Winterberry Group Dmcny Outlook 2010 Final (2)


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Winterberry Group Dmcny Outlook 2010 Final (2)

  1. 1. Thank you for your sponsorship
  2. 2. Outlook 2010: What to Expect in Direct & Digital Marketing Bruce Biegel January 14, 2010 Managing Director New York, New York
  3. 3. Winterberry Group & Petsky Prunier LLC: Maximizing Shareholder Value of Companies in the Marketing Sector • Market Intelligence Sell-Side • Representation • Strategy Consulting Corporate • • Transaction/ Divestitures Diligence Support Capital Raising & • • Industry Insight: Private Placements Publishing & Tactical Execution M&A Advisory • Fairness Opinions •
  4. 4. Our Transition in Media and Technology Over the Past Decade; By Simplifying Our Lives, We Have Complicated Them Tenfold! 2000 2009 TV 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 York Times/Gallup, Nielsen, Pew Internet & American Life Project
  5. 5. Agenda Outlook 2010 • 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
  6. 6. Marketing Budgets Fell an Estimated 15.6% in 2009 We learned quite a bit this 62% of marketers faced budget cuts in 1H09 32% of marketers saw budgets “year as we reduced our ad budget, and, while we will spend more in 2010 than we did in 2009, there is no hold steady reason for us to immediately put everything back in place 40% of marketers expected further cuts as of August, compared with 49% in early 2009 ” that we had prior to the economic environment becoming so challenged. – Jeffrey Hennion, EVP & CMO Source: Association of National Advertisers, July 2009 Marketer Survey
  7. 7. Marketers, Faced With Budget Cuts, “Followed The Consumer” and Reallocated Spending in 2009 Survey of Marketers & Service Providers in 2009: “Which channels are capturing or losing share of marketing budgets?” E–Mail 72% Search (Keywords & SEO) 71% Capturing Mobile Marketing 50% Online Display Advertising 50% Print: Newspaper & Magazine 91% Losing Direct Mail: Catalog 55% Broadcast: TV & Radio 54% Direct Mail: Non-catalog 46% Source: WG Survey (2009)
  8. 8. 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 -12.7% Outdoor: Cinema: -5.0% $6.1BB $0.5BB -20.7% Radio: $14.1BB Television: -13.8% -18.8% Magazines: -18.4% $48.0BB $15.6BB Source: WG Analysis, 2010 Note: Arrows reflect percentage change in Newspapers: -25.7% spend, by channel, from 2008 levels $25.8BB
  9. 9. In the Midst of Recession, Digital Still Grabbed $500MM of Growth 2009E U.S. “Direct & Digital” Advertising Spending $151.2BB -11.0% Insert Media: $0.8BB Other: -10.0% $2.4BB -22.4% DR Print: $15.5BB Direct Mail: -16.8% $43.7BB -14.1% DR Broadcast: -11.3% $22.8BB Digital: 1.6% $26.5BB Source: WG Analysis, 2010 Teleservices: -5.7% Note: Arrows reflect percentage change in $39.4BB spend, by channel, from 2008 levels
  10. 10. Substantial Declines in U.S. Direct Mail Volumes Began In Q4 2008— And Have Only Recently Begun to Abate U.S. Direct Mail Volume, 2004-2009 (BB of Pieces) 160 130.8BB 136.2BB 137.6BB 136.9BB 128.4BB 109.0BB 140 Annual Piece Volume (BB) 120 35.3 -0.4% 35.1 -2.7% 34.2 35.3 -0.1% -5.6% 32.3 100 -10.5% 28.9 80 5.5% 1.5% 0.2% 60 95.6 100.9 102.5 102.7 -6.4% 96.1 40 -16.6% 80.1 20 0 2004 2005 2006 2007 2008 2009 Y-o-Y Source: WG analysis of data from USPS Standard Class First Class DM Change Household Diaries
  11. 11. Make No Mistake: 2009 Brought a “Market Correction” to Direct Mail $60.0 10.0% 2007 Y-o-Y Decline: Y-o-Y Growth in Mail Spending (%) $50.0 $55.6 5.0% $54.8 1.4% U.S. Spending on DM ($BB) $52.6 $51.7 $48.3 $40.0 0.0% $43.7 2008 Y-o-Y Decline: $30.0 -5.0% 4.1% $20.0 -10.0% 2009 Y-o-Y $10.0 2004 2005 2006 2007 2008 2009 -15.0%Decline: 16.8% $0.0 -20.0% Direct Mail Spending Year-over-Year Growth Source: Winterberry Group analysis of data from the Direct Marketing Association and various other sources
