Winterberry Group Dmcny Outlook 2010 Final (2)

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Outlook 2010: What to Expect inDirect & Digital Marketing

Bruce BiegelManaging Director

January 14, 2010New York, New York

• Market Intelligence

• Strategy Consulting

• Transaction/Diligence Support

• Industry Insight:Publishing &Tactical Execution

Winterberry Group & Petsky Prunier LLC: Maximizing Shareholder Value of Companies in the Marketing Sector

Sell-Side Representation

Corporate Divestitures

Capital Raising & Private Placements

M&A Advisory

Fairness Opinions

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Our Transition in Media and Technology Over the Past Decade; By Simplifying Our Lives, We Have Complicated Them Tenfold!

2000 2009TV channels in average U.S. household 61 130

% of U.S. households with a DVR 3% (2003) 25%

Daily time spent online (U.S. Internet users) < 30 min. 3-4 hours

% of U.S. households with broadband connection 5% 65%

Web sites indexed by Google 1 billion 1 trillion

Global Google searches per day 10 million 300 million

Global e-mails sent per day 12 billion 247 billion

% of U.S. adults who bought a product online 28% 55%

% of Internet users on a social networking site 5% 75%

% of U.S. adults who own a mobile phone 50% 85%

Text messages sent in the U.S. per day 400,000 4.5 billion

Sources: AMA/Carat, Forrester/Magna, Media Metrix (The Media Audit), New YorkTimes/Gallup, Nielsen, Pew Internet & American Life Project

Agenda

• What happened in 2009?• What to expect in 2010:

Forecasts and trends in direct and digital marketing

• Ten things to think about in 2010: Strategies for marketers and suppliers

Outlook 2010

“”

Marketing Budgets Fell an Estimated 15.6% in 2009

of marketers faced budget cuts in 1H09

of marketers saw budgets hold steady

of marketers expected further cuts as of August, compared with 49% in early 2009

Source: Association of National Advertisers, July 2009 Marketer Survey

We learned quite a bit this year as we reduced our ad budget, and, while we will

spend more in 2010 than we did in 2009, there is no

reason for us to immediately put everything back in place

that we had prior to the economic environment

becoming so challenged. – Jeffrey Hennion,

EVP & CMO

62%

32%

40%

Marketers, Faced With Budget Cuts, “Followed The Consumer” and Reallocated Spending in 2009

Source: WG Survey (2009)

46%

54%

55%

91%

Direct Mail: Non-catalog

Broadcast: TV & Radio

Direct Mail: Catalog

Print: Newspaper & Magazine

Survey of Marketers & Service Providers in 2009:“Which channels are capturing or losing share of marketing budgets?”

Capturing

Losing

50%

50%

71%

72%

Online Display Advertising

Mobile Marketing

Search (Keywords & SEO)

E–Mail

A 5% Decline in “Above-the-Line” (ATL) Channel Spending in 2008 Accelerated in 2009, Falling Another 18%

2009E U.S. “ATL” Advertising Spending $110.0BB

Television:$48.0BB

Newspapers:$25.8BB

Magazines:$15.6BB

Radio:$14.1BB

Outdoor:$6.1BB Cinema:

$0.5BB-5.0%

-13.8%

Source: WG Analysis, 2010Note: Arrows reflect percentage change in spend, by channel, from 2008 levels

-20.7%

-18.8%

-25.7%

-12.7%

-18.4%

In the Midst of Recession, Digital Still Grabbed $500MM of Growth

Direct Mail:$43.7BB

Teleservices:$39.4BB

DR Broadcast:$22.8BB

Digital:$26.5BB

DR Print:$15.5BB

Other:$2.4BB

1.6%

-22.4%

-16.8%

-10.0%

2009E U.S. “Direct & Digital” Advertising Spending $151.2BB

Insert Media:$0.8BB

-11.0%

-14.1%

-5.7%Source: WG Analysis, 2010Note: Arrows reflect percentage change in spend, by channel, from 2008 levels

-11.3%

95.6 100.9 102.7 96.1 80.1

35.3 35.3 35.1 34.2 32.328.9

102.5

020406080

100120140160

2004 2005 2006 2007 2008 2009

Annu

al P

iece

Vol

ume

(BB)

