Emerging Media Forecast

June 2007

EMERGING MEDIA IN CONTEXT
•Venture capital activity reflects expectations of change
Traditional Medium Equivalent / Ad-Supported Revenue Driver Radio/Music UGC Production Social Content Consumption Niche Content Consumption New Place Consumption Asset Management Content-onDemand Information Seeking Commerce / Shopping Game Playing Individual or Corporate Behavior Driver
2

TV

Online/Print

Out-of-Home

Marketing Services

Other Marketing

Source: MAGNA Global

EMERGING MEDIA IN CONTEXT
•But “Traditional” media dominates by wide margin
Total US Population: Hours Spent With Media
Millions of Person-Hours Per Year 500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 2002 2003 2004 2005 2006 466.5bn TV Radio 292.5bn Consumer Internet Newspapers Consumer Magazines Search

57.0bn 53.7bn 36.6bn 2.9bn

3

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

EMERGING MEDIA IN CONTEXT
•And young audiences are not abandoning traditional media

Young Audiences' TV Viewing Trends
Hours of Viewing Per Week 29.0 27.0 25.0 23.0 21.0 19.0 17.0 15.0 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 P18-34 P6-11 P12-17 P2-5

4

Source: MAGNA Global analysis of Nielsen Media Research data

EMERGING MEDIA IN CONTEXT
•“Packagers” (networks, publishers) continue to drive industry
Advertisers
$

Consumers

$

Creators

$

Producers

$

$

Distributors

$

Devices / Access Points

Media Packagers

Industry Structures Held Together By Regulations, Economic Efficiency and Copyright Law
5

Source: MAGNA Global

$

EMERGING MEDIA IN CONTEXT
• So although emerging media = emerging opportunities… • …look beyond early adopters • Change is constrained for most media
• • • • Business model issues Limits to market appeal Difficulty to change behavior Negative utility with more choice

6

SEARCH
•Media search tools have existed in many forms

7

SEARCH
•Three players have come to dominate online search

8

SEARCH
•E-commerce is a key driver of search spending
• When does search become too large a share of revenue?

Search Spending as % of E-Commerce Sales
8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
4Q02A 1Q03A 2Q03A 3Q03A 4Q03A 1Q04A 2Q04A 2Q06A 3Q06A 4Q06A 1Q07A 1Q00A 2Q00A 3Q00A 4Q00A 1Q01A 2Q01A 3Q01A 4Q01A 1Q02A 2Q02A 3Q02A 3Q04A 4Q04A 1Q05A 2Q05A 3Q05A 4Q05A 1Q06A

9

Source: MAGNA Global, US Census, IAB

SEARCH
•And search spend reflects effectiveness for SMEs and dot-coms
Advertising Dollars Spent Per Hour of Media Consumption
$3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 2002 2003 2004 2005 2006 Search

$2.44

Newspapers Consumer Magazines Consumer Internet TV Radio

$0.90 $0.34 $0.30 $0.12 $0.07

10

Source: MAGNA Global, US Census, Veronis Suhler

SEARCH
•Paid search to exceed $11 billion in 2008
• Led by more searches per person and better monetization

Paid Search
$12,000.0 $10,000.0 (In millions) $8,000.0 $6,000.0 $4,000.0 +29.0% $2,000.0 $0.0 2006A 2007E $6,799.0 Annual Growth $8,770.7

$11,094.9

+26.5%

2008E

11

Source: MAGNA Global, IAB/PWC

EMERGING OUT-OF-HOME
•Platforms include cinema, digital billboards and retail networks

12

EMERGING OUT-OF-HOME
•More digital billboards and new digital networks drive growth
• But most activity remains at the local level

Emerging Out-of-Home Advertising
$1,711.0 $1,800.0 $1,600.0 $1,400.0 $1,200.0 $1,000.0 $800.0 $600.0 $400.0 $200.0 $0.0 $1,371.8 $1,090.5 Annual Growth +25.8% +24.7%

(In millions)

2006A

2007E

2008E

13

Source: MAGNA Global

SOCIAL NETWORKING
•Social sites emerged in late 90s as potential substitutes for portals
• But post-Geocities, emphasis has been on social connectivity

14

SOCIAL NETWORKING
•Growth is mostly share gains from other publishers
• Historically monetized as residual internet traffic

Social Networking and Total Internet Page Views
700,000 600,000 Page Views 500,000 400,000 300,000 200,000 100,000 0 Social Networking: + 98.6% Total Internet: + 2.6%

May-06

15

Source: MAGNA Global analysis of Comscore data

May-07

Nov-06

Feb-06

Mar-06

Oct-06

Apr-06

Feb-07

Mar-07

Dec-06

Aug-06

Sep-06

Jan-06

Jun-06

Jan-07

Apr-07

Jul-06

SOCIAL NETWORKING
•Social Network growth slowing, but will exceed $1 billion in 2008
• Dollars driven by volume of inventory and better monetization

Social Network Advertising
$1,200.0 $1,000.0 (In millions) $800.0 $600.0 $400.0 $200.0 $0.0 2006A 2007E 2008E $276.0 +148.2% $685.0 Annual Growth +48.9% $1,020.0

16

Source: MAGNA Global

ONLINE VIDEO
•New media can dramatically affect an industry
• Music industry often cited as case study for the video industry

Manufacturers' Shipments of Recorded Music
16,000 Revenues ($000s) 14,000 12,000 10,000 8,000 6,000 Napster Launched (June 1999) BitTorrent, Kazaa, Grokster, etc. active iTunes Launch (March 2003) Total Digital Sales Retail Sales

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

17

Source: MAGNA Global, RIAA

2006

ONLINE VIDEO
•New media can dramatically affect an industry
• …and classified advertising provides another example

