TV Advertising: The Next 10 Years

TV Advertising: The Next 10 Years An Agency Perspective Steve King, Chief Executive - Worldwide, ZenithOptimedia

TV Advertising: The Next 10 Years Global advertising forecasts Media trends Television trends Responding to changing times

Stable world economy Gross Domestic Product: year-on-year % change 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2005 2006 2007 5.5 4.7 4.2 3.8 4.1 3.9 4.1 4.0 3.2 3.5 3.3 3.5 5.1 5.1 5.0 WORLD N.America L.America Europe Asia Pacific 2.0 1.9 2.0 Germany Source: ZenithOptimedia, April 2005

Adspend growing Adspend: year-on-year % change 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2005 2006 2007 5.4 6.4 6.1 4.3 6.0 5.1 5.0 7.3 8.2 4.9 4.7 4.4 7.1 7.3 6.8 WORLD N.America L.America Europe Asia Pacific 2.6 2.2 0.8 Germany Source: ZenithOptimedia, April 2005

Ad expenditure growth by region (% change, 2008 v 2005) 35 30 31 25 20 15 18 15 20 20 19 10 5 0 North America Europe Asia Pacific Asia ex. Japan Latin America World Source: ZenithOptimedia

Higher growth in TV adspend TV adspend: year-on-year % change 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2005 2006 2007 5.7 7.0 5.7 3.4 5.9 3.3 4.7 7.2 8.3 6.1 5.7 5.3 8.0 7.1 6.5 WORLD N.America L.America Europe Asia Pacific 3.5 1.8 0.4 Germany Source: ZenithOptimedia, April 2005

TV gaining share Global adspend by media type 450 400 350 +19% 38.4% TV $bn 300 250 200 150 36.1% +76% +40% 38.1% 30.5% +16% 29.8% Newspapers 100 50 0 36.2% 13.3% 8.3% 6.1% +70% +78% +47% 13.5% 8.8% 5.4% 3.7% +17% 13.4% +14% 8.5% +21% 5.5% +44% 4.5% 1994 2004 2007 Source: ZenithOptimedia, April 2005 Magazines Radio Outdoor Internet

Media adspend declining share of marketing Spend 2004 v 2001 % change (US, Japan, Germany, UK, France) 35.0 30.0 29.8 25.0 20.0 15.0 10.0 5.0 0.0 0.7 Media Advertising 3.5 Sales Promotion 6.8 Brand PR/ Sponsorship 4.6 Direct Mail Interactive Marketing Source: Marketing Expenditure Trends Report, London Business School

Media advertising and sales promotions (USA) Marketing budget allocation % Media Advertising 1976 42% 1986 34% 2002 24% Consumer Promotions 19% 26% 27% Trade Promotions 39% 40% 49% Source: John Philip Jones

Towards customer experience marketing Real brand marketing is not about fabricated slogans, it s a total approach. We are now looking at communicating through the line and at other ways the brand interfaces with the driver. That s why we now believe we are no longer selling cars - we are selling customer experiences. President, Mazda Motors, Europe

Towards integrated marketing communications Direct Mail Cellular e-mail Pager Website PDA Outbound Telemarketing Sales Force Fax Customer Delivery Fulfillment Retail Point of Sale Face-to-Face Behaviours Touchpoints Contacts Radio Customers Interactions Phone Ordering Television ATM Magazines Event / Sponsorships Outdoor Placement/ Product Sampling Newsprint

Media trends (i) - overview Consumer appetite for media is rising (time and money) Advertising supported media are losing share to consumer supported media TV remains dominant Growth media include internet, direct mail, email, mobile, retail, PR Growing use of multiple traditional and nontraditional media

Media trends (ii) media consumption % share of the average person s media time 3 Mobile Phone +/- % by 2007 2 1 0-1 Internet Home PC Cinema Music Magazines Books Radio Television -2 Newspapers -3 0 10 20 30 40 50 60 % share of time Source: ZenithOptimedia

Media trends (iii) media reach 2005 2015 Personal Communication Mobile internet E-mail PC Internet Low reach High reach Cinema Digital TV Source: ZenithOptimedia Mass Communication Radio Posters Print Analogue TV