Standard Class First Class DM

Substantial Declines in U.S. Direct Mail Volumes Began In Q4 2008—And Have Only Recently Begun to Abate

Source: WG analysis of data from USPS Household Diaries

136.9BB 128.4BB 109.0BB

Y-o-Y Change

137.6BB136.2BB130.8BB

-16.6%-6.4%

0.2%1.5%5.5%

-10.5%-5.6%-2.7%-0.4%-0.1%

U.S. Direct Mail Volume, 2004-2009 (BB of Pieces)

Make No Mistake: 2009 Brought a “Market Correction” to Direct Mail

$48.3$51.7

$55.6 $54.8$52.6

$43.7

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

2004 2005 2006 2007 2008 2009U.S.

Spe

ndin

g on

DM

($BB)

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%Y-o-Y Growth in Mail Spending (%

)

Direct Mail Spending Year-over-Year GrowthSource: Winterberry Group analysis of data from the Direct Marketing Association and various other sources

2009 Y-o-Y Decline:16.8%

2008 Y-o-Y Decline:

4.1%

2007 Y-o-Y Decline:

1.4%

Source: Winterberry Group analysis of data from Mintel Comperemedia

Volume Deterioration Skewed Toward Traditionally Heavy DM Users; Mail Doing Better in Other Markets

(27.8)%Banking(7.2)%

Investments(23.8)%

Credit Cards(60.1)%

Technology(29.9)%

Automotive(31.1)%

Mortgage & Loans (68.3)%

Telecom13.1%

Insurance2.5%

Travel/Leisure11.3%

2009 U.S. Direct Mail Volume Y-o-Y Change, By Vertical

“

” Culmination of events have irrevocably changed the direct mail industry

Recession Driven Budget Cuts

Continuing E-mail Substitution

Multiple Forces Converged in 2009 to Depress Mail Spending and Volume

Virtually every element of the mailing industry has been experiencing the effects of

reduced employment, reduced spending and reduced

consumer confidence…this movement toward electronic alternatives will also cause

continued downward pressure on mail volume

into coming years.– Jack Potter,

Postmaster General

Credit Card, Auto & Tech Industry Pullback

Consumer Preference for Digital Media Rising

% Global Reach (Across Internet Users)

Five Digital Trends in 2009

• “Year of social adoption” (though not spending yet)• Massive consumer adoption (top three

social networks have grown to rank globally in the top 15 sites, by reach)

• Slight decline in marketing spend due to unproven ROI

• Proliferation of “smart phones” drives mobile marketing opportunity• Increasing consumer adoption of “smart

phones” as utilization grew 72% this year• Large % increase in marketing spend as

marketers followed consumer migration to mobile devices for web content /applications

1

2

5% 5%

30%

#2#5#13

Five Digital Trends in 2009 (Cont’d)

• Rise of the audience buying in display • Slight decline in spending after 2H 2008 slowdown

due to recession-driven budget declines• Search – Did Bing matter?

• 2H09 search volume increased as consumers sought out holiday retail sales (retail being one of Bing’s specialties)

• Slight increase spending as marketers (and their agencies) emphasized SEO and improved tools leading to SEM keyword reduction

• E-mail and social media integration• Slight increase in spending as social media

adoption increases consumer dependence on e-mail as a primary online communication method

3

4

5

Impact of 2009

• Severe pricing pressure across services, data and campaign production and execution

• Reductions in staffing to compensate for revenue declines• Significantly increased purchase/license cycles for technology

providers• Profit declines inhibit investment in capabilities and operating

efficiencies• Lack of capital availability and confidence constrains M&A activity, with

the exception of early-stage VC funding

• Recession drove budget declines and shift from acquisition to retention• Delay in marketing technology investments• Longer test periods, more channels activated• Staff reductions despite increased marketing complexity

Suppliers

Marketers

Agenda

Outlook 2010




Real GDP growth resumes, forecast up 3% in 2010, outlook will drive increases in marketing investment• 3Q 2009 marks “The End of Recession”• Economists expect that U.S.

