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 TV Online/Print Out-of-Home Marketing Other
Services Marketing
UGC
Production
Social Content
Individual or Corporate Behavior Driver

Consumption
Niche Content
Consumption
New Place
Consumption

Asset
Management
Content-on-
Demand
Information
Seeking
Commerce /
Shopping
Game Playing

2 Source: MAGNA Global

 EMERGING MEDIA IN CONTEXT
•But “Traditional” media dominates by wide margin

Total US Population: Hours Spent With Media

500,000 TV
Millions of Person-Hours Per Year

450,000 466.5bn
400,000 Radio
350,000
300,000 292.5bn Consumer
250,000 Internet
200,000 Newspapers
150,000 57.0bn
Consumer
100,000
53.7bn Magazines
50,000
36.6bn Search
0
2002 2003 2004 2005 2006 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

29.0
Hours of Viewing Per Week

27.0 P2-5

25.0
P6-11
23.0
21.0
P12-17
19.0
17.0
P18-34
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
4 Source: MAGNA Global analysis of Nielsen Media Research data
 EMERGING MEDIA IN CONTEXT
•“Packagers” (networks, publishers) continue to drive industry

Advertisers Consumers

$
$
$ $ $ $ Devices /
Creators Producers Distributors
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%

1Q04A

1Q07A
1Q00A
2Q00A
3Q00A
4Q00A
1Q01A
2Q01A
3Q01A
4Q01A
1Q02A
2Q02A
3Q02A
4Q02A
1Q03A
2Q03A
3Q03A
4Q03A

2Q04A
3Q04A
4Q04A
1Q05A
2Q05A
3Q05A
4Q05A
1Q06A
2Q06A
3Q06A
4Q06A
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
Search
$2.50 $2.44
Newspapers
$2.00
Consumer
$1.50 Magazines
Consumer
$1.00 $0.90 Internet
TV
$0.34
$0.50
$0.30 Radio
$0.00 $0.12
2002 2003 2004 2005 2006 $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
$11,094.9
$12,000.0

$10,000.0 $8,770.7
(In millions)

$8,000.0 $6,799.0

$6,000.0 Annual
Growth
$4,000.0
+29.0% +26.5%
$2,000.0

$0.0
2006A 2007E 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 $1,371.8
$1,400.0
(In millions)

$1,200.0 $1,090.5
$1,000.0 Annual
Growth
$800.0
$600.0
$400.0 +25.8% +24.7%
$200.0
$0.0
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
Total Internet: + 2.6%
600,000
500,000
Page Views

400,000
300,000
Social Networking: + 98.6%
200,000
100,000
0
May-06

May-07
Nov-06
Feb-06
Mar-06
Apr-06

Oct-06
Aug-06
Sep-06

Dec-06

Feb-07
Mar-07
Apr-07
Jan-06

Jun-06
Jul-06

Jan-07
15 Source: MAGNA Global analysis of Comscore data
 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

$1,020.0
$1,200.0

$1,000.0
(In millions)

$800.0 $685.0
Annual
$600.0 Growth
$400.0 $276.0
+148.2% +48.9%
$200.0

$0.0
2006A 2007E 2008E

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
Total
14,000 Digital
Revenues ($000s)

Sales

12,000 Retail
Napster Launched
Sales
(June 1999)
10,000
BitTorrent, Kazaa,
Grokster, etc. active
8,000 iTunes Launch
(March 2003)
6,000
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
17 Source: MAGNA Global, RIAA
 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
Limited TV content
Sufficient Range available today
of Content
Internet can’t deliver
Yes for all people Sufficient high res video well
under virtually all Technical Quality
circumstances
Print is tactile
Often for most
Equipment
people under most Substitution IPTV: no STB integration
circumstances
Sufficient QoS is critical for video
Yes for some most of Customer Service
the time or yes for all Hard to navigate to find
some of the time Efficient audio/video
Yes for some some of
Navigation
the time or no for Cheaper to Online bandwidth=more
most most of the time cost than free media
Substitute
No Print and radio are
Increased
typically portable
Convenience
Prospects for online
media substitution limited
SUMMARY 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
Popularity Factor of Conventional

Below Trend
180.0x 2006 Growth Rate Was 38.8%
160.0x 145.8x
140.0x 119.8x
TV in 2011

120.0x Above Trend

99.2x
100.0x 82.7x
80.0x 69.4x
58.6x
60.0x
40.0x
20.0x
0.0x
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

$560.0
$600.0

$500.0
$365.5
(In millions)

$400.0
Annual
$300.0 $235.0 Growth
$200.0
+55.5% +53.2%
$100.0

$0.0
2006A 2007E 2008E

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
$140.0
(In millions)

$120.0 $107.0
Annual
$100.0 Growth
$80.0
$60.0 +30.8% +27.1%
$40.0
$20.0
$0.0
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
(In millions)

$120.0 $105.0
Annual
$100.0 Growth
$80.0
$55.0
$60.0 +90.9% +84.8%
$40.0
$20.0
$0.0
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
$216.9
$200.0 $187.2
(In millions)

$150.0 Annual
Growth
$100.0
+15.9% +10.0%
$50.0

$0.0
2006A 2007E 2008E

26 Source: MAGNA Global

 SUMMARY

•Annual emerging media growth = ~ 30% in 2007 and 2008

EMERGING MEDIA AD EXPENDITURES (in millions) 2006A 2007E 2008E

Search $6,799.1 $8,770.9 $11,095.1

• Annual Growth ------ 29.0% 26.5%
Emerging Out-of-Home 1,090.5 1,371.8 1,711.0
• Annual Growth ------ 25.8% 24.7%
Social Networking 276.0 685.0 1,020.0
• Annual Growth ------ 148.2% 48.9%
Online Video 235.0 365.5 560.0
• Annual Growth ------ 55.5% 53.2%
Advanced TV 107.0 140.0 178.0
• Annual Growth ------ 30.8% 27.1%
Mobile Marketing 55.0 105.0 194.0
• Annual Growth ------ 90.9% 84.8%
Gaming 187.2 216.9 238.6
• Annual Growth ------ 15.9% 10.0%

Total $8,749.8 $11,655.1 $14,996.7

• Annual Growth ------ 33.2% 28.7%
Less Estimated Duplication (Search via Social Networking) 0.0 (135.0) (250.0)
Total Emerging Media $8,749.8 $11,520.4 $14,747.0
• Annual Growth ------ 31.7% 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

100.0% US VOD Households

% of US Households

80.0% US Broadband Households

US Satellite Radio
60.0% 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

28 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