PR in a changing world

Slide 1: PR in a Changing World Richard Edelman CEO, Edelman July 5, 2007

Slide 2: The Pyramid of Influence Elites One-way Three Ads in Hierarchical Primetime TV in US would reach 95% of Packaged Messages women in 1967 vs. 50 ads today Advertising (Forrester) MASS

Slide 3: The World That Was . . . • Relatively few credible media, including national TV local radio and newspapers, business and news magazines • A true hierarchy, with elite media dominating the conversations • News came as part of a package, subsidized by sports, fashion, metro • A time of belief and trust in institutions and advertising • PR served classic middle man function between company and media—pitching the story

Slide 4: What’s Happened? • Decline in Trust in Institutions, from Media to Government to Business – Need repetition & spontaneity to earn trust • 90 percent of consumers trust recommendations from others while trust in ads under 10% (Forrester Research) • Technology—rapid roll-out of broadband, acceptance of mobile devices • The Empowered Individual—Demanding dialogue and role in brand/corporation – from consumer to participant • Rise of Horizontal Conversation—Peer to Peer—Trust in Person Like Myself

Slide 5: Intersection of Top Down and Peer- to-Peer Models Traditional Top Down Model Horizontal Peer-to- Peer Model Sweet Spot The ability to play Mutually between the two Reinforcing

Slide 6: # of Internet Users N. America = 35% of Users in 2000E; 16% in 2007E Geographic Distribution of Internet Users (MM) 977 390 491 621 724 851 1,122 1,302 100% 80% 60% 40% 20% 0% 2000E 2001E 2002E 2003E 2004E 2005E 2006E 2007E North America Europe Asia/Pacific Rest of World Latin America Note: ROW denotes rest of the world Source: Morgan Stanley Research

Slide 7: User-Generated Content (UGC) – YouTube + Wikipedia + MySpace Have Moved to Top of Internet User Pack Total Global Unique Visitors (MM) Rank Property 4/07 Y/Y Growth 1 Google 528 12% 2 Microsoft 520 3 3 Yahoo! 468 1 4 Time Warner 267 21 5 eBay 248 (4) 6 Wikipedia 209 71 7 YouTube 163 506 8 Amazon 137 1 9 CNET 120 33 10 Ask 111 (9) 11 Apple 115 29 12 MySpace 107 86 13 Adobe 101 (5) 14 Lycos 79 (14) 15 Viacom 81 65 Source: comScore Global MediaMetrix 4/07

Slide 8: Large Gap Between Internet Consumption / Ad Spending US Media Usage (1) to Ad Spending (2) Youth Media Usage (3) to Ad Ratios Spending (2) Ratios 12.0x 11.3x 12.0x 10.0 10.0 8.0 8.0 6.0 6.0 4.7x 4.0 4.0 2.0 2.0 0.0 0.0 Newspapers Total TV Radio Internet Newspapers Total TV Radio Internet + Magazines + Magazines Sources: (1) Adapted from SRI-Knowledge Networks (2005). (2) Adapted from Universal McCann, (2005); Internet Advertising Bureau (2006). (3) Veronis Suhler Stevenson (2005), Yahoo! Analyst Day (5/04). Youth defined as age 17 and under. Ratios are calculated as percent of US media usage on a medium divided by percent of US ad spending on a medium

Slide 9: At Critical Mass Inflection Point for Usage of High Speed (Broadband – 2.5+3G) Mobile Networks Global 2.5G / 3G Penetration 4,500 100% 2.5G / 3G Ramp in 25-30% Penetration Sweet Spot 90% 4,000 % of Total Wireless Subscriptions 80% 3,500 70% Subscriptions (MM) 3,000 60% 2,500 50% 2,000 40% 1,500 30% 1,000 20% 500 10% 0 0% 2005E 2006E 2007E 2008E 2009E 2010E Up to 2G Subscriptions 2.5G and Above Subscriptions % 2.5G and Above Penetration 3G likely at 25% penetration in 2010E… Source: Morgan Stanley Telecom Research Scott Coleman, John Marchetti.

