Winterberry outlook 2012

Outlook 2012: What to Expect in Direct & Digital Marketing

Bruce Biegel Managing Director

October 1, 2012 Boston, MA

• Market Intelligence

• Strategic Consulting

• Transaction/ Diligence Support

• Market/Competitive Landscape Analysis

• Industry Insight: Publishing and 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

Buy side M&A Advisory

Fairness Opinions

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•

•

• •

Agenda

Outlook 2012

What happened in 2011?

2012 Channel Check: The evolution of direct and digital

Changing Data Landscape

9for12: What You Should Consider for 2012

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

Then

As Goes the Economy, So Goes Marketing Spending

Sources: Trading Economics; Bureau of Economic Analysis; Company websites

U.S. GDP growth slowing to an average of 1.5% in 2011, down from higher growth levels over the previous six quarters

Consumer spending in 1H 2011 at lowest growth rate since Q2 2009

U.S. unemployment rate continues to exceed 9.0%

European debt/currency crisis, U.S. government standoff and Middle Eastern unrest giving rise to greater global uncertainty

Months of slow economic growth have given way to heightened uncertainty, long-term GDP downgrades and a reduced ad spend outlook

Cuts in 2011 Global Ad Spend Growth Forecasts (August/September, 2011)

Now Source: Company Websites

The Recession Began An Acceleration of Spend Shift from Traditional to Digital Marketing Channels, A Trend That Continues in 2011

-12.0%

-4.1%

5.7% 6.7%12.3%

21.1%

-5.6%

-25%-20%-15%-10%-5%0%5%

10%15%20%25%

Print Direct Mail Broadcast Display Search Out-of-Home

Email

U.S. Marketing Spend Growth, By Channel (CAGR, 2008-2011)

Source: Winterberry Group analysis

2011: Secular Spending Declines Has Continued to Affect Most Traditional Media

2011E U.S. “Above-the-Line” Advertising Spending $112.6BB

Television: $55.4BB

Newspapers: $22.4BB

Magazines: $14.3BB

Radio: $13.4BB

Outdoor: $6.4BB Cinema:

$0.6BB -0.2%

-2.2%

-4.2%

5.0%

-1.7%

2.0%

1.7%

Source: Winterberry Group analysis Note: Arrows reflect expected percentage change in spend, by channel, from 2010 levels

2011: Digital Channel Growth Has Once Again Paced the Market of “Below-the-Line” Media in 2011

2011E U.S. “Direct & Digital” Advertising Spending $163.9BB

Direct Mail: $46.4BB

Teleservices: $40.1BB

DR Broadcast: $25.4BB

Digital: $32.6BB

DR Print: $15.3BB

Other: $2.8BB

14.0%

Statement Inserts: $0.9BB 9.1%

7.6%

1.6%

10.9%

5.6%

2.0%

3.5%


2011: Digital Growth Driven by Rapid Mobile Adoption, Plus Reawakening of Interest in Display Advertising

2011E U.S. “Digital” Advertising Spending $32.6BB

Search: $16.6BB

Mobile: $1.2BB

Display: $12.5BB

Email: $1.6BB

Social Apps & Widgets, Listening

Platforms: $0.4BB

27.0%

41.2%

27.0%

14.0%

18.1% Lead Gen &

Affiliate Services: $0.2BB 6.6%

10.5%


For Marketers, Taking a Conservative Approach to Channel Investment Is The Rule, Leading to Extended Testing Cycles

Marketers invest in mobile and social, yet concerns about ROI and the mix of brand and

direct marketing hinder the move from test to rollout

Higher emphasis placed on reporting and analytics using advanced data tools and

platforms to determine ROI

As recovery slows, spending shifting back to retention, signaling lack of confidence

Marketing technology adoption—focuses on cross channel integration—beginning with

digital channels

Source: “Quarterly Business Review” DMA & Winterberry Group, August 2011

For Suppliers, First Half Performance Is Driving Increased Investment in Staffing, Capabilities, M&A—So Far

The majority of suppliers expect higher revenues and profitability as 2011 continues

With increasing economic uncertainty, staffing and new capital investment may shift into neutral

Nearly 2/3 of suppliers say sales cycle is either stable or decreasing, largely due to shifts in buying behavior

A shift in marketer demand is driving investment in new capabilities (organic and via M&A)

