understanding change in the media economy september 2007
TRANSCRIPT
Understanding Change in the Media Economy
September 2007
2
Adjusted National and Local Ad Revenue
3.6%
8.0%
2.6%3.2%6.4%
14.4%
18.4%
8.2%
12.8%
1.5%
2.0%1.7%
3.4%2.2%
2.6%
-6.6%
10.3%9.4%
7.6%
7.4%
7.7%
9.4%
4.8%
-3.1%
6.8%
7.8%7.6%
8.3%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
1981
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E
2008
E
Our View of the World
• Follow the Money• Media (as we know it) is a slower growing business
Source: MAGNA Global Research
2006 US Media Revenue Growth:
+1.7%
3
Our View of the World
• Follow the Money• Fortune 500 advertisers increasingly emphasize non-
media marketing (much more than new media!)
Source: MAGNA Global Research, Company Reports
28.4%
24.9%
22.4%
17.9%
12.3%
10.6%
6.8%
6.2%
6.0%
3.4%
3.2%
1.2%
1.1%
-13.4%
-2.8%
-20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%
CVS
Alltel
H&R Block
Walgreen's
Staples
Colgate-Palmolive
Kellogg's
VF Corp
Ford
Clorox
Coca-Cola Enterprises
Wendy's (Systemwide)
GMAC
Kimberly Clark
Hershey
Sample Average:+8.6%
2006 Annual Advertising Expense Growth
4
Our View of the World
•“Packagers” (Networks, Publishers): Fulcrum of the Industry
MediaPackagers
Producers DistributorsCreators
ConsumersAdvertisers
$
$$ $
$
Devices / Access Points
$
Source: MAGNA Global
$
Industry Structures Held Together By Regulations,Economic Efficiency and Copyright Law
5
Our View of the World
•Advertising Drives Packagers’ Economic Incentives
•Importance depends upon unit of analysis
Advertising as % of Packager Revenues
0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%
100.0%
2001 2002 2003 2004 2005
Radio
Online
Newspapers
Television
Magazines
Source: MAGNA Global Research, OPA, IAB, RAB, NAA, Company Reports
6
Our View of the World
Traditional Medium Equivalent / Ad-Supported Revenue Driver
Radio/Music TV Online/Print Out-of-Home Marketing Services
Other Marketing
Ind
ivid
ual o
r Corp
ora
te B
eh
avio
r Driv
er
UGC Production
Social Content Consumption
Niche Content Consumption
New Place Consumption
Asset Management
Content-on-Demand
Information Seeking
Commerce / Shopping
Game Playing
•Venture capital activity reflects expectations of change
Source: MAGNA Global
7
Our View of the World
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
% o
f U
S H
ou
seh
old
s
US Digital Cable, Satellite andTelcoTV Households
US DVR Subscriptions
US VOD Households
US Broadband Households
US Satellite RadioSubscriptions
US HD Subscriptions
US Digital TV Shipments
US Mobile PhoneSubscriptions
•And Although New Platforms Are Proliferating…
Source: MAGNA Global
8
Our View of the World
•…Wholesale Change Typically Takes Decades
9
Overview
•Why Study Change?
•The Consumer and Change
•How Marketers Are Changing
•What Does All of This Mean?
10
“Narcissus mistook his own reflection
in the water for another person. This extension of himself by mirror numbed his perceptions until he became the servomechanism of his own extended…image. The nymph Echo tried to win his love…but in vain.
He was numb.”
– Marshall McLuhan
Why Study Change in the Media Economy?
