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Convergence: The Tour

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Title: Convergence: The Tour


1
Communications Convergence An Investment
Perspective
Convergence The Tour The Media Center at the
American Press Institute Orlando, FL October
24, 2003
Leo Kivijarv, Ph.D. Senior Consultant PQ Media,
LLC
2
Convergence - Whats Important to the Investment
Community?
  • PROFIT!

Convergence - Whats NOT Important to the
Investment Community?
Items that Dont Positively Impact the Profit
Process!
3
Table of Contents The Realities of
Convergence Communications Industry
Trends Advertising Local Advertising
Internet Television Newspapers
Wired Cable Convergence Model Deregulation
International Perspective Summary
4
Current U.S. Economic Environment
  • Amid fears of deflation in June 2003, the Federal
    Reserve lowered interest rates 25 basis points to
    1.0 the lowest since 1958 - but during its
    September meeting chose not to take any action as
    a reflection of a stabilizing economy
  • In 2003, 1Q GDP growth of 1.6 was weaker than
    expected as a result of uncertainty the War in
    Iraq, SARS, the passing of the tax bill
    However, 2Q GDP growth of 3.1 was surprisingly
    stronger than expected because most uncertainty
    issues resolved and due to gains in productivity
    and healthy spending in the consumer and military
    categories
  • Real GDP rose 2.4 in 2002 and Nominal GDP
    increased 3.6
  • According to the 2003 Veronis Suhler Stevenson
    Communications Industry Forecast Report, over
    the five year forecast period (2002-2007)
    compound annual growth of Nominal GDP is expected
    to be 5.6 and Real GDP will climb 3.2

Recession
Forecast
Nominal GDP
Real GDP
Veronis Suhler Stevenson Communications Industry
Forecast Report, 2003 Bureau of Economic
Analysis, September 2003
5
Communications Industry Spending Growth vs. GDP -
1973 to 2007
  • Communications spending growth normally can be
    used as an indicator of economic expansion or
    contraction
  • During expansion, communications industry
    spending growth outperforms GDP by approximately
    50 to 200 basis points
  • During contractions except for the 1981-1982
    recession communications industry spending
    normally underperforms GDP
  • (The 1981-1982 recession was an anomaly as a
    result of new media segments cable satellite
    TV and business information services that grew
    at double digit rates during their infancy and
    the concurrent sophisticated behavior changes in
    ad media buying of traditional media television
    and magazines.)

Recession
Recession
Recession
Recession
Expansion
Expansion
Expansion
Expansion
-290 bps
160 bps
460 bps
210 bps
-20 bps
130 bps
-170 bps
70 bps
5 Years
8 Years
10 Years
5 Years
16 Months (a)
16 Months
8 Months
8 Months
(a) 1973-1975 communications data are based on
advertising only
Veronis Suhler Stevenson Investment
Considerations for the Communications Industry,
2003 (In Print) Bureau of Economic Analysis,
September 2003
6
Communications in the U.S. Economy - 2002 2007
  • Communications was the seventh-largest sector out
    of 15 in the U.S. economy in 2002 and will remain
    in the number-seven slot through 2007
  • The communications industry was the
    fifth-fastest-growing segment of the U.S. economy
    from 1997 to 2002 as result of strong gains in
    consumer end-user spending. It will remain the
    fifth-fastest growing sector from 2002 to 2007 as
    the advertising, marketing services specialty
    media and institutional end-user spending also
    recover

Veronis Suhler Stevenson Communications Industry
Forecast Report, 2003
7
Estimated 2003 Communications Industry Spending
by Type
  • More than two-thirds of communications spending
    is non-advertising, one-half is end user spending
  • End user spending has grown through past three
    recessions and demand should continue unabated in
    the long-term as the economy recovers

642 Billion
  • Broadcast Television
  • (Network, Local National)
  • Cable Satellite Television
  • (Network, Local Regional Sports)
  • Radio Broadcasting
  • (Local, National, Network Satellite)
  • Daily Weekly Newspapers
  • (Retail, Classifieds National)
  • B2B Magazines
  • Consumer Magazines
  • (National Local)
  • Yellow Pages
  • (Local, National Internet)
  • Outdoor Advertising
  • (Local National)
  • Internet Advertising
  • (National Local)
  • B2B Magazine Subscriptions Tradeshows
  • Business Information Services
  • Professional, Educational Training Media
  • TV Programming