M&A activity picking up: 1H 2011 M&A in the marketing, information and digital media/ commerce sectors up triple digits (value and volume) from 1H 2010

Sources: “Quarterly Business Review” DMA & Winterberry Group, August 2011; CMA Sales Forecast and Pipeline Survey; Petsky Prunier

Agenda

Outlook 2012





Global Ad Spend, Led by Asian Region and Digital Channels, Expected to Attain 6.8% CAGR Over the Next Five Years

11.4%9.5%

7.7% 7.2% 7.2%

4.2%2.1%

0.3%

18.1% 16.9%15.7%

12.3%

Online Video

Mobile

Digital O

OH

Paid Search

Pay TV

Cinema

Other OOH

Other Intern

et

Broad

cast

Television

Radio

Newspapers

Mag

azines

2011-2016 Global CAGR By Channel ($BB)

Source: MAGNAGLOBAL

EMEA24%

APAC37%

Latin America

12%

North America

27%

Contribution to Global Ad Spend Growth, by Region

Slow U.S. GDP growth continues: forecasts predict 2% for the year¹ • U.S. unemployment rate likely to stay above 9% • Gas prices, fiscal tightening, and European

sovereign debt weigh down the 2012 outlook² • Odds of a renewed recession put at 1 in 2³ • Reduced confidence in U.S. economy as S&P

downgrades U.S. credit rating and Moody’s lowers U.S. economic outlook through 2012

2012: A Challenging Economic Outlook

Sources: [1] “World Economic Outlook” IMF [2] Goldman Sachs [3] Business Cycle Dating Committee of the National Bureau of Economic Research

“ “ ”

First Class Mail

Falling through the floor due to email and other digital media substitution

Direct Mail: A Tale of Two Classes

First Class Mail volume down 25% since 2006, and predicted to decline an additional 48% by 2020

Standard Mail

Second year of solid growth; 1H 2011 Standard Mail volume up nearly 4% from SQLY

Since Standard Mail generates one-third the profit of First Class Mail, it cannot shore up the bottom line alone

Our situation is extremely serious. If Congress doesn’t act, we will default.

— Patrick R. Donahoe, U.S. Postmaster General

The USPS is so low on cash that it will not be able to make a $5.5 billion

payment due this [September] and may have to shut down entirely this winter unless Congress takes emergency

action to stabilize its finances. –The New York Times ”

While standard mail improves, shrinking first class mail pushes USPS over the edge

Sources: Post and Parcel; Postal Regulatory Commission

Direct Mail’s Place in the Marketing Mix Has Changed

The purpose of direct mail has shifted… …from direct order….

Direct mail moving from a direct-response-only approach to key player in the multichannel world

…to driving sales online or in-store “ ”

The catalog is great driver for sales online and in stores. We’re not publishing with the idea of creating an [independent] direct marketing

business. It’s the idea of driving traffic into stores and giving the sense of a brand.

-Ellen Smolyar, Senior Manager of Sales and Circulation

at Crate & Barrel

Direct Mail 2012: No Real Catalyst for Continued Strong Growth

Continued erosion (substitution) of first class advertising, statement and informational mailings will hold down retention mail growth while acquisition fights an uphill battle for marketers’ share of mind and wallet

While 2010 and 2011 were bounce-back years for direct mail, 2012’s forecast predicts anemic 1-2% growth rate

$47.5$48.0

$43.8

$44.9

$47.4$48.0

2009 2010 2011E 2012E 2013E 2014E

U.S. Direct Mail Marketing Spend ($BB)

Source: Winterberry Group, June 2011

Digital Channels Continue to Mature, Capturing New Spend and Taking Share From All Other Media

$0

$50

$100

$150

$200

$250

$300

$350

$400

2008 2009 2010 2011E 2012E

DigitalBTLATL

U.S. Advertising and Marketing Spending, by Share of Approach

2007-2011E (US$BB)

6% 7% 8% 9% 10%

Source: Winterberry Group analysis of various sources, 2011

55% 55% 57% 55% 56%

40% 38% 35% 36% 34%

Channel integration and optimization a major marketer priority

Digital spend growth continues to be driven by search and display

30-35% of media now consumed via digital channels, with social continuing to absorb time and impressions

Standardization of digital metrics fueling broader adoption

Faster mobile/social spending shifts delayed by talent / knowledge gaps

Source: eMarketer

Social, Mobile and Search Have Experienced Biggest Spend Gains, But 2012 May Tell a Different Story

