Project Horizon - Full Report

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Project Horizon

A Strategic Plan for Addressable Video Media

Steven M. Schultz

Allan L. PlattRobert C. WolcottClareo Partners LLC

July 2004


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Project Horizon Table of Contents

I. Overview & Summary Recommendations 1

II. Addressable Media Marketplace 7 A. Introduction 7 B. Definition & Scope 7

1. TV & Cable Basics 7 2. Market Size - How Big is MVPD? 12 3. Consumer Spending Trends 20 4. iTV 21 5. Other Industry Trends 22

C. Ecosystem Analysis 29 1. Current Environment 29 2. Selected Ecosystem Segment Descriptions 31 3. Direct Value Added (DVA) 37

D. Summary of Findings from Market Participants 37 1. Background 37 2. Observations 38

III. Strategic Opportunities for Experian 40 A. Marketplace Positioning and Approach 40

1. Guiding Objectives 40 2. Tactics 40 3. Partnership and Investment Criteria 42 4. Resources 42

B. Opportunities for Value Creation 43 1. Targeted Content Development 45 2. Augmented Backchannel Data 57 3. Enhanced Planning Tools 64 4. Enhanced DRTV 68 5. Content Data Matching 72 6. Data Consortium 77 7. Ad Futures Market 80


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IV. Addressable Media Business Plan 81 A. Media Sales Expansion 81

1. Product and Service Applications 81 2. Tier 1 Sales Targets by Segment 81

B. Strategic Partnerships 83 1. Corporate Development Goals 83 2. Platform Development Partners 84 3. Media Measurement & Analysis Partners 85 4. Content Customization Partners 86 5. Integrated Data Partners 87 6. DRTV Partners 87

C. Investment Activities 87

1. Diversified Investment Program 87 2. Potential Investments 88

V. Next Steps 89 A. High-level Work Plan 89

1. Continue to build visibility at senior management level to promote and monitorprogress 89

2. Commit sales resources to extending Experian’s current media relationships 89 3. Concentrate business development efforts on new media 89

4. Develop new media investment program 89 B. Resource Commitments 89

1. Sales Activities 89 2. Product Development 89 3. Business Development 89 4. Corporate Development 89

C. Further Investigation 90 1. Interactive Gaming 90

2. Satellite Radio 90 3. Broadband Service Providers (BSPs) 90


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Section I:

Overview & Summary Recommendations


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I. Overview & Summary Recommendations

Addressable Media1 within the Television Media space represents an important growthopportunity for Experian, both in the near-term and long-term. Experian has the opportunityto play a central role in enabling and supporting the development and expansion of

addressable media. Though the necessary capabilities and behaviors are still emerging,Cable Television and related spaces offer significant near-term revenue opportunities forExperian. Moreover, entering these markets now offers Experian the ability to grow andprofit as addressability becomes standard practice.Experian offers data management and analysis expertise generally lacking in the cable andemerging digital satellite markets. Experian can, in the near-term, offer data services ofvalue to current industry participants. Rapid evolution in television content production,delivery and consumer interactivity results in new opportunities to gather, integrate, analyzeand act on data. Experian’s unique capability set enables management to position the firmto benefit from these developments.Herein we provide an overview of the Television Media space (see, “Addressable MediaMarketplace”) and recommend both near-term and long-term options for Experian to play anactive, profitable role as this competitive environment evolves. The analysis applies an“Ecosystem” approach to the marketplace. Rather than a linear “value chain”, the mediaindustry operates within a complex network of interconnected firms variably competing andcollaborating to provide value to the two primary sources of revenue: Marketers withproducts to sell and consumers with cash to buy (see, “Ecosystem Analysis”). TheEcosystem Analysis includes description and discussion of all major categories of players(e.g.-- Cable MSOs, Advertising agencies, media buying, etc.).Following a discussion of trends and their implications in the Television Media Ecosystem,we present a set of strategic opportunities for Experian. In addition to a focus on enablingprofitable growth supported by near-term sales opportunities, we construct our strategicapproach with five guiding objectives in mind:

• Facilitate : Establish a central, facilitative role between the “big three”:marketers, agencies and media (networks & distribution).

• Integrate : Seek opportunities to integrate the ecosystem, rather thanopportunities to deepen Experian's consumer data assets.

• Leverage : Leverage current relationships with large marketers most likely tovalue personalized TV advertising.

• Hedge : Remain technology and media agnostic, with a hand in all importantdeveloping platforms.

• Remain Flexible : The industry will change dramatically. No one really knowshow. Maintain strategic flexibility.

Our market entry and development strategy begins with two “foundation” strategies thatenable Experian to build a strong presence and encourage the development of addressablemedia. These two initial strategies position Experian to profit from the development of theindustry in general, and addressable media specifically, regardless of which directions it

1 We define addressable media as any communication vehicle where the end user touch point – thedevice with which the end user interacts– is individually identifiable.


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evolves. Further, we propose and explore five growth opportunities available to Experian inthe medium- to long-term (see, “Strategic Opportunities for Experian”). Table 1 summarizesthese seven strategic options.

Table 1: Seven Strategies for Growth in Addressable Media

FOUNDATION STRATEGIES

Targeted Ad DevelopmentExperian leads targeted campaigns to demonstratepower to marketers

Augmented Backchannel Data(Digital Measurement/Reporting/Auditing)

Experian becomes trusted central repository of STB datafor enhanced delivery audit and campaign measurement

GROWTH OPPORTUNITIES

Enhanced Planning ToolsIntegrate Experian demo/psycho profiling into media

measurement/buying tools

Content Data Matching

Experian collects data about content and appends to HHdatabase to provide refined programmingpsychographics to studios and marketers and enablecontent personalization for consumers

Data ConsortiumExperian collects and manages MPVD subscriberinformation repository

Enhanced DRTVCentralize data tracking of t-commerce and enhanceaudience profiling for targeted DRTV campaigns

Ad Futures Market

An "EBay" of advertising, with a Foreign Exchange Deskcomponent. Basically, Experian acts as central

repository of content metadata (advertising,programming, distribution), and audience. This is usedas/with an ad spot market, much like a futures tradingdesk.


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Figure 1 presents our assessment of the time horizon for each of these seven initiatives.While all of the industry experts we interviewed agreed that addressability will be acritical component of the emerging Television Media Ecosystem, the details of thisevolution remain unclear.We present this 5-year horizon with the clear recognition that changing market,technology, behavioral and regulatory conditions will impact when, how and whetherExperian pursues each of these proposed opportunities.

Figure 1: Concept Timeline

Our discussion of these seven strategic options leads to an outline plan for achievingnear-term success and long-term growth (see, “Addressable Media Business Plan”).The supporting “Opportunity Matrix” categorizes companies within the Ecosystem interms of our assessment of priority (Tier 1, 2 and 3) for Experian’s corporate andbusiness development activities. The Matrix list and describes near-term salesopportunities, potential strategic relationships to explore, internal development prioritiesand potential acquisition candidates.Near-term Business Opportunities include:

• Enhance audience reporting via Nielsen or similar media analysis/audit firm• Develop ad pilot testing program• Help MSOs accelerate core marketing and enhance customer service • Assist direct response TV marketers with DRTV cross-sell and up-sell• Partner with TiVo toenhance personalization and DVR ads• Integrate with cable interconnects to improve interconnect sales • Integrate withmedia analysis software

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• Improve ad pricing for program networks and create new opportunities forproduct placement, merchandising and sponsorship

Corporate Development and Investment Actions include:• Form strategic partnerships to develop next-generation content delivery

tools and services – Comcast and Cablevision – TiVo, Microsoft and other Consumer Interactive Services – Liberty Media – Hardware and software platforms

• Form strategic partnerships to develop next-generation targeting tools with firms such as Donovan and the Interconnects

• Build a strategic intellectual property (IP) portfolio – Identify key processes and file patent protection early

– Seek and acquire unique intellectual property• Consider acquiring media analysis, measurement or audit capabilities

