Digital Transformation: Now (Never is a long time away)

The Local Media & Advertising Experts Digital Transformation: Now (Never is a long time away) Inland Press September 10, 2014

Incorporating the Digital Transformation Thank you for joining us to discuss how newspaper groups can grow their digital business into a profit center We re going to offer our views on the activities and behaviors we believe are driving true digital transformation and use our data as the foundation: Ad forecasts for newspapers Advertising trends of SMBs Consumer consumption of media Explosive growth of mobile, native advertising, deals & loyalty Case studies Presenters Thomas Buono CEO and Founder BIA/Kelsey Cameron Nutting Strategic Consultant BIA/Kelsey 2

Trans for ma tion noun \ˌtran(t)s-fəәr-ˈmā-shəәn, -fo r-\ : a complete or major change in something's appearance, form, etc. Trophic Cascade is a form of transformation caused by change at the top of the food chain that trickles down. 3

The Local Media & Advertising Experts

Yesterday s Local Media Ecosystem (the good old days) 5

New Technologies and Innovators are Introduced into the Ecosystem (the Trophic Cascade begins) Technological Innovation Internet Broadband Smart Phones Change Catalysts Emerge Google Facebook Mobile Apps 6

Our Ecosystem was Irrevocably Changed. 7

A More Complex Local Ad Market Still Dominated by Traditional Media 2014 U.S. Local Media Revenues $136.9 Billion [CATEGORY NAME] [PERCENTAGE] [CATEGORY [CATEGORY NAME] [CATEGORY NAME] [PERCENTAGE] NAME] [PERCENTAGE] [PERCENTAGE] Magazine 1.4% Cable OOH 5.1% 5.7% [CATEGORY NAME] [PERCENTAGE] Print Yellow Pages 2.7% [CATEGORY NAME] [PERCENTAGE] Radio O-T-A [CATEGORY 10.4% NAME] [PERCENTAGE] TV O-T-A 14.4% Newspapers Print 12.5% Direct Mail 27.9% [CATEGORY NAME] [PERCENTAGE] Source: BIA/Kelsey Media Ad View Forecast 2014 8

While Traditional Media Declines Online/ Digital Media Expands Traditional Online/Digital US$ Billions $180.0 $160.0 $140.0 $120.0 $100.0 $80.0 $60.0 $40.0 $20.0 $0.0 $156.8 $161.5 $149.9 $139.3 $145.5 $136.9 $30.8 $34.8 $39.2 $44.5 $50.0 $55.9 $106.1 $104.2 $105.6 $103.9 $105.0 $103.5 2014 2015 2016 2017 2018 2019 2014-2019 CAGRs: Total Media CAGR 3.4% Online/Digital Media CAGR 13.6% Traditional Media CAGR -0.5% Note: Numbers are rounded. Source: BIA/Kelsey Media Ad View Forecast 2014 9

35% of Local Advertising Online by 2019 Traditional Online/Digital 100% 90% 22.5% 25.0% 27.1% 30.0% 32.3% 35.1% 80% 70% 60% 50% 40% 77.5% 75.0% 72.9% 70.0% 67.7% 64.9% 30% 20% 10% 0% 2014 2015 2016 2017 2018 2019 Source: BIA/Kelsey U.S. Local Media Forecast (2014-2019) 10

Advertising Pie Fractionalization Continues Magazine 0.9% OOH 5.7% 2019 U.S. Local Media Revenues $161.5 Billion [CATEGORY NAME] [PERCENTAGE] [CATEGORY NAME] [CATEGORY [PERCENTAGE] NAME] [PERCENTAGE] Cable 4.6% [CATEGORY NAME] [PERCENTAGE] Newspapers Print 8.2% [CATEGORY NAME] [PERCENTAGE] Direct Mail 24.1% [CATEGORY NAME] Print Yellow [PERCENTAGE] Pages 0.9% [CATEGORY NAME] [PERCENTAGE] Radio O-T-A 9.6% TV O-T-A [CATEGORY 13.7% NAME] [PERCENTAGE] Source: BIA/Kelsey Media Ad View Forecast 2014 11

You Must Position Yourself to Bridge the Media Chasm. Traditional Media Consumer Trusted Media Adviso r Merchant New Media 12

