Monetize the Web

1
The Value An Investment Perspective on Making
Money from Internet Media
Monetize the Web The Media Center at the
American Press Institute San Francisco, CA
September 15, 2004
Leo Kivijarv, Ph.D. Vice President
2
Internet - Whats of Utmost Importance to the
Investment Community?

• EBITDA!

Internet - Whats NOT Important to the Investment
Community?
Anything That Doesnt Contribute to Making a
Profit (Many Have Already Discovered How to
Generate Revenue)
3
Table of Contents The Realities of the
Internet Economics Communications Industry
Trends Internet and . Advertising
Specialty Media Marketing Services
Consumer End-User Spending Institutional
End-User Spending Global Perspective Summary Ab
out PQ Media
4
Current U.S. Economic Environment

• In June and August 2004, the Federal Reserve
  raised interest rates by 1/4 point, the first
  increases in almost two years - however the rate
  is still the lowest since 1958
• In the first half of 2004, GDP sustained moderate
  growth despite a weak job market and continued
  terrorist fears
• Real GDP rose 3.1 in 2003 and Nominal GDP
  increased 4.8, the strongest growth since 2000
• Over the five year forecast period (2003-2008)
  compound annual growth of Nominal GDP is expected
  to be 6.0 and Real GDP will climb 3.7

Recession
Forecast
Nominal GDP
Real GDP
PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004 Bureau of
Economic Analysis, August 2004
5
Communications in the U.S. Economy - 2003 2008

• Communications was the seventh-largest sector out
  of 15 in the U.S. economy in 2003 and will remain
  in the number-seven slot through 2008
• The communications industry was the
  eighth-fastest-growing segment of the U.S.
  economy from 1998 to 2003 as result of strong
  gains in consumer end-user spending. However, It
  will become the fifth-fastest growing sector from
  2003 to 2008 as the advertising, specialty media
  marketing services and institutional end-user
  spending also recover and consumer end-user
  spending remains solid

PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004
6
Communications Industry Spending Growth vs. GDP -
1973 to 2008

• Communications spending growth normally can be
  used as an indicator of economic expansion or
  contraction
• During expansion, communications industry
  spending growth outperforms GDP by approximately
  25 to 200 basis points
• During contractions except for the 1981-1982
  recession communications industry spending
  normally underperforms GDP
• (The 1981-1982 recession was an anomaly as a
  result of new media segments cable satellite
  TV and business information services that grew
  at double digit rates during their infancy and
  the concurrent sophisticated behavior changes in
  ad media buying of traditional media television
  and magazines)

Recession
Recession
Recession
Recession
Expansion
Expansion
Expansion
Expansion
-290 bps
160 bps
460 bps
210 bps
-20 bps
130 bps
-170 bps
30 bps
5 Years
8 Years
10 Years
6 Years
16 Months (a)
16 Months
8 Months
8 Months
(a) 1973-1975 communications data are based on
advertising only
PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004 Veronis Suhler
Stevenson Investment Considerations for the
Communications Industry, 2004 Bureau of Economic
Analysis, August 2004
7
Table of Contents The Realities of the
Internet Economics Communications Industry
Trends Internet and . Advertising
Specialty Media Marketing Services
Consumer End-User Spending Institutional
End-User Spending Global Perspective Summary Ab
out PQ Media
8
Estimated 2004 Communications Industry Spending
by Type

• Almost three-fourths of communications spending
  is non-advertising, over one-half is end user
  spending
• For the first time in 2003, end user spending
  displaced advertising as the largest sector of
  the communications industry because it continued
  to grow through the past recession and sluggish
  recovery

690 Billion

• Broadcast Television
• (Network, Local National)
• Cable Satellite Television
• (Network, Local Regional Sports)
• Radio Broadcasting
• (Local, National, Network Satellite)
• Daily Weekly Newspapers
• (Retail, Classifieds National)
• B2B Magazines
• Consumer Magazines
• (National Local)
• Yellow Pages
• (Local, National Internet)
• Outdoor Advertising
• (Local National)
• Internet Advertising
• (National Local)

• B2B Magazine Subscriptions Tradeshows
• Business Information Services
• Professional, Educational Training Media
• TV Programming