2.9

3

3.1

3.1

3.3

3.4

3.5

3.6

3.8

3.9

4.1

1 2 3 4 5

Direct Mail: Catalog

Print: Newspaper & Magazine

Broadcast: TV & Radio

Direct Mail: Non-catalog

Out-of-Home / Outdoor

Other

E–Mail

Online Display Advertising

Mobile Marketing

Search

SocialSocial Search

Mobile Marketing Online Display Advertising

Email Other

Place-based Media/DOOH Broadcast: TV & Radio

Direct Mail: Non-catalog Print: Newspapers & Mags

Direct Mail: Catalog

3.0+ = Increasing Popularity

N = 105 Source: “Quarterly Business Review” DMA & Winterberry Group, August 2011 and August 2010

WG Marketer Survey: To what extent has the spend allocated to the following channels changed

compared to SQLY?

Priorities in the marketing mix are constantly

changing:

Today, marketers have increased spend in social, search and mobile advertising

compared to last year.

One year ago, marketers said the biggest spend increases over the past 12 months had come in

email, social and display.

Search: 2012 Spending Expected to Reach $19.4BB, Up 10.2% YOY, With No Slowdown in Sight

46% 44% 43% 44% 44%

Demand-side platforms (DSPs) integrate search in an effort to improve multichannel marketing and attribution

Increase in focus on SEO to complement rising SEM spend

Local search accounts for 40% of all search, drawing SMB marketer spending

Search retargeting enables marketers to take the power of search and apply it to display, with the added benefits of real time optimization and attribution

Still the most dependable channel for ROI

$20.5$22.0

$19.4$16.6$15.6$14.6

2009 2010 2011E 2012E 2013E 2014E

U.S. Search Marketing Spend ($BB)

7% CAGR


Source: Google

Display: 2012 Spending to $12.8BB, Up 21.9% YOY, Driven by Audience Targeting and Video Adoption

Significant rise in automated exchange-based buying of static and video display using real time data driven bidding (RTB), accounts for ~10% of all display spend

Online video ad spend expected to grow to $3.0 billion in 2012, up from $1.9 billion in 2011. By 2015, it will account for 1/3 of all display spend

Marketers shift to audience targeting, seeking performance improvements through the use of primarily DSP analytics, digital data and display retargeting techniques

Sources: Cream; eMarketer; Vator News

Facebook accounts for one in three (31.2%) of all display ad impressions, although its share of revenue is significantly lower


$15.5

$18.0

$8.4$9.3

$12.5 $12.8

2009 2010 2011E 2012E 2013E 2014EIncludes social display

U.S. Display Marketing Spend ($BB)

14% CAGR

E-mail: Spending Up 12.5% to $1.8BB, Database Segmentation and Targeting Driving Email Spend

Improvements in segmentation and database-driven versioning are primary drivers of spend increases - not volume of emails as CPMs continue to shrink

Remains the most cost effective media for retention functions, volumes continue to surge

Unique click to conversion rates have increased steadily in 2010 and 2011(Q2 2011 up14.6% over Q1 2011 and up 6.2% over Q2 2010)

Spending negatively impacted by price compression

Utilization expansion tied to the proliferation of devices, smartphone and tablet adoption, along with e-commerce, location-based emails and daily deal sites

$2.0$2.2

$1.2$1.4

$1.6$1.8

2009 2010 2011E 2012E 2013E 2014E

11% CAGR

U.S. Email Marketing Spend ($BB)


Source: “Q2 2011 North America Email Trends and Benchmarks Results” Epsilon & DMA

Mobile: 2012 Spending at $1.7BB, Up 41.7% YOY —The ”Year of Mobile Rollout” Led By Device Proliferation and Marketer Experience

84% of in-store shoppers are doing some type of mobile activity while they shop, such as comparing prices (70%), accessing product reviews (67%)¹ and using retail apps

Location-based targeting technologies advancing, but data for segmentation and connection a challenge

Growth of m-commerce: Global m-commerce revenues forecasted to reach $10BB by 2012 and $119BB in 2015²

Sources: [1] WhiteHorse, [2] Forrester and BitWizards, [3] GetJar, [4] Nielsen

$491

$2,946

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2009 2010 2011E 2012E 2013E 2014E