The Opportunity for Newspapers 13

Employ Innovative Approaches to Offset Downward Revenue Trend Pressure Print Online US$ Billions $25 $20 $15 $10 $3.30 $17.05 $3.39 $16.08 $3.48 $3.59 $3.70 $3.81 When you add marketing, mobile, social loyalty, native $15.20 $14.41 $13.70 $13.05 $5 $0 2014 2015 2016 2017 2018 2019 Note: Numbers are rounded. 14

Newspaper Advertisers Are Sophisticated, Using Many Other Media Do Not Use Newspapers to Advertise Use Newspapers to advertiser 70% 63.9% 60% 50% 46.5% 48.6% 42.6% 40% 37.9% 38.3% 37.7% 36.6% 35.5% 34.4% 32.8% 32.2% 30% 20% 23.6% 27.8% 14.5% 19.0% 16.6% 22.1% 20.3% 20.8% 10% 0% Source: BIA/Kelsey s Local Commerce Monitor (LCM) Wave 17, Q3/2013 (and prior waves, if relevant). Methodology: Online panels. 15

Newspaper Advertisers Plan on Expanding Their Overall Spend, Can You Get More? 50% 44.8% 40% 37.2% 30% 20% 10% 9.3% 8.7% 0% Source: BIA/Kelsey s Local Commerce Monitor (LCM) Wave 17, Q3/2013 (and prior waves, if relevant). Methodology: Online panels. Sample: SMBs Who Advertise with Newspapers. 16

Ways to Get More $$$ 17

Understand Their Marketing Priorities Lead to Expanded Offers Very high priority Extremely high priority Search Marketing 26.4% 31.2% 57.6% Print Advertising 28.9% 21.0% 49.9% Social Media 23.6% 20.8% 44.4% Analytics 24.6% 18.7% 43.3% Video 19.9% 18.5% 38.4% Mobile 21.3% 15.7% 37.0% Discount Deals/Coupons/Loyalty 21.0% 13.4% 34.4% Broadcast 14.8% 14.4% 29.2% 0% 20% 40% 60% Source: BIA/Kelsey s Local Commerce Monitor (LCM) Wave 17, Q3/2013 (and prior waves, if relevant). Methodology: Online panels. 18

Help Local Customers Employ a Broad Range of Products & Services Search Engine Marketing Search Engine Optimization Social Media Marketing Content Marketing Database Marketing Websites (mobile optimized) Reputation Management Mobile Display Video Branding Analytics and ROI Dashboards 19

Join the Mobile Revolution 20

Incorporate Other Mobile Approaches 21

Recognize that Geotargeting & Personalization Will Drive Engagement Non-location Targeted Location Targeted $35 $30 $30.30 US$ Billions $25 $20 $15 40% $11.43 $16.08 $7.03 $20.26 $9.22 $25.47 $12.52 $15.74 52% $10 $5 $0 $7.22 $4.54 $14.56 $2.87 $12.95 $11.05 $9.05 $6.88 $4.35 2013 2014 2015 2016 2017 2018 Source: U.S. Local Media Forecast (2013-2018): Mobile Edition. Note: Numbers are rounded. 22

Acknowledge that the Shift to Mobile Advertising Has Begun 14% 12.7% 12% 10.2% 10% 9.3% 8% 6.7% 6% 4% 2% 0% Source: BIA/Kelsey s Local Commerce Monitor (LCM). Methodology: Online panels. 23

And While Still in its Infancy, Note the Potential. Source: KPCB Internet Trends Report 2014 24

Embrace the Power of Social Media 25

Social Media: New Channels to Reach and Engage Consumers Brands and SMBs are tied to social media via users social graphs (i.e., who they re connected to or follow) and behavioral targeting through their interests ( likes, shares, etc.). BIA/Kelsey expects social local ad spend to steadily increase through 2019, consistent with the growth of geotargeting in the overall display market. Social media is a major chunk of mobile. And vice versa. Geo targeting and personalization drive it. 26

Shift your Offers to the Automotive Vertical Recognizing Social has Changed Car Buying Somewhat Influential Very Influential Facebook 19.3% 9.0% 6.9% 35.2% Blog 20.5% 8.1% 4.2% 32.8% Google+ 15.3% 8.3% 5.5% 29.1% Yelp 15.7% 6.7% 4.3% 26.7% Pinterest 12.1% 5.7% 3.5% 21.3% Tweets 11.7% 5.0% 3.9% 20.6% 0% 5% 10% 15% 20% 25% 30% 35% 40% Source: BIA/Kelsey s Consumer Commerce Monitor (CCM). Methodology: Online panels. 27

