04/2010: Random Bits: Digital Media and Mobile Broadband

Hope springs eternal and with the onset of spring this year we find a number of industry conferences providing optimism and considerable food for thought. In the last month alone we have attended CTIA 2010, the largest wireless convention/conference of the year, the Mobile Advertising Upfront, CTIA's Mobile Marketing and Advertising seminar, O'Reilly Tools of Change for Publishing and will attend the 2010 NAB in mid April and the BEA in May. Lest you think that all we do is attend conferences it is worth noting that we are working with clients in all these industry sectors on investment banking transactions. Also, for those attending NAB, please send Chris an email if you would like to get together.

The CTIA wireless conference was all about wireless broadband – where we are and where the market is heading. A few statistics to start. At the end of 2009 there were approximately 4.5 billion wireless subscriptions globally with the U.S. representing approximately 6.5% of total subscriptions. Wireless penetration in the U.S. approximates 90% with estimates that penetration will exceed 100% in 2013.

In terms of network usage, mobile data surpassed voice on a global basis for the first time in December 2009. Further, in the US voice minutes of use declined in the second half of 2009 for the first time. So what are we using our phones for? Accessing the internet and watching videos, so long as we are one of the 650+ million global subscribers with a smartphone using a 3G network. With new devices (iPad, notebooks, ereaders), applications and continued investment in networks, Morgan Stanley predicts nearly 2.0 billion 3G subscribers by 2012. Cisco has recently published a report projecting that mobile data traffic will double every year through 2014 and that 66% of this traffic will be video.

To stay ahead of this demand the wireless industry anticipates requiring additional spectrum and is working with the FCC to promote spectrum auctions and to gain access to spectrum currently owned by broadcasters. The FCC's plan to enable improved broadband internet service calls for the government to reclaim about 40 percent of broadcasters' spectrum which the commission says is largely unused now. In his keynote address, AT&T CEO Randall Stephenson noted that high quality wireless internet service will only be possible with more airwaves. It would appear that the stage is being set for a battle between broadcasters and carriers for the right to deliver the wireless video services of the future.

We remember attending a wireless conference in the late 1980's when Craig McCaw predicted boldly that media consumed over the air (traditional TV broadcasting) would transition to wired delivery while that received via wire (traditional telephone) would be delivered wirelessly. While he may not have anticipated the internet, we seem well on our way to his prediction and beyond.

We also recently attended the Mobile Advertising Upfront conference in which the key takeaway was how many panelists believe that the mobile opportunity will be greater than the web. This may stem from how many more mobile phones there are projected to be in use in the world compared to computers (particularly in the Eastern Hemisphere). Issues which are likely to keep mobile marketing initiatives from keeping up with consumer adoption are 1) mobile measurement issues, 2) privacy issues and 3) an ecosystem that is more complex than the web. A final takeaway was how many panelists were very bullish on either HTML5 (the next major markup language of the World Wide Web) or the Android operating system ("which will be huge").

CTIA's Mobile Marketing and Advertising seminar echoed many of the same themes as the Mobile Upfront (such as ecosystem complexity). Advertisers are looking for reach, rich video, measurement and hyper-targeting. One recurring theme was how high ROIs for mobile advertisers are, especially when integrated with traditional media buys. More emphasis was placed on location based services (ticketing, couponing). Talk also focused on how large social media networks are on mobile (more so than fixed internet) and the opportunity that creates for advertisers.

We are encouraged by what we are hearing as we talk to media companies. Business improved throughout 1Q 2010 and it appears that 2Q will be stronger than 1Q for most companies. As credit markets thaw and fundamentals improve, we expect capital and M&A markets to respond constructively. Our view that 2010 will mark a new beginning for growth and change in the industry appears to be taking shape and those companies that best marry their traditional platform with a new three screen approach will be the companies that prosper most in the coming years.

Sincerely,

Chris Ensley (212) 901-4160 chrise@coadydiemar.com

Colin Knudsen (212) 901-2620 colin@coadydiemar.com

About Coady Diemar Partners

We provide mergers and acquisitions, private capital placement and strategic advisory services to growth companies in a number of industries. We have a breadth of transaction experience, industry knowledge and institutional relationships which enables creative solutions and unparalleled access to ideas and capital. We are acutely sensitive to the specific and unique requirements of each client and opportunity.

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