Digital Media Revolution

January 2009

2

Johannes Gensfleisch zur Laden

zum Gutenberg

Born c. 1398Mainz, Electorate of Mainz

Died February 3, 1468Mainz, Electorate of Mainz

Occupation Engraver, Inventor, and Printer

The Intellectual Father of Digital Media

Source: Wikipedia.org

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Industrial Age Electronic Media 1925 - 1980

Linear

Broad Brush Mass Content

The Wanamaker Syndrome

4

Transitional Age Electronic Media 1980 - 2001 Linear

Expansion of Niche Content

The Wanamaker Syndrome

5

Digital Age Electronic Media 2001 - ?

What You Want, When You Want, Where You Want

Explosion of Niche Content

Precise ROI Metrics

6

Key Themes in Media Today

The media and marketing landscape is going through its greatest set of changes since the advent of mass market commercial television in the 1950s

Pace of change will accelerate over the next 3-5 years, shifting billions of dollars of annual spending into digital media

Seismic shifts will be primarily driven by powerful technology-enabled change - Technology driven efficiencies will continue to deliver increased value to

advertisers- Spending will migrate to digital platforms, causing significant value

destruction in traditional sectors

Unprecedented fragmentation and complexity– Web 2.0+ is flooding the landscape with thousands of small digital media

companies, causing unprecedented fragmentation– Vast majority of these companies are too small to move the needle for

traditional media companies, which must manage their legacy cost structures while responding to increasing pressure to grow digital revenue

ROI focused- Increasing demand for ROI and accountability- Metrics of media buying and media measurement rapidly evolving

7

It is Still Early

Today

Year

%Market Share

8

Online Ad Spending Significantly Lags Shift in Consumer Behavior

Huge discrepancy between media consumption and online ad spending

To reach equilibrium, spending will increasingly shift to online and mobile platforms

Source: Forrester Research, January 2008

0% 10% 20% 30% 40%

Online

Magazines

Radio

Newspapers

TV

% ad spending by media % of time households spend by media

Media Consumption vs. Ad Spend, 2007

0% 10% 20% 30% 40%

Online

Magazines

Radio

Newspapers

TV

% ad spending by media % of time households spend by media

Media Consumption vs. Ad Spend, 2007

Source: Forrester Research, January 2008

9

Creative Destruction

10

Young people consume media, information and entertainment in vastly different ways than their parents

New technology adoption cycles are becoming shorter with each generation and products are reaching critical mass and supplanting legacy platforms faster than ever

Source: Frank N. Magid Associates, Inc.

Marketing Dollars will Follow Consumers 34 Yrs & Under

Favorite Leisure Activity Ages 12-17 18-24 25-34 12-17 18-24 25-34Playing games on consoles 45% 18% 17% 11% 3% 2%Playing sports / exercise 17% 14% 9% 6% 7% 4%Using the Internet 12% 19% 20% 28% 22% 32%Playing PC (CD/DVD) games 9% 8% 4% 0% 2% 3%Listening to music 7% 12% 5% 13% 21% 9%Watching TV 3% 12% 17% 6% 13% 19%Reading books 2% 4% 11% 10% 7% 15%Playing free Web-based games 1% 3% 3% 3% 8% 1%Talking on cell phone 1% 1% 1% 11% 2% 2%Watching DVDs or VHS 0% 6% 7% 7% 8% 7%Reading newspapers & magazines 0% 0% 1% 0% 2% 1%Talking on home phone (landline) 0% 0% 0% 2% 1% 1%Other 4% 2% 4% 4% 4% 2%None of above 0% 2% 2% 0% 1% 3%

Males Females

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Internet and Mobile Advertising Spending

$9.2

$87.8

$36.6

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

2002 2007 2012

Internet advertising forecast to be largest ad medium by 2011

Now larger than consumer magazines, book publishing, broadcast & satellite, B2B media, yellow pages, and out-of-home

In recessionary environment, marketers will shift spending to more measurable media, which will benefit online models

32%

19%

($ billions)

Source: VSS Communications Industry Forecast 2008

Internet & Mobile Spending(Advertising and Content)

Percentage Of Ad Budgets Expected To Change Over The Next Six Months

Increase Maintain Decrease

Online 68% 25% 7%

Mobile 51% 37% 12%

Cable TV 27% 49% 24%

Magazines 18% 47% 35%

Outdoor 17% 54% 30%

Broadcast TV 16% 51% 33%

Radio 16% 49% 35%

Local Newspapers 11% 47% 42%

National Newspapers 9% 43% 48%Source: Advertiser Perceptions Inc. Fall 2008

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Mounting Pressure to Expand Digital Assets

$410m

$525m $366m

$475m$192m $47m

$668m

Traditional media is aggressively buying and building out digital assets, however it is becoming increasingly difficult to keep up with the proliferation of digital media companies and to identify the most valuable platforms of the future

$35.0m $33m

$3.5b$925m

$31m

NA NA

NANANA

NA NA

$100m$50m$105m$275m$10m$435m $850m

$15m$700m NA$20m NA

$486m $1.2b $500 m $75m $5m$6.3b NANA

Traditional Media Company New Media Acquisitions

NA

NA $50m $102m$49m$161m

$649m $1.5b NANANANANANA NA

$1.3b NA $100mNA NA NA NA NA NA

NANA NA$13.5m$650m$50m$591m

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Landscape of Strategics with Captive FundsDedicated

Dollars (millions)

Avg. Investment Size

(millions)

Year Established

Portfolio Companies

$250

N/A

N/A

N/A

$500

$63

$200

N/A

$3-$25

N/A

N/A

< $25

$2-$15

N/A

$2-$15

$1-$10

2007

1997

2008

N/A

1999

2006

2000

1993

4

14

N/A

N/A

44

17

20

44

$7,500 N/A 1991 1,000+

N/A N/A 2008 N/A

N/A N/A 2000 N/A

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Other Strategic Buyers

The Buyer Universe for Digital Properties is Expanding

Source: GCA SAVVIAN/Interactive Advertising Bureau

Traditional Media

Companies

Media & Marketing

Conglomerates

Digital Media Companies

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Business Description: Third Screen Media is a mobile media ad network and mobile media ad management platform

Investment Thesis: The rise of mobile media would require a dominant ad serving infrastructure (e.g. DoubleClick) and an enabling media planning platform to link the agencies with the mobile publishers

Value Add / Influence:

- By Q1 of 2007, Third Screen Media had become the industry standard enabling network for mobile media. Over 70% of mobile media ad inventory flowed through the network

- Wright worked closely with the CEO to help him build out the management team

Third Screen Media Case Example

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Business Description: IXI creates, customer segmentation and market targeting systems for the financial services industry and other industries that target affluent US consumers. IXI also enables clients in a number of financial sectors to track their market share by defined geography

Investment Thesis: Financial institutions need the capability to determine product-specific market shares within defined geographic areas, and the same information required to answer that question would be highly valuable to marketers across industries

Value Add / Influence:

- Wright played the lead role in recruiting IXI’s CEO

IXI Case Example

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Business Description: [X+1] has two operating divisions. The first, [site +1], enables clients like xxxxx and xxxxxx to dynamically optimize consumer engagement and revenue application lift at their corporate websites. The second division, [media +1], optimizes the targeting of advertising companies across the internet through the use of behavioral targeting.

Investment Thesis: The rise of online media will increasingly be driven by optimized ad inventory, in order to maximize each campaign’s ROI.

Value Add/Influence:

- Wright played the lead role in recruiting the CEO and CFO

- Wright led a recap of the company which enabled x+1 to attract additional outside capital

[X+1] Case Example