Understand the Importance of Facebook Pages Not sure 2.2% Customer acquisition is now the #1 objective of SMBs using Facebook (up 15% wave-over-wave). Retain 5.0% Build Community 19.4% Build Awareness 30.9% Acquire 41.7% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Source: BIA/Kelsey s Local Commerce Monitor (LCM). Methodology: Online panels. 28

Case Study: QC Times Facebook Agency 2 Week Campaign Contest setup on your Facebook Page Like-Gate Opt-in for Email Database 1 Full Page Ad 3 ¼ Page Ads 1 Full Color Front Page Strip Ad Email to 80k members Web Display Ads (100k impressions ROS) Homepage takeover Total cost: $1,750 Net Result: $14,000 New Revenue 29

Understand how Social Media Advertising is Evolving and the Players who Dominate You Tube* 25.5% 2014 Others 1.7% You Tube* 16.2% 2019 Other* 2.2% Facebook 48.8% Twitter 12.9% LinkedIn 3.4% Faceboo k 57.0% Twitter 28.6% LinkedIn 5.8% You Tube advertising estimates do not include advertising on premium channels. * Other includes ad revenue from all other U.S. social networks (ex. Pinterest, Tumblr, Foursquare, etc.) Source: BIA/Kelsey Media Ad View 2014 30

Although Locally-focused, Watch how Brands Will Advertise on Social Media $25 Local National $20 2014-2019 Local CAGR: 29.3% US$ Billions $15 $10 $9.6 $11.6 $13.4 $14.6 $7.5 $5 $0 $5.7 $9.0 $7.9 $6.5 $5.1 $3.6 $2.5 2014 2015 2016 2017 2018 2019 Note: Numbers are rounded. Source: BIA/Kelsey U.S. Local Media Forecast (2014-2019) 31

Focus on Marketing: Content Marketing Loyalty Programs Card-Linked Offers 32

Native Advertising/Content Marketing has Emerged With native advertising, ad copy contextually represents news feeds and other personalized social content. It is enhanced by user engagement (i.e. Likes, Comments and Shares). Facebook Sponsored Stories Twitter Promoted Tweets 33

Native Advertising: Addressing this Gap Source: KPCB Internet Trends Report 2014 34

Consider Broader Approaches to Meeting the Needs of Both Constituencies New Marketplaces Big Data Geo-Based Mobile Offers Card Linked Offers Native Advertising Loyalty/Deals Deals/Coupons Frequent User Clubs Newsletters Social Media "likes Rewards Advertising Display Classifieds Search Coupons 35

Case Study: U-T San Diego s Switch from Deals to Loyalty New pilot: Card-linked network loyalty model: Deals & NP subscribers register credit cards to earn cash back at participating merchants Cash is available on the card the next time a shopper goes back (and the reward incentives the return visit) Cash is available on the card the next time a shopper goes back (and the reward incentives the return visit) 300-merchant network at launch; Merchants only pay small commission fee on customers brought in store Merchant controls: Discount/reward flexibility & control; Dashboard to change offers dynamically Deep analytics: number of customers; total spend (by day); avg. ticket price vs. merchant s avg. customer 36

Watch to see if Marketers Shift $$$ from New Customer Acquisition to Retention >50% for Retaining 5.7% Not sure 6.7% Almost 7:1 Ratio Hard to Say 22.3% Roughly 50/50 28.0% >50% for Acquiring 37.3% 0% 10% 20% 30% 40% Source: BIA/Kelsey s Local Commerce Monitor (LCM) Wave 16, Q3/2012 (and prior waves, if relevant). Methodology: Online panels. Findings may not be statistically significant. Most questions are asked to the full sample of approximately 300 in each Wave. Where the sample size is less than 300, that question has been asked of a subset of the full sample. Q101AA Sample Size = 300 37

In Summation 38

Key Insights to Remember from our Presentation Newspaper SMBs use digital media heavily and plan to do more. Yet, they re also more selective so you have to be prepared to engage them. SMBs are ramping up their online presence, and how much they spend to maintain it and engage across its channels. Mobile and Social continues to be adopted by SMBs and consumers it s importance can t be underestimated. Marketing is an important and growing compliment to advertising. 39

Things to Keep in Mind Newspapers are still well-positioned to serve this changing marketplace. You are Local Trusted Advisor. The ecosystem has changed and you must move differently It is important to assess your strengths and weaknesses and develop a plan Brand Identity/Relationships with Advertisers/Staff Capabilities, You can t do everything, but you must do something What can you do with your resources? With whom can you partner? 40