161.8
188.5
Cable Network License Fees and Filmed
Entertainment
191.3
148.1

• Cable and Satellite Access Services
• Consumer Books
• Consumer Internet Access Content
• Consumer Magazine Subscriptions
• Entertainment
• Newspaper Subscriptions
• Satellite Radio Subscriptions

• Consumer Promotions
• B2B Promotions
• Direct Mail
• Sponsorships
• Public Relations
• Other

( Billions)
Box Office, Home Video, Recorded Music, and
Interactive Entertainment
Interactive Television Advertising/Promotions
Trade Show Advertising, Promotions Fees
Forecasted
PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004
9
Consumer Media Spending as of Disposable Income

• Consumer continue to spend more for media, even
  during economic slowdowns

Recession
Recession
Recession
Recession
PQ Media, Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004 Veronis Suhler
Stevenson Investment Considerations for the
Communications Industry, 2004
10
Communications Industry Financial Performance by
Segment

• Revenues at publicly reporting media companies
  rose 9.7 in 2003 and at a compound annual rate
  of 9.3 from 1999 to 2003
• OCF rose 43.0, in 2003 as the advertising
  environment recovered and many companies realized
  results from acquisitions done earlier in the
  period and from cost cutting measures instituted
  during the recession
• However, results would be less bullish except for
  the add back of write-downs, such as Time
  Warners write down of 33 billion for its AOL
  division in 2002

PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004
11
Table of Contents The Realities of the
Internet Economics Communications Industry
Trends Internet and . Advertising
Specialty Media Marketing Services
Consumer End-User Spending Institutional
End-User Spending Global Perspective Summary Ab
out PQ Media
12
Internet Companies Have a History of Struggling
with ProfitsOI OCF Results at Publicly
Reporting Internet Companies 1999 to 2003

• Time Warners AOL division accounts for about 60
  of the Internets results and therefore has an
  impact on overall results from 1999 to 2003.
  Until 2002, most of the industry struggled and
  only few companies were profitable

OI OCF Results from 21 Internet Companies (Less
Time Warners AOL Division)
OI OCF Results from 22 Internet Companies
Millions
Millions

• Many Internet companies have gone out of business
  or been absorbed. In the last five years, the
  number of publicly reporting Internet companies
  has shrunk from 112 in 1999 to 63 in 2000 to 36
  in 2001 to 25 in 2002 to 22 in 2003. However,
  with the Internet advertising recovery, interest
  is back up - re Google.

PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004
13
Where Does the Internet Fit into Communications?

• EVERYWHERE
• Advertising
• But with caveats
• Specialty Media Marketing Services
• Long-term potential, but short-term problems
• Consumer End User Spending
• Majority of measurable spending here
• Institutional End User Spending
• Long history with medium, but hard to measure and
  dominated by few

14
Table of Contents The Realities of the
Internet Economics Communications Industry
Trends Internet and . Advertising
Specialty Media Marketing Services
Consumer End-User Spending Institutional
End-User Spending Global Perspective Summary Ab
out PQ Media
15
Internet Advertising Controls Only a Small, but
Growing Market Share

• Advertisers are continually seeking alternatives
  to newspapers and television

• Also, marketers are worrying about new technology
  like DVRs

2003
2008
PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004
16
Advertising vs. GDP During Economic Cycles

• With certain exceptions, advertising often mirror
  economic growth trends during the troughs and
  peaks of recessions and expansion

Recession
Recession
Recession
Forecast
During economic expansion, advertising initially
rises with parallel growth trends, but within in
a year or two the growth rates are 200 to 400 bps
per year higher than GDP
During recent recessions, advertising begins to
fall approximately 6 to 12 months before the
economy contracts
2008
1978
1983
1988
1993
1998
2003
PQ Media, Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004 Veronis Suhler
Stevenson Investment Considerations for the
Communications Industry, 2004 Bureau of Economic
Analysis, August 2004
17
Consumers are Investing More Time with Media They
Pay For

• Since 1978, consumers have begun spending more
  time with media that they support and less with
  media that is predominately supported by
  advertising especially popular are the
  technology-driven media

