THE AMERICAN ADVERTISING FEDERATION MEDIA INVESTMENT SURVEY 2007

SURVEY OVERVIEW During a time of unprecedented change, how are marketers navigating the tumultuous media landscape? To find out, the AAF Media Investment Survey 2007 polled nearly 1,000 advertising industry leaders across agency, media, client and other sectors. The study revealed that the increasing rate of change is resulting in a commitment to innovation and dedication to a media mix with the proper balance of traditional and emerging media.

SURVEY HIGHLIGHTS Three-quarters said that up to 20 percent of their budget is reserved for experimentation and launch vehicles. In addition, 1 in 8 of respondents list 21-40 percent of their budget as reserved for these items. When asked about media planning in 2007, respondents ranked “I am open to new ways to use traditional media” highest (78%), with “The right media mix almost always includes a balance of traditional and non-traditional media” (75.5%), and “ The search for new properties to grow my brand never stops” (57.7%) right behind. Newspapers (51.4%) and Network TV (34.5%) are the media categories with the most opportunity for reinvention. In the magazine sector, the business category (46%) is seen as “most in need of a newcomer to shake things up.” Source: AAF Media Investment Survey 2007

Three-quarters said that up to 20 percent of their budget is reserved for experimentation and launch vehicles. In addition, 1 in 8 of respondents list 21-40 percent of their budget as reserved for these items.

When asked about media planning in 2007, respondents ranked “I am open to new

ways to use traditional media” highest (78%), with “The right media mix almost

always includes a balance of traditional and non-traditional media” (75.5%), and

“ The search for new properties to grow my brand never stops” (57.7%) right behind.

Newspapers (51.4%) and Network TV (34.5%) are the media categories with the

most opportunity for reinvention.

In the magazine sector, the business category (46%) is seen as “most in need of

a newcomer to shake things up.”

LOOKING BACK: A TUMULTUOUS MEDIA ENVIRONMENT Compared to the pace of change in 2005, would you say that the pace of change in the media landscape happened… More slowly in 2006 At about the same pace Even faster in 2006 2% 18% 80% Source: AAF Media Investment Survey 2007

Compared to the pace of change in 2005, would you say that the pace of change in the media landscape happened…

TALE OF TWO WORLDS 1 2 3 4 5 VERY POORLY VERY WELL Source: AAF Media Investment Survey 2007 33% adapt well to changes When asked to rate their own performance at managing, adapting to, and getting out in front of significant changes in 2006, 1/3 of marketers give themselves high marks while 1 in 5 admit they have much room for improvement. 19% adapt poorly to changes

2006: A YEAR OF WIDESPREAD INNOVATION Source: AAF Media Investment Survey 2007 “ SAW IT COMING” “ TOOK ME BY SURPRISE” 77% 23% 61% 39% 51% 49% 50% 50% 48% 52% 47% 53% 46% 54% 42% 58% 35% 65% 25% 75% 23% 77% 20% 80% 14% 86% The Rush to Second Life The Rise of YouTube Popularization of “Mash-ups” Newspapers Moving to Tabloid Format Issue-Specific Print Audience Measures TV Commercial Rating System Growth of Free Daily Newspapers Restructuring of Traditional Media Explosion of Consumer Content Emergence of Podcasting Social Media in Communication Plans Mass Adoption of Text Messaging TV Programs on the Internet

LOOKING FORWARD HOW MUCH FASTER CAN IT GET? Looking forward to 2007, do you expect significant changes in the media landscape to happen… More slowly than in 2006 At about the same pace Even faster than in 2006 3% 39% 58% Source: AAF Media Investment Survey 2007

Looking forward to 2007, do you expect significant changes in the media landscape to happen…

EMBRACING CHANGE IN 2007 52% say… “ I am more likely to anticipate, prepare for, and get out in front of changes in the media landscape in 2007.” 46% Source: AAF Media Investment Survey 2007

CHANGE CHAMPION = INNOVATION INVESTOR Change Champions reserve 18% of their media budget for experimentation, while Change Acceptors only set aside 12%. Not surprisingly, Change Champions are also more aggressive with their investment strategy, with 1 in 4 budgeting over 20% for new opportunities. Conversely, only 6% of Change Avoiders reserve that level of investment for experimentation. The degree to which an individual embraces change has a significant effect on their innovation investment strategy. Average % of budget reserved for innovation Source: AAF Media Investment Survey 2007

Change Champions reserve 18% of their media budget for experimentation, while Change Acceptors only set aside 12%.

Not surprisingly, Change Champions are also more aggressive with their investment strategy, with 1 in 4 budgeting over 20% for new opportunities.

Conversely, only 6% of Change Avoiders reserve that level of investment for experimentation.

MAKING A FINANCIAL COMMITMENT TO INNOVATION And of the overall respondent base, 73% say… “ Up to 20 percent of my budget is reserved for experimentation and new properties.” On average, respondents will devote 15% of their overall media spending to innovation. Source: AAF Media Investment Survey 2007

NEW YEAR, FRESH APPROACHES 4 in 5 say “I am open to new ways to use traditional media.” 4 in 5 say “The right mix almost always includes a balance of traditional and non-traditional media.” 3 in 5 say “The search for new properties to grow my brand never stops.” The majority say that staid media categories are in need of innovation if they are to remain competitive…. Source: AAF Media Investment Survey 2007 When asked about their approaches to media planning in 2007…

4 in 5 say “I am open to new ways to use traditional media.”

4 in 5 say “The right mix almost always includes a balance of traditional and non-traditional media.”

3 in 5 say “The search for new properties to grow my brand never stops.”

The majority say that staid media categories are in need of innovation if they are to remain competitive….