– Demonstrate power of integrating full Experian database – Build skills and capabilities in audience analysis – Create platform to define next-generation digital media metrics and

reporting – AdCom Information Services (local cable ratings / targeting)

• Build/acquire national database of infrastructure information – MBC Databank or Warren Communications – Define and initiate national database of MAC addresses

• Develop a focused investment program in emerging platforms – Accelerate development / implementation of feasible technologies

We make special note of the recommendation, “Build a strategic intellectual property (IP)portfolio”. As more players in this space rely on patents, trademarks and other forms IP(particularly new technology entrants and software firms, such as Microsoft), IP becomescritical. Experian must not only actively protect its emerging concepts with patents, butalso strategically survey existing patent filings of competitors and potential competitors.This provides an idea of their strategic priorities.Moreover, Experian should not simply let IP tactics follow from product development.Opportunities to develop and/or acquire strong IP protection should help strategicallyguide product and service development. Priority should be given to opportunities thatare legally defendable through IP in order to help Experian create a sustainable, high-value position in this marketplace.Finally, we make recommendations for initiating Experian’s growth in the TelevisionMedia Ecosystem and support of emerging addressable media capabilities (see, “NextSteps”). We suggest building a small, cross-functional team to begin extending


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Experian’s excellent reputation and expertise from other media into the Television MediaEcosystem.Next Steps include:

• Establish visibility and sponsorship at the senior management level topromote and monitor progress

• Commit sales resources to extending Experian’s current media relationships – Build buy-in with current sales force, expand team as needed – Focus on delivering Experian’s current suite of data and services – Generate customized product and service ideas – Build target and opportunity list

• Concentrate business development efforts on new media – Build internal, dedicated new media expertise – Step-up industry networking activities with platform developers – Generate new business partnership scenarios for platform

development, DRTV, measurement, personalization – Educate the marketplace

• Develop new media investment program – Define investment parameters and develop/customize portfolio

investment strategy – Consider near-term acquisitions such as SMS which fit well with

existing Experian serviceResources required to pursue these initiatives include (but are not limited to):

• Sales Activities – Position / target current sales force to leverage talent – Hire additional sales personnel as needed to support expansion – Fund development of prototypes and demos tailored to targeted

sectors• Business Development

– Hire development manager with digital media experience andrelationships

– Fund promotion and communication activities in industry conferences

/ trade shows – Allocate engineering resources to support product development and

specifications• Product Development

– Identify a Development Lead for the TV Media Marketplace – Engage with Sales and Business Development to identify offerings


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– Fund development of offerings based on Experian’s existing – Fund develop of new tailored offerings as opportunities arise

• Corporate Development – Allocate funding to support ad targeting product development and

testing – Commit corporate development resources to develop/implement

investment program – Fund acquisition or investments as warranted


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Section II :

Addressable Media Marketplace


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II. Addressable Media Marketplace

A. IntroductionThe concept of “addressability” is changing rapidly. Media we traditionally thought of as

broadcast – aimed at a large audience – are quickly becoming addressable. As thischange unfolds, Experian sits in a unique position: able to understand and support themost forward-thinking of ideas, yet grounded in the roots of Direct Marketing.

As the audiences fragment, or as marketers’ ability to find individual audience membersevolve, consumer databases will become increasingly valuable. Sample data, used foryears to estimate audience sizes and interests, cannot be used to support one-to-onecampaigns.The technologies to reach the consumer are evolving quickly. We have found that,despite some foreseen resistance from larger players, most experts fully expect the ideaof “Targeted Television” to take hold.

Until now, most of the technological progress has been demonstrated with mockupsand smaller-scale proofs-of-concept, relying on either fictitious data (in the case ofmockups) or very low-resolution demographics. The opportunity to build capabilitiesbased on large-scale consumer data is there. To build capabilities on a scale largeenough to erect meaningful entry barriers for would-be competitors, though, Experianshould act now.This project looks deeper into MVPD (Multichannel Video Programming Distribution),and is intended to address the question: “what should Experian Marketing Solutions doabout all of this?”B. Definition & ScopeFor the purposes of this project, we will define “Addressable Media” as anycommunication vehicle where the end user touch point – the device with which the enduser interacts – is individually identifiable. This broad definition includes Internet-connected devices, print magazines, cellular telephones, and, of course, Digital CableTelevision.It is the latter in which we are most interested for this phase of Project Horizon.Wherever the ability exists, or could exist, to customize a message, there are likelyprofitable opportunities. We have chosen Cable TV as the place to begin our search.We’ll begin by redefining “Cable TV” as Multiplatform Video Programming Distribution(MVPD). This casts a broader net, but it will allow us to more adequately discusscompetitive forces. MVPD includes Satellite in all relevant forms (Direct BroadcastSatellite, or DBS, is by far the most imminent threat to “Cable”), along with broadcast TV,video sales/rentals, and Internet distribution. There are other components of MVPD2.

1. TV & Cable BasicsWe will start with a very basic description of how Cable and Satellite Televisionare physically distributed. Basic understanding of this is fundamental to why TV

2 See FCC 10 th Annual Assessment of the Status of Competition in Markets for the Delivery of VideoProgramming


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is becoming an addressable medium in the first place. Furthermore, as ideasand solutions develop, creativity can and should be based on strategiccollocation of data assets, database technologies, and the distribution network.

a) General TerminologyTelevision is carried by a transport stream. Transport streams arebandwidth intensive, and this turns out to be one of the major limitationswith respect to targeted distribution of content.

All television is carried to the home on multiple transport streams, eachcarrying a certain amount of content to the point at which a choice ismade: what will actually get shown on the screen? The consumer usuallymakes this final choice, historically with a tuner in the TV set, but morerecently in a Set-top Box , (STB), which is really just a tuner for a cablesignal. The point is that several – or many – transport streams get all theway to the home before a consumer makes an active choice what to letthrough to the screen.b) Cable DistributionCable is distributed by Multiple System Operators 3 (MSOs), such asComcast and Cablevision. The MSO incorporates content fromBroadcast Networks (such as NBC), Cable Networks (such as CNN), andnational and local advertisers, combines it into cohesive transportstreams, and sends the resultant signals out to its subscribers ( subs ).To accomplish this, the MSO has a network of (usually satellite) receiverslocated at a headend . The headend, a sophisticated arrangement oftelecommunications equipment, is responsible for the main MSO functiondescribed above. From the headend, signals are sent down to thesubscribers’ households, sometimes through intermediate equipmentcalled hubs and nodes . From the headend, hub, or node, the “last mile”

of cable goes directly to the STB in the consumer’s home.By the time the signal gets to the last mile, it has been parsed and vettedso that only the channels to which the user subscribes are available to theSTB. If your MSO doesn’t offer Animal Planet in your neighborhood, it isbecause the headend is not sending that signal to your STB at all. If yourMSO does offer you Lifetime, but you’ve never once watched it, your STBhas nevertheless been receiving Lifetime all the while.It’s relatively easy for an MSO to offer local programming for this reason.Los Angeles local news never gets sent to a headend in Long Island, andtherefore does not consume bandwidth that is not needed. But becauseof the cumulative savings in bandwidth, Cablevision is able to bring more

localized programming to Brooklyn.c) Satellite DistributionSatellite is different, because the satellite itself is the headend. There isno last mile of cable to the home; the home has its own dish. Direct

3 They are called MSOs because the industry has been consolidating for the past several years, and largecompanies have purchased multiple cable systems – formerly independent – and stitched them together.