Slide 10: Only 25% of 30 Year-Olds Read Newspapers Daily Daily Newspaper Readership by Age 100% 90% 80% 70% % Penetration 60% 50% 40% 30% 20% 10% 0% 1900 1910 1920 1930 1940 1950 1960 1970 Year of Birth Source: General Social Survey Archive, 1972-2004

Slide 11: Newshounds Migrating Online Circulation of top 50 newspapers vs. online news unique users 45 40 37 35 US Unique Users (MM) 31 30 26 25 21 20 15 9 10 7 5 5 0 Circulation Washington USA Today NY Times CNN MSNBC Yahoo! News of Top 50 Post Newspapers Sources: MS Media team, comScore US MediaMetrix 4/07

Slide 12: Mainstream Media Changing • Newspapers-- In US, 56 million readers of newspaper websites, up 8% versus a year ago, versus the 45.4 million readers of daily newspapers, down 2.5% in past year. Rise of “Freesheets,” especially in Europe, squeezing traditional newspapers • Newsweeklies—in serious trouble as advertising evaporates—Time Magazine ad revenue down 15% • Business Magazines—web editions thriving as Forbes.com has more readers than the print magazine—more popular content (Top 100 lists). Economist is # 1 circulation – serious journalism works well Consumer Magazines—Full of advertising, strong niche appeal, celebrity focus • Television—More cable viewers in prime time than network; TV viewing only fourth most popular activity for teens, behind Web, Friends, Movies - 65% of those with access to video on demand us it an average of 23 times a month. – Network news viewership down by half in 15 years from 60 million to 30 million – GM advertising on TV down 15% in ’06, advertising in newspapers down 60%

Slide 13: Fragmentation of Media • Shorter time spent on each medium—NYTimes.com holds reader for 8.5 minutes versus 34 minutes for paper NY Times • From channel based and time fixed to non-linear and engagement focused; goal is deeper relationships with consumers • Average person spends 3,500 hours on media – End user subscription media projected to rise at 9% a pear 2005-10 – Ad-supported media expected to decline 3% a year in 2005-10 • Veronis Suhler study

Slide 14: MSM Moving On-Line • Mainstream Media (MSM) original product and on-line staffs now merging —Destination Sites attract own audience and profitable in own right (Epicurious.com). Companion Sites, extending the MSM experience, now using photos, video, podcasts. • MSM on-line now aggregating content from outside of “walled garden”, going beyond horizontal coverage to more vertical, in-depth coverage of each industry—example is Forbes.com, using content from 125 different sources or Newsweek.com sharing content with Facebook, a social network, and buying Slate • BBC.com revamps its website around user-generated content, to create a public service version of MySpace.com—concept is “share, find and play”— editors forced to blog on editorial policy • NBC’s Today Show content to be on “i-Village” – commerce linked to media beyond entertainment to personalization (ringtones and cellphones) 300,000 people download ABC Nightly News via i-Tunes weekly

Slide 15: Implications of More Challenging Business Environment for Media • Reductions in Head Count—Reporters multi-task – Philadelphia Inquirer from 500 to 300 reporters (2000-2006) now focused on business, sports, metro, lifestyle • Mistakes—Jayson Blair at NY Times, BBC on Bhopal, CBS News on Bush National Guard • Narrower ambitions—WSJ retrenches in Asia, Europe. Revert to national strongholds • Focus on the large titles—Time Inc. drops 18 smaller titles, retains Fortune, People, Time, Sports Illustrated • Smaller news hole—shorter stories, small pages

Slide 16: Media Company Dilemma: Duty to Readers Vs. Shareholders • Move to what people want, away from what they should read/watch • People watch news they agree with – successful business model, e.g. FoxNews • Shift away from objectivity, the standard for media for the past century • Trend toward local, celebrity news away from accountability news that bears witness, offers explanation, investigation • Quality news available but costly