148.2
177.6
Cable Network License Fees and Filmed
Entertainment
174.8
141.9
  • Cable and Satellite Access Services
  • Consumer Books
  • Consumer Internet Access Content
  • Consumer Magazine Subscriptions
  • Entertainment
  • Newspaper Subscriptions
  • Satellite Radio Subscriptions
  • Consumer Promotions
  • B2B Promotions
  • Direct Mail
  • Sponsorships
  • Public Relations
  • Other

( Billions)
Box Office, Home Video, Recorded Music, and
Interactive Entertainment
Interactive Television Advertising/Promotions
Trade Show Advertising, Promotions Fees
Forecasted
Veronis Suhler Stevenson Communications Industry
Forecast Report, 2003
8
Communications Industry Spending by Type 1997,
2002 and 2007
1997-2002 CAGR
2002-2007 CAGR
2002-2003 Growth
Advertising Spending Specialty Media
Spending Consumer End-User Spending Institutional
End-User Spending
4.3 4.5 7.9 5.6
6.3 6.0 6.6 6.5
3.8 5.5 7.2 5.7
Billions
28.1
28.0
29.8
23.2
23.9
23.0
22.1
26.8
23.0
23.2
27.1
21.7
Share
Veronis Suhler Stevenson Communications Industry
Forecast Report, 2003
9
Media Industry Has Historically Outpaced GDP
  • Communications grew at a compound annual rate of
    8.8 from 1975 to 2002
  • 22 faster than nominal GDP growth of
    7.1
  • In 2002, Communications spending climbed 3.3
    while nominal GDP grew 3.6
  • Advertising spending rose only 1.2, but
    consumer-user spending advanced 8.2
  • Historically, most media generally recover
    significantly soon after an economic slowdown,
    outpacing GDP growth
  • In the eight years following the recession of
    1982, media spending grew 9.6 vs. GDP growth of
    7.5
  • In the ten years following the recession of 1991,
    media spending grew 6.7 vs. GDP growth of 5.4
  • VSS projects that following the recession of
    2001, media spending will again grow in excess
    GDP 6.3 to 5.6

Total Media Spending vs. GDP
Recessionary Period
Recessionary Period
Recessionary Period
8 mos.
Mar 2001
Nov 2001
8 mos.
Total Media Spending
July 1990 Mar 1991
16 mos.
July 1981 Nov 1982
GDP
Forecast Period
Index 1975 100
Veronis Suhler Stevenson Investment
Considerations for the Communications Industry,
2003 (In Print) Bureau of Economic Analysis,
September 2003
10
Communications Industry Financial Performance by
Segment
  • Revenues at publicly reporting media companies
    rose 6.9 in 2002 and at a compound annual rate
    of 9.2 from 1998 to 2002
  • Operating cash flow fell 80.1, in 2002 mainly as
    a result of changes to accounting rules and the
    integration of acquisitions most evident at AOL
    Time Warner (32.5 billion goodwill write down in
    consumer Internet and 10.8 billion loss in cable
    satellite television)
  • Without AOL Time Warner results, the remaining
    298 publicly reporting communications companies
    reported an operating cash flow growth of 7.8
    and OCF margins of 19.3

Veronis Suhler Stevenson Communications Industry
Forecast Report, 2003
11
Where Is the Convergence Model Getting Revenue?
  • Consumer End User Spending
  • Not Really Though more newspapers are going to
    a subscription-based model, most dont work for
    news operations except in special circumstances
    (Wall Street Journal - aimed at the business
    reader)
  • Institutional End User Spending
  • Not Really - News-based convergence generally not
    aimed at businesses, though institutions have a
    need-to-know information policy that requires
    important subscriptions (e.g., Wall Street
    Journal, Daily Deal, etc.)
  • Marketing Services Specialty Media
  • Not Really Though some promotional campaigns
    are linked through conversion model, they are
    mainly done for community service purposes, a
    not-for-profit endeavor
  • Advertising
  • Yes - With caveats

