New Media Wave

Slide 1: THE AMERICAN ADVERTISING FEDERATION MEDIA INVESTMENT SURVEY 2007 1

Slide 2: 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. 2

Slide 3: 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.” 3 Source: AAF Media Investment Survey 2007

Slide 4: LOOKING BACK: A TUMULTUOUS MEDIA ENVIRONMENT B. Compared to the pace of change in 2005, would you say that the pace of change in the media landscape happened… More slowly 2% in 2006 At about the 18% same pace Even faster 80% in 2006 4 Source: AAF Media Investment Survey 2007

Slide 5: TALE OF TWO WORLDS 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% 33% adapt poorly adapt well to changes to changes 1 2 3 4 5 VERY VERY WELL POORLY 5 Source: AAF Media Investment Survey 2007

Slide 6: 2006: A YEAR OF WIDESPREAD INNOVATION The Rush to Second Life 23% 77% The Rise of YouTube 39% 61% 49% 51% Popularization of “Mash-ups” 50% 50% Newspapers Moving to Tabloid Format “SAW IT “TOOK ME BY 52% 48% Issue-Specific Print Audience Measures COMING” SURPRISE” 53% 47% TV Commercial Rating System 54% 46% Growth of Free Daily Newspapers 58% 42% Restructuring of Traditional Media Explosion of Consumer Content 65% 35% Emergence of Podcasting 75% 25% Social Media in Communication Plans 77% 23% Mass Adoption of Text Messaging 80% 20% TV Programs on the Internet 86% 14% 6 Source: AAF Media Investment Survey 2007

Slide 7: LOOKING FORWARD HOW MUCH FASTER CAN IT GET? B. Looking forward to 2007, do you expect significant changes in the media landscape to happen… More slowly 3% than in 2006 At about the 39% same pace Even faster 58% than in 2006 7 Source: AAF Media Investment Survey 2007

Slide 8: EMBRACING CHANGE IN 2007 52% say… “I am more likely to anticipate, prepare for, and get out in front of 46% changes in the media landscape in 2007.” 8 Source: AAF Media Investment Survey 2007

Slide 9: CHANGE CHAMPION = INNOVATION INVESTOR The degree to which an individual embraces change has a significant effect on their innovation investment strategy. • Change Champions reserve 18% of their media budget for Average % experimentation, while Change of budget Acceptors only set aside 12%. reserved for innovation • 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. 9 Source: AAF Media Investment Survey 2007

Slide 10: 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. 10 Source: AAF Media Investment Survey 2007

Slide 11: NEW YEAR, FRESH APPROACHES 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…. 11 Source: AAF Media Investment Survey 2007

Slide 12: BUSINESS PUBLICATIONS ARE MOST IN NEED OF INNOVATION WITHIN MAGAZINE SECTOR Q. Which magazine categories are most in need of a newcomer to shake things up? 46% 26% 23% 19% 17% 13% 9% WOMEN’S EPICUREAN SHELTER MEN’S FASHION/ NONE BUSINESS SERVICE BEAUTY 12 Source: AAF Media Investment Survey 2007

Slide 13: NEWSPAPERS WOULD BENEFIT FROM REINVENTION Q. Other than magazines, which of the following media categories are most in need of a newcomer to shake things up? 51% 35% 34% 30% 24% 18% 4% NETWORK NEWSPAPERS OTHER CABLE DIRECT OUTDOOR RADIO TELEVISION TELEVISION MAIL 13 Source: AAF Media Investment Survey 2007

Slide 14: APPENDIX 14

Slide 15: RESPONDENT INDUSTRIES Q. Please indicate the industry sector in which you work. 3.7% 0.8% 4.3% 12.6% 38.1% Agency Media Advertiser/client Other (specify) Supplier 13.6% Academia Club membership 26.9% 15

Slide 16: RESPONDENT TITLES Q. What is your title? 19.1% Director 18.0% Owner 17.6% Manager 15.1% Other 8.7% President 8.5% Vice President 7.4% Account Exec/Coordinator 5.7% Managing Director/Partner 16

Slide 17: DECISION-MAKERS Q. Which of the following statements best describes your role in your company's/client's decision-making process for media investment? 30.9% I am part of a team that makes the final media investment decision 22.2% I am part of a team that makes media investment recommendations 19.2% I make media investment recommendations I make the final media investment decision myself 15.8% 11.8% None of the above 17

