Winterberry outlook 2012

Outlook 2012:
What to Expect in
Direct & Digital Marketing

Bruce Biegel October 1, 2012
Managing Director Boston, MA

Winterberry Group & Petsky Prunier LLC: Maximizing Shareholder
Value of Companies in the Marketing Sector

• Market Intelligence Sell-Side •
Representation
• Strategic Consulting
Corporate •
• Transaction/
Divestitures
Diligence Support
Capital Raising & •
• Market/Competitive
Private Placements
Landscape Analysis
• Industry Insight: Buy side M&A •
Publishing and Advisory
•
Tactical Execution Fairness Opinions

Agenda

Outlook 2012
What happened in 2011?
2012 Channel Check: The
evolution of direct and digital
Changing Data Landscape
9for12: What You Should
Consider for 2012

As Goes the Economy, So Goes Marketing Spending

Months of slow economic growth have given way to heightened uncertainty, long-
term GDP downgrades and a reduced ad spend outlook

U.S. GDP growth slowing to an average Cuts in 2011 Global Ad Spend Growth Forecasts
(August/September, 2011)
of 1.5% in 2011, down from higher growth
levels over the previous six quarters

Consumer spending in 1H 2011 at
lowest growth rate since Q2 2009

U.S. unemployment rate continues to
exceed 9.0%

European debt/currency crisis, U.S.
government standoff and Middle Eastern
unrest giving rise to greater global
uncertainty 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

Sources: Trading Economics; Bureau of Economic Analysis; Company websites Now Then
Source: Company Websites

The Recession Began An Acceleration of Spend Shift from Traditional
to Digital Marketing Channels, A Trend That Continues in 2011

U.S. Marketing Spend Growth, By Channel (CAGR, 2008-2011)
25%
21.1%
20%
15% 12.3%
10% 5.7% 6.7%
5%
0%
-5% -5.6%
-4.1%
-10%
-15% -12.0%
-20%
-25%
Print Direct Mail Broadcast Display Search Out-of- Email
Home

Source: Winterberry Group analysis

2011: Secular Spending Declines Has Continued to Affect Most
Traditional Media

2011E U.S. “Above-the-Line” Advertising Spending
$112.6BB
5.0% Outdoor:
Cinema:
$6.4BB
$0.6BB 2.0%
-0.2% Radio:
$13.4BB

Television:
-2.2% Magazines: 1.7% $55.4BB
-1.7%
$14.3BB

-4.2% Newspapers:
$22.4BB
Note: Arrows reflect expected percentage change in
spend, by channel, from 2010 levels

2011: Digital Channel Growth Has Once Again Paced the Market of
“Below-the-Line” Media in 2011

2011E U.S. “Direct & Digital” Advertising Spending
$163.9BB
Statement Inserts:
9.1%
$0.9BB Other:
$2.8BB 10.9%
DR Print:
2.0% $15.3BB
Direct Mail:
DR Broadcast: $46.4BB 3.5%
7.6% $25.4BB
5.6%
Digital:
14.0% $32.6BB
Teleservices:
Source: Winterberry Group analysis $40.1BB 1.6%

2011: Digital Growth Driven by Rapid Mobile Adoption, Plus
Reawakening of Interest in Display Advertising

2011E U.S. “Digital” Advertising Spending
$32.6BB Social Apps &
41.2% Mobile: Widgets, Listening
$1.2BB Platforms: 10.5%
Email: $0.4BB
18.1%
$1.6BB Lead Gen &
Affiliate Services:
$0.2BB 6.6%
Display: 14.0%
27.0%
$12.5BB

Search:
27.0%
$16.6BB

For Marketers, Taking a Conservative Approach to Channel
Investment Is The Rule, Leading to Extended Testing Cycles

As recovery slows, spending shifting back to
retention, signaling lack of confidence

Higher emphasis placed on reporting and
analytics using advanced data tools and
platforms to determine ROI

Marketing technology adoption—focuses on
cross channel integration—beginning with
digital channels

Marketers invest in mobile and social, yet
concerns about ROI and the mix of brand and
direct marketing hinder the move from test to rollout
Source: “Quarterly Business Review” DMA & Winterberry Group, August 2011

For Suppliers, First Half Performance Is Driving Increased Investment
in Staffing, Capabilities, M&A—So Far

The majority of suppliers expect higher revenues and
profitability as 2011 continues

With increasing economic uncertainty, staffing and new
capital investment may shift into neutral

Nearly 2/3 of suppliers say sales cycle is either stable
or decreasing, largely due to shifts in buying behavior