Advertising Supported Media vs. Consumer
Supported Media
Media with Significant Ad Support (a)
Media Supported Mainly by Consumers (b)
1978
1983
2008
1988
1993
1998
2003
Media with Significant Ad Support
Media Supported Mainly by Consumers
(a) Broadcast Television, Broadcast Satellite
Radio, Daily Newspapers, Consumer Magazines (b)
Cable Satellite TV, Box Office, Home Video,
Interactive TV, Recorded Music, Videogames,
Consumer Internet, Consumer Books
PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004 Veronis Suhler
Stevenson Investment Considerations for the
Communications Industry, 2004
18
Local Business Model - Internets Share Very Small

• Local advertising is becoming more competitive
  with multiple choices

• Advertising media must also compete with
  marketing communications

2003
2008
PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004
19
Local Internet Advertising, 2003

• Newspaper web sites and Internet yellow pages
  control 70 percent of the local Internet ad
  market
• Approximately 3/4 of newspaper online ad spending
  is classified
• Approximately 3/4 of local Web ad spending at
  non-newspaper sites non-classified
• Alternatives, such as blog advertising, is
  growing, but are a small share of the market
• Some newspapers looking into e-commerce/auctions
  (150 newspapers - 46 million)

2003
(a) Local regional portals from national
services, such as MSN, Yahoo!, Time Warner (b)
Local ads from national services, such as
Monster.com, Realtor.com
PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004
20
Internet Advertising Is Very Concentrated

• Consumer Internet advertising is HIGHLY
  concentrated at the larger national sites (Time
  Warner - AOL, Yahoo!, etc.) - BUT losing share

Percent of Internet Advertising Spending
2002
2003
Top-10 Sites
76
71
89
87
Top-25 Sites
97
96
Top-50 Sites
In 2003, Internet advertising up 20.2 to 7.268
billion Based on 4 market share, Web sites 51
generated 290.72 million - During the entire
year (Up 60.2 from 181.44 million in 2002
) During the Super Bowl (2004), CBS Broadcast 28
minutes of advertising Generating approximately
124 million (Up 15.9 from 107 million in 2003)
PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004 AdAge.com, 2004
21
Internet Advertising Formats in Flux

• Banner ads continue to lose favor
• Classifieds up, but considered sluggish with weak
  job recovery
• Rich media growing, but linked to broadband
  penetration
• Keyword searches hottest market, but limited to
  few sites and ROI being questioned

E-Mail, Interstitial, Referrals
PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004
22
Internet Classified Advertising

• Spending on Internet classifieds rose 32.0 in
  2003 after a 20.4 decline in 2002
• Major newspaper classified web service,
  CareerBuilders.com is second largest provider
• Local online ad spending at newspaper sites up
  43 is 1Q/2Q 2004, compared with first six months
  2003

2003
Online Ad Spending at Newspaper Web Sites - Q1/Q2
2004 vs. Q1/Q2 2003
PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004 Corzen,
September 2004 Borrell Associates, August 2004
23
Good News

• The Internet advertising market returned in 2003,
  though not yet at 2000 levels
• Momentum grew during the year, 2nd half growth
  outstading

PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004 Interactive
Advertising Bureau, May 2004
24
Table of Contents The Realities of the
Internet Economics Communications Industry
Trends Internet and . Advertising
Specialty Media Marketing Services
Consumer End-User Spending Institutional
End-User Spending Global Perspective Summary Ab
out PQ Media
25
Internet Profits Lacking in Specialty Media
Marketing Services

• Revenue is not the problem - 8 publicly reporting
  North American marketing companies specializing
  in Internet services grew at a CAGR of 6.9 since
  1999

OI OCF Performance of 13 Publicly Reporting
E-Marketing Companies
Millions
PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004
26
The Internet in Specialty Media Marketing
Services

• Potential as One-on-One Marketing Tool
• Track audience responses quickly with
  demographic/psychographic data
• Supply sophisticated database lists sorted in a
  plethora of ways
• Deliver results-oriented marketing campaigns -
  ROI metrics
• However, privacy issues related to database/list
  generation
• Opt-in e-mails effectiveness significantly
  weakened by spam, spam,spam, etc.
• In 2005 in North America, 12 billion spam
  messages projected to sent
• In addition, 13 billion person-to-person e-mails
  and 6 billion e-mail alerts and notifications
• In 2003, business e-mail volume worldwide
  exceeded one exabyte (one billion gigabytes)
• Obstacle - High Operating Costs
• Technology costs hinder start-ups and product
  enhancements
• Marketing costs often too high as a percentage of
  revenue
• Share of other Internet companies as clients
  often too high instability paying bills
• Formula for Success
• Niche product to help generate or track
  sales/promotion trends
• First to the marketplace paramount to success
• Limited competition - market leader survives, 2
  struggles, 3 going out of business

