1. Prospering in An Era of Disruptive Change In Media & Entertainment February 6, 2007

2. 2 FTI Consulting Overview: Who We Are $800 mm Publicly Traded Strategy Consulting Firm One of the fastest growing companies in the US (Fortune) 2,000+ Consultants Specializing in corporate finance, economics, marketing, litigation support and corporate communications Business Communications Consulting Forensic & Litigation Consulting & Technology Economics Consulting Corporate Finance, Transaction Advisory Services

3. 3 Focused on Top-Line Revenue Growth Strategies and Marketing StrategyOrganizationProcess Top Line Growth Market opportunity assessment Segmentation Brand portfolio Launch models ROI optimization Pricing Business Unit Marketing and Brand Market research/ Insight teams Sales Customer knowledge Innovation/ NPD Market planning Brand management Performance metrics and benchmarking Analytic Competencies Decision Architecture Bayesian Decision Tree Econometric Modeling Scenario Planning Mix Modeling Cognitive Decision Sampling Real Options Pricing Game Theory Mathematical Programming

4. 4 Our Clients: Weve Seen Marketing Best Practices Across Industries…

5. 5 Our Reputation…Thought Leadership in Marketing

6. 6 Our Intellectual Capital – Books, Articles, Workshops Books Articles Workshops & Speeches – Radical Marketing (Harper, 2001) –The Infinite Asset (Harvard Business School Press, 2001); –60 Trends in 60 Minutes (J. Wiley & Sons, 2002) –Numerous chapters in books, including: Financial Times Handbook of Management, HBR on Brands, HBR on CRM, and MBA in a Box –HBR: See Your Brand Through Your Customers Eyes (2001) –Sloan Management Review: Achieving the Ideal Brand Portfolio (2005) – Strategy+business: How to Brand Sand (1998), Bring on the Super CMO (2003), 21 st Century Launch Models (2007) – CMO Magazine Come Together (2005) –Plus: Business 2.0, Journal of Business Strategy, FT, Fortune, Wall Street Journal, Estrategiay Negocios, LA Times, Ad Age, Brand Week, Straits Times, etc. –Major organizations: American Marketing Association, Direct Marketing Association, American Bankers Association, etc. –Leading companies: PwC, Pfizer, P&G, Kraft, Philip Morris, Lego, Gap, Dupont, Cemex, Ford, Kellogg, Bose, Hershey, SAP, Alcoa, etc.

7. 7 Three Titanic Forces Converge: 1 st in a 4-Part Series on Media The goal of this series is to seek underlying causes To focus not on what is happening, but why its happening The series is in four parts: –3 Titanic Forces Converge –Network Economics –Managing in an Era of Mass-Niche Duality –Strategies for Adaptation

8. 8 Ad skipping threatens ad revenues Fragmented Reach Economist, July 2005 Mismatched Spending The new marketing reality (affecting all industries)

9. 9 Its Official: Gates Says Web Will Revolutionize TV In 10 Years Dah…..

10. 10 3 Titanic Forces Converge The Rise of Openness Broadband Many-to-Many Networks Causing extreme divergence in audience fragmentation and content choice

11. 11 1 st Force: The Raise of Openness With the internet came open standards: http, ftp, html, mp3/4, etc. Openness means barriers to entry fall because the tools needed for startups are readily available for free or for small licensing fees The really bad news for the majors: No Market Equilibrium Creates a seemingly chaotic environment of constant innovations entering the market

12. 12 Walled Gardens Collapse CBS NBC ABC TNT Discover ESPN Oxygen QVC E! Golf Ch. Disney Fox WB History AMC Heavy.com Very High Fixed Costs, Spectrum Monopolies, etc., Little consumer choice Cable Infrastructure Develops with excess capacity, Still high rents for network startups (Oxygen $400 mm to launch) Consumer Choice Expands No Significant barriers to entry except legitimate content

13. 13 RetailRadioMTV Label Consumer Artist MySpaceiTunes etc. Band Site BlogsFacebook From Simple to Complex…Record Companies Risk Losing Their Relevance Record Labels Traditional Role Web creates a Label By-Pass

14. 14 Temporary Equilibriums May Re-emerge In low barier-to-entry environments, equilibriums can still emerge, but they are short-lived After 1 st Dot-Com, Yahoo, AOL, and MSN emerged as the major portals sharing a dependable portion of the page views and ad revenue With the advent of MySpace, College Facebook, their position begins to erode On the web, new models and technological innovation will continue to cause instability

15. 15 2 nd Force: Broadband The emergence of broadband will be as important as the invention of the car vs the horse and buggy 60%+ of US households have it Some European and Asian countries have higher penetration and faster service

16. 16 Some Conservative Predictions – Broadband Enabled Video will become far more immersive on the web as speed, quality and picture size improves. Every TV show and movie will be available on demand somewhere on the web. The browser and the TV will merge in the living room, creating a cable bypass. Conventional TV networks and cable broadcasting will reduce to 1/3 of their current viewership and skew toward seniors, who are slower to adopt new technologies. DVD-based video games will disappear and be replaced by web-based distribution. Games may begin to seriously rival television audiences as they gain broader appeal. Advertising will remain the dominant financial model, but will be individualized, more flexible, more measurable and less intrusive. Peer-to-peer distribution will become the dominant legal transfer protocol on the web for video. 1954: Rand Envisions the Personal Computer…

17. 17 3 rd Force: Many-to-Many Networks The world has been living with a broadcast model for the last 60 years. Cable and broadcast TV, radio, newspapers, portals and websites are all one-to-many networks While the internet is built on a many-to-many network technology, most services dont use it this way: email, skype, are 1:1 or 1:n Metcalfs Law: In a many-to- many network there are N 2 connections

18. 18 Many-to-Many Networks Are Powerful YouTube is now streaming over 100 million streams per day Hard to dislodge Accustream predicted their were 31 billion streams of user-generated content in 2006 P2P traffic now exceeds HTTP traffic on the web Three Reasons For N:N Power: –Unbounded Size –Efficient Search –Super Distribution

19. 19 Super Distribution 2n2n 100*2 N 15 mm Swarming Dampens This

20. 20 Some Interesting Observations about N:N Once large, very stable: YouTube, Ebay, Skype The market may not need two??? Whats emerging: –N:N News –N:N TV –N:N Games –Content may be inherently N:N, but has been shoe-horned into 1:N all these years –Encourages place- and time-shifting –Content far more elastic in terms of format, length and interactivity than we have been conditioned to believe (same with advertising)

21. 21 Next in Our Series on Media… Part II - Network Effects: The emerging dominance of network externalities and a new concept: The Network Good Part III – Managing The Mass-Niche Duality Part IV – Strategies for Adaptation To Get On The Mailing List, Email Bruce Benson at bruce.benson@fticonsulting.com bruce.benson@fticonsulting.com Blog: FTIMedia.wordpress.com