  12. 12. Volume Deterioration Skewed Toward Traditionally Heavy DM Users; Mail Doing Better in Other Markets 2009 U.S. Direct Mail Volume Y-o-Y Change, By Vertical Mortgage & Loans Credit Cards (68.3)% (60.1)% Automotive Technology (31.1)% (29.9)% Investments Banking (27.8)% (23.8)% (7.2)% Telecom Travel/Leisure 13.1% 11.3% Insurance 2.5% Source: Winterberry Group analysis of data from Mintel Comperemedia
  13. 13. 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 Recession Driven Budget Cuts Credit Card, Auto & Tech Industry Pullback consumer confidence…this Consumer Preference for movement toward electronic Digital Media Rising alternatives will also cause continued downward Continuing E-mail pressure on mail volume Substitution into coming years. – Jack Potter, Postmaster General” Culmination of events have irrevocably changed the direct mail industry
  14. 14. Five Digital Trends in 2009 1• “Year of social adoption” (though not % Global Reach (Across Internet Users) spending yet) 30% • Massive consumer adoption (top three social networks have grown to rank 5% 5% globally in the top 15 sites, by reach) • Slight decline in marketing spend due to #13 #5 #2 unproven ROI 2• 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
  15. 15. Five Digital Trends in 2009 (Cont’d) 3• Rise of the audience buying in display • Slight decline in spending after 2H 2008 slowdown due to recession-driven budget declines 4• 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 5• 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
  16. 16. Impact of 2009 • Recession drove budget declines and shift from acquisition to retention • Delay in marketing technology investments • Longer test periods, more channels activated Marketers • Staff reductions despite increased marketing complexity • 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 Suppliers 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
  17. 17. Agenda Outlook 2010 • 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
  18. 18. 2010: Marketers Encounter a Somewhat Healthier Economy 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
  19. 19. 2010 Also Ushers In a More Active Regulatory Agenda 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
  20. 20. Spending to Fall Across Traditional “Above-the-Line” (ATL) Channels, Though Growth Returns for Television 2010E U.S. “ATL” Advertising Spending $108.8BB -0.5% Outdoor: Cinema: $6.1BB 0.0% $0.5BB -4.4% Radio: $13.5BB -6.2% Magazines: -1.2% Television: $14.6BB $50.7BB 5.6% -9.2% Newspapers: $23.4BB Source: WG Analysis, 2010 Note: Arrows reflect percentage change in spend, by channel, from 2009 levels
  21. 21. Direct and Digital Channels: Digital to Accelerate, Mail to Stabilize 2010E U.S. “Direct & Digital” Advertising Spending $153.9BB Insert Media: 2.4% $0.8BB Other: $2.6BB 6.1% -3.6% DR Print: $15.0BB Direct Mail: 0.0% DR Broadcast: $43.7BB 3.8% $23.6BB 1.8% Digital: 8.3% $28.7BB Teleservices: Source: WG Analysis, 2010 $39.5BB 0.1% Note: Arrows reflect percentage change in spend, by channel, from 2009 levels
  22. 22. Direct Mail 2010 Spending Flat, Though Volumes Will Rise Slightly Acquisition mail starts to recover; retention mail declines as e-mail presents viable low-cost alternative • Financial services led the way down; will rebound slightly along with retail and auto • Better use of analytics, database management and hygiene restrains piece volume growth • Excess production capacity to keep costs in check • Postal rate freeze in 2010 should help mailers keep postage costs at bay
  23. 23. Impact on Direct Mail Suppliers in 2010 In 2010, direct mail suppliers should expect: • Further consolidation among direct mail production providers • Stabilization in list pricing as acquisition mail returns • Additional dependence on workshare to adjust to decreased volumes Going forward, direct mail suppliers should focus on: • Integration of single platform cross-channel execution capabilities; Print, PURLS, Social and Email • Targeting and analytics capabilities that enable highly targeted campaigns in a lower-volume environment