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Broadcast Satellite Operators (DBSOs), such as DirecTV and EchoStar,are therefore more limited in their ability to offer local programming: toomuch bandwidth is consumed by trying to serve an entire nation with all ofthe national choices (NBC, CNN, Animal Planet, Lifetime, etc.). There issome ability to localize – with directional antennae on the satellites – butgenerally, satellite is more like a broadcast medium than cable is, due toits method of physical distribution.d) Media MeasurementThe introduction of new, addressable media technologies challengesconventional methods of understanding marketplace economics. Anupheaval in pricing policies and metrics will create major opportunities formedia measurement companies who can provide the enhancedgranularity, accuracy and accountability that marketers are increasinglydemanding.Traditional measurement of media performance, meanwhile, has beendominated by the ratings system designed, branded, and distributed byNielsen Media Research. A brief overview of Nielsen’s methodology:

• Local People Meter. This is a “box” that is installed at the home ofpanel members. The Local People Meter has settings that canmeasure who is actually watching within a household; everyhousehold member has their own button on the box. LPM has comeunder a barrage of attacks, especially from the African-American andHispanic communities, who believe that the LPM system undercountstheir groups, which leads to a reduction of programming designed forthem. Currently, LPM is only successfully rolled out in Boston.Challenges have come from New York and Los Angeles.Nevertheless, Nielsen asserts that they will have LPM rolled out in thetop 10 markets (DMAs). This assertion has been met with skepticism.

• National People Meter. The Nielsen national panel includes a sampleset of 5,100 households. Data are extrapolated to represent theviewing habits of the entire U.S. Plans have been announced todouble the size of the NPM sample.

• Specific DMAs. In addition to the National Sample, Nielsen hasseparate panels of 400-500 households in each of the 210 DMAs. Allof these households have diaries, literally pen & paper accounts ofwhat they watched. Diaries are maintained for each householdmember over 2 years old. Diaries are only kept in February, May,July, and November – the “sweeps” months.

As a supplement, in the top 55 DMAs, Nielsen households havemeters, called “overnights”, that measure household viewing only.The meters measure household viewing and supplement the diaries,which provide the per-person detail.

• Nielsen Hispanic Station Index. Nielsen maintains a separate panelof about 300 households in Hispanic markets.Nielsen collects the viewing habits of households and people, alongwith some basic demographic information about the households and


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the people in them. Demographics are limited to age groups, gender,and ethnicity. Deeper data are used by Nielsen for “samplebalancing”, but not reported with ratings data.

• Third-Party. Finally, Nielsen contracts with several third-partyresearch firms such as Scarborough Research (owned by VNU,

Nielsen’s parent), Harris Interactive, Frank N. Magid, and YankelovichPartners. These firms will execute “in the field” studies to extrapolateknowledge onto panel data.

Under Nielsen’s system, programs and programming networks are ratedon their ability to attract viewers out of all households with television andout of all households actually watching television at a given time. Thebasic units of measurement are 4:

Share (SHR) The percent of the Households Using Television (HUT) or PersonsUsing Television (PUT) that are tuned to a specific program or stationat a specified time.

Gross Rating Points(GRPs) or TargetRating Points (TRPs)

The sum of all rating points achieved for a particular period of timeand/or schedule of commercials or spots (called Gross Impressionswhen expressed as the sum of all exposures to a given time period orspot schedule).

Reach (Cume) The number of different or unduplicated households or persons thatare exposed to a television program or commercial at least onceduring the average week for a reported time period.

Frequency Average number of times a household or a person viewed a giventelevision program, station or commercial during a specific timeperiod.

Frequency Distribution Number or percentage of households or persons that are exposed toa given program, station, or commercial one time, two times, threetimes, etc.

Television ads are typically priced on “CPP” or Cost per Point, based onthe gross rating point of a given program at a given time as supplied byNielsen. However, advertisers and their advertising agencies and mediabuying services evaluate television networks based on CPM because it isa good comparative measure of media efficiency across several media 5.CPP is easily converted into CPM using a simple formula.Nielsen’s rating system has come under increasing criticism in recentyears. Critics have noted that, as television channels have proliferated,

the statistical sampling method loses accuracy as viewing audiencesbecome increasingly targeted. Furthermore, as viewing choices, time-shifting and interactive on-demand content proliferate, the sample size

4 Nielsen Media Research5 Museum of Broadcast Communications


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required to maintain reliability represents an increasing percentage of thetarget population.New Media Measurement

Interactive media, the Internet in particular, introduced several newconcepts to the measurement of ad cost and performance. Onlineadvertising arrangements may be priced on the basis of Cost per Click(CPC), Cost per Action (CPA), Cost per Sale (CPS), or other customizedmetrics. Still, the basic unit of measurement which marketers use inpractice is generally CPM across all media. However, in order to assessthe effectiveness of a particular medium, marketers are increasinglylooking to measures of accountability that enable them to trace actualsales to their marketing efforts. The introduction of two-way digital set topboxes presents both opportunities for enhanced accountability as well aschallenges in determining what to measure.In an effort to clarify some of the measurement challenges presented byinteractive and addressable television, AAAA recently released an initialset of guidelines to enable advertisers and their agencies to begin judgingthe effectiveness of ad messaging in on-demand television environments.

AAAA introduced the following concepts:

Verification of AdDelivery

A total gross count of ad messaging units delivered to set-top boxunits, where delivery is defined as the first frame and last frame of thead messaging unit in both video and audio.

Viewing duration and“trick play” behavior

A breakdown of total gross ad messaging units viewed by timeduration and/or mode to ascertain whether ads messaging units wereviewed in fast-forward or standard mode, and whether rewindingoccurred. Also pause function behavior, in both live and recordedmodes.

Time, day and dateidentification

A breakdown of ad messaging unit delivery, duration and behavior bytime-stamp (preferably to the second-by second level), day and date.

Geographic identifierbehavior

A breakdown of ad messaging unit delivery, duration, and behaviorby, at minimum, aggregate ZIP+4 clusters.

Video Link In/OutBehavior

Where real-time and recorded telescoping/video linking environmentsexist, a gross count and breakdown of “click behavior,” includingnumber of clicks, time of clicks, and the video environments fromwhich those clicks originated (linear ads, content, etc.). Where virtualchannel or walled garden “click-to-video” environments exist (e.g.,banners, etc.), a gross count and breakdown of click behavior.

In addition to these guidelines, AAAA also directed that data be turnedaround within 24 hours and be verified (or audited) by independent thirdparties.Currently, most MSOs do not collect detailed set top box behavior, thoughdoing so would be technically feasible. TiVo, by contrast, does record


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viewing activity and uploads that information once it is collected andsummarized at the box level. Any third party who collects and managesdigital box behavior would need to have:

• Experience managing large databases of detailed information at thehousehold level, including strong system integration skills and data

analysis tools. Experian’s skill set maps well to this.• Credibility with both consumers and regulators in maintaining andprotecting a high degree of individual privacy. Experian’s highcredibility in maintaining consumer credit information could giveExperian a substantial advantage over other potential providers.

• In-depth industry knowledge and research acumen specialized inmeasuring television audience and providing media researchcapabilities. Experian would need to acquire or build such skills.

2. Market Size - How Big is MVPD?In December 1993, there were 94 million households in America with at least onetelevision. By 2003, that number had grown to 106.6 million, a 10-year

Compound Annual Growth Rate (CAGR) of 1.2%. Roughly 97% of occupied American households have at least one TV.

Chart 1: MVPD Subscribership

Chart 1 presents the historical penetration of the major components of MVPD interms of subscribers. The only subsegments with positive growth are Cable,SMATV, and DBS, which represent, respectively, 74.9%, 1.3%, and 21.6% of allMVPD subscribers. It is clear that:

MVPD subscribership

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• Cable TV is the largest piece of MVPD, but has very slow net growth (1.5%CAGR)

• DBS is a competitive force in the industry. Net subscribers grew by a 23%CAGR over the past 5 years.

For the purposes of this project, we will defineDistributors as operators of DBS

(DBSOs), Cable Systems (Multiple System Operators, or MSOs), or TVbroadcasting stations. The MVPD market, then, is composed of Distributors andNetworks; the latter actually own (in general) the content being distributed toviewers.

Chart 2: MVPD Revenue Flows

In 2002 (the last year for which complete data are available), MVPD was a$112.3 billion market. Chart 2 presents a generalized overview of how theserevenues are distributed.

a) Broadcast NetworksThe Broadcast Networks are generally defined as ABC, CBS, NBS, Fox,

The WB, and UPN. Revenues for the networks are principallyadvertising-driven. After a couple of difficult years, Network TV seems tobe regaining some strength. Syndication is another revenue driver for theTV Broadcast networks, but is much smaller in significance.Chart 3 shows the distribution of revenues for Broadcast Networks; in thechart, all shades of blue indicate advertising revenue of some type,yellows are non-advertising revenues.

