1. Advertising in Distributed Content Markets

2. Topics I.Online advertising and video growing dramatically II.Big Flies in the Ointment III.Advertising Models in P2P IV.Where has all the content gone?

3. I. The future of online advertising Advertising will grow at 4.8% CAGR, outpacing GDP growth of 3.5% Internet will grow at 20% Web eclipses radio in 2008, according to eMarketer Internet will eclipse newspapers in US by 2011 according to Veronis & Schuler Search and video advertising will propel internet ad growth Web beats Radio! Warning: Radio Uniform, Internet fragmented!

4. US Video Advertising: Expect Huge Growth Video advertising to grow to $4.3 billion from todays $775 million. Will become 11% of internet advertising from 2% today Taken together video and search will fuel advertising growth Video includes all forms, including embedded ads in video content Compound Growth: -Advertising 5% -Internet: 20% -Video Ads: 56%

5. Summary: Search &Video Drive Net Ad Growth Sept. 2007 (Nielsen) 11:1 4:1

6. Inclination to Experiment in New Media Source: eMarketer, AAF, February 2007 % Spend % Respondents % Ad Budget Targeted to New Media:

7. Video Ad Click Thru Rates 5x of banners Banner ad CTR average 0.12% run of network DoubleClick March 2007

8. II. Big Flies in the Ointment Measurement Panels vs. Server Logs Style.com - server: 1.8 m, panels: 400k-500k (Comscore, Media Metrics) Forbes.com – server: 11.6 m, panels 5.8m-7.5m Served arrived IAB: No More Panels! Web 2.0 makes this worse since page views arent refreshed Data being returned from these new ad formats is not uniform Makes return on spending calculations difficult for media buyers Formats Differing formats and behaviors make it difficult for advertisers to deal with new forms of advertising ABC.com, NBC.com, etc. have different formats Causes advertisers to reproduce ads for each service, reducing ROI Services should agree on formats and behaviors STARTUPS: Dont Invent New FORMATS! Still leaves the data uniformity problem Lack of standards increases buying & settlement friction, thereby reducing market liquidity

9. III. Advertising Models in P2P Its a two-sided market: Ad supported P2P services must understand they are a two-sided market Two-sided markets are not well understood (not conventional supply and demand) There is always a platform in the middle that must ad value (buying, settlement etc.) The inducements the service provides to consumers and advertisers must incentivize the right behavior

10. Ad-Supported vs. Pay Predictions for online video are that paid will slightly exceed free, ad supported models. Consumers dislike ads, but in general dislike paying more. Free ad- supported models allow experimentation in deep catalog. eMarketer: Internet video audience will grow 45.8 percent from 107.7 million in 2006 to 157 million by 2010. (FTI believes ad-supported models will perform better than this)

11. Four ad-supported models in digital content 1.Viral links initiate streaming with ads (YouTube, widgets) 2.Closed P2P with ads (Joost, BBC) In-stream ads or Client-side caching 3.Open P2P Teasers – not full content (Media Defender, Intent) 4.Open P2P Advertainment (Comedy Time)

12. P2P Advertising Pros & Cons Pros: –Potential to reach the greatest audience –Delivers long-form content cheaply making ad-supported content possible –Client enables reliable ad measurement Cons: –Still largely misunderstood by content owners and advertisers –Unlike streaming, requires DRM –Requires a client P2P is virtually required under ad-supported models with long-form content….

13. Where Has All The Content Gone? Legal P2P networks are plagued with obstacles to good content: Suspicions about P2P Exclusive rights windows and ownership confusion over digital rights Networks who want to stream it themselves or take most of the ad revenue (Joost gets 10%) DRM virtually excludes Macs in most cases & 18-24 population is 50% Mac Content owners focused on pay models in the case of downloads – NBC is the exception

14. However, Ad Models Beat Some TV Models Compares Favorably With Studios Barter Cable Model: Analysis developed by MGM Closed P2P

15. Summary Video advertising will grow enormously P2P most cost effective delivery method for advertising models General problems of ad measurement and format standardization hinder adoption Content rights also hinder adoption, but economic incentives will overcome these Ad-supported P2P could dominate Will find its way to TV displays in two years

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