Slide 17: Impressions Matter More Than Ever; A Sound Bite Culture • 96% of consumers are multi-tasking one third of time while using media; 61% of those watching TV and using Internet focus more on Web • Digital Video Recorders now in 10 million US homes, 42 million homes by 2010—90% of customers skip ads on recorded shows • Merger of news and entertainment – Colbert Report and Daily Show, PBS News Hour, Rush Limbaugh Radio show, O’Reilly factor, websites of major newspapers are top seven sources sited by Americans who know most about current events

Slide 18: The Social Media Universe • This is not your father’s Internet – 1992 - 2002: Corporate America built the Web – 2002 and beyond: Individuals build the Web – engagement media • Communities are the new centers of gravity in this universe • Everything revolves around me

Slide 19: Watch Where Global Younger Generation Goes Ringtone Downloads, Social Networking Video Connecting Mobile to Net Blogs Web OS Programs In-Game Advertising Tencent Instant Knowledge Sharing Messaging (PC / Mobile)

Slide 20: Blogs As Subject Experts

Slide 21: Blogs Feeding Mainstream Media July 28th 2005

Slide 22: Credible Sources for Information about a Company North Latin TOP 2 BOX EU Asia America America % % % % Articles in newspapers 33 36 54 46 Television news coverage 41 35 53 57 Articles in business magazines 51 53 68 45 News coverage on the radio 44 38 54 52 Corporate or product advertising 11 13 41 19 Communications issued by companies such as 32 27 49 36 press releases, annual reports, and newsletters A company’s own website 18 19 47 31 Stock or industry analyst reports 54 46 67 43 Weblogs or blogs 17 16 24 20 Conversations with your friends and peers 44 37 63 48 Entertainment, such as movies and television 14 15 36 23 programs In general, how credible do you feel each of the following sources is for information about a company? Is information about a company that you get from (INSERT SOURCE) extremely credible, very credible, somewhat credible, or not credible at all?

Slide 23: US Credible Information Sources: Business Magazines Remain Most Credible TOP 2 BOX 2003 2004 2005 2006 2007 % % % % % Articles in business magazines 49 45 55 66 55 Stock or industry analyst reports 26 34 49 52 47 News coverage on the radio 32 36 40 48 39 Friends and family (2003-2006)/Conversations 35 44 42 58 37 with your friends and peers (2007) Articles in newspapers 35 32 42 44 37 Television news coverage 20 30 32 38 35 Communications issued by companies such as 19 30 31 36 28 press releases, annual reports, and newsletters A company’s own website 13 21 24 31 20 Weblogs or blogs N/A N/A N/A 17 16 Highest ranked Lowest ranked In general, how credible do you feel each of the following sources is for information about a company? Is information that you get from [SOURCE] extremely credible, very credible, somewhat credible, or not credible at all?

Slide 24: Credible Spokespersons for Information about a Company North Latin TOP 2 BOX E.U. Asia America America % % % % A person like yourself 53 51 83 54 Doctor or healthcare specialist 50 49 80 56 Non-profit organization or NGO representative 46 44 67 48 Academic 45 47 70 48 Financial/ Industry analyst 45 43 71 47 Regular employee of company 34 36 54 39 The CEO/leader of your company or employer* 32 31 62 48 Lawyer 30 16 35 43 Government official or regulator 25 22 30 41 CEO of a company 24 22 55 41 Public relations executive 15 12 46 22 14 11 39 24 Entertainer/ Athlete Blogger 13 9 21 18 * Asked only of employed respondents Highest ranked Lowest ranked In general, when forming an opinion of a company, if you received information from (INSERT PERSON) about this company, how credible would the information be? Would it be extremely credible, very credible, somewhat credible, or not credible at all?