unemployment rate will peak between 10.0% and 11.0%

• Corporate attention will shift from cost control to revenue expansion—that is, customer acquisition—to drive growth

• Consumer caution likely to continue through at least 1H10

2010: Marketers Encounter a Somewhat Healthier Economy

Focus on the economy slowed 2009 regulatory initiatives; watch for the following in 2010:• Online Privacy and Behavioral advertising

guidelines - Self-regulation guidelines in 2009 likely to

become government regulation in 2010• Fight over “Freedom of Speech” over new

blogging disclosure rules• Tightening of telemarketing consent rules • Consumer protection initiatives including

“Red Flag” rules for identity theft and consumer financial protection implementation

2010 Also Ushers In a More Active Regulatory Agenda

Spending to Fall Across Traditional “Above-the-Line” (ATL) Channels, Though Growth Returns for Television

2010E U.S. “ATL” Advertising Spending $108.8BB

Television:$50.7BB

Newspapers:$23.4BB

Magazines:$14.6BB

Radio:$13.5BB

Outdoor:$6.1BB Cinema:

$0.5BB-4.4%

-6.2%5.6%

-9.2%


0.0%-0.5%

-1.2%

Direct and Digital Channels: Digital to Accelerate, Mail to Stabilize

2010E U.S. “Direct & Digital” Advertising Spending $153.9BB

Direct Mail:$43.7BB

Teleservices:$39.5BB

DR Broadcast:$23.6BB

Digital:$28.7BB

DR Print:$15.0BB

Other:$2.6BB

8.3%

-3.6%


Insert Media:$0.8BB2.4%

3.8%

0.1%

6.1%

0.0%

1.8%

Direct Mail 2010 Spending Flat, Though Volumes Will Rise Slightly

Acquisition mail starts to recover; retention mail declines as e-mail presents viable low-cost alternative• Financial services led the way down;

will rebound slightly along with retail and auto

• Better use of analytics, database management and hygiene restrains piece volume growth

• Excess production capacity to keep costs in check

• Postal rate freeze in 2010 should help mailers keep postage costs at bay

Impact on Direct Mail Suppliers in 2010

In 2010, direct mail suppliers should expect:• Further consolidation among direct mail production providers • Stabilization in list pricing as acquisition mail returns• Additional dependence on workshare to adjust to decreased volumes

Going forward, direct mail suppliers should focus on:• Integration of single platform

cross-channel execution capabilities; Print, PURLS, Social and Email

• Targeting and analytics capabilities that enable highly targeted campaigns in a lower-volume environment

Digital Marketing Continues to Grow and Take Share From Traditional

Consumer digital media consumption passes 30% share of all media• Consumer adoption of social media

plateaus• Increasing standardization of digital

metrics leads to broader adoption• Marketers focus on digital channel

integration and optimization• Marketers’ staffing gaps delay more

aggressive shift in spend; internal execution silos begin to fall

• Supplier capabilities continue digital shift to capture demand and profit opportunity in emerging channels

$0

$50

$100

$150

$200

$250

$300

$350

$400

2006 2007 2008 2009E 2010E

DigitalBTLATL

U.S. Advertising and Marketing Spending, by Share of Approach ($BB)

5% 6%7%

8.3% 9%

Source: Winterberry Group analysis of various sources, 2010

54% 55%55%

56% 56%

41% 40% 38%35.7%

35%

Search spending projected to accelerate 6.4% to $15.6BB in 2010, up from 0.8% in 2009 • More spending shift from

traditional media channels, driven by predictable ROI

• Increased adoption by SMB marketers (local search)

• Focus on picture and video searchgrows as rich media proliferates

• Unresolved issues around ownership of audiences to challenge engine/publisher relationships

Search: No Slowdown in Sight for 2010

$0

$5

$10

$15

$20

$25

$30

$35

2006 2007 2008 2009E 2010E

SearchAll Other Digital

Search Spending vs. Other U.S. Digital Channels, 2006-2010E ($BB)