12
Consumers are Investing More Time with Media They
Pay For
  • Since 1977, consumers have begun spending more
    time with media that they support and less with
    media that is predominately supported by
    advertising especially popular are the
    technology-driven media

Advertising Supported Media vs. Consumer
Supported Media
Media with Significant Ad Support (a)
Media Supported Mainly by Consumers (b)
1977
1982
2007
1987
1992
1997
2002
Media with Significant Ad Support
Media Supported Mainly by Consumers
(a) Broadcast Television, Radio, Newspapers,
Consumer Magazines (b) Cable Satellite TV, Box
Office, Home Video, Interactive TV, Recorded
Music, Video Games, Consumer Internet, Consumer
Books
Veronis Suhler Stevenson Investment
Considerations for the Communications Industry,
2003 (In Print)
13
Advertising vs. GDP During Economic Cycles
  • With certain exceptions, advertising often mirror
    economic growth trends during the troughs and
    peaks of recessions and expansion

Recession
Recession
Recession
Forecast
During economic expansion, advertising initially
rises with parallel growth trends, but within in
a year or two the growth rates are 200 to 400 bps
per year higher than GDP
During recent recessions, advertising begins to
fall approximately 6 to 12 months before the
economy contracts
2006
1976
1981
1986
1991
1996
2001
Veronis Suhler Stevenson Communications
Investment Considerations for the Communications
Industry, 2003 (In Print) Bureau of Economic
Analysis, September 2003
14
Convergence is About Local Advertising
2002
2007
So Many Choices!
Veronis Suhler Stevenson Communications Industry
Forecast Report, 2003
15
Local Advertising - The Alternatives
  • Radio
  • Sometimes Exceptions are those instances when
    owners also have other convergence media in the
    market more often owners concentrate on
    non-content outdoor advertising synergies
  • Outdoor Advertising
  • No Not a content-driven medium
  • Yellow Pages
  • No Not a content-driven medium
  • Consumer Magazines
  • Not Really Normally not partnered with another
    local medium advertising lead time prohibitive
  • Internet
  • Hopeful, But Pure-plays seen as competition
    in convergence model, too many caveats
  • Broadcast Television
  • Somewhat Active - Pursue content partners with
    local newspapers on limited basis, but most
    owners not aggressive in looking for a full
    convergence model
  • Newspapers
  • Most Active - Daily Newspapers Only (Weeklies
    lack resources) Active with television content
    partnerships (see above), but some owners most
    aggressive in developing a convergence model
  • Wired Cable Systems (MSOs)
  • Somewhat Active In competition with DBS,
    convergence is a marketing tool as another local
    product while concurrently becomes another
    revenue stream along with modems, telephony, etc.

16
Convergence Internet Advertising The Facts
  • Most Internet advertising is concentrated at the
    large national sites (AOL Time Warner, Yahoo!,
    etc.)

In 2002, Internet advertising fell 16.3 to
6.048 billion Based on 3 market share, Web
sites 51 generated 181.44 million During the
entire year During the Super Bowl, ABC
Television Broadcast 28 minutes of
advertising Generating approximately 107 million
  • Newspapers and Internet Yellow Pages control 70
    of the local Internet ad market
  • However, local Internet advertising equals only
    11 of all Internet advertising
  • Though some newspapers Internet divisions are
    reporting positive results, revenues from the
    online divisions equal less than 3 of total ad
    share
  • TV and Radio Internet divisions not generating
    anywhere the same success rate

Veronis Suhler Stevenson Communications Industry
Forecast Report, 2003
17
Internet Companies Struggle with ProfitsOI OCF
Results at Publicly Reporting Internet Companies
1998 to 2002
  • AOL Time Warner helped industry results from 1998
    to 2001, but had a major write-off in 2002.
    Despite this, the remainder of the industry
    struggled during the past five years. Only a few
    companies have been profitable and most are
    market leaders.