Spen

d ($

MM

s)

U.S. Mobile Ad Revenues

Early adopters move from test to rollout; mainstream marketers build mobile-friendly sites (20% have mobile-optimized sites today)

Digital Couponing: Rise in Mobile Usage Driving Rapid Adoption of Digital Formats

47% of Americans on the Internet will claim at least one digital coupon in 2011, increasing to 49% by 2013

Unique visitors to daily deal sites Groupon and LivingSocial grew by triple-digit rates between mid-2010 and mid-2011, yet few barriers to entry exist

Digital coupons redeem at a much higher rate than FSI coupons — between 5% and 20%, compared with 0.9%

Sources: eMarketer; MediaPost; ABI Research; Compete, Yipit

Rise of location-based and instant digital coupons track increases in in-store mobile usage, including apps and digital signage

-132

300

In the first eight months of 2011, 300 new daily deals site

launched, while 132 such sites went out of business

Social Media: 2012 U.S. Ad Revenues Up 27.7% YOY to $3.9BB, Growth Slows But Brand Dollars Accelerate

Social adoption and time spent slows: social media fatigue sets in among some early adopters, leading to fewer unique visitors and less time spent on social network sites High valuations are likely to come down as advertisers decide where to place their social dollars. Facebook and LinkedIn may catch up to their revenue promise

Marketers increasing investment focus in social media analytics to address concerns over ROI and measurability

Social media revenue ramps (31.6% forecast CAGR through 2015) from multiple streams: subscription, social currency and advertising

Sources: BIA/Kelsey; eMarketer; Nielsen Wire; Bizo

Coming Soon?

65% of Marketers Say Social is The Channel They Will Focus On Most in the Next 12 Months: Are They Asking the Right Questions?

As social media matures and becomes part of the fabric of everyday life, marketers must ask themselves fundamental questions…. •Why am I using social media? •How do I increase engagement? •How do I increase modernization? •How do I measure social media? •Should I focus on branding or direct response?

Social Media for Marketing Purposes

is About…

Source: Bizo

Addressable TV: Offers Marketers Enhanced Tracking and Targeting to a Larger Audience

Many networks are aggressively pursuing addressable TV to offset diminishing affiliate fees from cable providers

Most major cable providers have enabled addressable TV through their set-top boxes on at least a pilot basis

In a recent test by Starcom MediaVest, addressable TV

resulted in:

Sources: Comcast Spotlight and Starcom MediaVest Group

Universal media-buying standards still do not exist (as many set-top boxes are obsolete), inhibiting media buying at scale

Once addressable TV extends to all U.S. households, as soon as 2015, it could bring in $10 billion in incremental ad revenue to television

65% 32%

65% increase in efficiency (how much money advertisers can

save by delivering ads to those homes in which they

are interested)

32% increase in effectiveness (viewers less likely to turn away from an addressable ad than a non-addressable

ad)

Agenda

Outlook 2012





Offline Providers

Publishers

Offline Compilers

Social Sites / Online

Providers

Portals / Online

Compilers

2012: Year of Digital Data and Analytics Taking Off

What’s at stake: The ability to pull together data from online and offline sources in order to optimize conversations with the audience via the right device at the right time

“

”

Imagine being able to 1) create a single view of a user

and 2) use all those data assets to make smarter

decisions about how to talk to each user you encounter through your digital media initiatives, your site-side

messaging, etc. That’s what I think makes the DMP powerful – bringing data intelligence to

every digital interaction a marketer has with users.

-Joanna O'Connell, Forrester Analyst

Geo-Demographic compiled from

publishers, databases and

other third parties

Online Data Types: • Registrations • Cookies (Flash) /

browsing activities • Social networks • Online purchase

data • In-market purchase

intent

Psychographic and behavioral compiled from

surveys, analytical models

Social compiled from

social sites, blogs, sharing

sites,

Transactional added from purchase records, cooperative databases

?

DSP

Site Interaction

Engine

Lead Scoring

SSP

Channel Interaction

Engine

Yield Mgmt.