  24. 24. Digital Marketing Continues to Grow and Take Share From Traditional Consumer digital media U.S. Advertising and Marketing consumption passes 30% share Spending, by Share of Approach ($BB) of all media $400 Digital • Consumer adoption of social media BTL 5% 6% plateaus $350 7% ATL • Increasing standardization of digital $300 8.3% 9% metrics leads to broader adoption 54% 55% $250 55% • Marketers focus on digital channel $200 56% 56% integration and optimization $150 • Marketers’ staffing gaps delay more aggressive shift in spend; internal $100 41% 40% 38% execution silos begin to fall $50 35.7 35% • Supplier capabilities continue digital % $0 shift to capture demand and profit 2006 2007 2008 2009E 2010E opportunity in emerging channels Source: Winterberry Group analysis of various sources, 2010
  25. 25. Search: No Slowdown in Sight for 2010 Search spending projected to Search Spending vs. Other U.S. accelerate 6.4% to $15.6BB in Digital Channels, 2006-2010E ($BB) 2010, up from 0.8% in 2009 $35 • More spending shift from Search All Other Digital traditional media channels, driven $30 by predictable ROI $25 • Increased adoption by SMB $20 54% marketers (local search) 56% 55% $15 55% • Focus on picture and video search 51% grows as rich media proliferates $10 • Unresolved issues around 45% 46% $5 45% 44% 49% ownership of audiences to $0 challenge engine/publisher 2006 2007 2008 2009E 2010E relationships Source: WG Analysis, 2010
  26. 26. 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)
  27. 27. Display: Is It the Next Big Acquisition Channel? Display spending projected to grow 9.2% to $9.3BB in 2010 following slight decline in 2009, driven by: • Marketers focus on following the audience, shifting spending from traditional media • Publishers’ improved ability to attribute traffic sources and monetize inventory • Emerging targeting and optimization approaches enable “data-enriched” display ads for better effectiveness Artwork Source:
  28. 28. Audience Segmentation + Behavioral Targeting = Relevance = Enhanced Share of Spending “ U.S. Behaviorally-Targeting Spending, The overarching benefit [of as Percentage of Online Display targeted ads] is relevancy. Advertising Spending, Relevancy means that the 2006-2010 ($BB) $10 consumer has a more 9.5% 14.8% appropriate experience and $8 8.2% 11.4% reduces intrusiveness…On the $6 7.2% business side, relevancy for an $4 advertiser means better results, and hence, for a publisher, $2 – Jeff Hirsch CEO ” better yield on inventory. $0 2006 2007 2008 Behaviorally-Targeted Display Ad Spend Other Display Ad Spend 2009E 2010E Source: Winterberry Group analysis of data from eMarketer (2010)
  29. 29. Display: Challenges Remain • Impending Regulation: Self Do you want Web sites to show you regulation vs. legislative regulation ads tailored to your interests? • Disclosure/Consumer Education: (U.S. consumer response) Do consumers know they’re being “tracked” and “targeted” for 66% of U.S. No Yes marketing? • Transparency: Do marketers know Consumers 18 to 24 55% 45% where their ads are placed? Say NO to 25 to 34 59% 41% Age of Respondent • Attribution: Ability to track display as influencer on search, lead gen “tailored” 35 to 49 66% 34% and site traffic advertising 50 to 64 77% 23% • Complexity: Friction between “moving pieces” of data, platforms, 65 to 89 82% 18% networks, agencies, etc. Source: University of Pennsylvania/UC Berkeley survey (2009)
  30. 30. How Will Marketing Service Providers Support the Display (R)evolution? As online display evolves, agencies will be tasked Online Display with: Campaign Execution Value Chain • Developing strategies and budgets for effective display usage for both branding and direct response marketing Campaign • Integrating Demand Side Platforms (DSP) into the Strategy / Planning media-buying process and driving attribution metrics Audience Targeting/ Data Utilization Data and analytics providers will need to manage and incorporate: Creative • New data sets comprised of “intent” and “in-market” data Ad Delivery (via (combined with portal, co-op and other offline data sets) Networks/Exchanges) • Audience segmentation within online display Pricing / Valuation (e.g. • Ad exchange and data exchange tools and processes Yield Management) • Web analytics data to feed into optimization cycles Measurement & Reporting