Slide 18: 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 did you see coming? 85.9% The availability of television programs on the Internet 80.3% The mass adoption of text messaging in the U.S. 75.7% The importance of social media/networking as part of the communications plan 74.8% The emergence of podcasting 65.9% The explosion of consumer-generated and consumer-distributed content 57.8% The restructuring of traditional media 53.7% The growth of free daily newspapers in many markets 51.9% The introduction of a television commercial rating system 48.8% The advent of issue-specific print audience measurement systems 47.9% The movement of traditional newspapers to the tabloid format 47.7% The popularization of 'mash-ups' or Web applications with more than one source 39.7% The rise of YouTube 20.4% The rush to Second Life 18 Source: AAF Media Investment Survey 2007

Slide 19: SURPRISES IN 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? 76.7% The rush to Second Life 61.0% The rise of YouTube 51.3% The popularization of 'mash-ups' or Web applications that have more than one source 49.9% The movement of traditional newspapers to the tabloid format 47.8% The advent of issue-specific print audience measurement systems 47.1% The introduction of a television commercial rating system 45.5% The growth of free daily newspapers in many markets 41.5% The restructuring of traditional media The explosion of consumer-generated and consumer- 33.5% distributed content 24.6% The emergence of podcasting The importance of social 23.3% media/networking… The mass adoption of text 19.8% messaging in the U.S. Television programs 13.8% on the Internet 19 Source: AAF Media Investment Survey 2007

Slide 20: 2006 PACE OF CHANGE Q. Compared to the pace of change in 2005, would you say that the pace of change in the media landscape happened… 1.6% 18.5% Even faster in 2006 At about the same pace in 2006 as in 2005 More slowly in 2006 than in 2005 79.9% 20 Source: AAF Media Investment Survey 2007

Slide 21: 2007 EXPECTED PACE OF CHANGE Q. Looking forward to 2007, do you expect significant changes in the media landscape to happen... 2.6% 39.6% Even faster than in 2006 At about the same pace as in 2006 More slowly than in 2006 57.8% 21 Source: AAF Media Investment Survey 2007

Slide 22: 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. 5.3% 5 4 28.3% 3 48.0% 2 14.8% 1 3.7% 22 Source: AAF Media Investment Survey 2007

Slide 23: MANAGING MEDIA CHANGES IN 2007 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? 2.3% More likely About the same 46.2% 51.5% Less likely 23 Source: AAF Media Investment Survey 2007

Slide 24: 2007 APPROACH TO MEDIA PLANNING Q. Given the current media climate and your expectations for 2007, please indicate The rush which of the following describe your approach to media planning in the coming year. to Second Life 78.0% I am always open to new ways to use traditional media 75.5% The right media mix almost always includes a balance of traditional and non-traditional media The search for new media properties to grow my brand never stops 57.7% Partnering with innovative media brands is an important way to convey 43.3% the image of my brand as fresh and innovative Partnering with new media launches is an important way to convey the 38.5% image of my brand as influential and ahead of the curve Partnering with a new media launch that has a significant 31.7% +buzz+ factor mitigates some of the risk associated with new media launches I am willing to spend more and/or assume more risk to 31.4% reach word-of-mouth generators The tumultuous nature of the media climate requires 26.6% 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 21.9% more risk to reach early adopters 3.0% * 24 Source: AAF Media Investment Survey 2007; *None of the above

Slide 25: 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. 45.7% Solution-oriented 39.0% Creative 25.6% Innovative 24.0% Interactive 18.2% Influencer-focused 18.2% Traditional 8.4% Break-through Conservative 8.4% High profile 6.0% * 1.6% 25 Source: AAF Media Investment Survey 2007; *None of the above

Slide 26: BUDGET ALLOCATIONS Q. What percentage of your budget is reserved for experimentation and new media properties? 0.3% 0.9% 2.9% 10.4% 12.4% 0% 1-20% 21-40% 41-60% 61-80% 81-100% 73.2% 26 Source: AAF Media Investment Survey 2007

Slide 27: MAGAZINE CATEGORY MOST IN NEED 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? 46.2% Business magazines 25.3% Women's service magazines 23.4% None of the above 18.8% Fashion and beauty magazines 17.0% Men's magazines 12.5% Shelter magazines Epicurean magazines9.3% 27 Source: AAF Media Investment Survey 2007

Slide 28: MEDIA 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? 51.4% Newspapers 34.5% Network television 33.8% Radio 30.2% Direct mail 23.7% Outdoor 18.3% Cable television Other 3.5% 28 Source: AAF Media Investment Survey 2007

Slide 29: MEDIA INNOVATION AND CREATIVITY 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? 12.5% Inspire creativity Stifle creativity 87.5% 29