27
Table of Contents The Realities of the
Internet Economics Communications Industry
Trends Internet and . Advertising
Specialty Media Marketing Services
Consumer End-User Spending Institutional
End-User Spending Global Perspective Summary Ab
out PQ Media
28
Most of Internet Spending is on Access, Not
Advertising

• Advertising only 1/4 of all Internet spending
• Consumer spending on web content is pushing growth

2008
2003
PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004
29
Consumers Are Spending More Time with the Internet
1998-2003CAGR
2003-2008CAGR
1998
1998
2003
2008
Broadcasting Entertainment Print Internet TOTAL
2,462 384 437 39 3,322
2,747 339 401 176 3,663
2.2 -2.5 -1.7 35.4
2.0
3,051 394 378 236 4,059
2.1 3.1 -1.2 6.0
2.1
2003
2008
Broadcasting Cable

• Dramatic rise in time spent on the Internet
  during late 1990s tied to the astounding increase
  in Internet households
• Rate of growth slowed in early 2000s because
  those already on the Internet used time more
  efficiently by mid-2000s growth increases
  because of broadband

of Hours
Entertainment
Print
Internet
Consumer Magazines
Daily Newspapers
Interactive Television
Home Video
Broadcast Television
Radio
Cable Satellite
Recorded Music
Video- games
Movies in Theatres
Consumer Books
Internet
PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004
30
Media Multitasking Is Growing
(a) Broadcast televison, cable satellite
television, home video, video games (b) Broadcast
satellite radio, recorded music (including
MP3) (c) E-mail, instant messaging, web
surfing (d) Consumer books, consumer magazines,
newspapers (e) In addition to media listed above,
includes other media, telephony, and postal
mail
(a) Second medium in use after primary medium is
chosen (b) Broadcast televison and cable
satellite television
PQ Media International Digital Media Arts
Association BIGResearch
31
U.S. Internet Penetration in Little More than
Half the Homes
2008
HOUSEHOLDS (Millions)
2003
1998
19.1 29.2 20.1 7.4
38.7 16.1 9.1 0.8
18.5 0.6 0.03 ---
Dial-Up Cable Modem DSL Other
Spending controlled by few - cable telecomm
companies
Internet penetration of U.S. households didnt
reach 50 until 2001 and growth rate flattening
Wireless and Cable Access
PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004
32
Consumers Becoming Willing to Pay for Content
2003-2008 CAGR
2003 Growth
20.7 32.4 81.8
20.0 25.2 220.0
General Content Online Games Digital Music
Millions
PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004
33
Almost All General Content Types Growing

• Most general content categories grew by double
  digits in 2003, but some saw a decline

PQ Media Online Paid Content U.S. Market
Spending Report, comScore Online Publishing
Association, 2004
34
Content Spending Subscription vs. Single
Purchases

• A majority (89) of consumers prefer to make
  content purchases by subscription
• Only few categories generate more than 20 of
  sales through single purchases

PQ Media Online Paid Content U.S. Market
Spending Report, comScore Online Publishing
Association, 2004
35
Table of Contents The Realities of the
Internet Economics Communications Industry
Trends Internet and . Advertising
Specialty Media Marketing Services
Consumer End-User Spending Institutional
End-User Spending Global Perspective
Summary About PQ Media
36
Online Use at Work

• People use the Internet at the workplace more
  than at home, including personal use

Internets Prime Time is 800 AM to 500 PM
PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004
37
Internet at Work - B2B vs. B2C E-Commerce

• In 1998, businesses spent a slightly more than 5x
  more on e-commerce than consumers
• Businesses spent approximately 10x more on
  e-commerce than consumers in 2003
• By 2008, businesses will spend approximately 14x
  more than consumers on e-commerce

Forecast
Billions
E-commerce is not considered communications
spending, as dollars are spent on products, not
on communications content or accessing that
content.
PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004
38
Current Market Conditions

