Media Maven: Ad Outlook March 2012

Media Maven

AD SPEND UPDATE –2012 LOOKS PROMISING, DIGITAL ASCENDANT

March 2012 Volume 11

Advertising spending started as a promising year in 2011 and then lost steam commencing in the second
quarter. This slowdown was exacerbated by the loss of auto ad spending after the Japanese tsunami,
which disrupted supply chains and made it difficult for autos to reach local dealerships. According to
Magna Global, after growing by 4.3% in the first half of 2011, advertising slowed to 2.3% growth in 3Q
2011 and to 1.1% in 4Q 2011. We have talked to numerous media companies that witnessed a significant
lull in advertising activity between Thanksgiving and Christmas. A common refrain we heard from many
media executives was that “December failed to show up”.

Fortunately, after listening to several media companies report 4Q 2011 results and provide 1Q 2012
guidance in recent weeks, it would appear that the weakness in latter half of 2011 was a blip, not a trend.
After a relatively sluggish January business appears to be improving.

2012 Agency Ad Forecasts – 3%-4% Growth
ZenithOptimedia, a division of Publicis Groupe, recently updated their 2012 global advertising forecast to
4.8% growth, up from their 4.7% forecast from December 2011. Zenith also raised their forecast for U.S.
advertising in 2012 to a 3.6% gain, up from their previous forecast of a 3.5% increase. Magna Global, a
division of IPG, also provided a 2012 outlook recently. Magna’s outlook of a 3.7% increase in U.S. ad
spend is virtually equivalent to Zenith’s outlook.

Both Zenith and Magna’s outlook assume that relatively subdued consumption growth will result in
cautious marketing expenditures, but that this will be augmented by cyclical incremental advertising
expenditure from the Summer Olympics in London and political advertising related to presidential,
congressional and gubernatorial elections. Due to the relaxation of campaign finance rules, super PACs
are now allowed to raise and spend unlimited amounts to run political or issue advertising. Olympic and
political advertising are projected to contribute nearly half (1.7%) of the 3.6%-3.7% growth that is
projected in 2012. As usual, we expect local TV broadcasters to be the main beneficiary of political
advertising.

Perhaps the real question for 2012 (and beyond) relates to better understanding the share shifts that have
taken place in ad spend over the last several years.

Coady Diemar Partners · 1370 Avenues of the Americas · New York, NY 10019 · (212) 901-2600 · www.coadydiemar.com
Coady Diemar Partners is a registered broker / dealer with the U.S. Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority (FINRA)

Media Maven: 2012 Ad Spend Looks Promising Page 2

Share Shifts in Advertising – Long Term Historical Trends
Broadcast television remains the largest medium, and is shown as two distinct mediums in the chart
below: national broadcast/syndication (10% of ad spend) and local broadcast television (9%).

We find it interesting that the 2nd and 3rd largest advertising mediums today, cable television and online
advertising, barely existed 30 and 15 years ago, respectively. As shown in the chart below, online
advertising now accounts for 18% of ad spend and cable TV accounts for 15%, both having grown
substantially over the last decade.

Not surprisingly, newspapers share of ad spend has decreased from 38% of ad spend in 1980 to 12% in
2011 while magazine share has declined from 16% to 9%.

Share of Media Ad Spend By Decade

Source: MagnaGlobal

2011 Advertising Spend Recap
2011 saw a continuation of these longer term trends with cable TV and internet advertising continuing to
take share from print (newspapers and magazines). Zenith recently concluded that the U.S. advertising
market increased by 2.3% in 2011 to $165.4 billion from $161.7 billion in 2010. Zenith’s analysis
showed that internet (+12.6%) and cable TV (+12.0%) were the strongest advertising mediums in 2011,
while newspapers (-8.5%) and B2B publications (-4.0%) were the weakest.

Zenith’s 2011 growth estimates by advertising medium follow on the top of the next page.



Source: ZenithOptimedia

In the chart below, we show the major advertising categories (often referred to as measured media), and
apply Zenith’s growth rates by medium, in order to determine which advertising medium generated the
most incremental revenues in 2011.

As shown in the chart on the left, ad spend grew by an incremental $3.8 billion in 2011, and as shown in
the chart on the right, both internet and cable TV enjoyed incremental revenues of $3.2 billion in 2011.
Most of the incremental advertising flowing to cable TV and online advertising likely came from a share
shift from newspapers. Or put another way, approximately 58% of the $3.8B in incremental ad spend in
2011 can be explained by a $2.2B share shift out of newspapers.