OI OCF Results from 24 Internet Companies (Less
AOL Time Warner Internet Division)
OI OCF Results from 25 Internet Companies
  • Many consumer Internet companies have gone out of
    business or been absorbed. Within the past two
    years, the number of publicly reporting companies
    has shrunk from 112 in 1999 to 63 in 2000 to 36
    in 2001 to 25 in 2002.

Veronis Suhler Stevenson Communications Industry
Forecast Report, 2003
18
Television and Newspapers Users Looking Elsewhere
1997-2002CAGR
2002-2007CAGR
1997
2002
1997
2007
Broadcasting Entertainment Print Internet TOTAL
2,488 359 438 26 3,311
2,694 341 410 154 3,599
1.6 -1.0 -1.3 43.1
1.7
2,883 378 396 216 3,874
1.4 2.1 -0.7 7.1
1.5
2002
2007
Broadcasting Cable
  • Broadcast Television losing hours to Cable
    Satellite Television, though trend slowing going
    forward
  • Newspapers part of print trend in general -
    though not as aggressively going forward as US
    average age increases (more readers)

of Hours
Entertainment
Print
Internet
Consumer Magazines
Daily Newspapers
Interactive Television
Home Video
Broadcast Television
Radio
Cable Satellite
Recorded Music
Video Games
Movies in Theatres
Consumer Books
Internet
Veronis Suhler Stevenson Communications Industry
Forecast Report, 2003
19
Broadcast Television Suffering Low Spending
Growth
  • Broadcast TV spending increased at a compound
    annual rate of 2.7 from 1997 to 2002 but the
    rate will increase to 4.5 during the forecast
    period
  • Estimated 2003 growth rate of 2.9

Forecast
50.0
Billions
40.0
30.0
20.0
10.0
0.0
1998
1999
2000
2001
2003
2004
2005
2006
2007
2002
Veronis Suhler Stevenson Communications Industry
Forecast Report, 2003
20
Broadcast Television Advertising 1997, 2002 and
2007
2002-2007 CAGR
1997-2002 CAGR
2002 Growth
4.8 4.5 4.3
4.2 0.7 2.7
7.3 12.1 6.6
Network National Spot Local
Broadcast Television rose 8.2 in 2002 to 39.7
Billion
Billions
Veronis Suhler Stevenson Communications Industry
Forecast Report, 2003
21
Broadcast Television is Losing Audience Share
1997
2007
2002
1999
Broadcast Television Prime Time Total
Day Cable Satellite TV Prime Time
Total Day
70 64 40 43
48 66
56 50 58 59
65 59 48 49
Forecast
Total Day
Prime Time
  • The decline in Broadcast Television audience
    share has slowed significantly
  • Cable Satellite TV shares continue to grow
    slowly, especially in Total Day
  • (NOTE Total shares exceed 100 because Nielsen
    double-counts multiple-set households and
    multiple channels viewed during the quarter-hour)

Veronis Suhler Stevenson Communications Industry
Forecast Report, 2003
22
Newspaper Spending Growth Rebounding Slightly
  • Newspaper publishing expenditures (advertising
    and circulation) increased at a compound annual
    rate of 1.9 from 1997 to 2002 but a higher
    growth of 5.6 is expected during the forecast
    period
  • Projected 2003 growth rate of 2.8

Billions
100.0
Forecast
80.0
60.0
40.0
20.0
0.0
1998
1999
2000
2001
2003
2004
2005
2006
2007
2002
Veronis Suhler Stevenson Communications Industry
Forecast Report, 2003
23
Daily Newspaper Advertising Spending 1997, 2002
and 2007
2002-2007 CAGR
1997-2002 CAGR
2002 Growth
5.8 7.9 6.0
1.8 6.3 -1.1
1.5 2.9 - 4.3
Retail National Classified
Newspaper Advertising (Daily) fell 0.5 in 2002
to 44.1 Billion
Billions
Veronis Suhler Stevenson Communications Industry
Forecast Report, 2003
24
Newspapers Are Losing EyeballsEvening Papers Are
Closing and Subscribers Not Going to Morning
Papers
Editions
1986
2002
Difference
278 - 496
Morning Evening
777 692
499 1,188
Difference 9.94 Million
Subscribers (Millions)
Difference - 16.55 Million
Veronis Suhler Stevenson Communications Industry
Forecast Report, 2003
25
Cable Satellite TV Spending Growth Strong
  • Cable Satellite spending increased at a
    compound annual rate of 10.8 from 1997 to 2002
    but a slower growth of 7.5 is expected during
    the forecast period
  • Estimated 2003 growth rate of 7.9