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Chart 3: Broadcast Network Revenues

b) Cable and DBSThe halcyon years of Cable seem to be behind them. This does notimply, of course, that they’re in danger of going away; they face realcompetition now, and really can no longer be considered geographicmonopolies. DBS, a virtual duopoly in the United States, achievedpenetration CAGR of 32% from 1993-2002, while Cable (both basic andpay services) grew in the low single-digits over the same period. DBSsubscribers now account for nearly ¼ of all MVPD subscribers today.Chart 4 illustrates the strong inroads DBS is making.

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Chart 4: DBS Penetration Trend

Revenue Trends

Cable MSO revenues have continued to grow, despite increasing threatsof competition, primarily from DBS. Real revenues grew at a 9.5% CAGRfrom 1998-2002. The primary drivers of revenue gains, especially overthe past five years, have been price increases for basic service (3.7% realCAGR), along with the introduction & growth of new services.

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Chart 6: Drivers of MSO RevenueChart 5: Cable Subs & Rates


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Meanwhile, DirecTV and EchoStar, the two DBSOs, ended 2003 with atotal $15.6 billion in revenues, which grew from $7.6 billion in 1999 – a19.7% CAGR. Chart 7 presents a view of overall revenues for the maindistributors.

Chart 7: Total MVPD Revenues

Investment Trends The Cable MSOs have been investing heavily over the past five or sixyears, largely in digital infrastructure to support High-Speed Internet,HDTV, and iTV applications. As a whole, the MSO segment has spentcumulatively $10.4.billion in real 2002 dollars since 1999. Their DBScounterparts, as a result, are far less leveraged, and in a better position tofight for customers with cash. Chart 8 presents a comparison of thelargest MSOs’ and DBSOs’ investment and return.

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c) Cable NetworksIncluding Regional Networks, there are about 350 Programming Services(Channels) in the United States. This number has grown (net) by an 11%CAGR since 1985, and a 9% CAGR since 1995. Interestingly, no newchannels were introduced in 2001-2003

Equally interesting is the level of MSO ownership of Cable Networks. Almost ¼ of all Networks are at least 50% owned by a Cable MSO. Thisproportion is almost unchanged whether or not Regional Networks areconsidered.The Cable Network explosion has been fueled largely by MSOs, andparticularly Time-Warner, Cox, and Cablevision (which own interests in,respectively, 35, 22, and 21 networks). Fragmentation is another long-term trend in Cable Networks. Most current networks are aimed at fairlyspecific audiences, and the audience size drops off dramatically movingdown the list from the largest networks. Chart 9 illustrates the relativelysudden interest in Network ownership on the part of MSOs; Chart 10shows how dramatically Subscribership drops as a function of their rank.

Chart 9: Cable Channel Ownership by MSOs Chart 10: Cable Channel Subscribership(by channel)

Like the Broadcast Networks, Cable Networks make their money throughadvertising, $10.7 billion in 2002. To a more significant degree thanBroadcast, though, Cable Networks also take in carriage fees fromdistributors. These fees are paid by MSOs and DBSOs on a per-subscriber basis. In 2002, carriage fees totaled $12.1 billion.

MSO ownership of cable networks

Adelphia AOL Time Warner

Cablevision

Comcast

Cox

Liberty Media

Time Warner

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source: FCC

the top 80 cable networksby subscribers

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1 3 5 7 9 1113 1 5 1 7 19 2 1 2 3 2 5 27 2 9 3 1 3 3 35 3 7 3 9 4 1 4 3 45 4 7 4 9 5 1 53 5 5 5 7 5 9 6 1 63 6 5 6 7 6 9 71 7 3 7 5 7 7 79 8 1

s u

b s c r i

b e r s

( 0 0 0 s

)


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Chart 11: Cable Network Revenues

The total audience for the top 80 Cable Networks (homes served; not ratings) is 4.7 billion. This yields an average monthly subscriber carriagefee of $211.58 per thousand . $200 is a benchmark monthly value of1,000 viewers to the network, not considering advertising.

Advertising adds another $11 billion to the Cable Networks overall(including interconnects, which we’ll cover later in this document). It isimportant to note that this is advertising sold by the Network to be shownthroughout the network, and is appropriately referred to as “NetworkCable Advertising”. Networks also sell part of their available time foradvertising to the MSOs, who can either sell the advertising time, or use itfor their own purposes. Very generally speaking, the Network keeps 12-14 minutes per hour, and turns 2 minutes per hour over to the MSO.

Again, as a benchmark only , we calculate that, at 14 minutes ofadvertising per hour across 80 Networks, the average value of oneminute of Cable Network advertising is $1,090. This benchmark, like theone for value of a subscriber, is predicated on total homes served by thetop 80 Networks, and will vary significantly depending on actual ratings.6

6 As another benchmark, a 30-second spot on “Grounded for Life”, the #100 show on broadcast TV in Fall2003, was $60,500.

cable networks revenues

0

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20022001

m i l l i o n

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Other operating revenueSpecialty programming service Air time (advertising)


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d) Digital rolloutDigital Cable is possibly the most important trend to watch, because truepersonalization can’t be achieved – and backchannel data can’t becollected – without it.The Cable Industry has paid a lot of attention to rolling out the “DigitalTier”, for many reasons, including Enhanced TV, Video On Demand,Interactive Gaming, and several other digital services, in addition to theprospect of personalized advertising. (We covered investment in SectionII.B.2.b above.)

At the end of 2003, there were 33.5 million digital Set-top Boxes in 23million homes. The digital penetration currently stands at 35% overall.This penetration is not uniform across the country: MSOs have focusedtheir roll-out plans on certain DMAs first. Nor is it uniform across MSOs,for various reasons. The Digital Rollout is illustrated in Chart 12.

Chart 12: Digital Cable Penetration

3. Consumer Spending TrendsEverything comes back to the consumer. All revenue flows in the MVPD industrycan be traced either to direct consumer spending or advertiser spending to gainaccess to consumers. So of course it’s important to understand the history of

digital cable penetration

0

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m i l l i o n s

analog STB HHsdigital STB HHs


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consumer interaction with the various media, and this ultimately comes down toTime Spent Interacting and Dollars Spent.To maintain our focus on MVPD, we will only discuss trends and forecasts forinteractive electronic media with a visual component . Just as a frame ofreference, we present a summary of the other media, which include books,

magazines, radio, recorded music, etc.:Growth inReal Spending

Growth inHours Spent

CAGR 1997-2002 4.8% 1.7%Forecast CAGR 2002-2007 4.5% 1.5%

Source: Veronis Suhler Stevenson

The summary table tells us that every year, people are spending an average ofan hour more each week than the year before. This represents total time spentwith all media. What’s notable is that the growth inspending outpaces growth intime spent by a factor of 3, adjusted for GDP inflation. This is true of both recenthistorical and forecast trends, and indicates an increasing value placed on Media& Entertainment. Consumers are expected to spend an average of 3732 hoursper person with their various media; this works out to nearly 72 hours per week –almost double the time that people spend at work!