TV - The Next 10 Years Potential for a new golden era: more viewing, more enjoyment, more attention Rising penetration of multi-channel TV Digital TV replacing analogue TV Growing popularity of interactive TV Rapid growth in DVR penetration (replacing VCR)

Digital TV penetration in Europe Digital Households as % of All Households % 60 59 50 45 40 30 20 18 22 23 29 34 37 10 0 Germany** France Italy Spain Sweden Ireland Norway UK* Sources: *Sky, **AGF/GfK Fernsehforschung, Jupiter Research

TV distribution platforms in Europe % of All TV Housholds % 100 14 15 7 13 14 75 70 54 33 18 50 25 0 80 80 38 67 42 26 15 4 5 USA Germany UK France Spain Italy terrestrial digital terrestrial analogue Satellite Cable Source: Booz Allen Hamilton 2005

Growth of free digital terrestrial TV Homes % penetration 100 90 UK 80 70 60 50 40 30 20 10 Germany Spain Italy France 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: ZenithOptimedia, Television in Western Europe to 2012,

Growth of pay digital TV Homes % penetration 100 90 80 70 60 50 40 30 20 10 France UK Spain Italy Germany 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: ZenithOptimedia, Television in Western Europe to 2012,

The value of time Time management has become the most important driver of social change and innovation. Nearly all technological and social innovations over the last 50 years can be attributed to a desire to maximise use of time. They can do this in two ways: either by increasing the satisfaction gained from any given unit of time or by reducing the amount of time to achieve the same amount of satisfaction. The Future Foundation, April 2004

Digital Video Recorders A vital TV innovation 50% penetration in US/UK by 2012 - US: 8m homes currently - UK: 770,000 DVR homes watching 16% more TV Significant change to viewing behaviour - 40% of viewing to recorded programming. 73% of ads fast forwarded - More attentive, enjoyable, selective viewing - Despite fewer ads viewed, no fall in ad recall (source: Sky) Challenges and opportunities for advertisers

The Changing Face of Advertising on TV 100 90 80 70 60 Classical Ads 50 40 30 20 10 0 2000 2005 2006 2008 2009 2011 2013 2015 Gaming Interactive Ads Branded Content Special Ads Source: ZenithOptimedia

The value of attention People are more likely to watch if they choose the programme, and are interested in it and enjoy it People recall more ads in programmes they are attentive to GRPs are not a good surrogate for attention or recall

What people do during ad breaks Activities during ad breaks Leave room 31% Pay full attention to ads 5% Switch channels 10% Do other things like chat or read 54% Source: ZenithOptimedia, TV Persistence Study, UK

What people remember from ad breaks Break advertising recall (15 minutes after the programme) Spontaneous 1% Prompted 18% No recall 81% Source: ZenithOptimedia, TV Persistence Study, UK Source: Zenith Media TV Persistence Study (March/April 1999)

Viewing persistence effect on ad recall Ad recall index vs average AMOUNT OF THE PROGRAMME VIEWED Almost none A little Half / Most All +63% 102 114 76 50 Source: ZenithOptimedia, TV Persistence Study, UK

Integrating marketing communications Direct Media Generating response Creating awareness Mass media TV Enhancing experience Interactive Media

TV sales the next 10 years 1. Helping clients to build awareness, generate response, enhance experience 2. Proving ROI from TV advertising value versus alternatives 3. Programming that is viewed live 4. Improving the trading currency passive measurement 5. Beyond the GRP attention, engagement, response

The next 10 years Global advertising forecasts Media trends Television trends Responding to changing times

Responding to changing times The Future Structure of the Media Services Sector Media unbundling almost complete - scale in media even more important 5 or 6 multiple brand media services groups accounting for 60% - 70% of world adspend Human endeavour - servicing and ideas will be key discriminators Developing communications planners at the heart of our integrated media communications service

Summary Advertising expenditure continues to grow as % of GDP and TV spend is growing share of adspend Media advertising losing share of marketing spend The potential of a golden era for television more choice, enjoyment, attention, and involvement New forms of advertising on TV Media agencies are moving to become communications advisors