2011 Growth - by Advertising Medium 2011 Growth - Sorted by Medium
Est. Growth Incremental Incremental
Medium 2010 2011 (a) 2011E Revenues Medium Revenues
Spot TV $15,558 (4.2)% $14,905 ($653) Internet $3,281
Syndication $4,111 10.0% $4,522 $411 Cable Networks $3,269
Network $24,967 (2.4)% $24,368 ($599) Spot TV $622
Broadcast TV $44,637 (1.9)% $43,795 ($842) Radio $346
Cable Networks $27,242 12.0% $30,511 $3,269 Outdoor $246
Internet $26,041 12.6% $29,322 $3,281 Magazines $0
Newspapers $25,838 (8.5)% $23,641 ($2,196) Broadcast TV ($41)
Magazines $15,623 0.0% $15,623 $0 Syndication ($164)
Radio $17,287 0.6% $17,396 $109 Network TV ($499)
Outdoor $6,143 3.0% $6,327 $184 Newspapers ($2,196)
Total $162,810 2.3% $166,616 $3,806
(a) ZenithOptimedia estimates



Digital Share Continues to Increase

For years, the discrepancy between time spent online and ad spend in online advertising underscored the
substantial revenue opportunity and prospective growth in online advertising. A few years ago, the
discrepancy between time spent online and ad spend was nearly 2-to-1. In December, eMarketer
provided an updated view of the time spent vs. ad spend comparison, and it is notable that the disparity
between time spent (26%) and online ad spend (22%) has narrowed substantially, as shown below, while
still representing a substantial opportunity.

In fact, the largest disparity between time spent and ad spend now resides in mobile advertising, as 10%
of time spent is with mobile devices, but only 1% of ad spend currently targets mobile viewers, as shown
in the chart below. We expect this gap to narrow over time, particularly as marketers demonstrate a
greater appreciation for the magnitude of the growth in consumer mobile usage.

Mobile and Video Grab Larger Share of Digital
According to an eMarketer and ValueClick survey, digital advertising budgets for U.S. marketers in 2012
are expected to mirror consumer usage trends, resulting in more mobile and digital video advertising. In a
survey of U.S. marketers, nearly half (49%) planned to increase their ad spend on online video, and nearly
two-thirds (66%) plan to increase their mobile budgets for 2012.



The success of Apple’s iPad and tablet trends in general bode well for growth in ad spend on mobile.
Apple sold 55 million iPads after only 7 quarters on the market, substantially exceeding unit sales of the
iPhone (17 million) after the same period of time. This does not include the 3 million “iPad 3” tablets
that were sold in the first week on the market in mid-March. With tablets much more conducive to both
banner and video advertising than smartphones, we expect continued migration to online video and
mobile advertising in the coming quarters and years.

Upside in 2012 Ad Spend for Online, TV and Radio
Magna Global forecasts a moderation in the growth of digital advertising, from 21.4% in 2011 to 10.9%
growth in 2012. However, this growth will be spurred by continued strong gains in paid search (+12.6),
online video (+22.4%) and mobile advertising (+44.2%).



Source: Magna Global

Magna’s 2012E growth forecast by advertising medium results in newspapers losing another 150 basis
points in share, with virtually the entire increase going to digital (internet).
We believe Magna may be too conservative in their outlook, particularly with respect to internet, TV and
radio.
Online:
With respect to the internet, Magna’s outlook results in a significant slowdown in growth in 2012 relative
to 2011. In 2011, internet advertising is likely to have increased from $26 billion to $31 billion (+18.5%).
We believe that revenue increases, particularly in online video and mobile are likely to drive incremental
ad spend at the same rate as in 2011, which would result in approximately mid-teens growth in 2012,
significantly more than their 10.9% projection.
A recent report from eMarketer supports this view. Earlier this month, eMarketer compiled 2012
forecasts for the top 5 online display advertising companies. As shown in the chart below, online display
advertising among the “Big 5” are projected to increase by 33% in 2012, which would drive overall
online display revenue growth by 24%, more than twice Magna’s forecast. The top 5 would increase their
share of overall online display advertising to 51% from 47% in 2011, as shown below.