11
The Consumer and Change in the Media Industry
•Δ in Technology = Hundreds of New Media Alternatives
TARGETING•Broadcast•Unicast
THROUGHPUT•Stream•Download
ACCESS•Push•Pull
LAST-MILE•Unwired•Wired
CONSUMPTION•Home•Portable
PRODUCTION•Professional•Amateur/UGC
12
The Consumer and Change in the Media Industry
• New Media Can Dramatically Affect an Industry• Digitization drove music industry change• Affected production, distribution and consumption
Source: MAGNA Global, RIAA
6,000
8,000
10,000
12,000
14,000
16,000
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Rev
enu
es (
$000
s)
TotalDigitalSales
RetailSales
Manufacturers' Shipments of Recorded Music
Napster Launched (June 1999)
BitTorrent, Kazaa, Grokster, etc. active
iTunes Launch (March 2003)
13
The Consumer and Change in the Media Industry
• New Media Can Dramatically Affect an Industry• Total Online employment ads: 0 to 25% of sector in 10
years• Total market shrank ~20%
Source: McKinsey, NAA, Monster Worldwide
14
No
Yes for some of the time or no for most of the time
Yes for some most of the time or yes for all some of the time
Often for most people under most circumstances
Yes for all people under virtually all circumstances
The Consumer and Change in the Media Industry
• But Internet Won’t Replace All Platforms
General Print
YP Radio TV
Sufficient Range of ContentSufficient Technical QualityEquipment SubstitutionSufficient Customer ServiceEfficient NavigationCheaper to SubstituteIncreased Convenience
SUMMARY
Limited TV content available today
Internet can’t deliver high res video well
IPTV: no STB integration
QoS is critical for video
Hard to navigate to find audio/video
Online bandwidth=more cost than free media
Print and radio are typically portable
Print is tactile
Prospects for online media substitution
limited by drawbacks relative to traditional
media
Source: MAGNA Global
15
The Consumer and Change in the Media Industry
•Change Within TV Will Also Be Slow to Come•Porting content from internet to set-top box: hard!•…With agreement from cable/satellite operators: easy!•Getting agreements from cable/satellite operators:
hard!
16
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
2002 2003 2004 2005 2006
TV
Radio
Consumer Internet
Newspapers
Consumer Magazines
Search
Mill
ion
s o
f P
ers
on
-Ho
urs
Per
Yea
r
2.9bn
36.6bn
53.7bn
57.0bn
292.5bn
466.5bn
Total US Population: Hours Spent With Media
Source: MAGNA Global, US Census, Veronis Suhler, OPA
The Consumer and Change in the Media Industry
•“Old” Media Remains Pervasive and Dominant
17
Source: MAGNA Global, WARC, InternetWorldStats. Weekly reach figures for France and UK, daily for other countries. Reach definition for magazines = issue reach in France, Italy and Spain. Internet reach typically = % of population online monthly per Nielsen NetRatings, ITU and other sources as of June 30 2007 (except for US = March 31, 2007)
The Consumer and Change in the Media Industry
•…In Established Markets…
Media Reach By Country
0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%
100.0%
TV
Rad
io
New
spap
ers
Mag
azin
es
Inte
rnet
18
The Consumer and Change in the Media Industry
•…And Emerging Ones
Source: MAGNA Global, WARC, InternetWorldStats. Weekly figures for Brazil and Russia. Russia, China and India magazines are issue reach figures. Indian TV and radio = daily, newspapers = issue. Chinese TV = weekly and radio = daily. Internet typically = % of population online monthly per Nielsen NetRatings, ITU and other sources as of June 30 2007
Media Reach By Country
0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%
100.0%
TV
Rad
io
New
spap
ers
Mag
azin
es
Inte
rnet
19
The Consumer and Change in the Media Industry
•This Holds True For Young Audiences As Well
Young Audiences' TV Viewing Trends
15.0
17.0
19.0
21.0
23.0
25.0
27.0
29.0
1991
-92
1992
-93
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
Ho
urs
of
Vie
win
g P
er W
eek
P2-5
P6-11
P12-17
P18-34
Source: MAGNA Global analysis of Nielsen Media Research data
20
The Consumer and Change in the Media Industry
•In the US and Around the World
Source: WARC
TV Reach: Adults and Teens
0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%
100.0%
UK
Ger
man
y
Fra
nce
Italy
Spa
in
US
Bra
zil
Rus
sia
Indi
a
Chi
na
Adults
Teens
21
The Consumer and Change in the Media Industry
•Business Model, Tech. Issues Deter Change …(For Now)
Popularity of Disney Content Available on iTunes Jan-May 2006
0
1,000
2,000
3,000
4,000
5,000
Disney Content: iTunes Downloads (Paid) Disney Content: Broadcast/Cable Viewers(Free/Subscription)
Un
its
in m
illio
ns
TV “Popularity Factor”: 1,175x Vs. iTunes
Note: Download data as reported by Disney for its content made available from iTunes from January to May 2006Estimates total number of gross impressions on television for content available through streaming experiment for the period of comparison based upon data from Nielsen
Source: MAGNA Global
22
The Consumer and Change in the Media Industry
•Most Consumers Want Big Screen / Lean-Back Experience
•Except for sampling and office-time consumption•Even the best programming = small number of online
viewers
Note: Streaming data as reported by Disney for broadcast network content made available from ABC.com during May and June of 2006Estimates total number of gross impressions on television for content available through streaming experiment for the period of comparison based upon data from Nielsen
Popularity of ABC Content Available on ABC.com May-June 2006
0
50
100
150
200
250
ABC.com Content: Streams (Free) ABC Content: Broadcast (Free)
Un
its
in m
illio
ns
TV “Popularity Factor”: 41x Vs. Free Streams
Source: MAGNA Global
23
The Consumer and Change in the Media Industry
•Conventional TV Popularity: 90x vs. Online in 2011?
