itn networks board meeting december 06, 2007. table of contents television market dynamics potential...

ITN Networks

Board MeetingDecember 06, 2007

Table of Contents

Television Market Dynamics

Potential New Growth

2007 Financial Forecast• 2007 Financial Recap• Full Year by Quarter

Acquisition / Biz Development

2008 Financial Budget• 2008 Full Year Budget• 2008 By Qtr

Television Market DynamicsPeriod of Unprecedented Change & Increased Volatility

2) Change Nielsen Measurement Methodology & Technology

3) Unprecedented Declines in National Program Ratings

4) Change in National Currency:Program to Commercial Ratings

1) Client / Agency Demands for Accountability

5) Uncharted Political Advertising Landscape in Local Markets

6) New Daylight Savings Time: 3 Weeks Earlier-March

Challenges

Detailed In September 2007 Board Meeting


1) Continuing Unprecedented Declines in National Program RatingsAcross All Ad-Supported Television: Unlike Previous Shifts (i.e. Broadcast to Cable)

Broadcast NetworksNetwork Primetime

ABCCBSNBCFOX

-13%-15%-18%- 6%

A18-49

-15%-14%-20%- 5%

A25-54

*Excludes Sports

Network Late Night

ABCCBSNBCFOX

- 4%

- 6%- 6%-34%

A18-49

- 4%- 7%- 5%-33%

A25-54

Network Daytime

ABCCBSNBC

- 6%-15%-19%

- 3%-14%-20%

A25-54A18-49

Network Morning News

ABCCBSNBC

-10%- 7%-14%

-10%- 7%-12%

A25-54A18-49

Network Evening News

ABCCBSNBC

- 8%- 7%-14%

- 7%-11%-12%

A25-54A18-49

USATNTTBS

ESPNLIF

FAMSPKEMTV

A18-49 A25-54 0%

-10%- 4%-17%- 1%- 4%-14%- 6%

- 1%-12%- 4%-21%- 5%- 7%-18%-10%

- 3%- 6%- 8%-13%- 4%

0%- 4%- 9%

- 3%- 7%- 6%-15%- 3%- 6%- 5%

- 10%

Cable NetworksPrimetime Total Day

A18-49 A25-54Bernie Mac

FriendsGirlfriends

My Wife & KidsSeinfeld

Malcolm-MiddleWill & Grace

Ev - Raymond

A18-49 A25-54-33%-31%-32%-28%-32%-27%-26%-19%

-29%-33%-25%-24%-30%-28%-28%-20%

Syndication

Notable Exceptions:

Discovery: “Planet Earth” Prime +17% & +13%

A&E: “Sopranos” Prime +34% & +27%

Top Sitcoms

A18-49 A25-54

-16% -16%

Overall Syndication:

Live Program Ratings

September 2007 Board Meeting:Year-to-Year Performance: January-July 2007 vs. 2006


New Broadcast Season:Year-to-Year Performance Sept. 24 – Oct. 28 2007 vs. 2006

1) Continuing Unprecedented Declines in National Program RatingsAcross All Ad-Supported Television: Unlike Previous Shifts (i.e. Broadcast to Cable)

My Wife & KidsThat 70’s Show

Will & GraceBernie Mac

According To JimMalcolm/Middle

FriendsEv-Raymond

SeinfeldScrubs

A18-49 A25-54

-53%-48%-44%-35%-26%-26%-23%-19%-16%-10%

-50%-49%-40%-34%-21%-30%-27%-26%-17%-16%

Top Sitcoms

A18-49 A25-54

-19% -18%

ABC, CBS, NBC, FOX, CW, MYN

A18-49 A25-54

Network Prime:-15% -16%

A18-49

Cable Prime: - 3% - 7%

Cable All Day: - 5% - 7%

All 65 Ad Supported Cable Nets106 Returning Syndicated Shows

Network All Day:-13% -13%

Network News: -17% -15%

Broadcast Networks Cable Networks Syndication

Live Program Ratings


2) Rapid Changes in Nielsen’s National PeopleMeter Sample

Enables Measurement of Digital (versus Analog), DVR, & All Other TV Devices• Continued Roll-Out of Nielsen’s New Active/Passive Meter

•Requires Stations Equip, Comply, and Encode Properly•Nielsen Cites Technical and Station Compliance Difficulties

January 2006: Roll-Out Began May 2007: 50% of National Sample is Equipped with A/P Meter

Update: October. 29, 2007: 10%-15% More of National Sample Was ConvertedNew Local A/P PeopleMeters in Houston, Tampa, and Seattle are folded into Nielsen National PeopleMeter Sample April–August 2008: Next Significant Conversion to A/P Scheduled

New Local A/P PeopleMeters in Phoenix, Minneapolis & Cleveland will be rolled out and folded into Nielsen National PeopleMeter Sample Sept. – Dec. 2008: 100% of National Sample will be A/P Metered

New Local A/P PeopleMeters in Miami & Denver will be folded into NielsenNational PeopleMeter Sample and All “Mark II” meter homes will be out.