49% 45% 44% 45% 46%

51%55%

56% 55%54%

Source: WG Analysis, 2010

E-mail: Rumors of Its Death Have Been Greatly Exaggerated

E-mail spending projected to grow 8.6% to $1.4BB in 2010, largely due to:• Marketer shift to lower-cost media• Relatively high ROI of e-mail campaigns• Growing overall effectiveness,

especially with regard to “integrated” campaigns launched in conjunction with direct mail, events and outdoor

• Increasingly effective integration with social, e-commerce and mobile channels, driven by improved cross-media platforms

• Deeper and more actionable marketing databases (for both acquisition and retention purposes)

Display spending projected to grow 9.2% to $9.3BB in 2010 following slight decline in 2009, driven by:• Marketers focus on following the

audience, shifting spending from traditional media

• Publishers’ improved ability to attribute traffic sources and monetize inventory

• Emerging targeting and optimization approaches enable “data-enriched” display ads for better effectiveness

Display: Is It the Next Big Acquisition Channel?

Artwork Source: AdExchanger.com

”

“Audience Segmentation + Behavioral Targeting = Relevance = Enhanced Share of Spending

The overarching benefit [of targeted ads] is relevancy. Relevancy means that the

consumer has a more appropriate experience and

reduces intrusiveness…On the business side, relevancy for an advertiser means better results,

and hence, for a publisher, better yield on inventory.

– Jeff Hirsch CEO

Source: Winterberry Group analysis of data from eMarketer (2010)

$0

$2

$4

$6

$8

$10

2006 2007 2008 2009E 2010E

Behaviorally-Targeted Display Ad SpendOther Display Ad Spend

U.S. Behaviorally-Targeting Spending, as Percentage of Online Display

Advertising Spending,2006-2010 ($BB)

7.2%8.2% 9.5% 11.4% 14.8%

• Impending Regulation: Self regulation vs. legislative regulation

• Disclosure/Consumer Education:Do consumers know they’re being “tracked” and “targeted” for marketing?

• Transparency: Do marketers know where their ads are placed?

• Attribution: Ability to track display as influencer on search, lead gen and site traffic

• Complexity: Friction between “moving pieces” of data, platforms, networks, agencies, etc.

Display: Challenges Remain

82%

77%

66%

59%

55%

18%

23%

34%

41%

45%

65 to 89

50 to 64

35 to 49

25 to 34

18 to 24

Age o

f Res

pond

ent

No Yes

Do you want Web sites to show you ads tailored to your interests?

(U.S. consumer response)

Source: University of Pennsylvania/UC Berkeley survey (2009)

66% of U.S. ConsumersSay NO to “tailored”

advertising

As online display evolves, agencies will be tasked with:• Developing strategies and budgets for effective display

usage for both branding and direct response marketing• Integrating Demand Side Platforms (DSP) into the

media-buying process and driving attribution metricsData and analytics providers will need to manage and incorporate:• New data sets comprised of “intent” and “in-market” data

(combined with portal, co-op and other offline data sets)• Audience segmentation within online display• Ad exchange and data exchange tools and processes• Web analytics data to feed into optimization cycles

How Will Marketing Service Providers Support the Display (R)evolution?

Online Display Campaign Execution

Value Chain

Measurement & Reporting

Pricing / Valuation (e.g. Yield Management)

Ad Delivery (via Networks/Exchanges)

Creative

Audience Targeting/ Data Utilization

Campaign Strategy / Planning

Social Marketing: All That Traffic, Show Me The ROI

Social media spending projected to grow 13.2% to $1.2BB—$900MM (75%) of which is included in display—then slow going forward. Growth will hinge upon:• Marketer ability to measure impact of

social on engagement and conversion• Bifurcation of social landscape into

“listening” and “marketing” platforms, each fulfilling distinct (but complementary) roles

• Availability and expertise of marketing staff and suppliers to lead social efforts (and to make money!)