Marketers Are Seeking to Align Their Internal Marketing Processes, Platforms and People, Decisioning Engine Development is Key

Marketing Data & Content Asset Layer

Real-Time Decisioning Engines

Mar

keti

ng E

xecu

tion

Pla

tfor

ms

Dat

a M

anag

emen

t P

latf

orm

(s)

Integrated Data Management

Marketing Execution & Response

Web Site Data

Web Site Data

Intent Data

Intent Data

GeographicGeographic

DemographicDemographic

ChannelPreferenceChannel

Preference

SocialSocial

TransactionalTransactional

These Changes Are Shifting The Balance of Influence in the Data Industry—and Offsetting Most Mail-Related Spending Declines

2008 2010 2012E(1) Online display-related data spending includes retargeting services, intent data / inferred data, offline data used for online marketing (2) E-mail-related data spending includes e-mail lists, database management / hygiene and analytics services (3) Direct mail-related data spending includes mailing lists, database management / hygiene and analytics services

U.S. Spending, Marketing Data & Related Services (2008-2012E)

$10.8BB $9.9BB

Online Display-Related Data Spending1

E-mail-Related Data Spending2

Direct Mail-Related Data Spending3

$11.9BB

Source: Winterberry Group analysis of various sources

Spending on Digital Data

$310MM 2.9%

$830MM 7.0% $510MM

6.2%

”

Marketers Face Data Governance Challenges, Such as Consumer Privacy, Data Security and Data Rights Management

“ Consumers have the right to know that their information is being collected and used by companies in a safe and

legitimate way in order to ensure that individuals are protected in the event of a data security breach.

Common sense commercial privacy laws are needed to impose accountability and security requirements on the

companies involved. -Sen. John Kerry,

Chairman of the US Senate’s Subcommittee on Communications, Technology & the Internet

Consumer Privacy

Data Security

Data Rights Management

Data Governance

Agenda

Outlook 2012





9for12

It is the (another) Year of Data: Marketers will begin to approach the growing Big Data problem, developing plans on how to manage and activate data across channels. Early adopters begin to implement solutions including integrating online DMPs with offline prospect and CRM data sets to manage the conversation with disparate audiences across devices

Content is the new black: Content, recognized as the primary driver of engagement (along with the data that informs it), marketers and their agencies begin to wrap their arms around content marketing, including the continual creation, curation (finding, organizing, sharing), editing and active management – in order to organize content across channels and devices – and content is just another “unstructured” form of big data to deal with

1

2

9for12

Mobile: recognizing that mobile is about devices (tablets, smartphones, computers), location and intent, marketers accelerate the transformation of web sites from PC design (currently 80% of sites are PC only) to device specific sites – tablet sites, smartphone sites and PC sites.

Cross digital media buying search, display and email), driven by first, second and third party data experiences significant performance improvements as attribution solutions mature and are better able to identify the impact (engagement relationships) across channels…driving more digital spend

3

4

9for12

Improved marketing technology stacks, assembled via acquisition in 2010-2011 by large tech players (IBM, Adobe, Google) release the first sets of integrated products, primarily for enterprise marketers, that can automate the marketing process from campaign planning through execution and attribution.

USPS postal crisis is put to rest as the administration and congress accept a portion of the recommendations put forth by the postmaster general including a reduction in post offices and SCFs, though the 6 day week is more likely to remain in place. Force reductions will complemented by an agreement on a partial pension reform

5

6

9for12

The pace of M&A accelerates in the ad tech (digital display) sector along with continued agency consolidation of those with mobile/social specialties. Emerging attribution providers and data companies see renewed interest to complement the push towards digital cross-channel integration. Smaller ad tech firms that have not gained traction experience reduced funding forcing asset sales and closures. Privacy regulation, mostly quiet in 2011, moves back into the Washington conversation as legislators continue to examine the impact of EU privacy laws enacted this year. Probable outcomes include data (breach) security legislation and some form of baseline privacy rules around sensitive information – though not a Do Not Track (DNT) bill.

7

8

9for12

And finally – the economy. If the US goes into a recesssion it will negatively impact all measured media channels along with direct mail spend while slowing (not stopping) the rate of growth in the digital sector. Marketers will stick to longer test periods as spend tilts back towards retention marketing again.

A neutral of low level of growth should result in the forecast envisioned in this presentation. Any higher growth rate will benefit TV, direct mail (in addition to the bump they get with the election) and the digital media channels – while stabilizing magazine and newspaper ad spend..

9

Questions? Copy of the Deck?

Bruce Biegel Managing Director

[email protected] (212) 842-6030

60 Broad Street, 38th Floor New York, NY 10004

www.winterberrygroup.com