120.0
Forecast
Billions
100.0
80.0
60.0
40.0
20.0
0.0
1998
1999
2000
2001
2003
2004
2005
2006
2007
2002
Veronis Suhler Stevenson Communications Industry
Forecast Report, 2003
26
Cable Satellite TV is About Multiple Revenue
Streams
1997-2002 CAGR
2002-2007 CAGR
2002 Growth
Access Advertising License Fees
9.2 12.8 14.7
10.8 3.5 15.8
6.1 9.7 7.5
Cable Satellite Television grew 10.2 in 2002
to 76.9 Billion
Billions
Veronis Suhler Stevenson Communications Industry
Forecast Report, 2003
27
Local Advertising as a Share of Cable Revenues
3.448 Billion
Veronis Suhler Stevenson Communications Industry
Forecast Report, 2003
28
Local Cable Advertising Offers a Potential Profit
Model
  • Until the 2001 recession, local cable advertising
    grew in double digits EACH year
  • Double digit growth is forecast to resume as the
    economy rebounds

Veronis Suhler Stevenson Communications Industry
Forecast Report, 2003
29
Why Would Cable Want Convergence - Sub Rate
Saturation
  • Wired cable household growth began to slow with
    the introduction of DBS in 1995 - Compound annual
    growth rate (CAGR) of new households from 1997 to
    2002 is 1.6
  • As a result of cable network channel capacity
    at the MSO level, 2002 to 2007 CAGR of new
    households will fall to 1.2
  • Therefore, MSOs seeking alterative revenue
    streams to lure new subscribers, such as cable
    modems, telephony services, and video-on-demand

Millions
Veronis Suhler Stevenson Communications Industry
Forecast Report, 2003
30
A Form of Convergence Started as a Local Cable
News Operations
  • Local cable operators started the process be
    providing detailed coverage of areas not being
    reached by traditional television stations
  • In 2003, there were 12 such operations, mainly
    on the East Coast and Southeast with two others
    planned in upper New York state

Lexis/Nexis, 2003 American Press Institute, 2003
31
Expansion to the Rebroadcasting of TV News
  • Soon after, local television stations had their
    evening and late night news telecasts run in
    continuous 24-hour loops on the local cable
    system
  • 7 operations, though one folded in California
    and Florida in recent years

Lexis/Nexis, 2003 American Press Institute, 2003
32
True Convergence Combination of TV Newspaper
Operations
  • Ten operations with separate operational facility
    (one folded in California in 2001)
  • Another three are being planned, though
    questionable whether separate facilities included

Lexis/Nexis, 2003 American Press Institute, 2003
33
Recent Developments TV, Radio, Newspaper
Internet Partnerships
  • A number of broadcast and newspaper operations
    have partnered, collaborated, or shared resources
    - Some partnerships more active than others
  • NOT total convergence model due to lack of
    separate operational facility

a) Radio station involved, often sister station
of television operation b) NIE - Newspapers in
Education has formed partnerships between local
schools and media outlets in Denver, Milwaukee,
Sacramento, Charlotte, Salt Lake City for PSA
outreach (c) BCE announced convergence plans in
the late 1990s using their TV network and
newspapers. In late 2002, plans were abandoned
Lexis/Nexis, 2003 American Press Institute, 2003
34
The News-Oriented Convergence Universe
  • Most news operations operations were previously
    located near coasts - recent partnerships have
    expanded Midwest presence
  • AL (1)
  • AZ (2)
  • Canada (1)
  • CA (3)
  • CO (1)
  • CT (1)
  • DC (1)
  • FL (8)
  • GA (2)
  • IL (5)
  • IN (3)
  • IA (2)
  • KS (2)
  • LA (2)
  • MD (1)
  • MA (2)
  • MI (1)
  • MO (1)
  • NJ (1)
  • NM (1)
  • NY (10)
  • NC (4)
  • ND (1)
  • OH (2)
  • OK (1)
  • PA (3)
  • SC (1)
  • TN (3)
  • TX (6)
  • UT (1)
  • VA (6)
  • WA (2)
  • WI (1)
  • WV (1)