• Rushed Increase of DVR Homes in National PeopleMeter Sample

DVR Measurement Was Made Possible in January 2006 through new A/P Meter technology

Since Jan 2006, Nielsen has had to play catch-up getting DVR Homes into it’s National Sample,expanding DVR Sample Homes much more dramatically than the actual rate of penetration.

Jan ’06 – May ’0612% - 14%

May 200717%+

4% - 7% 17%

Actual U.S. HH DVR Penetration:Nielsen Sample HH DVR Penetration:

Oct 200719.7%

20.5%

Est. 2009

40%+

Oct. 2007: DVR Penetration = 31% of Adults 18-64 who watch on average at least 1 Hour of television each day

Update:



Significant Declines in National Ratings Across All Traditional, Ad Supported Television Sources Will Likely Continue Through 2008 and 2009…

Nielsen claims no significant problems exist in A/P Meter sample methodology or technology as a driving factor for declining ratings. Rather the A/P meter’s ability to include “high-tech” homes, previously omitted from Nielsen’s sample, provides a “truer measurement” of how homes today use television differently.

Projection:



Continue Chasing Ratings to Fulfill Upfront Guarantees

Most Significant Ongoing Challenge

1) Securing Additional Broadcast Inventory: Higher CPMs & More Stations

Political Spending: 60%+ of All Local TV Spending is in Newscasts• Early Presidential Primaries Scheduled Jan 29 – Feb 19: Affect 16 of Top 25 Markets

NY, LA, SF, WASH, ATL, DET, SEA, TAM, MINN, PHO, MIA, DEN, SAC, ORL, STL, BALPolitical Spending, for the first time, is affecting ITN’s most efficient source of annual inventory, typically secured mid-December through mid-February

• Gubernatorial and Senatorial Scheduled 2Q & 3Q 2008: Affect 13 of Top 25 MarketsCHI, BOS, DAL, WASH, ATL, DET, HOU, SEA, MIN, DEN, STL, POR, IND

National Market Tightness: Driving National Advertisers Locally for GRPs

Obstacles


2) Securing Efficient Inventory on National Cable Networks & Satellite

•Currently Buying Inventory on Spike, EchoStar, DirectTV•Continue Negotiating for Inventory on Comedy Central & TV-Land•Recently Begun Dialogue for Inventory on WE and AMC

•Denied Request for Inventory on TBS, TNT, G4, Style Consider ITN a Competitor•4Q Entertainment Inventory on EchoStar is Not Providing Sufficient Program Control•Only 1/3rd of ITN’s News Advertisers Permit Use of National Cable News on EchoStar

Obstacles

Most Significant Ongoing ChallengeContinue Chasing Ratings to Fulfill Upfront GuaranteesContinue Chasing Ratings to Fulfill Upfront Guarantees


3) Google TV: Actively Bidding Online - Accessing More EchoStar Efficiently

•Successful Bids ITN Won Have Averaged 50% Lower CPMs vs. Buying EchoStar Directly•Google EchoStar: ITN is Securing Inventory on Fox News, CNN, Headline News

•System is a Work-In-Progress: Clumsy / Tedious / Commercial Driven – Not Client•Traffic Complications: Must Digitize Commercial & Upload It – Not Always Successful•ITN is working closely with Google staff – Input is Improving the System

Overview:


Most Significant Ongoing Challenges


4) Securing Efficient Inventory on Regional/Local Cable News Channels

Currently Buying Inventory:•Comcast CN8: New York, Philadelphia, Boston, Washington DC, Baltimore, Providence•New England Cable News•Northwest Cable News

Obstacle None Are Successfully Monitored via Electronic Commercial Verification




5) Exploring with Nielsen: Comcast Interconnects & Other Local Cable

•Interconnects Are Still Not Measurable via Nielsen National PeopleMeter Sample Will Require Comcast Invest and Press Nielsen to Develop Functionality in Nielsen Sample

•Ohio News Cable: ITN is Helping Coordinate via Nielsen Specs, Nielsen Contact, $ Commitment