•But impact, opportunities for engagement and commerce allow new platforms to “punch above weight”
Source: MAGNA Global, Accustream
145.8x
119.8x
99.2x82.7x
69.4x58.6x
0.0x20.0x40.0x60.0x80.0x
100.0x120.0x140.0x160.0x180.0x200.0x
25% 30% 35% 40% 45% 50%Different Scenarios:
Assumed 5-Year Compounded Annual Growth Rate of Online Video
Po
pu
lari
ty F
acto
r o
f C
on
ven
tio
nal
T
V in
201
1
2006 Growth Rate Was 38.8%
Above Trend
Below Trend
24
The Consumer and Change in the Media Industry
• Do Consumers Want to Time-Shift TV, Anyway?• The DVR “threat” is generally overstated• TV via DVR in DVR homes is limited at an aggregated
level
Source: MAGNA Global Analysis of Nielsen Data, 4Q06
9.4% 9.3% 9.7% 8.8% 6.3% 7.2%9.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Monday Tuesday Wednesday Thursday Friday Saturday Sunday
Per
cen
tag
e o
f M
inu
tes
Vie
wed
7 DayPlayback
LiveViewing
Average: 8.5%
25
The Consumer and Change in the Media Industry
• Although The Impact Can Be Significant• In DVR HHs, prime time AD18-49 use = 20%, 30%
for Network• But there are many other ways to reach AD18-49 on TV
Source: MAGNA Global Analysis of Nielsen Data, 4Q06
21.8% 23.0% 26.5% 20.0%12.4% 15.8%21.5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Monday Tuesday Wednesday Thursday Friday Saturday Sunday
Per
cen
tag
e o
f M
inu
tes
Vie
wed
7 DayPlayback
LiveViewing
Average: 20.1%
26
The Consumer and Change in the Media Industry
• Over Any Time Frame, Non-Skipped TV Impressions Rise
Source: MAGNA Global
0%
20%
40%
60%
80%
100%
120%
2006 2007 2008 2009 2010 2011
Nat
ion
al T
V C
on
sum
pti
on
Ind
ex Increase Due toPopulation Growth
Increase Due toHousehold TVConsumptionGrowth
Baseline - Today'sTV ConsumptionLess DVR Usage
-3%
+5% +5%
+7%
27
The Consumer and Change in the Media Industry
• So Although New Media = New Opportunities…
• …Look Beyond Early Adopters
• Change is constrained for most media• Business model issues• Limits to market appeal• Difficulty changing consumer behavior• Negative utility associated with expanded choice
28
The Consumer and Change in the Media Industry
•…We Must Place New Media In Its Proper Context•Perceived state of new media often reflects spin from
vendors and press seeking to capitalize on hype
29
The Consumer and Change in the Media Industry
•And Question the Drivers…•Certain behaviors may vary wildly between age groups
89% 90%
67% 66%79% 78%
54%
28%40%
14%
30%
13% 17%5% 9% 6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
18-29 50-64 18-29 50-64 18-29 50-64 18-29 50-64 18-29 50-64 18-29 50-64 18-29 50-64 18-29 50-64
Ever Send/ReadEmail
Ever Get NewsOnline
Ever ResearchProducts/Services
Ever Send InstantMessages
Ever Use ChatRooms
Ever DownloadVideo Files
Ever Create a Blog Ever Play OnlineGames
% o