A shift in marketer demand is driving investment in
new capabilities (organic and via M&A)

M&A activity picking up: 1H 2011 M&A in the
marketing, information and digital media/ commerce
sectors up triple digits (value and volume) from 1H 2010
Sources: “Quarterly Business Review” DMA & Winterberry Group, August 2011; CMA Sales
Forecast and Pipeline Survey; Petsky Prunier

Global Ad Spend, Led by Asian Region and Digital Channels, Expected
to Attain 6.8% CAGR Over the Next Five Years

Contribution to Global Ad Spend Growth,
by Region
APAC
37%
Latin
America
2011-2016 Global CAGR By Channel ($BB) 12%

18.1% 16.9%
15.7%

12.3%
11.4%
North EMEA
9.5%
America 24%
7.7% 7.2% 7.2% 27%

4.2%
2.1%
0.3%

t rs
eo ile H ch y TV a H ne on io es
id ob l OO ar em OO ter isi ad pe zin
eV M Se Pa Ci
n er n ev R
sp
a a
l in gita id th rI el w ag
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Ot as
dc
oa
Br

Source: MAGNAGLOBAL

2012: A Challenging Economic Outlook

Slow U.S. GDP growth continues: forecasts
predict 2% for the year¹
• U.S. unemployment rate likely to stay above 9%
• Gas prices, fiscal tightening, and European
sovereign debt weigh down the 2012 outlook²
• Odds of a renewed recession put at 1 in 2³
• Reduced confidence in U.S. economy as S&P
downgrades U.S. credit rating and Moody’s lowers
U.S. economic outlook through 2012

Sources: [1] “World Economic Outlook” IMF [2] Goldman Sachs [3] Business Cycle Dating Committee of the National Bureau of Economic Research

Direct Mail: A Tale of Two Classes

While standard mail improves, shrinking first class mail pushes USPS over the edge

First Class Mail Standard Mail

First Class Mail volume down 25% Second year of solid growth; 1H
since 2006, and predicted to decline 2011 Standard Mail volume up
an additional 48% by 2020 nearly 4% from SQLY

Falling through the floor due to email Since Standard Mail generates one-
and other digital media substitution third the profit of First Class Mail, it
cannot shore up the bottom line

“ The USPS is so low on cash that it will
not be able to make a $5.5 billion
payment due this [September] and may
have to shut down entirely this winter
unless Congress takes emergency
action to stabilize its finances.
–The New York Times “
alone

Our situation is extremely serious. If Congress
doesn’t act, we will default.
— Patrick R. Donahoe,
U.S. Postmaster General

Sources: Post and Parcel; Postal Regulatory Commission

Direct Mail’s Place in the Marketing Mix Has Changed

Direct mail moving from a direct-response-only approach to key player in the
multichannel world

The purpose of direct mail has shifted… …from direct order….

“The catalog is great driver for sales online and in
stores. We’re not publishing with the idea of
creating an [independent] direct marketing
business. It’s the idea of driving traffic into stores
and giving the sense of a brand.
…to driving sales online or in-store

-Ellen Smolyar,
Senior Manager of Sales and Circulation
at Crate & Barrel
”

Direct Mail 2012: No Real Catalyst for Continued Strong Growth

Continued erosion (substitution) of first class advertising, statement and
informational mailings will hold down retention mail growth while acquisition fights
an uphill battle for marketers’ share of mind and wallet

While 2010 and 2011 were bounce-back years for direct mail,
2012’s forecast predicts anemic 1-2% growth rate

U.S. Direct Mail Marketing Spend ($BB)
$48.0 $48.0
$47.4 $47.5

$44.9

$43.8

2009 2010 2011E 2012E 2013E 2014E

Source: Winterberry Group, June 2011

Digital Channels Continue to Mature, Capturing New Spend and
Taking Share From All Other Media

30-35% of media now consumed via U.S. Advertising and Marketing
digital channels, with social continuing Spending, by Share of Approach
to absorb time and impressions 2007-2011E (US$BB)
$400 Digital
BTL
Standardization of digital metrics ATL
$350 6%
fueling broader adoption
$300 8% 9% 10%
7%
Channel integration and optimization $250 55%
55%
a major marketer priority $200 57% 55% 56%
$150
Digital spend growth continues to be
$100
driven by search and display 40%
$50
38% 35% 36% 34%
Faster mobile/social spending shifts $0
delayed by talent / knowledge gaps 2008 2009 2010 2011E 2012E
Source: eMarketer Source: Winterberry Group analysis of various sources, 2011