BUSINESS PUBLICATIONS ARE MOST IN NEED OF INNOVATION WITHIN MAGAZINE SECTOR 9% 13% 17% 19% 23% 26% 46% Q. Which magazine categories are most in need of a newcomer to shake things up? Source: AAF Media Investment Survey 2007 EPICUREAN SHELTER MEN’S FASHION/ BEAUTY NONE WOMEN’S SERVICE BUSINESS

NEWSPAPERS WOULD BENEFIT FROM REINVENTION 4% 18% 24% 30% 34% 35% 51% Q. Other than magazines, which of the following media categories are most in need of a newcomer to shake things up? Source: AAF Media Investment Survey 2007 OTHER CABLE TELEVISION OUTDOOR DIRECT MAIL RADIO NETWORK TELEVISION NEWSPAPERS

APPENDIX

Q. Please indicate the industry sector in which you work. RESPONDENT INDUSTRIES

Q. What is your title? Account Exec/Coordinator Vice President Other Manager Owner Director President Managing Director/Partner RESPONDENT TITLES

Q. Which of the following statements best describes your role in your company's/client's decision-making process for media investment? I make the final media investment decision myself I make media investment recommendations I am part of a team that makes media investment recommendations I am part of a team that makes the final media investment decision None of the above DECISION-MAKERS

Q. As you plan for 2007, please take a moment to reflect on where you were at this point last year, preparing for 2006. At that time, which of the following innovations in the media landscape did you see coming? Source: AAF Media Investment Survey 2007 The availability of television programs on the Internet The mass adoption of text messaging in the U.S. The importance of social media/networking as part of the communications plan The emergence of podcasting The explosion of consumer-generated and consumer-distributed content The restructuring of traditional media The growth of free daily newspapers in many markets The introduction of a television commercial rating system The advent of issue-specific print audience measurement systems The movement of traditional newspapers to the tabloid format The popularization of 'mash-ups' or Web applications with more than one source The rise of YouTube The rush to Second Life EXPECTED MEDIA INNOVATION

Q. As you plan for 2007, please take a moment to reflect on where you were at this point last year, preparing for 2006. At that time, which of the following innovations in the media landscape took you by surprise? Source: AAF Media Investment Survey 2007 The importance of social media/networking… The emergence of podcasting The explosion of consumer-generated and consumer-distributed content The restructuring of traditional media The growth of free daily newspapers in many markets The advent of issue-specific print audience measurement systems The movement of traditional newspapers to the tabloid format The popularization of 'mash-ups' or Web applications that have more than one source The rise of YouTube The rush to Second Life Television programs on the Internet The mass adoption of text messaging in the U.S. The introduction of a television commercial rating system SURPRISES IN MEDIA INNOVATION

Source: AAF Media Investment Survey 2007 Q. Compared to the pace of change in 2005, would you say that the pace of change in the media landscape happened… 2006 PACE OF CHANGE

Q. Looking forward to 2007, do you expect significant changes in the media landscape to happen... Source: AAF Media Investment Survey 2007 2007 EXPECTED PACE OF CHANGE

Q. On a scale of 1 to 5 with 1 meaning 'very poorly' and 5 meaning 'very well,' please rate your own performance at managing, adapting to, and getting out in front of significant changes in 2006. Source: AAF Media Investment Survey 2007 5 4 3 2 1 2007 EXPECTED PACE OF CHANGE

Q. Given your experience with managing the pace of change in 2006, are you more or less likely to anticipate, prepare for, and get out in front of changes in the media landscape in 2007? Source: AAF Media Investment Survey 2007 MANAGING MEDIA CHANGES IN 2007

Q. Given the current media climate and your expectations for 2007, please indicate which of the following describe your approach to media planning in the coming year. Source: AAF Media Investment Survey 2007; *None of the above * The tumultuous nature of the media climate requires the assumption of more risk in order to reap the big rewards and avoid +missing the boat I am willing to spend more and/or assume more risk to reach word-of-mouth generators Partnering with a new media launch that has a significant +buzz+ factor mitigates some of the risk associated with new media launches Partnering with innovative media brands is an important way to convey the image of my brand as fresh and innovative The search for new media properties to grow my brand never stops The right media mix almost always includes a balance of traditional and non-traditional media I am always open to new ways to use traditional media The rush to Second Life Partnering with new media launches is an important way to convey the image of my brand as influential and ahead of the curve I am willing to spend more and/or assume more risk to reach early adopters 2007 APPROACH TO MEDIA PLANNING

Q. Here’s a list of terms that may or may not guide your approach to media investment in 2007. Please check the two that best apply. Source: AAF Media Investment Survey 2007; *None of the above * Conservative Break-through Traditional Interactive Innovative Creative Solution-oriented Influencer-focused High profile 2007 APPROACH TO MEDIA PLANNING

Q. What percentage of your budget is reserved for experimentation and new media properties? Source: AAF Media Investment Survey 2007 BUDGET ALLOCATIONS

Q. As is often the case, the arrival of a novel approach to a traditionally staid media category can have a major effect on every player. Which of the following do you think are most in need of a newcomer to come and shake things up? Source: AAF Media Investment Survey 2007 Epicurean magazines Shelter magazines Fashion and beauty magazines None of the above Women's service magazines Business magazines Men's magazines MAGAZINE CATEGORY MOST IN NEED

Q. Beyond magazines, which of the following media categories do you think are most in need of a newcomer to come and shake things up? Source: AAF Media Investment Survey 2007 Other Cable television Direct mail Radio Network television Newspapers Outdoor MEDIA MOST IN NEED

Q. Advertising is known as a hyper-creative business. Do you feel the pace and scope of innovation in the media landscape inspire or stifle your creativity? MEDIA INNOVATION AND CREATIVITY