• Companies that provide customers with a flexible,
  customizable product offering that integrates
  content, software and services, will be the most
  successful

End-to-End Solutions
Tools
Dynamic Content
Growth Opportunities
Static Content
Value Added

• Workflow Tools
• Compliance Products

• Integrated Product Suites of Data and Applications

• Books
• Flat File Data

• CD-ROMs
• Database Products
• Online Products

• As customers pare their vendor lists, companies
  with an integrated offering will be more
  profitable and enjoy higher retention ratios,
  since switching costs for the client increase
  with each additional product or service

PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004
39
Institutional Internet Spending

• Business spending on Internet content is
  difficult to determine for many communications
  segments - The following information is based on
  industry information or has been estimated

• Business-to-Business Media
• B2B Media companies generate approximately 5 of
  their revenues from the Internet
• Most business-to-business magazines have a web
  site - most operating at or near profitability
• Trade shows using the Web for registration,
  program updates, and limited Web casting
• Business Information Services (BIS)
• Online integral part of BIS since 1982 when first
  dedicated portal site, NewsNet, introduced
• Mainly subscription-based model (vs. advertising)
  which is less prone to economic swings
• Estimated share of online/digital (CDs) content
  of BIS is 65 (42 billion)
• Product lines going from print-to-online
  increasing EBITDA - clients spending more per
  request
• Growth opportunities increase as products become
  more value added
• Professional, Educational Training Media
• Though print still dominants, professional
  publishers are migrating to online products
• More K-12 students are gaining access to the
  Internet at schools
• College access available in multiple locations
  professors embracing e-learning platforms
  distance learning available at 55 of all
  colleges and universities
• More than 25 of all outsourced training done by
  computer or remote instructor-led methods

40
Online Spending in Professional Publishing
2003-2008 CAGR
1998-2003 CAGR
2004 Growth
11.0 13.3 18.3
12.0 16.6 26.4
9.5 15.5 21.1
Legal/Regulatory Scientific/Technical Health
Sciences
Millions
PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004
41
Table of Contents The Realities of the
Internet Economics Communications Industry
Trends Internet and . Advertising
Specialty Media Marketing Services
Consumer End-User Spending Institutional
End-User Spending Global Perspective Summary Ab
out PQ Media
42
World Economic Environment

• Some world economies dropped more dramatically
  than others during the U.S. recession - falling
  three to ten bps
• Recovery was worldwide by 2003, but growth rates
  will be relatively flat going forward

Nominal GDP
Forecast
U.S. Recession
2000
2001
2002
2003
2004
2005
2006
1999
2007
1998
PQ Media PricewaterhouseCoopers Global
Entertainment Media Outlook 2003-2007, 2003
43
Global Internet Penetration Rates

• In 2003, approximately only one dozen countries
  had Internet penetration rates over 50 percent
  close to United States figures
• By 2008, about one-half of the countries will
  reach the 50 percent penetration rate of which
  approximately a dozen will equal the U.S. level
  near 75 percent penetration

PQ Media, eMarketer, PriceWaterhouseCoopers
Internet World Stats, July 2004
44
Global Broadband Subscribers

• In 2003, there were approximately 90 million
  broadband subscribers, mainly in North America
  and Asia Pacific
• By 2008, it is estimated that there will be 260
  million broadband subscribers, the strongest
  gains in Europe

Forecast
PQ Media, eMarketer, Strategy Analytics
45
Broadband Penetration in 2003

• While broadband penetration is growing globally,
  only two countries have broadband penetration
  over 50 percent - Another nine countries have
  broadband penetration over 20 percent, close to
  the U.S. penetration of 22.5 percent
• Outside the United States, DSL more often the
  choice for broadband than cable modem because of
  the weak cable infrastructure In most countries
• However, with DSL as the major choice, many
  global telecommunication companies have a spotty
  history of customer service, installment
  schedules and quality consistent reception

PQ Media, eMarketer Broadband Worldwide 2004,
April 2004
46
Global Internet Spending Trends

• Globally, the Internet market is expanding by
  double digits in most regions, both in the
  advertising and consumer access spending
  categories