Social, Mobile and Search Have Experienced Biggest Spend Gains, But
2012 May Tell a Different Story

WG Marketer Survey: To what extent has the spend Priorities in the marketing
allocated to the following channels changed
compared to SQLY? mix are constantly
changing:
Social
Social 4.1
Today, marketers have
Search
Search 3.9
increased spend in
Mobile Marketing
Mobile Marketing 3.8
social, search and
Online Display Advertising
Online Display Advertising 3.6
mobile advertising
Email
E–Mail 3.5

Other
Other 3.4
compared to last year.
Place-based Media/DOOH
Out-of-Home / Outdoor 3.3
One year ago, marketers
Broadcast: TV & Radio
Direct Mail: Non-catalog 3.1 3.0+ = said the biggest spend
Direct Mail: Non-catalog Increasing Popularity
Broadcast: TV & Radio 3.1
increases over the past
Print: Newspapers & Mags
Print: Newspaper & Magazine 3
12 months had come in
Direct Mail: Catalog
Direct Mail: Catalog 2.9
email, social and
1 2 3 4 5 display.
Source: “Quarterly Business Review” DMA & Winterberry Group, August 2011 and August 2010
N = 105

Search: 2012 Spending Expected to Reach $19.4BB, Up 10.2% YOY,
With No Slowdown in Sight

Still the most dependable channel for ROI

Increase in focus on SEO to complement U.S. Search Marketing Spend ($BB)
rising SEM spend
$22.0
7% CAGR $20.5
$19.4
Local search accounts for 40% of all $16.6
$15.6
search, drawing SMB marketer spending $14.6

Search retargeting enables marketers to
take the power of search and apply it to
display, with the added benefits of real time
44%
optimization and attribution 2009 2010 44%
46% 2012E 44%
2011E 43% 2013E 2014E

Demand-side platforms (DSPs) integrate Source: Winterberry Group, June 2011
search in an effort to improve multichannel
marketing and attribution
Source: Google

Display: 2012 Spending to $12.8BB, Up 21.9% YOY, Driven by
Audience Targeting and Video Adoption

Marketers shift to audience targeting,
seeking performance improvements through U.S. Display Marketing Spend ($BB)
the use of primarily DSP analytics, digital $18.0
data and display retargeting techniques
$15.5
14% CAGR
Significant rise in automated exchange- $12.5 $12.8
based buying of static and video display
using real time data driven bidding (RTB), $8.4
$9.3

accounts for ~10% of all display spend
Online video ad spend expected to grow
to $3.0 billion in 2012, up from $1.9 billion in
2011. By 2015, it will account for 1/3 of all
display spend 2009 2010 2011E 2012E 2013E 2014E
Includes social display

Facebook accounts for one in three (31.2%) Source: Winterberry Group, June 2011
of all display ad impressions, although its
share of revenue is significantly lower
Sources: Cream; eMarketer; Vator News

E-mail: Spending Up 12.5% to $1.8BB, Database Segmentation and
Targeting Driving Email Spend

Remains the most cost effective media for
retention functions, volumes continue to surge

Utilization expansion tied to the proliferation of U.S. Email Marketing Spend ($BB)
devices, smartphone and tablet adoption, along with $2.2
e-commerce, location-based emails and daily deal 11% CAGR
$1.8
$2.0

sites $1.6
$1.4
$1.2
Improvements in segmentation and database-driven
versioning are primary drivers of spend increases -
not volume of emails as CPMs continue to shrink
Unique click to conversion rates have increased
steadily in 2010 and 2011(Q2 2011 up14.6% over 2009 2010 2011E 2012E 2013E 2014E

Q1 2011 and up 6.2% over Q2 2010)
Source: Winterberry Group, June 2011

Spending negatively impacted by
price compression
Source: “Q2 2011 North America Email Trends and Benchmarks Results” Epsilon & DMA

Mobile: 2012 Spending at $1.7BB, Up 41.7% YOY —The ”Year of Mobile
Rollout” Led By Device Proliferation and Marketer Experience

Early adopters move from test to rollout;
mainstream marketers build mobile-
U.S. Mobile Ad Revenues
friendly sites (20% have mobile-optimized $3,000 $2,946

sites today)
Location-based targeting technologies
$2,500

advancing, but data for segmentation and
connection a challenge
$2,000

Spend ($MMs)
$1,500
Growth of m-commerce: Global m-
commerce revenues forecasted to reach $1,000
$10BB by 2012 and $119BB in 2015² $491