Slide 25: US “A Person Like Me” Defined by Interests Not Demographics Shares common interests with you 61% Holds similar political beliefs to you 46% Is from your local community 44% Is the same profession as you 35% Is the same religion as you 13% Is the same nationality as you 11% Is the same gender as you 5% Is the same race/ethnicity as you 4% 0% 20% 40% 60% 80% 100%

Slide 26: Rules for Communicating in the Current Environment • Yield control of the message in favor of a rich dialogue • Move away from a sole reliance on top-down messages, by telling your employees and customers what is happening • Enable the consumer to be co-creator • Engage your critics • Embrace new technologies e.g.- Anheuser-Busch launches Bud TV, Six Channels of IPTV; Coke.com launches “The Coke Show” a consumer generated online experience

Slide 27: Unbundled News Release • Pushbutton-publishing combines the familiar news release format with social- media-friendly features – Modular layout and design – Multimedia downloads – RSS-enabled – Comment / trackback – Tagging / links to relevant Rethinking the news conversations release for PR 2.0

Slide 28: A New Level of Expectations • Transparency • Dialogue • Honesty • Immediacy • Depth of content • Updating as you learn more • Journalistic level of accuracy—need multiple sources to corroborate claims

Slide 29: The Risk if PR Fails the Test of Transparency and Veracity “In a world of unlimited media choices, there will be a chance to embed advocacy messages everywhere but the risk is that our audiences will become cynical and will discount them. Mainstream media, with reduced staff, will be looking for packaged content and PR firms will be tempted to offer it without proper attribution. This will further damage the credibility of the media. PR should offer credible advocacy, journalism dispassionate, fact based coverage. ” Alex Jones, Director, Shorenstein Center, JFK School of Government, Harvard

Slide 30: A Word About Wal-Mart: Engaging & Empowering Allies Objective • To Combat Wal-Mart’s negative reputation in consumer- generated media and lessen anti-Wal-Mart activists’ impact by identifying and actively engaging with a network of company- friendly bloggers. Strategies • Create a 24/7 conversation monitoring infrastructure that allows us to track and respond to inaccuracies and/or negative buzz being spread by the company’s critics. • Create factual Web site, walmartfacts.com, which presents accurate company information and showcases Wal-Mart’s important contributions to the community • Unify the network of friendly bloggers (and their readers) in one community – workingfamiliesforwalmart.com. (WFWM) Results • Twenty-five sites linked to the “Stories” blog in just one week. Just twenty-six sites link to the two-year-old anti-Wal-Mart blog, walmartwatch.com! • The new Wal-Mart Web site, walmartfacts.com, received more than 140,000 hits in a matter or days. • WFWM now boasts 150,000 active members

Slide 31: Implications for Brand Communicators • Listening online is becoming imperative • You won’t ever have as much control over messages as you did a few years ago • Co-creation is becoming a fact of life for brands • Every company is a media company with direct access to end users • Engage stakeholders in good time and bad

Slide 32: Italian Blogosphere • First platform Splinder.com was launched in 2001 • Now: Up to 1 million Italian blogs – about 3% of global blogosphere • Italian top bloggers upload a post at least twice a week • Too little business and corporate blogging • Italians go online for leisure and fun • They post as they chat. A lot of gossip • A good presence of Italian VIP • Many bloggers write about specific items: technology, movies, television, cars • Fair presence of political related issues

Slide 33: Italian Blogging Sites • Live Spaces • Splinder.com • MyBlog.it • Blogger.com • …many of most important (in terms of readership and authority) Italian blogs are located on independent domains (.com, .it)

Slide 34: Frequency of blogging in Italy % Read Blogs % Do Not Read Blogs Italy 0.51 16% 73% 84% 0.40 15% Germany 75% UK 0.68 23% 68% France 0.62 22% 69% 27% US 0.90 79% Belgium 0.41 14% Poland 0.46 16% 85% Q.1 How many days in an average week do you read so-called web-logs or blogs. These are websites that provide personal commentary, journal entries, recommendations and links to news articles and other sites of interest compiled by an author and his or her readers?

Slide 35: Blogging in Italy by age 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Italy Germany US UK France Belgium Poland 18-24 25-34 35-44 45-54 55-64 65+ Q.1 How many days in an average week do you read so-called web-logs or blogs. These are websites that provide personal commentary, journal entries, recommendations and links to news articles and other sites of interest compiled by an author and his or her readers?

Slide 36: Other Italian Web 2.0 applications • Babelgum.com New Tv p2p • 2spaghi.it Social Network about restaurants