Chart 13: Consumer Spending on Media Chart 14: Consumer Hours Spent With Media

MVPD’s share of this growth is illustrated in Charts 13 and 14. The biggest gainsare expected to come from Cable & Satellite TV, Home Video, and ConsumerInternet. By 2007, the average consumer is expected to spend 1,340 hours withthese media alone, a weekly average of 25 hours.4. iTVInteractive Television is defined by the industry to include the following:

• Video On Demand/Subscription Video On Demand (VOD/SVOD)• Digital Video Recorders (DVR)• Enhanced Program Guide/Interactive Program Guide (EPG/IPG)• Enhanced TV (ETV)

annual consumer spending by medium

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r e a

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basic cable & satellite networks premium cable & satellite servicessatellite radio interactive tvvideo games consumer internet

source: Veronis Suhler Stevenson

annual consumer hours spentselected media

0

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network- a ffili ated sta ti ons i nde pend ent sta ti ons b asi c cab le & sa te llite npremium cable & satellite services interactive TV video games consumer internet home video

source: Veronis Suhler Stevenson


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In the remainder of this document, we will discuss these separately, and notunder the overarching “iTV” umbrella.5. Other Industry Trends

a) Premium Services

The composition of cable revenues has changed dramatically in the pastseveral years. In 1985, half of all cable revenues were from basicsubscription packages, and only 7% came from “other revenue”(advertising revenue; digital tier revenue; home shopping commissions;cable modem and telephony revenues, etc.). The balance wassubscription revenues for premium channels, such as HBO. By the endof 2003, 56% of revenues came from basic subscriptions, but 33% camefrom other revenue. The remainder, again, is premium subscriptionrevenue.

Chart 15: MSO Revenue Breakdown (percent of total)

The 10-year CAGRs for Basic, Premium, and “Other” are, respectively,7.9%, 0.8%, and 14.3%. Clearly there is a push for these other services.There is also a sense that services like High-Speed Internet and Voiceover IP telephony can help MSOs compete against the DBS companies,and this is borne out by a U.S. General Accounting Office study releasedin late 2003.Chart 15 presents a picture of the revenue growth and its main sources.

0%

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Some of the relevant facts are:• DVR technology is used in two main ways: time-shifted viewing –

otherwise known as “playback mode”, and ad skipping.• DVR penetration is still in its infancy. See Chart 16.• There are currently approximately 35 million DVR users in the U.S.•

The DVR market is starting to fragment, most notably by becoming afeature of new Set-top Boxes.• DVR is a service model, not a product model. TiVo enumerates an

8-point strategy; only one point talks about hardware revenues.For industry strategists in general, we recommend a few basicapproaches:

• Treat DVR as a function, not a product. This is a technology thatseems tailor-made for migration upstream, especially in Cable (vs.Satellite). MSOs are already offering Set-top Boxes with DVRfunctionality; this is still Customer Premises Equipment, butrepresents consolidation of the function. This function cantheoretically be moved to the Cable Headend or Access Node. Thismigration is very similar to Video On Demand (VOD), deployment ofwhich is already well underway.

• Treat Ad Skipping and Time-shifted Viewing separately. These twofeatures of DVR are related only in that the same device enablesthem. From the consumer standpoint, they are very differentfunctions. From a personalized content standpoint, they present verydifferent opportunities and challenges.

Ad Skipping.

Of course, the fear among Ad Industry people is that the value ofadvertising decreases if people aren’t watching the ads. Several analysts

have already pointed out that kitchens, bathrooms, and Remote Controlshave had a much more deleterious effect on ad viewing than DVR has.


30/9825

If Ad Skipping truly becomes an economic problem, we see severalpossible industry responses to an increase:

Industry’s Answer Explanation Effect

Product Placement

model

Products and commercial

messages will be “subtly”woven into program content.Classic example: Jerry holdsa can of Coke.

Like Public Relations, we do not see this kind

of promotion as addressable or measurable.

Integrated AdContent

Similar to ProductPlacement, but slightly lesssubtle. Programming contentis written to make a gradualtransition into commercialcontent. No discretetransition to advertisement astoday, and no insertion tones.

This effectively kills personalization of the ad.To personalize a commercial message, itwould be necessary to personalize thedelivery of the entire program. Two ways toaccomplish this: 1) the traditional way, bydesigning channels and shows for specificaudiences, and 2) developing versionedprogramming content. The latter would be

prohibitively expensive; the former isessentially underway.

Ad Framing Much like an internet windowof today, programmingcontent could be arrangedinside a main window, andadvertising frames surroundthe content frame. The adsare “always on”.

Like IPG (Interactive Program Guide), exceptthe content isn’t programming data. Thisconcept is very good for personalization.Probably not good for consumers, though,and likely intolerable, at least in the nearer-term.

Non-skippable ads The software/hardware iscapable of sorting out Ads

that cannot be skipped. Thiswould require somecollaborative developmentwork, but it is feasible. .

Bookending “Bookending” would just beensuring that non-skippableads are only placed in slotsbefore and afterprogramming content

We think consumers would tolerate this, and ithas a good chance of generating revenues forthe channel.

Increased (& Shared)DVR Service Fees

The industry stops trying toreplace lost ad revenue withmore ad revenue, andrequires consumers to payfor content directly. “If youlike it, pay for it”

Ad personalization goes away in this scenario.Content personalization, though, becomeseven more important. This is particularlyinteresting because it’s good for MSOs, andit’s enabled by MSO-distributed DVRs.

Time-Shifted Viewing

We believe that time-shifted viewing is functionally equivalent to Video OnDemand. The major difference is that the consumer, rather than the MSO


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or a VOD provider, chooses what actually gets stored as options. (Weextend this reasoning to a belief that the DVR functionality will ultimatelymigrate upstream to the headend server.)VOD, in our view, provides excellent opportunities for targeted advertising

– the content is already targeted, which in itself presents opportunities for

refining the targeting techniques.Various studies have shown that, generally, users tend to use time-shiftedviewing roughly 40% of the time.d) Video On Demand (VOD)Kagan World Media estimates that Video On Demand households willgrow by an average of 31% per year through 2008, and that VODrevenues will grow by 76% per year in the same period. To support thisforecast, Comcast has announced plans to have VOD rolled out to itsentire network (over 20 million households) by the end of 2004. Chart 17presents the projected VOD-enabled households and their projectedspending on VOD movies through 2008.

Chart 17: Video On Demand (VOD) Forecasts

VOD is an important trend for targeting; it provides both a potentialtargeted advertising medium and an excellent prospective client fortargeted advertising of all kinds, including but not limited to TV.

video on demand (VOD) forecasts

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e) T-CommerceWe believe that Television Commerce (T-Commerce) is really theevolution of Direct Response TV (DRTV)8. According to the DMA, DRTVis expected to move $30.6 billion worth of products in 2004.Jack Meyers Reports forecast T-Commerce revenues to hit $260 millionby 2006, with a 69% CAGR (nominal) through 2010. Chart 18 presentsthis forecast.DRTV has essentially two main segments in the U.S. (not includinginternet counterparts).

• Shopping NetworksThis includes QVC, HSN, and ShopNBC. Chart 19 presents therevenues of QVC and HSN, which are based on both fees and

commissions charged to the distribution system.• “Infomercial” Production

There are two types of Infomercial: Long Form and Short form.Collectively, according to an industry web site (www.direct-response-television.com), DRTV now accounts for 25% of all TVcommercials. And according to the Electronic Retailing Association,DRTV is growing at 9% per year.

f) ETVEnhanced Television is a broad term encompassing all of the newtechnologies such as on-screen polling, on-screen ordering, and the like.ETV is really a catch-all term for all the iTV applications that haven’t yetbeen specifically categorized.ETV is an important trend, but not one that is easily quantifiable, becauseit is not easily defined. We believe that as ETV applications get defined

8 Liberty Media, one of the most powerful players in the entire MVPD ecosystem, agrees. They counttheir acquisition of QVC as a TV Commerce initiative.

major DRTV revenues

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source: Jack Meyers Report, 200

Chart 19: Major DRTV RevenuesChart 18: Forecast T-Commerce Revenues


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and refined, they will spurn new categories of iTV, or ideas will joinexisting categories within iTV.g) HSDHigh-Speed Data is essentially Cable Modem service, which has beenvery successful for MSOs, and is expected to provide even moreopportunity for them in the future. Chart 20 shows estimated growth ofHigh-Speed Data in subscribers and revenues through 2010.