84% of in-store shoppers are doing $500

some type of mobile activity while they
shop, such as comparing prices (70%), $0
2009 2010 2011E 2012E 2013E 2014E
accessing product reviews (67%)¹ and
using retail apps
Sources: [1] WhiteHorse, [2] Forrester and BitWizards, [3] GetJar, [4] Nielsen

Digital Couponing: Rise in Mobile Usage Driving Rapid Adoption of
Digital Formats

47% of Americans on the Internet will
claim at least one digital coupon in
2011, increasing to 49% by 2013

Digital coupons redeem at a much
higher rate than FSI coupons — between
5% and 20%, compared with 0.9%
In the first eight months of 2011,
Unique visitors to daily deal sites Groupon 300 new daily deals site
and LivingSocial grew by triple-digit launched, while 132 such sites
went out of business
rates between mid-2010 and mid-2011,
yet few barriers to entry exist 300

Rise of location-based and instant
digital coupons track increases in in-store
mobile usage, including apps and digital -132

signage
Sources: eMarketer; MediaPost; ABI Research; Compete, Yipit

Social Media: 2012 U.S. Ad Revenues Up 27.7% YOY to $3.9BB, Growth
Slows But Brand Dollars Accelerate

Social media revenue ramps (31.6% forecast Coming Soon?
CAGR through 2015) from multiple streams:
subscription, social currency and advertising

Social adoption and time spent slows:
social media fatigue sets in among some early
adopters, leading to fewer unique visitors and
less time spent on social network sites
High valuations are likely to come down as
advertisers decide where to place their social
dollars. Facebook and LinkedIn may catch up
to their revenue promise

Marketers increasing investment focus in
social media analytics to address concerns
over ROI and measurability

Sources: BIA/Kelsey; eMarketer; Nielsen Wire; Bizo

65% of Marketers Say Social is The Channel They Will Focus On Most
in the Next 12 Months: Are They Asking the Right Questions?

As social media matures and becomes
part of the fabric of everyday life,
marketers must ask themselves
fundamental questions….

•Why am I using social media?
•How do I increase engagement?
•How do I increase modernization? Social Media for
•How do I measure social media? Marketing Purposes
•Should I focus on branding or direct is About…
response?

Source: Bizo

Addressable TV: Offers Marketers Enhanced Tracking and Targeting to
a Larger Audience

Most major cable providers have enabled
addressable TV through their set-top boxes on In a recent test by Starcom
at least a pilot basis MediaVest, addressable TV
resulted in:
Universal media-buying standards still do not
exist (as many set-top boxes are obsolete),
inhibiting media buying at scale
65% 32%
Many networks are aggressively
pursuing addressable TV to offset
diminishing affiliate fees from cable
providers 65% increase in 32% increase in
efficiency (how much effectiveness (viewers
Once addressable TV extends to all money advertisers can less likely to turn away
U.S. households, as soon as 2015, it save by delivering ads to from an addressable ad
could bring in $10 billion in those homes in which they than a non-addressable
are interested) ad)
incremental ad revenue to
television
Sources: Comcast Spotlight and Starcom MediaVest Group

2012: Year of Digital Data and Analytics Taking Off

What’s at stake: The ability to pull together data from online and offline sources in
order to optimize conversations with the audience via the right device at the
right time
Transactional added from purchase
records, cooperative databases

“ Imagine being able to 1)
create a single view of a user
and 2) use all those data
assets to make smarter
decisions about how to talk to
Psychographic
and behavioral
compiled from
surveys, analytical
models
Offline
Providers
Social
compiled from
social sites,
blogs, sharing

Social Sites
sites,

?
each user you encounter
Offline / Online
through your digital media
Compilers Providers
initiatives, your site-side
messaging, etc. That’s what I
think makes the DMP powerful Online Data Types:
Geo-
– bringing data intelligence to Demographic Portals / • Registrations
• Cookies (Flash) /
every digital interaction a compiled from Publishers Online

”
browsing activities
marketer has with users. publishers, Compilers • Social networks
databases and
-Joanna O'Connell, Forrester other third parties
• Online purchase
data
Analyst • In-market purchase
intent

Marketers Are Seeking to Align Their Internal Marketing Processes,
Platforms and People, Decisioning Engine Development is Key

Marketing Data & Integrated Data Real-Time Marketing Execution
Content Asset Layer Management Decisioning Engines & Response

Geographic
Geographic

Marketing Execution Platforms
Data Management Platform(s)
DSP
Demographic
Demographic

Channel
Channel
SSP
Preference
Preference
Site
Interaction
Social
Social
Engine
Channel
Transactional
Interaction
Transactional
Engine
Intent
Intent
Lead
Data
Data Scoring

Web Site
Web Site Yield
Data
Data Mgmt.

