1. Understanding Change in the Media Economy September 2007

2. 2 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. 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

4. 4 Our View of the World “Packagers” (Networks, Publishers): Fulcrum of the Industry Media Packagers ProducersDistributorsCreators ConsumersAdvertisers $ $$$ $ Devices / Access Points $ Source: MAGNA Global $ Industry Structures Held Together By Regulations, Economic Efficiency and Copyright Law

5. 5 Our View of the World Advertising Drives Packagers’ Economic Incentives Importance depends upon unit of analysis Source: MAGNA Global Research, OPA, IAB, RAB, NAA, Company Reports

6. 6 Our View of the World Traditional Medium Equivalent / Ad-Supported Revenue Driver Radio/MusicTVOnline/PrintOut-of-HomeMarketing Services Other Marketing Individual or Corporate Behavior Driver 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. 7 Our View of the World And Although New Platforms Are Proliferating… Source: MAGNA Global

8. 8 Our View of the World …Wholesale Change Typically Takes Decades

9. 9 Overview Why Study Change? The Consumer and Change How Marketers Are Changing What Does All of This Mean?

10. 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. 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. 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

13. 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. 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 PrintYPRadioTV 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 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. 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. 16 Source: MAGNA Global, US Census, Veronis Suhler, OPA The Consumer and Change in the Media Industry “Old” Media Remains Pervasive and Dominant

17. 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…

18. 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

19. 19 The Consumer and Change in the Media Industry This Holds True For Young Audiences As Well Source: MAGNA Global analysis of Nielsen Media Research data

20. 20 The Consumer and Change in the Media Industry In the US and Around the World Source: WARC

21. 21 The Consumer and Change in the Media Industry Business Model, Tech. Issues Deter Change …(For Now) 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 2006 Estimates 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. 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 2006 Estimates total number of gross impressions on television for content available through streaming experiment for the period of comparison based upon data from Nielsen TV “Popularity Factor”: 41x Vs. Free Streams Source: MAGNA Global

23. 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

24. 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

25. 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

26. 26 The Consumer and Change in the Media Industry Over Any Time Frame, Non-Skipped TV Impressions Rise Source: MAGNA Global

27. 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. 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. 29 The Consumer and Change in the Media Industry And Question the Drivers… Certain behaviors may vary wildly between age groups Source: Pew Internet Life Project

30. 30 The Consumer and Change in the Media Industry …of Media Consumption Others may be income-driven Source: MRI

31. 31 How Marketers Are Changing Source: MAGNA Global Advertisers Increasingly Place Money Against New Media

32. 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 Internet: Millions of small businesses and “Endemics”(Amazon, EBay) TV: 200 advertisers = 75% of market

33. 33 How Marketers Are Changing New Media Is Often Less Efficient For Large Advertisers Illustrative example of optimized media spend for QSR advertiser Flat Line = Diminishing Returns

34. 34 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. 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?

36. 36 How Marketers Are Changing Limited Advertiser Budgets Mass Consumer Adoption Subsidized Content Pricing Media Infrastructure Deployed Alone Unsubsidized Content Pricing Niche Consumer Adoption Deeper Advertiser Budgets Media Deployed with Advertiser Infrastructure Not All New Media Platforms Will Gain Traction

37. 37 How Marketers Are Changing Source: MAGNA Global Research, Company Reports Infrastructure Places Significant Limits on Market Size

38. 38 How Marketers Are Changing While Some Platforms Simply Lack Broad Interest

39. 39 How Marketers Are Changing But Large Advertisers Experimentation Persists Looking for the “pony” (somewhere!) VOD/Long-Form Branded 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 Bumpers Programming & sponsorship opportunities Addressability Serve/target spots to the HH/set-top

40. 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. 41 Why Study Change in the Media Economy?

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

43. 43 Appendix 1: Assessing Venture-Stage Companies Key Business Model Components Revenue Model Components Advertising Infrastructure Components FinancingAdvertisingUnduplicated/unique reach AlliancesContentUniform technological standards Complementary TechCommerceEstablishment of creative formats Consumer ExpectationsServicesSmooth buying process Barriers to EntryProvision of robust user data Openness of SystemsHigh-quality service / product standards

44. 44 Appendix 2: Key Success Factors of Emerging Media DRIVERSECTORKSFs (BEYOND INFRASTRUCTURE/BARRIERS-ENTRY) Behavioral 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 Medium 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