x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
On-Air
x
Planned
Lexis/Nexis, 2003 American Press Institute, 2003
35
The Convergence / Wired Cable / Partnership
Universe
  • Total
  • Cable News Operations 12
  • TV Rebroadcasts 8
  • TV/Newspaper Convergence 10
  • News Partnerships Only 18
  • News Advertising Partners 3
  • News, Advertising Outreach 25
  • Planned Operations 7
  • Special Outreach Operation 1
  • No Longer in Service 4
  • TOTAL OPERATIONS 87

Lexis/Nexis, 2003 American Press Institute, 2003
36
Where Does Opportunity Knock?
  • 8 of the top-25 markets dont have any type of
    news-oriented convergence operations
  • If the list was expanded to the top-50 markets,
    an additional 8 markets would be included

Lexis/Nexis, 2003 American Press Institute,
2003 Broadcasting Cable Yearbook, 2003
37
Convergence Model Must Offer Value to
Consumers/Advertisers
  • News12 Connecticut serves Fairfield County
  • Fairfield County is n the NYC DMA
  • HOWEVER
  • NYC television stations have to cover the five
    NYC boroughs, northern New Jersey, Long Island,
    and the New York counties north of the city,
    along with Fairfield County and the other
    counties in Connecticut
  • The Connecticut stations mainly cover the towns
    and cities in Hartford/New Haven DMA
  • News12 Connecticut offers what no other station
    in the market can offer - in depth coverage of
    affluent Fairfield County
  • By doing so, it has a loyal demographic base of
    highly-educated, high income viewers - something
    that local advertisers covet

Caveat Cablevision has been struggling with its
profit margin - Cuts were made in 2002 - Will
the convergence model be sacrificed for more cost
savings?
38
A Flawed Model - Wired Cable Convergence
  • In order to get local advertising growth, the
    convergence model has to take share from another
    medium
  • The two local media losing the most share are
    newspapers and television - the media that are
    financing the convergence model
  • Furthermore, no new industry is seen on the
    horizon as bringing additional local advertising
    dollars to the marketplace as did the technology
    industries of the mid-to-late 1990s that are
    linked to dot.coms and telecommunication

Veronis Suhler Stevenson Investment
Considerations for the Communications Industry,
2003, (In Print) Universal McCann, 2003
39
The Television/Newspaper Convergence Model -
Profit Analysis
  • Profit has yet to be realized by companies at the
    forefront of convergence
  • Furthermore, some would argue, convergence is
    impacting profits of traditional media

2002 Operating Income Growth at 19 Publicly
Reporting Newspaper Companies
2002 Operating Income ( Millions)
(a) NC One year of negative operating income
results made growth rate impossible to determine
Veronis Suhler Stevenson, 2003
40
Impact of Deregulation On Hold
FCC decision on cross ownership decided at one
time BUT surprisingly strong resistance from
consumer advocates, media buyers, and content
providers
IF PASSED
  • Television Station Market Cap / Duopolies
  • Top 25 Markets - Broadcast Network OOs (Time
    Warner / Cox wild card)
  • Markets 25-75 - Probable merger of mid-size
    operators due to debt/liquidity problems caused
    by the 2001/2002 economy - (Equity funds are wild
    card)
  • Newspaper/Television Cross Ownership)
  • Top 25 Markets - Little impact - TV station group
    OOs grab choice properties
  • Markets 25-75 - Long-term questions on
    marketing/promotions synergies
  • Many newspaper owners have divested broadcasting
    and cable interests in recent years
  • IF ACQUISTIONS - Result of sales ad synergies
    rather than news synergies