18

Source: McKinsey, NAA, Monster Worldwide

ONLINE VIDEO
•But TV won’t be impacted as other media (yet!)
General Print YP Radio TV

Yes for all people under virtually all circumstances Often for most people under most circumstances Yes for some most of the time or yes for all some of the time Yes for some some of the time or no for most most of the time No

Sufficient Range of Content Sufficient Technical Quality Equipment Substitution Sufficient Customer Service Efficient Navigation Cheaper to Substitute Increased Convenience SUMMARY

Limited TV content available today Internet can’t deliver high res video well Print is tactile 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 Prospects for online media substitution limited by drawbacks relative to traditional media

19

Source: MAGNA Global

ONLINE VIDEO
•Conventional TV popularity: 90x vs. Online in 2011?
• Yes, if last year’s online growth rates persist
200.0x 180.0x 160.0x 140.0x 120.0x 100.0x 80.0x 60.0x 40.0x 20.0x 0.0x
Popularity Factor of Conventional TV in 2011

Below Trend 145.8x 119.8x 99.2x

2006 Growth Rate Was 38.8%

Above Trend 82.7x 69.4x

58.6x

25%

30%

35%

40%

45%

50%

Different Scenarios: Assumed 5-Year Compounded Annual Growth Rate of Online Video

20

Source: MAGNA Global, Accustream

ONLINE VIDEO
•Online video spend growing >50% annually, but <1% of all TV
• Significant increase in supply and advertiser interest driving results

Online Video Advertising
$600.0 $500.0 (In millions) $400.0 $300.0 $200.0 +55.5% $100.0 $0.0 2006A 2007E 2008E $235.0 $365.5 Annual Growth +53.2% $560.0

21

Source: MAGNA Global

ADVANCED TV
•Advanced TV (VOD, RFIs, iTV) has been slow to emerge
• User experience remains poor • Content is better, but limited • Advertising infrastructure still under construction!

Advertising Infrastructure Components
•Unduplicated/unique reach •Uniform technological standards •Establishment of creative formats •Smooth buying process •Provision of robust user data •High-quality service / product standards

22

Source: MAGNA Global

ADVANCED TV
•VOD is largest component, followed by RFIs and other iTV
• VOD likely generates $85mm in 2007, $105mm in 2008

Advanced TV Advertising
$178.0 $200.0 $180.0 $160.0 $140.0 $120.0 $100.0 $80.0 $60.0 $40.0 $20.0 $0.0

$140.0 $107.0 Annual Growth +30.8% +27.1%

(In millions)

2006A

2007E

2008E

23

Source: MAGNA Global

MOBILE
•Mobile (WAP, video, SMS, LBS) attracts great interest, few $ today
• Infrastructure issues potentially similar to advanced TV • Consumer proposition is being defined • Long-term opportunity to use mobile devices for CRM • Many new products compelling, but scale remains too small for most national advertisers given their broader objectives

24

Source: MAGNA Global

MOBILE
•Growth driven in near-term by introduction of new supply
• Carriers opening up “decks” and new mobile ad models

Mobile Advertising
$194.0 $200.0 $180.0 $160.0 $140.0 $120.0 $100.0 $80.0 $60.0 $40.0 $20.0 $0.0

(In millions)

$105.0 $55.0 +90.9%

Annual Growth +84.8%

2006A

2007E

2008E

25

Source: MAGNA Global

GAMING
•Gaming growth likely slower than for other new media
• Many advertisers remain interested, but few invest

Game-Related Advertising
$238.6 $250.0 $200.0 (In millions) $150.0 $100.0 $50.0 $0.0 2006A 2007E 2008E +15.9% $187.2 Annual Growth +10.0% $216.9

26

Source: MAGNA Global

SUMMARY
•Annual emerging media growth = ~ 30% in 2007 and 2008
EMERGING MEDIA AD EXPENDITURES (in millions) Search
• Annual Growth

2006A $6,799.1
------

2007E $8,770.9
29.0%

2008E $11,095.1
26.5%

Emerging Out-of-Home
• Annual Growth

1,090.5
------

1,371.8
25.8%

1,711.0
24.7%

Social Networking
• Annual Growth

276.0
------

685.0
148.2%

1,020.0
48.9%

Online Video
• Annual Growth

235.0
------

365.5
55.5%

560.0
53.2%

Advanced TV
• Annual Growth

107.0
------

140.0
30.8%

178.0
27.1%

Mobile Marketing
• Annual Growth

55.0
------

105.0
90.9%

194.0
84.8%

Gaming
• Annual Growth

187.2
------

216.9
15.9%

238.6
10.0%

Total
• Annual Growth

$8,749.8
------

$11,655.1
33.2%

$14,996.7
28.7%

Less Estimated Duplication (Search via Social Networking) Total Emerging Media
• Annual Growth

0.0 $8,749.8
------

(135.0) $11,520.4
31.7%

(250.0) $14,747.0
28.0%

27

Source: MAGNA Global

APPENDIX
•Emerging media services and devices forecasts
140.0% US Digital Cable, Satellite and TelcoTV Households 120.0% US DVR Subscriptions US VOD Households US Broadband Households US Satellite Radio Subscriptions US HD Subscriptions 40.0% US Digital TV Shipments 20.0% US Mobile Phone Subscriptions 0.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

% of US Households
28

100.0%

80.0%

60.0%

Source: MAGNA Global

NOTES ABOUT METHODOLOGY
• Estimates and forecasts reflect data for the United States only • General methodology involves deriving “bottoms-up” estimates and forecasts for each supplier of media in each emerging media sector • Estimates and forecasts include media expenditures (or approximate allocations) only, and exclude marketing services and related activities such as production of creative assets

29

Contact: Brian Wieser, CFA Tel: 917-542-7008 Email: brian.wieser@magnaglobal.com