These Changes Are Shifting The Balance of Influence in the Data
Industry—and Offsetting Most Mail-Related Spending Declines

U.S. Spending, Marketing Data & Related Services (2008-2012E)
Online Display-Related Data Spending1
E-mail-Related Data Spending2
Direct Mail-Related Data Spending3

$11.9BB
$10.8BB Spending on $9.9BB $830MM
Digital Data $510MM 7.0%
$310MM 6.2%
2.9%

2008 2010 2012E
(1) Online display-related data spending includes retargeting services, intent data / inferred data, offline data used for online marketing
(2) E-mail-related data spending includes e-mail lists, database management / hygiene and analytics services
(3) Direct mail-related data spending includes mailing lists, database management / hygiene and analytics services

Source: Winterberry Group analysis of various sources

Marketers Face Data Governance Challenges, Such as Consumer
Privacy, Data Security and Data Rights Management

Consumers have the right to know that their information

“ is being collected and used by companies in a safe and
legitimate way in order to ensure that individuals are
protected in the event of a data security breach.
Common sense commercial privacy laws are needed to
impose accountability and security requirements on the
companies involved. Consumer
-Sen. John Kerry,
Chairman of the US Senate’s Subcommittee on
Communications, Technology & the Internet
” Privacy

Data
Governance

Data Rights Data
Management Security

9for12

It is the (another) Year of Data: Marketers will begin to approach
1
the growing Big Data problem, developing plans on how to
manage and activate data across channels. Early adopters begin
to implement solutions including integrating online DMPs with
offline prospect and CRM data sets to manage the conversation
with disparate audiences across devices

2 Content is the new black: Content, recognized as the primary
driver of engagement (along with the data that informs it),
marketers and their agencies begin to wrap their arms around
content marketing, including the continual creation, curation
(finding, organizing, sharing), editing and active management – in
order to organize content across channels and devices – and
content is just another “unstructured” form of big data to deal with

9for12

3 Mobile: recognizing that mobile is about devices (tablets,
smartphones, computers), location and intent, marketers accelerate
the transformation of web sites from PC design (currently 80% of sites
are PC only) to device specific sites – tablet sites, smartphone sites
and PC sites.

4 Cross digital media buying search, display and email), driven by first,
second and third party data experiences significant performance
improvements as attribution solutions mature and are better able to
identify the impact (engagement relationships) across
channels…driving more digital spend

9for12

5 Improved marketing technology stacks, assembled via acquisition
in 2010-2011 by large tech players (IBM, Adobe, Google) release the
first sets of integrated products, primarily for enterprise marketers,
that can automate the marketing process from campaign planning
through execution and attribution.

6 USPS postal crisis is put to rest as the administration and congress
accept a portion of the recommendations put forth by the postmaster
general including a reduction in post offices and SCFs, though the 6
day week is more likely to remain in place. Force reductions will
complemented by an agreement on a partial pension reform

9for12

7 The pace of M&A accelerates in the ad tech (digital display) sector
along with continued agency consolidation of those with mobile/social
specialties. Emerging attribution providers and data companies see
renewed interest to complement the push towards digital cross-
channel integration. Smaller ad tech firms that have not gained
traction experience reduced funding forcing asset sales and closures.

8 Privacy regulation, mostly quiet in 2011, moves back into the
Washington conversation as legislators continue to examine the
impact of EU privacy laws enacted this year. Probable outcomes
include data (breach) security legislation and some form of baseline
privacy rules around sensitive information – though not a Do Not
Track (DNT) bill.

9for12

9 And finally – the economy. If the US goes into a recesssion it will
negatively impact all measured media channels along with direct mail
spend while slowing (not stopping) the rate of growth in the digital
sector. Marketers will stick to longer test periods as spend tilts back
towards retention marketing again.

A neutral of low level of growth should result in the forecast
envisioned in this presentation. Any higher growth rate will benefit
TV, direct mail (in addition to the bump they get with the election) and
the digital media channels – while stabilizing magazine and
newspaper ad spend..

Questions? Copy of the Deck?

60 Broad Street, 38th Floor
New York, NY 10004
www.winterberrygroup.com

Bruce Biegel
Managing Director
bbiegel@winterberrygroup.com
(212) 842-6030

Winterberry outlook 2012

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