Obstacles


6) Accepting 1Q-3Q Scatter Deals at only the Highest Possible Prices

Securing Inventory for Upfront Guarantees versus Scatter



Obstacle


3) New National Currency: Commercial Ratings As of Fall 2007

Obstacles

Buying Inventory on Five Different Metrics•Broadcast Top 13 Markets: LPM Program Ratings•Broadcast Markets Ranked 14+: NSI Diary & HH Meter Program Ratings•National Cable: National PeopleMeter “Live” Program Ratings ( some on “C3”)•Regional Cable: National PeopleMeter “Live” Program Ratings•Google EchoStar Set Top Commercial Measurement – Not Nielsen PeopleMeter

Guaranteeing Delivery on a Different Metric•“C3”: National PeopleMeter Commercial Ratings


Update: October 2007

Live Program Ratings versus Live Commercial Ratings -5% to -8%

Average Across Broadcast Television:

“C3” means Commercial Ratings +3 Days of DVR Viewing is Included Across Broadcast Network Primetime, 85%~90% of Declines on Commercials is being made up with inclusion of 3 Days of DVR


Net Effect on Broadcast Network Primetime:

Overall “C3” Commercial Ratings versus Live Program Ratings -1% to -3%

Highest Rated–Highest Priced Primetime Shows: Most DVR’d +1% to +8%

Net Effect on ITN Entertainment:

Similar to Syndication-1% to -4% 41% of ITN’s 2007-2008 Booked Ad Revenue


59% of ITN’s 2007-2008 Booked Ad Revenue is in Newscasts

Newscasts (and Sports) Receive Lowest Levels of DVR Recording/Viewing

Net Effect on ITN News Networks:

Zero Gains for 3 Days of DVR-5% to -8%

Net Effect on ABC/CBS/NBC News:

-7% to -10% Due to Weak Pod Positions

News Represents Only ~10% of ABC/CBS/NBC Ad Revenue

FOX: ~2% Ad Revenue in Newscasts (weekend only)Syndication, CW & MYN: 0% Ad Revenue in Newscasts

Result:ITN is Disproportionately More Affected By Declines on

“C3” Commercial Ratings versus the Broadcast Television Industry



Nielsen Complications: Delays in Producing ITN’s “C3” Ratings

Problem #2: ITN’s Data in NPower was wrong: Nielsen cites “glitches & coding errors”•3 times Nielsen stated it was fixed – 3 times ITN Research proved Nielsen wrong•NPower Software was only confirmed fixed by ITN in the first week of November

Problem #1: Nielsen did not plan for ITN’s “C3” Measurement Posting Needs•ITN threatened legal action – Loeb & Loeb – Nielsen agreed to make necessary modifications•Nielsen recommended ITN utilize their “NPower” Software as a temporary solution to view “C3”

To Date: ITN has only seen Live + Same Day DVR Viewing for September-November 2007

Projections: “C3” Performance gains projected on Sept.-Nov. 2007 ITN activity are based on 2nd & 3rd Quarter NPower analyses completed mid-November

•Exact Gains for 3 Days of DVR May Be 0% to 6% on Individual Units of ITN’s Entertainment Networks

Actual Delivery: “C3” Ratings on ITN activity from September onward is scheduled for production & delivery by Nielsen beginning mid-December.



Volatility2007-2008 Season Audience Guarantees:

Advertiser Specific Exact Commercial Break RatingsExact Day – Exact Date – Exact 3 Minute Commercial Break

versus

Network / Syndication / CableAverage Rating of All National Commercial Breaks

(M-F Average Rating in All Programs Except Prime & Sports)

• ITN’s is Statistically A Much More Volatile Measurement vs. Industry Standards• Early Returns, Higher or Lower vs. Projections, Are Not Indicative of Later Returns

Challenges:


Volatility: ITN Entertainment Networks

Kimberly-ClarkKraftP&GSchering-Plough

W25-54W25-54W18-49W18-49

Individual Unit Variation

Versus Average Rating+47% / -58%+10% / -19%+72% / -56%+22% / -15%

Early FringeDemoAdvertiser

Burger KingCloroxCrown ImportsDannonDardenGlaxoHasbroKimberly-ClarkK-MartMidasP&GReckitt Benck.Rent-A-CenterSchering-PloughS.C. JohnsonSearsSubwayU.S. AirforceWrigley

