 0.72 0.03 (33.26) 2.85 (17.04) (18.32) (20.89) (18.37) (5.57) 7.16 - 2.60 4.04 - 0.35 12.83 - 0.62 43.55 - 12.24 59.64 - 38.80PSO PEARSON PLC -ADR DEC 1.02 0.86 0.70 0.77 1.06 0.13 (1.56) (1.09) (0.29) (0.26) 16.37 - 12.96 14.50 - 8.40 14.69 - 8.17 18.31 - 13.87 15.37 - 11.87PRM PRIMEDIA INC DEC 0.44 0.10 1.11 (1.26) (0.60) (5.39) (5.71) (5.66) (6.78) (31.43) 5.37 - 2.48 4.29 - 1.60 9.18 - 0.69 20.40 - 7.01 14.40 - 7.20ENL REED ELSEVIER NV -ADR DEC 1.35 0.91 1.22 3.71 1.80 4.10 3.79 2.05 8.81 5.78 27.11 - 19.85 25.30 - 19.59 45.52 - 20.35 47.18 - 37.95 40.80 - 30.67

RUK REED ELSEVIER PLC -ADR DEC 1.66 1.12 1.29 4.56 2.31 5.27 4.95 2.72 11.49 7.53 35.80 - 26.47 33.56 - 26.09 62.00 - 26.69 64.07 - 50.76 53.38 - 41.33TRI THOMSON-REUTERS CORP DEC 1.09 0.99 1.82 1.70 1.41 (12.01) (11.04) (11.15) 3.71 (0.45) 39.31 - 31.60 35.88 - 21.89 41.16 - 19.30 47.26 - 36.93 43.41 - 34.01

OTHER COMPANIES WITH SIGNIFICANT PUBLISHING OPERATIONSDIS [] DISNEY (WALT) CO SEP 2.07 1.78 2.34 2.33 1.68 4.40 5.39 4.25 3.15 3.10 38.00 - 28.71 32.75 - 15.14 35.02 - 18.60 36.79 - 30.68 34.89 - 23.77DNB [] DUN & BRADSTREET CORP DEC 5.03 6.06 5.69 5.03 3.81 (30.68) (27.28) (26.55) (16.41) (11.60) 84.61 - 65.34 84.95 - 68.97 98.90 - 64.00 108.45 - 81.50 84.98 - 65.03TV GRUPO TELEVISA SAB -ADR DEC 1.33 0.97 1.19 1.54 1.62 5.20 3.83 4.05 4.96 5.01 26.58 - 17.05 22.16 - 10.87 28.12 - 12.99 31.33 - 22.04 28.51 - 16.13NWSA [] NEWS CORP JUN 0.97 (1.29) 1.82 1.09 0.88 1.17 (0.03) (1.71) 2.37 1.86 17.00 - 11.61 14.00 - 4.95 20.55 - 5.43 25.40 - 19.00 21.94 - 15.17TWX [] TIME WARNER INC DEC 2.27 1.75 (11.22) 3.27 3.66 (6.71) (6.32) (23.51) (29.72) (25.05) 34.07 - 26.43 33.45 - 17.81 50.70 - 21.00 69.45 - 48.51 66.75 - 47.10

VIA.B [] VIACOM INC SEP 1.93 2.62 1.97 2.42 2.20 (3.65) (5.38) (8.42) (7.67) (7.02) 40.25 - 27.89 31.56 - 13.25 44.19 - 11.60 45.40 - 33.74 43.90 - 32.42

BOOK RETAILERSAMZN [] AMAZON.COM INC DEC 2.58 2.08 1.52 1.15 0.46 10.98 7.78 4.85 2.21 0.52 185.65 - 105.80 145.91 - 47.63 97.43 - 34.68 101.09 - 36.30 48.58 - 25.76BKS † BARNES & NOBLE INC # APR (1.31) 0.64 1.55 2.13 2.31 (4.75) (3.73) 10.95 12.13 12.51 24.71 - 11.89 28.78 - 14.81 34.89 - 10.77 43.80 - 30.01 48.41 - 32.33

OTHER ADVERTISING AGENCIESCCO CLEAR CHANNEL OUTDOOR HLDGS DEC (0.26) (2.46) (8.03) 0.69 0.43 (0.52) (0.63) (1.06) 0.88 (0.17) 14.46 - 8.07 11.29 - 2.14 27.82 - 3.35 31.14 - 22.81 28.13 - 18.49WPPGY WPP PLC -ADR DEC 3.66 2.91 2.81 3.93 3.56 (27.78) (30.91) (32.76) (27.08) (21.49) 62.12 - 43.19 50.32 - 24.51 64.34 - 22.35 78.62 - 59.01 69.00 - 53.53

MARKETING SERVICESAPAC APAC CUSTOMER SERVICES INC DEC 0.44 1.13 0.06 0.10 (0.62) 2.05 1.63 0.37 0.28 0.04 6.64 - 4.61 7.02 - 0.94 2.39 - 0.68 5.18 - 1.00 3.84 - 1.42HPOL HARRIS INTERACTIVE INC JUN (0.04) (1.41) (1.60) 0.16 0.15 (0.01) (0.01) 0.60 0.85 1.42 1.55 - 0.69 1.26 - 0.15 4.33 - 0.45 6.50 - 3.67 6.85 - 4.25INOC INNOTRAC CORP DEC (0.21) (1.80) 0.27 0.06 (0.43) 1.66 1.94 1.73 1.45 1.37 1.75 - 0.80 3.74 - 0.51 4.35 - 1.53 4.33 - 1.34 5.72 - 1.79SGRP SPAR GROUP INC DEC 0.11 0.03 0.01 (0.13) (0.03) 0.29 0.17 0.12 0.09 0.20 1.10 - 0.42 1.10 - 0.36 1.50 - 0.22 1.50 - 0.54 2.20 - 0.87VCI † VALASSIS COMMUNICATIONS INC DEC 7.84 1.39 (4.32) 1.21 1.07 (6.78) (16.02) (18.46) (19.32) 0.71 38.43 - 18.23 21.01 - 1.10 16.80 - 1.05 19.73 - 7.67 30.80 - 14.22

Note: Data as originally reported. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year. J-This amount includes intangibles that cannot be identified.

The analysis and opinion set forth in this publication are provided by Standard & Poor’s Equity Research Services and are prepared separately from any other analytic activity of Standard & Poor’s.

In this regard, Standard & Poor’s Equity Research Services has no access to nonpublic information received by other units of Standard & Poor’s.

The accuracy and completeness of information obtained from third-party sources, and the opinions based on such information, are not guaranteed.

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