Questions Regarding Profitability of the
Convergence Model -Tribunes Media Net
division handles station/print bundled ads
-Sold 60 million in 2002, double 2001, but only
1.1 of overall revenue of 5.4 billion -Half
of revenue generated in NYC LA, success in
smaller markets inconsistent
41
World Economic Environment
  • Some world economies dropped more dramatically
    than others during the U.S. recession - falling
    three to ten bps
  • Recovery is expected to worldwide in 2003, though
    Canada already saw solid gains in 2002

Nominal GDP
U.S. Recession
2000
2001
2002
2003
2004
2005
2006
1999
2007
1998
PricewaterhouseCoopers Global Entertainment
Media Outlook 2003-2007, 2003
42
International Internet Penetration
  • In 2001, only the Scandinavian region comes close
    to equaling the United States in Internet
    penetration (over 50)
  • By 2005, 20 countries are forecast to exceed 50
    Internet penetration, but only three are
    projected to reach U.S. penetration levels of
    approximately 75

PricewaterhouseCoopers Global Entertainment
Media Outlook 2001-2005, 2001
43
International MultiChannel Penetration
  • The success of an international wired cable
    convergence model is questionable only 19
    countries have multichannel penetration rates
    over 50 (includes satellite)
  • Western Europe and the Middle East hold the most
    promise in the near future

PricewaterhouseCoopers Global Entertainment
Media Outlook 2001-2005, 2001
44
Worldwide Advertising, Newspaper Television
Environment
20
Total Advertising
Canada
Europe
10
Asia/Pacific
Latin America
0
  • Total Advertising As with the United States,
    most of the world advertising markets suffered
    negative growth in 2001 - a trend that continued
    into 2002 and is only slowing beginning to expand
    in 2003 and beyond

-10
Recession
-20
2000
1996
2005
20
Newspaper Advertising
  • Newspaper Advertising Newspaper advertising, in
    many countries, has suffered a decade-long drop
    in spending with only minor relief expected
    during the forecast period

10
0
  • Television Advertising Television advertising
    grew faster than most other worldwide media
    during the late 1990s, but it too suffered a
    setback in 2001 - during upcoming five years is
    expected to outperform most other media, but well
    below growth patterns seen during its peak in the
    mid-1990s

Recession
-10
-20
2005
2000
1996
20
Television Advertising
10
  • International Convergence In this less-than
    stellar advertising environment, it is difficult
    to justify providing resources and capital to
    this new endeavor until the traditional brands
    have rebounded sufficiently

0
-10
Recession
-20
2000
1996
2005
ZenithOptimedia Advertising Expenditure
Forecasts, December 2002
45
Convergence - An Investment Perspective
  • The investment communitys major concerns are
    revenues, and more importantly, profit
  • How well the economy continues to recover could
    determine the next steps of convergence
  • Communications is among the fastest growing
    economic sectors in the US economy
  • Communications is divided into four types -
    advertising marketing services specialty
    media consumer end user spending and
    institutional end user spending
  • Convergence is best suited as an
    advertising-supported model - caveat local
    advertising
  • The Internet, a major component of convergence,
    hasnt done well in the investment community
    its success as a local advertising medium has
    yet to be determined
  • Television, newspapers and wired cable are the
    local media pushing convergence
  • Television advertising growth is weakening as
    result of ratings losses to cable satellite
    television
  • Newspapers are losing ad share due to evening
    papers closing and subs not moving to morning
    papers
  • Wired cable sub growth has stalled - system
    operators seeking new revenue streams
  • Wired cable convergence model might offer best
    working template - double digit advertising
    growth for most of its history and forecast once
    the economy in full recovery
  • However, wired cable model is flawed -
    advertising is being siphoned from newspapers and
    television - the two media financing the model
  • Deregulation will have very little impact on
    convergence
  • The international convergence model faces more
    hurdles than the US model

46
If Youre Going to Do Convergence
  • Use personnel and technology efficiently
  • Extend brand awareness
  • Offer cross-media advertising packages
  • Return users to traditional media outlets
  • BECOME PROFITABLE INTELLIGENTLY

Show me the money!
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