A18-49W25-54M25-34W35-64A18-49W25-49W18-49W18-34W25-54A25-54W18-49W18-49A25-54W18-49W25-54W25-54A18-49A18-34A18-34


Versus Average Rating

Demo

AdvertiserLate Night

+35% / -38%+31% / -39%+53% / -25%+79% / -51%+29% / -36%+18% / -23%+32% / -32%+37% / -53%+22% / -27%+29% / -19%+41% / -38%+85% / -61%+41% / -31%+30% / -15%+62% / -37%+37% / -22%+21% / -20%+16% / -11%+28% / -28%

CloroxNestlePfizerS.C. Johnson

W25-54W25-54A35-64W25-54

+51% / -55%+32% / -46%+30% / -27%+27% / -27%

Fringe Combo

AllstateCloroxLowe’sNissanSears

A25-54W25-54A35-54A18-49W25-54

+22% / -22%+30% / -25%+26% / -38%

+2% / -2%+11% / -11%

African American

EA SportsSonySonyWrigley

M18-34A12-24M12-34A12-34

+50% / -30%+5% / -5%+8% / -8%+11% / -25%

Tween

83

456

# ofUnits

25832

291723

6424

1841812127232191040661212187358

# ofUnits

Prime AccessK-MartSears

W25-54W25-54

+47% / -24%+43% / -33%

69

DaytimeKelloggLiberty MedicalPfizerSchering-PloughSchering-PloughScooter Store

A18-49A55+W18-49W18-49A25-54A55+

+59% / -43%+16% / -19%+47% / -32%+19% / -25%+26% / -26%+12% / -23%

33699

124

Upfront Contracts: September 17 – November 11, 2007

3 Minute Commercial RatingsExact Day / Exact Date / Exact Commercial Break

Bristol MyersEli LillyGlaxoPfizerSchering-Plough

AllerganBristol MyersCampbell’sConagraDannonFarmer’s Ins.GarnierGlaxoKelloggKimberly-ClarkKohlerKraftNestleNovartisPfizerReckitt Benck.Sara LeeSchering-PloughSearsSmuckersSmuckersUS MintUnileverWalgreensWalgreens

W35-54W35-64W25-54W25-54W35-64A25-54W18-49A35-64A18-49W18-49A35-54A25-54W25-54W25-54A25-54W18-49A25-54A25-54W25-54W18-49M18-49A35-64W18-49A50+

W25-54


Versus Average Rating+32% / -38%+60% / -49%

+129% / -82%+38% / -52%+26% / -54%+56% / -66%+21% / -21%

+102% / -41%+60% / -63%+65% / -48%+52% / -43%+31% / -28% +17% / -17%+63% / -49%+55% / -49%

+136% / -73%+31% / -33%+62% / -27%+43% / -19%+43% / -32%

+5% / -5%+33% / -26% +81% / -39%+19% / -33% +14% / -18%

Early MorningDemoAdvertiser

Bristol MyersEli LillyGlaxoLiberty MedicalPfizerSerenityTakeda United Health

W35-64W50+A35-64A55+

A25-54W35-64A35-64A65+


Versus Average Rating

DemoAdvertiser

Noon News

+47% / -28%+22% / -32%+39% / -48%+25% / -16%+43% / -57%

+6% / -6%+30% / -34%

+6% / -4%Evening NewsW35-64W50+A35-64A25-54A25-54

+10% / -11%+32% / -35%+37% / -24%+26% / -27%+50% / -36%Late News

2007-2008: ITN Did Not Offer Commercial Ratings Excessive Volatility (Prime Lead-In, Events, Pods) High Unit Costs & Less Units = High Risk Guarantees Remain 30 Minute Program Ratings

149

3838684

1349118

112

111410441134

1129

22149

# of Units

7617624254

# ofUnit

s

37201613

Upfront Contracts: September 17 – November 11, 2007

3 Minute Commercial RatingsExact Day / Exact Date / Exact Commercial Break

Volatility: ITN News Networks


How Is ITN Working To Manage: Beginning September 2007:

•Now Producing Electronically Verified Actual Ratings for Every National Unit•EV Actual Ratings Available 1½ weeks After Airing / Re-Rated with Invoice Additions

•Eliminated Prototypical “Diagnostic” Lineups: Utilized for Over 20 Years

Utilizing EV Commercial Times to Analyze Rotations / Commercial Placement Mid-December ITN will be Installing Corrected Nielsen NPower Software

•ITN Will Develop Software To Combine NPower Data with Rotation Analyses•Work to Hold Stations Accountable for Commercial Performance

•Access Minute-by-Minute Data in Top 13 Local People Meter Markets: 34% of U.S.