f O
nli
ne
Res
po
nd
ents
Source: Pew Internet Life Project
30
The Consumer and Change in the Media Industry
Internet Usage
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
<$30k $30k - $75k >$75k
Household Income
Ho
use
ho
lds
Usi
ng
in
Pas
t 30
Day
s
•…of Media Consumption•Others may be income-driven
Source: MRI
31
How Marketers Are Changing
Source: MAGNA Global
Paid Search
$6,799.0
$8,770.7
$11,094.9
$0.0
$2,000.0
$4,000.0
$6,000.0
$8,000.0
$10,000.0
$12,000.0
2006A 2007E 2008E
(In
mill
ion
s)
+29.0% +26.5%
Annual Growth
Social Network Advertising
$276.0
$685.0
$1,020.0
$0.0
$200.0
$400.0
$600.0
$800.0
$1,000.0
$1,200.0
2006A 2007E 2008E
(In
mill
ion
s)
+148.2% +48.9%
Annual Growth
Online Video Advertising
$235.0
$365.5
$560.0
$0.0
$100.0
$200.0
$300.0
$400.0
$500.0
$600.0
2006A 2007E 2008E
(In
mill
ion
s)
+55.5% +53.2%
Annual Growth
Mobile Advertising
$55.0
$105.0
$194.0
$0.0$20.0$40.0$60.0$80.0
$100.0$120.0$140.0$160.0$180.0$200.0
2006A 2007E 2008E
(In
mill
ion
s)
+90.9% +84.8%
Annual Growth
•Advertisers Increasingly Place Money Against New Media
32
How Marketers Are Changing
•But Emerging Media Leaders Are New/Smaller Advertisers
•Does under-utilization by brand-based advertisers imply a change waiting to happen?
•Or an environment where small companies are better structured to compete?
Source: MAGNA Global
2011E Ad-Supported Media Revenues
0 10,000 20,000 30,000 40,000 50,000 60,000
OUTDOOR
NEWSPAPERS
B2B MAGAZINES
CONSUMER MAGAZINES
YELLOW PAGES
LOCAL CABLE
SYNDICATION
NATIONAL CABLE
NETWORK TELEVISION
LOCAL TELEVISION
RADIO
INTERNET (Ex-Search)
INTERNET (Search)
$mm
Internet: Millions of small businesses and “Endemics”(Amazon, EBay)
TV: 200 advertisers = 75% of market
33
How Marketers Are Changing
•New Media Is Often Less Efficient For Large Advertisers
•Illustrative example of optimized media spend for QSR advertiser
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$5,000
$50 $350 $650 $950 $1,250 $1,550 $1,850 $2,150 $2,450 $2,750 $3,050 $3,350 $3,650 $3,950 $4,250 $4,550 $4,850
Media Spend (000s)
Inc
rem
en
tal
Re
ve
nu
e G
en
era
ted
(0
00
s)
LOCAL TV
NATIONAL TV
PRINT (FSIs)
ONLINE (BANNERS)
= Actual 2005= Optimized 2005
ResultsMedia spendIncremental revenue generatedReturn per dollar invested
Actual$3,500$10,300$2.9
Optimized$2,700$11,200$4.1
Flat Line = Diminishing Returns
34
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
2002 2003 2004 2005 2006
Search
Newspapers
Consumer Magazines
Consumer Internet
TV
Radio
Total US: Advertising Dollars Spent Per Hour of Media Consumption
$0.07
$0.30
$0.90 $0.34
$2.44
$0.12
Source: MAGNA Global, US Census, Veronis Suhler
How Marketers Are Changing
•While Search Spending Reflects Effectiveness For SMEs
•Search has created new markets (small advertisers!)