Chart 20: High-Speed Data Growth Forecasts

h) VoIPVoice over Internet Protocol is quickly becoming popular, and itrepresents a real opportunity for MSOs to challenge traditional Telcos inproviding voice service. Third-party companies such as Vonage havebuilt the capability, and made certain inroads in the minds of pioneerconsumers; MSOs have recently shown an interest in building on that

success.i) Major Legal IssuesThe major legal issues in the Cable Industry today are:

• Competition• Cable Prices• Dual and Multiple Must Carry• Cable Believes in Open Connectivity for the Internet• Indecency-Differences Between Cable & Broadcast

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• Cable Puts You In Control• À la Carte Programming• Program Access• Voice Over Internet Protocol

These are each covered in some detail on the National Cable Television

Association (NCTA) website: www.ncta.com.C. Ecosystem Analysis1. Current Environment

A traditional value chain analysis is useful for understanding the flow of work andvalue. The Value Chain for the MVPD Industry is depicted in Figure 2 below:

Figure 2: The MVPD (& Advertising) Value Chain

Unfortunately, the linear nature of value chain analysis overlooks complexinterrelationships among firms. We can envision the marketplace for

addressable media as a network of consumers, marketers, agencies, contentand distribution providers, government regulators and industry associations, andinformation and infrastructure suppliers. This extended network of organizationscomprises an “ecosystem” of competing and collaborating entities each pursuingtheir own objectives. Value Creation and Value Capture occurs in theinterchange of goods/services between firm players.Experian’s role in the addressable media marketplace will be defined by its abilityto supplement and mediate the activities of ecosystem players, particularly

consumer

advertiser

agencies

general agency

direct/interactive

media planning

marketingservices

specialtycommunications

cableheadend

applicationlayer enablers

hardwareenablers

demographicdata companies

syndicateddata companies

determineadvertising

strategy

plan / buymedia

design &versions

distribute!tapesÓ

insert intovideo

stream

measureresults

billadvertiser/

agency

distributevideo

stream

validatedelivery

(insertion)

housefiledatabases

interconnect

MSO SMSdatabases


contentsyndicates

VODspecialists

content providers

interconnect

MSO SMSdatabases


contentsyndicates

VODspecialists

content providers

specialtydatabases

headend datacontent dataothers TBD

inDemandLiberate?PopTV?

donovan IMS Telmar marketron


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content distributors, programmers, advertisers and consumers. Articulating hownew business concepts might impact the ecosystem provides insight into howbest to design and execute market entry and development strategies.What can we do with an ecosystem analysis?

• Map the groups of players and how they relate.• Profile each of the groups of players (e.g.—MSOs, agencies, marketers).• Identify opportunities to add value integrating data and providing expertise to

ecosystem players.• Identify potential customers, acquisition targets, partners, suppliers and

competitors.• Map and consider Experian’s potential roles within the ecosystem.• Analyze the most important groups, based on Experian’s objectives.• Determine which groups will most likely act as catalysts or barriers to our

objectives, and how we can encourage and/or mitigate them.

Figure 3: The MVPD (& Advertising) Ecosystem

Figure 3 presents our “ecosystem map” of the addressable media space. In theremainder of this section, we will go into detail regarding groups most relevant forour purposes. In the later section, “Strategic Opportunities for Experian”, we will

marketers

media analysts

advertising agencies

interactive & directagencies

consultants:databasemarketing

household data &services

interconnect

DRTV

content data

mediaresearch &

datasystems

audience data capture

broadcast networks

consumer

cable networks

MSO

networkaffiliate

content syndicates

CPEs :

STBiTV

DVR

application platform

infrastructuredata capture

DBShardwareinstallers

SMS

consultants: systemintegrators

distributionequipment

trade associations

regulators

BSP *

CIS

(consumer

interactive

services)

mediabuying

mediaplanning


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present an ecosystem map for each proposed business concept, illustratingExperian’s role connecting and mediating commerce between firms.

2. Selected Ecosystem Segment DescriptionsMarketers

Consumer packaged goods and automotive advertiser lead spending fortelevision advertising. Pharmaceutical, retail and media are also majorparticipants in the sector.Major Segment Participants:

Top 5 TV Ad Spending Verticals

Industry2002 TV Ad Spending

($MM)TV % of Ad

Spending

Consumer PackagedGoods $5,846 71%

Automotive 5,773 68

Pharmaceutical 2,981 70

Retail 2,578 46

Media 2,464 52Source: AdAge

MSO (Multiple Systems Operators)

Description:

A company that operates multiple cable systems, meaning services are providedto two or more distinct geographic areas. The scope of services providedincludes analog cable television, digital cable television, pay per view (PPV)television, video on demand (VOD), broadband internet access and telephony.Major Segment Participants:

MSO Subscribers(thousand)

Comcast Cable Communications 21,468

Time Warner Cable 10,919

Charter Communications 6,431

Cox Communications 6,338

Adelphia Communications (1) 5,470

Cablevision Systems Corporation 2,944

Bright House Networks 2,167

Mediacom Communications Corporations 1,543


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MSO Subscribers(thousand)

Insight Communications (1) 1,293

CableOne 721

Source: Kagan World Media, 2003

DBS (Direct Broadcast Satellite)

Description:

Service that allows households to receive television programming directly fromsatellites on small (18 inch to 3 foot) satellite dishes which are not moveable butinstead are aimed at one position in the sky. The signals are digitallycompressed, allowing several programs to be broadcast from a single satellitetransponder thereby allowing up to 200 channels receivable with a dish pointedat one orbital position in the sky. Programming on the various services includesmost major cable services, sports, Pay Per View (PPV) movies, audio services,

and specialized "niche programming aimed at smaller audiences. These servicesare often referred to as Direct To Home (DTH) services.Major Segment Participants:

DBS Subscribers(thousand)

DirecTV 11,180

EchoStar (Dish Network) 8,180

Voom N/A

Source: Kagan World Media, 2003 BSP (Broadband Service Providers)

Description:

BSPs offer alternative, wire-based telephone, television and Internet service.They substantially discount bundled services over the prevailing market rate forother already established providers.Major Segment Participants:

BSP Homes under Franchise (thousand)

RCN 4,575

Grande 1,355Starpower 650

Knology 628

Everest 321

Source: U.S. General Accounting Office, 2003


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39/9834

Major Segment Participants:

Network Average Primetime Rating

TNT 1.66

Nickelodeon 1.57

USA 1.51

ESPN 1.38

Nick at Night 1.37

Lifetime 1.23

TBS 1.22

Cartoon Network 1.18

Fox News 0.94

TLC 0.83

TOP 10 Ad-Supported Cable Nets 12.89

Total Ad-Supported Cable 30.38

Source: Nielsen Media Research ( 9/22/03 through 5/26/04)

Interconnect

Description:

Advertising market consolidators enabling media buyers to buy advertisingacross several cable systems.Major Segment Participants:

Interconnect HH Reach(MM)

NCC SpotCable 66.0

Comcast SpotLight 30.0

New York Interconnect 3.5

AdLink 3.3

DRTV

Description:

Direct Response Television includes participants involved with the production ofdirect response short-form commercials, long-form infomercials, cable andbroadcast shopping networks.


40/9835


Company Activity

QVC Shopping NetworkHome Shopping Network Shopping Network

Shop at Home Shopping Network

ShopNBC Shopping Network

Guthy-Renker Long- and Short-Form

Warren Direct DR Agency

Mercury Media DR Agency

Koeppel Direct DR Media Buying

Media Research & Data Systems

Description:

Companies in this segment supply marketing and media planning software anddatabases to media buyers and advertisers. This segment also includes thirdparty audit and verificationMajor Segment Participants

Company Company

Donovan Data Systems Taylor Nelson Sofres/CMR

Telmar BPA Worldwide

COREmedia Systems Media Framework

Scarborough Research MarketronSpotData IMS

SRDS Bruzzone Research

Audience Data Capture

Description:

Media measurement companies which conduct primary surveys of audiences todetermine program and network ratings. Specialty firms may focus on localmarkets or custom research for advertisers.Major Segment Participants:

Audience Data Capture

Nielsen Media Research

Arbitron

AdCom Information Services


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Content Data

Description:

Media companies which gather and maintain information databases related toentertainment content such as producer, director, cast, related shows, etc. Thecompanies may also gather voluntary preference information from viewers.Major Segment Participants:

Content Data

Gemstar-TV Guide

IMDB

Yahoo! Television

MSN Entertainment Channel

Zap2It

E! Networks

Infrastructure Data Capture

Description:

Infrastructure data capture companies collect, maintain and sell detailedinformation about television distribution networks such as system directories andhead-end information.Major Segment Participants:

Company

Warren Communications

MBC DatabankNielsen Media Research (FOCUS Database)

Advanced Media Systems (AMS) CableTrack Database

Media Planning & Buying

Description:

Media planning companies specialize in developing media strategies andobjectives that will effectively and efficiently reach target audiences for a specificproduct or service. Media buyers purchase time and space for the delivery ofadvertising messages through mainstream media. A media buying service may

purchase broadcast time, print space, indoor space, outdoor space, and othermedia. Many of the major players in this sector are captive to one of the large,global ad agency networks.