Challenge: ITN Will Be Alone In This Effort – Not A “Spot” Directive


Volatility


•ITN is Chasing Ratings to Fulfill Upfront Guarantees•Political Spending is Tightening Local Broadcast Markets •Obstacles to Rapid Expansion into Cable & Satellite

1) Continuing Unprecedented Declines in National Program Ratings

2) Rapid Changes in Nielsen’s National PeopleMeter Sample•In A Constant State of Motion•New A/P Meter Technology & Methodology•More DVR Homes in Sample

3) New National Currency: Commercial Ratings As of Fall 2007•Nielsen Complications & Delays•Buying Inventory on Different Metrics than Guaranteeing•Disproportionately Greater Affect on ITN•Greater Volatility for ITN

Challenges

Summary

Potential New Growth

1) 1Q 2008 - 3Q 2008: Strong Scatter Market Demand for ITN

2) New and Expanded Client Presentations: January – June 2008•Convert 2008 Scatter Activity into 2008-2009 Upfront Commitments

•Showcase New, Expanded Multi-Platform Packages

Published in Nielsen’s N-Power Software in December ‘07 (Delayed since Oct.)• Required for “Family Time”: Co-Viewing / Same TV Set Measurement• Enables Many Other Never-Before-Seen ITN Measurements (i.e. Program Loyalty, Channel Switching)• New Behavioral & Lifestyle Networks Will Be Developed

•Explore Interests in Custom Behavioral & Lifestyle Networks

“Moms’ Time” Beauty Enthusiasts“Family Time”

•Favorable Market Dynamics: Tight National Market / High Scatter CPMs

• Vignettes• Consumer Interactive: ConVisual• Broadband: Online Content

Acquisitions/Biz Dev

• TelAmerica• Dayport• ARM• Gorilla Nation• Undertone Networks• BIM• SpotBuy TV• iParenting• Broadband Enterprises• Worldlink• Traffic.com• Spot Runner• Tremor Networks• Medizine• Waterfront Media• Metro Traffic• SWMX• Google• Yahoo• Voxant• Studio One

• Made bid; conversations stalled• Passed based on strategic fit• Made bid; passed based on strategic fit• Passed based on investment terms (minority interest)• Made bid; attended management meetings• Passed based on scale and strategic fit• Passed based on strategic fit• Passed based on strategic fit and scale• Have not actively pursued; valuation concerns• Made bid; negotiations stalled• Acquired• Never pursued based on strategic fit• Have not pursued• No update• No update• Haven’t identified a pursuable angle• Passed based on strategic fit• Good meetings with company• Met with company. Limited interest on their part• No update• No update

Undertone Networks

• Undertone Networks operates a leading online display advertising network 56 million unique monthly visitors 350 websites 360 million monthly impressions Over 100 concurrent advertisers 2007 Revenue and EBITDA projected to be $19.5 million and $3.1

million, respectively 2008 Revenue and EBITDA forecasted to be $29.9 million and $5.9

million, respectively Offers IAB ad units (skyscraper, leader-board, rectangle, pop under),

video pre-roll, home-page/prestitial and other rich media products using a range of targeting capabilities (content and user)

• JEGI is currently selling Undertone in an auction process ITN bid placed a preliminary non-binding bid of $40 million (6.8x

2008F EBITDA) consisting of $30 million of cash at close plus $10 million of equity in the combined entity (ITN valuation TBD)

ITN was invited into the second round of bidding and attended a management presentation on 12/3/07

Final bids due 2nd week of January

Financials

2007 Financial Recap

• Gross revenue should finish the year at $239.6m, 32% growth over ‘06

• Booked $111.8m in ‘07 scatter, 95% growth over ‘06

• Station Margin is 20.1%, which is a decrease from 23.4% in ‘06

• Nielsen/Production expense is $4.0m, an increase of $1.7m over ’06 (due to increased

sales volume and EV initiative)

• SG&A is $20.3m, an increase of $1.1m over ’07 budget ($1.0m is due to the increased

sales volume)

• Adj. EBITDA should finish the year at $16.0m, which is flat to pro-forma ’06 (CEO comp

added to ’06 to normalize)

• Voluntary Senior Debt Prepayment of $4m

• Amended Senior Credit Agreement with reduced covenant ratio calculations, an increase

in the libor Margin of 75 pts (annual cost of $.4-$.5m/year), amendment fee of $250k

Full Year by Qtr

Financials

2008 Full Year Budget

Financials

2008 Budget by Qtr

itn networks board meeting december 06, 2007. table of contents television market dynamics potential...

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unprecedented declines

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efficient inventory

national program ratingsacross

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