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Release time: Tuesday, August 26 2008

StrategyEye Digital Media surveyed over 200 decisionmakers * in dominant companies across the digital media sector, from publishers to broadcasters and mobile operators, to gauge views and expectations in the current economic climate.

The results of this major study show broad confidence despite worsening economic conditions, with incremental revenue opportunities expected from continuing audience migration to online and mobile channels.

Online advertising and social media are expected to provide the greatest return in the near term, with Mobile TV and virtual worlds less attractive for near term returns.

Jeremy Phillips, StrategyEye co-founder and COO: “This major survey of attitudes going forward in Digital Media shows that despite continuing economic drift following the credit crunch, there remains continuing investment and expectation of returns from digital marketing channels”.

• Continuing digital media investment despite economic downturn – 60% of respondents expect to invest more in social media in next 12 months, 56% expect to invest more in mobile.

• 87% of respondents who expressed a preference said that online advertising gives better returns than traditional outlets.

• 67% of respondents who advertise using traditional channels expect to cut back on their spend over the next 12 months in the economic downturn. However more than half (52%) of online advertisers expect to spend more over the next 12 months, with only 13% cutting back.

• 78% of broadcasters believe that their long term revenues will be affected positively by audience migration to online sites.

• More than half (57%) believe that it could take up to four years before mobile TV makes a profit for providers. A further 37% believe profitability may take as long as 10 years.

• 75% of respondents either already have or intend to build community features into their web offering. However, despite a widespread belief that virtual worlds such as Second Life will expand, 68% said that they did NOT intend to include them with their digital media strategy over the next two years.

Future of digital media

Despite the economic downturn, the vast majority of companies surveyed expect to continue investing and expanding across digital media. Social media is a priority area of investment and expansion for 60% of companies, followed by mobile (56%) and web applications (51%).

Over 56% of the companies surveyed intend to integrate social media and mobile device applications. Widgets represent a new vehicle for the distribution and monetisation of content across online and mobile platforms for media companies. Over the last year, app developers and in-widget ad networks have mushroomed with mounting venture capital investment moving in this direction anticipating the returns that these disruptive technologies will produce.

Advertising: Migrating to online channels

The economic downturn appears to be accelerating the trend of advertising spend shifting from traditional media to the digital space. Many of the companies surveyed are looking to migrate ad spend to online avenues at the expense of traditional media with 41% of all participants looking to expand spending on online advertising over the next 12 months, 47% looking to spend less on traditional advertising and 36% looking to maintain their existing marketing mix. Online advertising appears to represent a cost opportunity for advertisers in the down turn, as well as a means improving the efficiency of audience targeting.

Well over half of the company’s surveyed have confidence in online advertising with 87% of participants who expressed a preference claiming that online advertising produces better results than their traditional advertising strategies.

Broadcast: Online TV creating incremental revenue opportunities

78% of broadcasters surveyed believe that online TV can create significant new revenue opportunities for traditional television players. Moreover, 79% seem unthreatened by the gradual migration of audiences to online sites, believing that it can have a positive effect on their company’s long term revenues. While traditional television players are actively looking for alternative revenue streams, media companies have turned to ‘three-screen distribution’ strategy in order to maximise the value of their content and extent their reach to new audience. In this context, online TV appears as a promising new distribution channel, able to complement a broadcaster’s offering at this stage rather than to substitute it.

Mobile: Growing importance as media distribution channel; Mobile Social Media nearer term opportunity than Mobile TV

The mobile space has emerged as a powerful distribution channel for broadcasters, media companies and telcos. The recent success of the iPhone’s App Store is an example of the increasing popularity of mobile among traditional and new media companies within their digital media strategy. 56% of all companies surveyed intend to incorporate mobile device applications in the next 12 months, while 49% intend to incorporate mobile web portals as part of their digital media strategy.

Within the mobile sector, social media is seen as a nearer term opportunity than previously hyped mobile TV. 85% of companies surveyed that operate in the mobile sector believe that mobile operators and handset manufacturers would benefit from adding social media elements to their services. This opinion is reflected in a raft of recent deals involving mobile operators and handset makers. Location-based social networking revenues are projected to reach USD3.3bn by 2013 (ABI Research) on the back of licensing and revenue sharing deals, Danish social network Zyb was acquired by Vodafone in May, social network Plazes was snapped up by Nokia in June, and Samsung signed a deal with location based social network GyPSii in July, which subsequently entered a partnership with Chinese handset maker Ramar International in early August.

Mobile TV continue to be viewed as a source of future growth, although opinions vary on timescale to profitability. 57% of companies surveyed that operate in the mobile sector believe that mobile TV would become a viable, scalable offering returning profits in 1-4 years, whilst 37% believe that it will take as long as 5-10 years.

Search: Semantic Web core to future evolution; rise of niche multimedia search engines

78% of companies surveyed that are involved in the search sector confirm that the semantic web is integral to the development of search services. Semantic search is being heralded as the next-generation search technology for improving relevancy in search results. The field is attracting the attention of major venture capitalists, as well as Microsoft that acquired Powerset for USD100m in July 2008. The deal is likely to have a validating effect in the market, confirming that the search space has the potential to be enhanced by employing semantics and competitors fear missing an opportunity in the technology race. However, in the short term semantic search players’ ability to impact the market is greatly hindered by impediments to scalability, performance bottlenecks, the challenge of evolving searchers’ behaviour and a lack of profitable application in the face of high costs. Over the longer term, semantic search technologies will become a reality if the trade off between the cost of scaling the platform and the monetization potential can be balanced.

57% of companies surveyed that are involved in the search sector have a multimedia search strategy using alternative search engines. Despite 98% of market share in the search market being held by the four major players, a number of startups such as Blinkx and Viewdle are making headway competing with the search giants on the platform of multimedia search and benefiting from a first mover advantage. As the quantity of multimedia content being made available online rises, key to its adoption and monetisation is an effective means of searching and indexing it. The last year has witnessed the emergence of a crop of unique multimedia search players aiming to advance on keyword metadata tagging and text search. Venture capital investment in the multimedia search market has been flowing towards novel technologies that look ‘inside’ media to provide a more effective means of indexing content and improve relevancy in search results.

About StrategyEye

StrategyEye is an award-winning strategy and business intelligence platform for corporate and investment teams in complex and rapidly changing industries such as Digital Media and Cleantech.

We combine in-house analysts and writers with proprietary semantic monitoring technologies tracking expert blogs and business sources globally. We help clients originate new customers, partners or investors and identify disruptive business models ahead of competitors - resulting in significant new revenue opportunities.

*StrategyEye interviewed 212 leading digital media companies for this survey. Nearly half (44.8%) of respondents operate in the mobile sector and one-fifth (13.7%) are broadcasters.

Further Information:

For further information and to interview StrategyEye specialist sector analysts, please contact Lizzie Lawrenson on +44 (0)20 7244 2200. Or Toby Moore at Monument P + 44 (0) 20 79537083 or 07976 942209

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