Spending Source: eMarketer (2009)

Mobile: Ready to Move from “Test” to “Rollout,” In Spite of Ongoing Bandwidth Concerns

Mobile spending projected to rise 27.1% to $2.2BB in 2010, driven by:• Increasing utilization (and adoption) of

mobile coupons via SMS and now search and display via smart phones

• Improved monetization of mobile apps(2.3BB app downloads in 2009)

• Growing roster of dedicated suppliers—primarily offering mobile e-mail and SMS/MMS support

• Availability of location-based targetingtechnologies and integration with retail

• Proven success of early adopters, inspiring other marketers into test modes

Growth is constrained by:• Data network bandwidth/speed• Platform/software diversity• Poor/inconsistent browsing

experience• Lack of marketer experience

with mobile campaigns

Growth in Digital Spending Driving Shift to Digital Capabilities in Database Marketing and Marketing Technology

Marketing automation platforms for campaign, workflow and operations management will see increased demand as agencies are pressured to become more efficient and cost-effective. Areas of growth include:• Media planning and buying platforms and

tools particularly for digital channels• Loyalty programs, which are increasingly

becoming digital• Analytics platforms for emerging digital

segments (e.g. social media monitoring/listening)• Online lead generation as acquisition returns

2009 M&A Summary: 2H09 Began Gradual Recovery After Slow 1H09, Though Valuations Remain Low In Line with Economic Risk

M&A slowed in 2009 with total transaction value (down 27% YOY). The market was characterized by:• Strategic buyers ruling, but

financial buyers returning to offer a variety of currency options (e.g. cash, equity, debt)

• Longer closing cycles due to more comprehensive diligence requirements

• Robust venture capital marketcontinuing for Web 2.0 second and third rounds and Web 3.0 “A” and “B” rounds

2009 Marketing Sector Transaction Value, by Segment

$26.2BB Total Value

Digital Media $4.1BB

Advertising & Promotion

$0.4BB

Interactive Advertising

$3.6BB

Marketing Services $2.3BB

Software & Information

$8.3BB

Out-of-Home &

Specialty Media $0.6BB

Marketing Technology

$6.1BB

Source: Petsky Prunier LLC

2007 2008 2009

2010 M&A Outlook: Much Stronger Year in M&A Ahead

Strong YOY growth is expected in 2010 M&A, driven primarily by strategic buyers as financing options improve• Strong 2H09 transaction activity

implies improved growth into 2010, as evidenced by transaction value doubling each quarter since 2Q09

• Improved stock markets open up the IPO markets and allow strategic buyers to leverage shares to complete deals

• Return of leverage financing for take-privates and PE firms

• Continued activity expected in mobile and Web analytics segments

$0

$5

$10

$15

$20

$25

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2007-2009 Marketing Sector Transaction Value, by Quarter

($BB)

Source: PetskyPrunier Deal Notes

Agenda

Outlook 2010




2010

Ten Things to Think About in 2010

Mobile opportunities accelerate as growing adoption of smart phones and apps—combined with marketer andagency experience—allow for targeted and effective marketing

Local marketing dollars migrate online—from traditional budgets—as geo-targeting capabilities improve (via search, display and mobile)

Rate of consumer social adoption slows, but marketers increasingly understand how to use and manage social media (e.g. listening/monitoring, data collection, activation)

Death of the “digital” agency spurs the return of “Agency,” blurring lines between traditional, direct and digital agencies

1

2

3

Four Things We Think Are Going to Be Important in 2010

4

Four MORE Things to Think About in 2010

Consolidation will accelerate as top-line growth is driven through buying “good” companies in order to take market share of slow growing spend

Understanding the new data taxonomy is imperative for all direct marketing constituencies

Audience targeting in display—with online brand “assurance”—spurs shift of spend to the long tail of sites; thus, ad exchange buying grows

Globalization will become increasingly important as marketers and marketing services providers seek new geographies for growth

8

5

6

7

Two Things That Are No Longer Interesting in 2010

Economic recession is over, as U.S. GDP growth returned in 3Q09, dawning a very slow but steady jobless recovery

Do not mail legislation no longer as significant a threat as the primary discussion has shifted to digital channels and vertical advertising

9

10

Questions?

Bruce Biegel, Managing [email protected]

Presentation download available atwww.winterberrygroup.com/ourinsights

Documents

Winterberry Group Dmcny Outlook 2010 Final (2)