Top 5 - Online Display Ad Revenues
Display Revenues ($Bn) 2011 2012 % Growth
Facebook $1.73 $2.58 49%
Google $1.71 $2.54 49%
Yahoo $1.35 $1.40 4%
Microsoft $0.56 $0.67 20%
AOL $0.53 $0.62 17%
Total Top 5 $5.88 $7.81 33%
Total Online Display $12.40 $15.39 24%
Top 5 - % of Total 47% 51%
Source: eMarketer



Spot TV:

We agree with Magna’s overall growth rate for TV and, to drill down further, we expect cable TV to
grow by mid-to-high single digits; syndication revenues to grow by low single digits; network TV to
grow by mid-single digits (driven summer the Summer Olympics); and local spot TV to increase by
double-digit revenues, as local TV stations remain the #1 destination for political and issue advertising.

2012E TV Revenue Growth
Estimated
2011E 2012E Growth
Spot TV $15,093 $16,603 10.0%
Syndication $4,676 $4,817 3.0%
Network $24,329 $25,789 6.0%
Broadcast TV $44,099 $47,208 7.1%
Cable Networks $29,243 $31,290 7.0%
Total TV $73,342 $78,498 7.0%
Source: TVB, Cable Advertising Bureau, Coady Diemar Partners

We track 20 publicly traded media companies that report results of their TV station groups. These station
groups accounted for $8.0B in advertising revenues in 2010. In 2010 (the last political year), revenues
increased by 21.4% over 2009 levels, with political advertising 10% of revenues in 2010. This implies
that even if all other advertising categories are flat, then TV station revenues should grow by 10% in
2012, assuming political remains a 10% category.

The 2010 Supreme Court decision in Citizen’s United v. Federal Election Commssion, effectively equated
the idea of political advertising as free speech, and resulted in two developments: 1) it eliminated the
longstanding ban on corporate political spending, and 2) it effectively ended the limits on how much
individuals can give to political action committees (PACs). Most advertising agencies are projecting mid-
teens growth in political advertising in 2012 (vs. 2010), which would put 2012 levels on local TV stations
in the $2.5-$2.6 billion range.

TV station groups will also benefit from improving trends and easy comparisons related to the auto
advertising category. Auto is off to a start strong this year, with several station groups reporting auto is
pacing ahead strongly in 1Q 2012. February auto sales rose nearly 16% and annual sales jumped to 15


million vehicles, the best monthly showing since February 2008. Auto ad spend comparisons should get
significantly easier in coming weeks and months, as this time last year, auto advertising pulled back
dramatically following the Japanese tsunami, which disrupted supply chains and made it difficult for
vehicles to reach the dealer lots.

Radio:

Radio is off to a relatively slow start in 2011, partly as a result of the late 2011 “hangover” still impacting
results at the start of the year. We expect radio station groups to report flat revenue growth in 1Q 2012.
However, we expect trends to improve in subsequent quarters, as radio stations will also benefit from
political advertising. We expect political to account for 1.5%-2.0% of industry revenues in 3Q 2012 and
we expect political to add about 4 percentage points to growth in 4Q 2012. As a result, we see radio
revenue growth in the 2.5%-3.0% range for 2012, not -0.8% as Magna has predicted.

Final Thoughts
We believe the advertising marketplace is poised for a good year in 2012, given the backdrop of a
gradually improving economy, the return of political and Olympic advertising, and a strong return on auto
advertising, driven by easy comparisons and the improving strength of new car sales. These trends,
combined with significantly improved balance sheets across traditional media companies, set the table for
potential investor friendly activities such as share buybacks, increased dividends and increased merger
and acquisition activity.

Sincerely,

Chris Ensley
(212) 901-4160
chrise@coadydiemar.com

About Coady Diemar Partners
We provide mergers and acquisitions, private capital markets and strategic advisory services to growth
companies in a number of industries. We have a breadth of transaction experience, industry knowledge
and institutional relationships and provide clients creative solutions and unparalleled access to ideas and
capital. We are acutely sensitive to the specific and unique requirements of each client and opportunity.

For more information on Coady Diemar Partners, visit our website www.coadydiemar.com. Contact
Colin Knudsen at colin@coadydiemar.com or Chris Ensley at chrise@coadydiemar.com for additional
information or to arrange a meeting.

If you currently do not receive our newsletters and would like to be added to our distribution list, please
contact Ryan Williams at ryan@coadydiemar.com.

Independent Advice. Seamless Execution.
This announcement is neither an offer to sell nor a solicitation to buy securities. This announcement appears as a
matter of record only. Copyright (C) 2011 Coady Diemar Partners, LLC. All rights reserved.


Media Maven: Ad Outlook March 2012

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