PQ Media PricewaterhouseCoopers Global
Entertainment Media Outlook 2004-2008, 2004
47
Global Internet Spending - Putting It into
Perspective
United States
Rest of the World
2003 Spending
Billion
Internet Access Spending
21.534
36.656
(37.0)
Internet Advertising Spending
2.433
7.247
(74.9)
Internet Content Spending
1.911
NA
(100.0)

• Total Consumer Internet Spending

30.712
39.089
(45.2)
Japan China Germany France United Kingdom Italy
Countries with Consumer Internet Revenue between
2 to 5 Billion
Canada South Korea Russia
Countries with Consumer Internet Revenue over 1
Billion
54 Countries - Canada 16 in Western Europe 12
in Eastern Europe 5 in Middle East/Africa 6 in
Latin America and 13 in Asia Pacific
PQ Media Veronis Suhler Stevenson Communications
Industry Forecast Report, 2004 PricewaterhouseC
oopers Global Entertainment Media Outlook,
2004-2008, 2004
48
Mobile Phone Penetration

• Globally, only 25.9 percent of worlds population
  subscribes to a mobile phone service
• However, in Western Europe, Japan and North
  America, penetration is well over 50 percent
• Total wireless subscribers worldwide is projected
  to jump from 1.5 billion in 2004 to 12.5 billion
  by 2009 with China, India, and Western Europe
  pushing growth

PQ Media PricewaterhouseCoopers Global
Entertainment Media Outlook 2003-2007, 2003
49
Mobile Phone Trends

• Business Model
• Global spending on mobile data services will hit
  61 billion in 2004 (U.S. - 4.6 share) 189
  billion by 2009
• Text messaging (Instant Messaging IM / Short
  Messaging Severs SMS) will account for 46 of
  spending in 2009
• Mobile entertainment (ring tones, games,
  music/media) will account for 28 of spending in
  2009
• Mobile games sales totaled 1.1 billion in 2003
  (200 million in US, 600 million in Europe)
• Ring tones generated 3.0 billion in 2003
  projected to rise to 4.7 billion by 2008 (12 of
  total music)
• Advertising of ring tones - 1.15 billion in
  Europe, 720 million in Asia, 81 million in US
• SMS-TV (see below) approximately 700 million
  business in Europe projected to 1.32 billion by
  2005
• Mobile phones w/cameras units will number 150
  million in 2004 projected to rise to 656 million
  units in 2008
• Mobile phone advertising almost nonexistent -
  some have suggested bartering free updated phone
  technology in exchange for running a limited
  number of video commercials, such as movie
  trailers
• Other Trends
• Demographically, highest penetration of cell
  phones is in the 35-49 age group - 7 out of 10 in
  US own one
• Ownership tied to income - in US, 83 ownership 20K income - 38 ownership
• IM/SMS hot, especially among younger demographics
  
• In US, 62 of 53 million IM users are 18-to-27,
  of which 12 million use IM more than e-mail
• Only 21 of IM use is done at work (11 million
  adults)
• In Europe - SMS-TV very popular - viewers vote
  what to see next - pushing up TV ratings on those
  shows, leading to increased advertising on those
  programs (used in music/reality shows and some
  e-commerce)
• Approximately 50 of mobile phone users 15-30
  have downloaded ring tones - mainly hip-hip
  downloads
• Changes in mobile phone usage tied closely to
  3G (3rd-generation) technology - easier
  audio/video downloads

50
Table of Contents The Realities of the
Internet Economics Communications Industry
Trends Internet and . Advertising
Specialty Media Marketing Services
Consumer End-User Spending Institutional
End-User Spending Global Perspective
Summary About PQ Media
51
Internet - An Investment Perspective

• The investment communitys major concern is
  generating profit
• How aggressively the economy rebounds will
  determine many next steps for the Internet
• Communications is among the fastest growing
  economic sectors in the US economy
• Communications is divided into four types -
  advertising specialty media marketing
  services consumer end-user spending and
  institutional end-user spending
• Internet spending can be found in all four types
  of communications spending
• There are different dynamics at work for the
  Internet in each type of communications
• Internet advertising has rebounded, but is
  concentrated in the top-50 sites, keyword
  searches are hot but limited to few sites while
  banner ads dont work and classifieds are
  relatively flat
• Specialty media marketing services uses of the
  Internet have potential, but most business models
  have are yet to be financially feasible
• Consumer spending on the Internet concentrated
  mainly on access, but controlled by cable and
  telecommunications industries - content spending
  on the rise, but few business models available
• Institutional spending on online content offers
  opportunities, but revenue controlled by limited
  number of firms and very cost intensive
• Success more likely if market leader or first in
  a niche
• The international Internet model faces many more
  hurdles than the US model
• Mobile phone use is growing, with text messaging,
  ring tones and gaming major add-ons, but a number
  of trends might negatively impact its usage