•Few mass marketers spend much on search today
35
Source: MAGNA Global, US Census, IAB
How Marketers Are Changing
•And Now Reflects Large Share of E-Commerce Sales
•Search will likely be driven by e-commerce
•Impact of search and branding? Mobile search?Search Spending as % of E-Commerce Sales
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
1Q00
A
2Q00
A
3Q00
A
4Q00
A
1Q01
A
2Q01
A
3Q01
A
4Q01
A
1Q02
A
2Q02
A
3Q02
A
4Q02
A
1Q03
A
2Q03
A
3Q03
A
4Q03
A
1Q04
A
2Q04
A
3Q04
A
4Q04
A
1Q05
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2Q05
A
3Q05
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4Q05
A
1Q06
A
2Q06
A
3Q06
A
4Q06
A
1Q07
A
36
How Marketers Are Changing
LimitedAdvertiser Budgets
Mass ConsumerAdoption
SubsidizedContent Pricing
Media InfrastructureDeployed Alone
UnsubsidizedContent Pricing
Niche ConsumerAdoption
DeeperAdvertiser Budgets
Media Deployed withAdvertiser Infrastructure
•Not All New Media Platforms Will Gain Traction
37
How Marketers Are Changing
Source: MAGNA Global Research, Company Reports
Advanced TV Advertising
$107.0
$140.0
$178.0
$0.0$20.0$40.0$60.0$80.0
$100.0$120.0$140.0$160.0$180.0$200.0
2006A 2007E 2008E
(In
mill
ion
s)
+30.8% +27.1%
Annual Growth
•Infrastructure Places Significant Limits on Market Size
38
How Marketers Are Changing
•While Some Platforms Simply Lack Broad Interest
Game-Related Advertising
$187.2
$216.9
$238.6
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
2006A 2007E 2008E
(In
mill
ion
s)
+15.9% +10.0%
Annual Growth
39
How Marketers Are Changing
•But Large Advertisers Experimentation Persists
•Looking for the “pony” (somewhere!)
VOD/Long-FormBranded cable TV channel that offers programming to consumers on-demand
Sponsorship of existing on-demand content
•Enhanced / Interactive TV•Telescoping
•Request for information
•Polling/Voting/Surveys
EPG/VOD BumpersProgramming & sponsorship
opportunities
Addressability• Serve/target spots to the HH/set-top
40
What Does All of This Mean?
•For marketers: Hundreds of new ways to reach consumers
•Many = incremental opportunities to engage
•Others = new dayparts to reach consumers
•Some = new markets for new types of marketers
•New opportunities for upstart brands to compete?
•Potential to organize around niche/micro-markets
•For suppliers: few platforms achieve mass scale
•Conventional media will dwarf new media for long time
•New promotional opportunities to reach niche audiences
•Low barriers to entry = need for aggregators
41
Why Study Change in the Media Economy?
Contact: Brian Wieser, CFATel: 917-542-7008 Email: [email protected]
43
Appendix 1: Assessing Venture-Stage Companies
Key Business Model Components
Revenue Model
Components
Advertising Infrastructure Components
•Financing •Advertising •Unduplicated/unique reach
•Alliances •Content •Uniform technological standards
•Complementary Tech •Commerce •Establishment of creative formats
•Consumer Expectations
•Services •Smooth buying process
•Barriers to Entry •Provision of robust user data
•Openness of Systems •High-quality service / product standards
44
Appendix 2: Key Success Factors of Emerging Media
DRIVER
SECTOR KSFs (BEYOND INFRASTRUCTURE/BARRIERS-ENTRY)
Beh
avio
ral
UGC Production •Integration with other social media tools
Social Content Consumption
•Network effects of deep traffic among target market
Niche Content Consumption
•Identification of under-reached niches and superior content choices
New Place Consumption •Assessment of whether or not consumers desire content type in new place
Asset Management •Integration with existing processes, participation of reps from all parties in eco-system
Content-on-Demand •Systems must be intuitive and allow for navigation of millions of assets•Willingness to cede economics to distributors or suppliers
Information Seeking •Improvements on existing search models•Market expansion: application to brand-based advertising metrics•Systems must be intuitive and allow for navigation of millions of assets
Commerce / Shopping •For consumer facing sites: Price, quality, ease of use relative to competition•For B2B services: relationships with publishers / retailers
Game Playing •Novel content available across multiple platforms, new audience market expansion
Med
ium
Radio/Music •Availability of portable net-connected devices and services•Ability to micro-target consumers
TV •Conventional TV: 2-Way Plug&Play, National Interconnect, Widespread OCAP deployment•For Online TV: PC-TV content porting, net neutrality and enough existing last-mile bandwidth
Online/Print •For All Print: Superior content•For Physical Print: Development of better e-ink technologies, or “electronic paper”•Integration of ad-platforms across as much of addressable universe as possible
Out-of-Home •Efficient management of content assets
Marketing Services •Compelling new models for suppliers and buyers which respect elements of status quo
Other Marketing •Use of mobile device as portable CRM or POS support