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Company Agency Network 2003 Revenues($mm)

Universal McCann IPG $375.4

MindShare WPP 371.1OMD Omnicom 365.5

Initiative Media IPG 349.4

Zenith Optimedia Publicis 295.4

Mediaedge:cia WPP 272.0

Media Planning Group Havas 176.6

PHD Omnicom 93.3

Carat Group Independent N/A

Source: AdAge3. Direct Value Added (DVA)Effectively all of the revenue in the MVPD industry comes from either consumers(through paying their cable/DBS bill) or advertisers. All of the ecosystem playerswe’ve identified between advertisers and consumers can be segmented into“DVA” (Direct Value Added) or non-DVA. DVA entities are directly involved inhandling the message itself, the actual method of delivery, or the return path.The economic definition of “Value Added Revenue” is Revenue - Cost ofMaterials; we will be somewhat more subjective in this treatment. We believe thefollowing are DVA players in this ecosystem:

Ecosystem Player Leverage/Power

CPE (Customer Premises Equipment) LOWCIS (Customer Information Services) LOWMSO (Multiple System Operator) HIGHDBSO (Direct Broadcast Satellite) MEDIUMBroadcast Network HIGHCable Network MEDIUMNetwork Affiliate LOW/MEDIUMInterconnect MEDIUM

Content Syndicate LOWMarketers HIGHDRTV MEDIUM

D. Summary of Findings from Market Participants1. BackgroundOur research of the addressable media marketplace included a round ofinterviews with experts from industry participants as well as third party experts.


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The objective of these interviews was to both verify key trends identified in ourindustry research and investigate potential opportunities for Experian toparticipate in the development of targeted TV advertising.During the course of this six-week project, we spoke with the followingindividuals:

• Several leading media industry consultants• Representatives of a media planning tools company• Senior interactive technology executive at Cablevision• Head of relationship marketing at a major consumer products company• Vice President of Marketing for a mid-sized auto industry firm• Former Cablevision exec, currently Rainbow consultant• Major MSO Media Planning Director• Former Nielsen Media sales executive, currently Research executive at major

MSO• Cable network business development executive

2. Observations

Resistance to Change An important barrier to change is entrenchment by agencies and others whohave a substantial investment in the existing system. Experian can expect to findskepticism and at least tacit resistance from participants whose livelihoodsdepend on the status quo.In order to be an agent for change, it will be important to understand themotivations driving the participants. Larger agencies, for example, have a vestedinterest in maintaining the status quo, whereas smaller agencies are looking foropportunities to change the rules. Media buyers, on the other hand, are reallyonly interested in large-scale media buys since margins on smaller buys arenarrow. As a result, their interest in addressable advertising may not emerge

until there are some campaigns of scale. Cable MSOs have substantialinvestment in current infrastructure and only limited motivation to make newtechnology investments without direct and immediate payoffs.Reliance on MSOs

Several of the people we interviewed felt strongly that cable MSOs lack both theincentive and the resources to drive addressability. There is also a great deal ofinconsistency among the major MSOs in terms of the quality and scale of theirinvestments in interactive infrastructure. Another issue with interactive andtargeted advertising is that it will require some amount of bandwidth, dependingon the application. MSOs may be reluctant to give up a significant amount ofbandwidth that could otherwise be used to deliver incremental value-added

services to subscribers. In any event, many of the people we interviewed agreedthat MSOs would not be the principal drivers of addressable advertisers and thatdemand would need to come from marketers.Demand from Marketers

On the one hand, marketers are keen to find approaches that can increase theimpact of their budgets. However, in recent years, many marketers pulled backfrom aggressive online and interactive campaigns, preferring to focus ontraditional messages. It would also appear that, while marketers would like to


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see more accountability for ad spending, many have not yet begun to viewtelevision campaigns with the same response-based criteria as they would onlinemarketing, for example. An important role for Experian is to leverage its directmarketing expertise and relationships with marketers to demonstrate theattractiveness and effectiveness of targeted advertising.

Privacy ConcernsOne common theme that emerged during our interviews was general concernabout privacy, particularly when information about individual viewing behaviors orpreferences were concerned. Experian’s strength in managing and protectingsensitive consumer information responsibly should lend a great deal of credibilityand create an opportunity for Experian to help accelerate change. On the otherhand, concerns about privacy and misperception on the part of both consumersand marketers will serve as a barrier to change from the status quo .


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Section III :

Strategic Opportunitie s


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III. Strategic Opportunities for Experian

A. Marketplace Positioning and Approach1. Guiding Objectives

The evolving market for addressable media and targeted content presents animportant avenue of future growth for Experian, as marketers continue tointegrate consumer information into targeted advertising campaigns that are bothmore cost effective to marketers and relevant to consumers. Experian’s strategicobjectives with respect to the evolution of addressable advertising are to:

a) Establish a central, facilitative role in the “Power Triangle”Experian’s extensive demographic database and direct marketingexpertise will be positioned to provide the linkage between Marketers,Consumers (Audience), and Media (Networks and Distribution). In acentral role, Experian’s data will drive direct marketing campaigns usingaddressable media and enable Media outlets to provide and enhancedand customized services to Consumers.b) Remain technology and media agnostic

Although some companies (e.g., OpenTV) are taking an early lead inpropagating an addressable media platform, the distribution andapplication layer platforms continue to evolve rapidly andunsystematically. Experian should maintain flexibility by hedging onmultiple platforms, while at the same time focusing short-term efforts onmarket leaders and dominant distribution players.c) Seek opportunities to integrate the ecosystem, rather thanopportunities to deepen Experian’s Consumer Data depth

Experian does not need to add much depth or breadth of data to itsexisting repertoire. It should stay focused on keeping segmentation (forTV advertising) simple. The real value will come from integrating theValue Chain. Experian should look to expand its network out, not down,and should seek opportunities to play a facilitator role where it doesn’tmake sense to invest directly.d) Maintain strategic flexibility

Addressable media technologies are evolving rapidly. Uncertaintyremains among marketers and agencies about the practicalimplementation of addressable campaigns. Until a dominant platformemerges, Experian should maintain maximum strategic flexibility by

focusing first on service delivery to its core client base, without tying downmajor resources on a fixed strategy.2. Tactics

a) Create value for the ultimate “payers”: Marketers and ConsumersThe most attractive opportunities are those that most closely create valuefor the ultimate source of revenues in the advertising ecosystem: namely,advertisers and consumers. The most attractive opportunities will look toreduce CPM for advertisers, improve marketing campaign response and


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develop early relationships with target customers. Consumer valuecreation will emerge from improving MSO and DBSO abilities to deliveradvanced services to consumer demanding those services and fromcreating new opportunities for companies to better tailor media content toend-consumers’ desires and preferences.

b) Extend marketing credibility to key MVPD playersLarge media companies such as Viacom, Time Warner and Comcastdominate the programming and distribution of television content. In suchan environment, established relationships with market leaders, andcredibility as a television media “player”, are critical to long-term success.Experian should extend its already considerable credibility with majormedia companies and with magazine and catalog publishers intotelevision programming, retailing, and distribution companies. In theshort-term, Experian should concentrate sales efforts on deliveringexisting products services to these clients to build long-term relationships.In addition, selective acquisitions of companies with television expertiseand authority can help to jump-start this process.c) Integrate Experian’s core data and services into evolving platforms