  31. 31. 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)
  32. 32. 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) Growth is constrained by: • Growing roster of dedicated • Data network bandwidth/speed suppliers—primarily offering mobile e-mail and SMS/MMS support • Platform/software diversity • Availability of location-based targeting • Poor/inconsistent browsing technologies and integration with retail experience • Proven success of early adopters, • Lack of marketer experience inspiring other marketers into test modes with mobile campaigns
  33. 33. 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
  34. 34. 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). 2009 Marketing Sector The market was characterized by: Transaction Value, by Segment • Strategic buyers ruling, but $26.2BB Total Value financial buyers returning to offer a Marketing Digital variety of currency options (e.g. cash, Technology Media $6.1BB $4.1BB equity, debt) Advertising & Promotion • Longer closing cycles due to more $0.4BB comprehensive diligence Interactive Advertising requirements $3.6BB • Robust venture capital market Software & Out-of- Marketing Information Home & Services continuing for Web 2.0 second and $8.3BB Specialty $2.3BB third rounds and Web 3.0 “A” and “B” Media $0.6BB rounds Source: Petsky Prunier LLC
  35. 35. 2010 M&A Outlook: Much Stronger Year in M&A Ahead Strong YOY growth is expected in 2010 M&A, driven primarily by strategic 2007-2009 Marketing Sector buyers as financing options improve Transaction Value, by Quarter ($BB) • Strong 2H09 transaction activity $25 implies improved growth into 2010, as evidenced by transaction value doubling $20 each quarter since 2Q09 $15 • Improved stock markets open up the IPO markets and allow strategic buyers to $10 leverage shares to complete deals $5 • Return of leverage financing for take- privates and PE firms $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 • Continued activity expected in mobile and 2007 2008 2009 Web analytics segments Source: PetskyPrunier Deal Notes
  36. 36. Agenda Outlook 2010 • 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
  37. 37. Ten Things to Think About in 2010 2010
  38. 38. Four Things We Think Are Going to Be Important in 2010 1 Mobile opportunities accelerate as growing adoption of smart phones and apps—combined with marketer and agency experience—allow for targeted and effective marketing 2 Local marketing dollars migrate online—from traditional budgets—as geo-targeting capabilities improve (via search, display and mobile) 3 Rate of consumer social adoption slows, but marketers increasingly understand how to use and manage social media (e.g. listening/monitoring, data collection, activation) 4 Death of the “digital” agency spurs the return of “Agency,” blurring lines between traditional, direct and digital agencies
  39. 39. Four MORE Things to Think About in 2010 5 Consolidation will accelerate as top-line growth is driven through buying “good” companies in order to take market share of slow growing spend 6 Understanding the new data taxonomy is imperative for all direct marketing constituencies 7 Audience targeting in display—with online brand “assurance”—spurs shift of spend to the long tail of sites; thus, ad exchange buying grows 8 Globalization will become increasingly important as marketers and marketing services providers seek new geographies for growth
  40. 40. Two Things That Are No Longer Interesting in 2010 9 Economic recession is over, as U.S. GDP growth returned in 3Q09, dawning a very slow but steady jobless recovery 10 Do not mail legislation no longer as significant a threat as the primary discussion has shifted to digital channels and vertical advertising
  41. 41. Questions? Bruce Biegel, Managing Director Presentation download available at