52
If Youre Going to Do the Internet

• Use personnel and technology efficiently
• Have a business plan that makes sense
• Prove there is a niche market not being reached
• Prove that fees can be generated consistently
• Prove that market share will grow over a
  forecasted period
• Prove how costs will be controlled
• Especially technology, personnel, and marketing
  sales
• Prove that the management team has experience
• CEO and CFO will be scrutinized
• Prove there is no creative accounting in the
  business plan

• BECOME PROFITABLE RESPONSIBLY

53
Table of Contents The Realities of the
Internet Economics Communications Industry
Trends Internet and . Advertising
Specialty Media Marketing Services
Consumer End-User Spending Institutional
End-User Spending Global Perspective Summary Ab
out PQ Media
54
About PQ Media
PQ Media is a market research and strategic
consulting firm that delivers custom business
intelligence to organizations serving the media,
entertainment and information industries. The
firm provides mission-critical data and
information on each key segment of these
industries in multiple formats to corporations,
law firms, financial institutions and trade
organizations. PQ Media provides clients with
custom market research and analysis through print
and digital reports, newsletters, white papers
and presentations. Subjects covered include
market spending, corporate market share, media
usage and media multitasking, which often require
detailed examination and interpretation of
proprietary and third-party data. PQ Medias
veteran research team covers each key segment of
the global media, entertainment and information
industries including

• Custom Publishing
• Consumer Books
• Education Training
• Professional Business Information Services
• Advertising/Public Relations/Marketing Services
• Yellow Pages Outdoor Advertising
• Consumer Media Usage
• Corporate Operating Performance

• Broadcast/Cable/Satellite Television
• Broadcast Satellite Radio
• Box Office Home Video
• Recorded Digital Music
• Internet/ITV/Videogames
• Daily Weekly Newspapers
• Consumer Magazines
• B2B Magazines Trade Shows

• PQ Medias clients are some of the most respected
  names in the media, entertainment and information
  industries, including among others
• Associated Press
• News Corporation
• Skadden, Arps, Slate, Meagher Flom
• Veronis Suhler Stevenson
• American Business Media

• Primedia
• Pearson PLC
• American Press Institute
• Bain Co.
• Association of American Publishers

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About PQ Media - Practice Areas
Custom Research On Demand. PQ Media delivers
custom market research and analysis on demand
through print and digital reports and
presentations. PQ Medias analysts draw on the
firms exclusive global databases, strong
industry contacts, and plethora of experience to
develop actionable market analytics on various
media-related subjects. These topics, such as
media multitasking, media convergence and media
usage, typically require detailed research and
interpretation of a range of data, trends and
forecasts. Strategic Consulting / Legal
Regulatory Actions. PQ Media offers its
expertise to corporations and financial
institutions preparing to evaluate new or
existing operations, as well as the impact of new
or traditional media on a companys current lines
of business. PQ Medias research team has more
than 100 years of experience in the media,
entertainment and information industries,
allowing the firm to offer myriad consulting
services not available elsewhere. PQ Media also
is engaged by corporations and law firms to
prepare research materials, or serve as expert
witness for media-related legal or regulatory
proceedings. Research Publications. PQ Media
develops original publications in multiple media
formats that examine key trends and drivers, as
well as provide forecasts, for a wide range of
markets within the media, entertainment, and
information industries. In addition, the firm is
hired to produce one-time and multiple-frequency
reports and newsletters for clients that are
distributed either internally or externally.
Custom Media Briefs / Instant Media Analysis.
PQ Media will prepare brief, but-in-depth written
or oral analysis on one or more media,
entertainment or information issues for clients
that need analytics in an extremely short
timeframe. The firm also will respond to
telephone or e-mail inquiries related to these
businesses on a limited basis.