Addressable media technology developers will look to integrate targetingand customization capabilities directly into their platforms. Experianshould seek to integrate its data and services into these platforms earlyand establish itself as the de facto authority on consumer information,targeting and personalization. Well-placed strategic investments anddirect involvement with early-targeted campaigns should help to solidify acentral role for Experian.d) Encourage and facilitate the development of targeted contentIn order to secure its future in the addressable media space and to

accelerate the development and use of addressable media, Experianshould step up its involvement in early trials of addressable mediacampaigns. In its unique role, Experian is well positioned to facilitate thenecessary dialogue between advertisers, agencies and television mediacompanies. Experian needs to commit resources to working withemerging technology players and with marketers to demonstrate thepower and usefulness of addressable media. Early investments shouldbe targeted to assisting the deployment and utilization of relevant newmedia technologies.e) Diversify investments and make acquisitions selectivelyMedia companies are particularly adept at diversifying their investments

across a broad spectrum in order to manage risk. The most successfulmedia companies place smaller investments across a broad array ofopportunities and resist putting “all their eggs in one basket.” In a rapidlyevolving environment such as that of addressable media, it is critical todiversity both as a risk management tool and to ensure that Experianplays a role in whatever platforms eventually dominate the industry as itmatures. Traditional full acquisitions and integration may be lessdesirable in the near term than a considered strategy for diversifiedinvestments.


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3. Partnership and Investment CriteriaHundreds of companies are actively involved in the addressable mediaecosystem. Experian rightly applies important criteria in assessing theattractiveness of a potential strategic partner, acquisition target or investment. Inprioritizing partnership and investment opportunities, the following criteria have

been generally applied.Partner selection

Market leadership in developing addressable media• Ability to leverage and complement existing relationship• Proven ability to manage innovation

Investment Criteria• Profitable, established businesses• Marketing service orientation versus technology/product orientation• Manageable investment size• Experienced management team• Strong brand identity and customer reputation• Value creation for marketers / advertisers versus consumer direct• Cultural Fit

Major ecosystem companies that present attractive partners, sales targets orinvestment were prioritized into tiers with Tier 1 representing the most immediatepriority group, usually consistent of market leaders. Tiers 2 and 3 constitutesecondary and tertiary targets, usually classified as such because one of more ofthe criteria above are not as well met. Of course, the initial tiering ofopportunities is necessarily more art than science and should not be construed torepresent hard or fixed boundaries but rather an early prioritization of the mostimmediate steps Experian can take to build the necessary relationships in theaddressable media ecosystem.

4. ResourcesTo meet its strategic objectives and capitalize on the opportunities available inaddressable media, Experian will need to commit resources to developing a corebusiness in the addressable media space.

a) Sales TeamExperian will need to consider expanding or redeploying part of its salesforce capability to acquire and develop strong relationship with televisionmedia companies. Where current relationships already exist, salespersonnel should focus additional efforts on deepening thoserelationships, particularly in areas that enhance Experian’s ability to meet

the strategic objectives in the addressable media space.b) Business DevelopmentTo participate in the development of addressable advertising and todevelop and establish the strategic partnerships and execute on anaddressable media strategy, Experian will need to dedicate management-level resources. In the near term, a manager with addressable mediaexperience and contacts should be charged with the mission of growing


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Experian’s participation in the development of the industry and securing along term role for Experian’s business units and capabilities.c) Investments and Corporate DevelopmentShould Experian decide to commit capital resources to investing in thedevelopment of addressable media, a diversified portfolio investmentstrategy will be inherently complex and will apply the talent andcapabilities of Experian’s corporate development team in tailoring aninvestment program. Critical corporate development resources should beavailable to identify and qualify investment opportunities and to monitorand manage an addressable media portfolio.

B. Opportunities for Value Creation

Strategy Description

Targeted Ad DevelopmentExperian leads targeted campaigns to demonstratepower to marketers

Augmented Backchannel Data

(Digital Measurement/Reporting/Auditing)

Experian becomes trusted central repository of STB datafor enhanced delivery audit and campaign measurement

Enhanced Planning Tools Integrate Experian demo/psycho profiling into mediameasurement/buying tools

Content Data Matching

Experian collects data about content and appends to HHdatabase to provide refined programmingpsychographics to studios and marketers and enablecontent personalization for consumers

Data ConsortiumExperian collects and manages MPVD subscriberinformation repository

Enhanced DRTVCentralize data tracking of t-commerce and enhance

audience profiling for targeted DRTV campaigns

Ad Futures Market

An "EBay" of advertising, with a Foreign Exchange Deskcomponent. Basically, Experian acts as centralrepository of content metadata (advertising,programming, distribution), and audience. This is usedas/with an ad spot market, much like a futures tradingdesk.

We recommend that Experian begin aggressively selling into the MVPD spaceimmediately . This will lay the groundwork for a two-phased approach.Phase I is building a foundation, and it consists of supporting basic targetedadvertising and augmented backchannel data. Figure 4 depicts the basic flow of

data in the MVPD system; our foundation recommendation consists of addingExperian to both the “upstream” and the “downstream” sides.Phase II is idea generation. We are proposing five possible ideas that are enabledby the foundation. We believe as the foundation gets built, many more ideas will begenerated and refined.We have also made some first-pass estimates of the value of these ideas, andprojected out to 2010. We’ve presented 2006 revenues in the body of thisdocument; worthwhile NPV models are impossible without Experian cash flow


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information, and revenue flows beyond 2006 are highly speculative in any case.MVPD is an industry in rapid flux.

Figure 4: The Flow of Data in the MVPD System

planningplanning buyingbuying deliveringdelivering

measuringmeasuringreportingreporting analyzinganalyzing

consumer consumer consumer advertiser/agencyadvertiser/advertiser/

agencyagency

networknetworknetwork

back channel data

delivery data

headendequipment2headend

equipment23rd-partyresearch3rd-partyresearch NMRNMR

NMR - Nielsen Media Research


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themselves (and their agencies), Experian has a deep organizationalunderstanding of the technology. And finally, Experian can join as a non-zero-sum game participant: “if everyone else wins, we win, too”.The strategic questions for Experian are:

• Will Targeted TV Advertising catch on, and when?• What role can Experian play?• What partnerships must Experian establish? What investments need

to be made?• How does Experian make money?

Will It Catch On? There is very little dissent: it’s a matter of when and how, not if. Let’sidentify some possible scenarios, and then put some constraints aroundthe concept.Scenarios

• VOD adoption• DVR adoption• Pilot DSTB adoption

– Network-focused Rollout. Pilot programs would be “sold” primarilyto a Cable Network, focusing on the increased revenue they cancharge for advertising once the concept has been proven effective

– MSO-focused Rollout. Pilot programs would be sold primarily toMSOs, focusing on the pspm fees they can charge networks foraccess to the system once the concept has been proven effective

– Advertiser-focused Rollout. Pilot programs would be soldprimarily to selected advertisers, based on their predisposition touse Direct Marketing, their reputation for trying new things, thetheoretical increase in value that their specific products get from

targeted TV, and finally, their strong relationship with Experian.Constraints• Targeted TV content is dependent upon the rollout of Digital Cable,

over which only the MSOs have any real control. While MSOs aregenerally interested in rolling out Digital Cable, it is by no means theironly high-priority issue

• Potential vehicles for targeted commercial content – VOD, DVR, IPG,are still largely speculative. For all the press on DVR, for example, ithas still penetrated only 3.5 million homes.

• Local Spot Cable, National Spot Cable, Network CableWhat role can Experian play?

Experian is an Information Broker (“Infomediary”). Only Experian,InfoUSA, Acxiom, and Knowledgebase Marketing are capable. InfoUSA,

Acxiom, and KBM have indicated varying degrees of disinterest; they arelooking the ot

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