BIA/Kelsey s Transformation 41

Recognized that our Marketplace is Changing 42

Acquired The Kelsey Group To Expand our Focus to all Aspects of Local Media Legacy Media Analysis and strategic resources for Legacy Media, including Newspapers, Yellow Pages and Broadcast. Online Search / Marketing Marketing intelligence on local online and mobile search, as well as email, reputation and presence management (ERPM). Mobile Research and analysis of the geolocal advertising opportunity. Social Directional analysis of the growing and dynamic social media ecosystem. Loyalty & Transactions Examination of the emerging loyalty and transaction marketing solutions sector. Video Intelligence on leveraging video media assets and inventory in local markets. Sales Force Transformation Analysis and case study examinations of the rapid changes in digital media sales. 43

Expanded Our Team to Provide Coverage of the Local Ecosystem MICHAEL BOLAND Vice President CELINE MATTHIESSEN VP Insights & Analytics CHARLES LAUGHLIN Sr. Vice President RICK DUCEY Managing Director MARK FRATRIK VP/Chief Economist PETER KRASILOVSKY Vice President ABID CHAUDHRY Senior Director GEOFF PRICE Vice President JEANNE DATILLO Sr. Analyst MESHACH CISERO Associate Analyst STACEY SEDBROOK VP-Strategic Sales STEVE MARSHALL Director, Research CAMERON NUTTING Strategic Consultant SUZANNE ACKLEY Sr. Research Analyst MACKENZIE LOVINGS VP, Marketing TOM BUONO CEO 44

Pursued and Landed Transformative Clients 45

Continue to Expand our Offers to Meet Changing Client Requirements Delivering Services That Drive Growth & Revenue Market Information Industry and Market Forecasts, Nationwide Vertical Ad Forecasts Newspaper Advertiser Views, SMB Research, Consumer Studies, Local Market Data Competitive Intelligence Company Reviews & Product Research Local Digital Sales Strategy, transformation and execution Funding Valuations, Purchase Price Allocation Partnering/M&A/Funding Acquisition Consulting Business Services Planning and Budgeting Digital Innovation & Strategy Networking 46

The Local Media & Advertising Experts Questions & Comments: Tom Buono Cameron Nutting tbuono@biakelsey.com cnutting@biakelsey.com (703) 802-2960 (703) 818-2425 Copyright This published material is for internal client use only. It may not be duplicated or distributed in any manner not permitted by contract. Any unauthorized distribution could result in termination of the client relationship, fines and other civil or criminal penalties under federal law. BIA/Kelsey disclaims all warranties regarding the accuracy of the information herein and similarly disclaims any liability for direct, indirect or consequential damages that may result from the use or interpretation of this information.

Think Multi-dimensional, the Linear Marketing Funnel is Insufficient Display Ads Video/TV Circulars Deals/ Loyalty Customers Ratings and Reviews Geo- Proximity and Inventory 48

The Power of the Virtual Wallet Market Enroll Earn Redeem Analyze Promote In-store Direct Mail Website Facebook QR code In-store POS Website Facebook IVR Points Discounts Cash Coupons Coupons Points Tier based Free items Past history Catalogs Segmented Real-time at Promotional Point of Sale Item Level Real-time at point of sale Tender Neutral Analyze consumer performance Enrich program real-time Promote consumers realtime Receipt Website Email Text Direct Mail Source: First Data 49

Case Study: StreetWise Media Focuses on Content Marketing Advance s StreetWise Media focuses on the startup community and entrepreneurship. Each city varies in terms of its editorial focus. In DC, it has 4 writers focused on advocacy and innovation. In Boston, they focus on the college vertical. Once we get an audience foothold, our publications develop. Chase Garbarino, Streetwise Media 50

Newspaper: Expected to Experience Continuing Print Product Erosion Print Online $25 US$ Billions $20 $15 $10 $ 20.35 $3.30 $17.05 $19.47 $3.39 $16.08 $18.68 $18.0 $ 17.49 $16.86 $3.48 $3.59 $3.70 $3.81 $15.20 $14.41 $13.70 $13.05 $5 $0 2014 2015 2016 2017 2018 2019 Note: Numbers are rounded. Source: BIA/Kelsey U.S. Local Media Forecast (2014-2019) 51

Yesterday s Advertising Pie Split 1990s-ish $120 Billion Newspaper Television Radio Magazine Out of Home Cable Direct Mail 52