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RBC Capital Markets, LLC David Bank (Analyst) (212) 858-7333; david.bank@rbccm.com Ross Sandler (Analyst) (212) 428-6227; ross.sandler@rbccm.com Ryan Vineyard (Analyst) (212) 428-6489; ryan.vineyard@rbccm.com Sun-Il (Sean) Kim (Associate) (212) 428-2363; sean.kim@rbccm.com Andre Sequin (Associate) (212) 618-7688; andre.sequin@rbccm.com Whitney Goldstein (Associate) (212) 428-6412; whitney.goldstein@rbccm.com

INDUSTRY | COMMENTAPRIL 7, 2011

Media's New Opportunities From Old ThreatsDeep Dive Into Content And Current Fundamentals In Media And AdvertisingOnline Video Distributors (Most notably Netflix) Increasingly Appear To Be A Highly Effective Monetization Vehicle Of Under-Exploited Content Not only were the initial concerns regarding OTT probably over stated, but the potential upside from them was probably materially under-stated. There Is A New Opportunity To Monetize What Has Historically Been Undermonetized In Syndication: Serialized Drama and/or Non-FictionOTT now offers potential upside to media conglomerates that have not monetized original content in secondary windows, as well as the players who have historically not played in the global syndication game most notably Viacoms MTV, Discovery and Scripps. Traditional Scripted Players Can Drive Upside From Tonnage DealsBest opportunities that balance optimal monetization of alternative OTT distribution opportunities and cannibalization concerns for traditional scripted TV content producers are probably still in tonnage (lots of titles, but largely tail-oriented with little exploitable value in current ecosystem). Players like Disney, News Corp. and Time Warner should benefit for the next several years exploiting previously spent libraries. Given The Economics Of Content, The Consumer Probably Garners More Value From OTT Content As A Complement Rather Than A Replacement For The Existing Ecosystem The existing TV ecosystem invests ~$30bn/year in TV programming content versus ~$1bn in streaming content acquisition costs for the largest (and only meaningful) online subscription video distributor in 2012. We think most consumers should/would be reluctant to pay 20% of the cost for an online video subscription (which assumes no increased subscription or broadband costs), for just ~3% of the content investment benefit. In The Broad Context Of Broadcast Content Investments, Retransmission Consent And Especially Reverse Network Compensation Appear To Be A Relative BargainThe cost of programming for a broadcast network runs in the ~$4bn range annually. Broadcast networks with larger O&O groups (Fox and CBS), who provide content to ~55% of the country through non O&O stations, are receiving only ~$10mm/month or ~$120mm/year at ~$0.20 per sub, while the smaller O&O operators such as ABC and NBC will ultimately be receiving closer to $240mm/year. Uncertainty Surrounding The NFL Lock-out Turns The Upfront Process Into A Game Of 5-Dimensional Chess With The Advantage Initially Going To Network Sellers Advertisers will likely have to plan for no NFL season, despite expectations there will be a season. This will cause a feeding frenzy with respect to remaining GRPs (because NFL represents ~10-20% of M18-49 GRPs during calendar 4Q). If the work stoppage is resolved between the time the upfronts break and when they are actually inked (the hold period), the scatter market could be negatively impacted.Priced as of prior trading day's market close, EST (unless otherwise noted). All values in USD unless otherwise noted. For Required Conflicts Disclosures, see Page 100.

Companies Previewed: The Walt Disney Company (NYSE: DIS; $42.27, Outperform, Average Risk) Discovery Communications Inc. (NASDAQ: DISCA; $40.33, Outperform, Average Risk) News Corporation (NASDAQ: NWSA; $17.56, Outperform, Average Risk Scripps Networks Interactive, Inc. (NYSE: SNI; $51.02, Outperform, Average Risk) Time Warner Inc. (NYSE: TWX; $36.24, Outperform, Average Risk) Viacom Inc. (NYSE: VIA.B; $47.36, Outperform, Average Risk) Interpublic Group of Companies (NYSE: IPG; $12.41, Outperform, Above Average Risk) MDC Partners Inc. (NASDAQ: MDCA; $16.95, Outperform, Speculative Risk) Omnicom Group Inc. (NYSE: OMC; $48.76; Outperform, Speculative Risk)

April 7, 2011

Media's New Opportunities From Old Threats

Table of ContentsKey Industry Investment Themes .......................................................................................................................................................... 3 Broader Media/Advertising Agency Industry Update and Channel Checks ...................................................................................... 5 The Modern Franchise Procedural and How It Changed Syndication (And the Economics of TV).......................................................... 6 Broadcast Network Content Cost Structure Differs from Cable Network Content Cost Structure Due to Both Total Cost per Hour and Total Hours of Original Content Run ....................................................................................................................................... 10 How Original Content Is Priced ............................................................................................................................................................... 16 Each of the Major Media Conglomerates Create TV Content for Their Own Platforms and Others....................................................... 17 How Does a TV Show Get to Profitability? 100 Episodes Is the Magic Number.................................................................................... 18 Monetizing Primetime Content ................................................................................................................................................................ 24 The Difference between Pricing on a Production-by-Production Basis Versus a Packaged Channel Unbundled Content Is Expensive for the Consumer and a Tough Proposition for the Content Providers................................................................................... 30 Many Networks Have Historically Lost Money on Advertising Alone That Is Why They Have Affiliate Fees But the Prospect of Paying Affiliate Fees Based on Viewership Rather than on Total Subscribers Is Where the Proposition Becomes Less Clear ................................................................................................................................................................................................ 34 What Is the Value Proposition to the Consumer of the Current Ecosystem? What if Over-The-Top Providers Can Offer More Non-linear, Video-On-Demand Content than Any (or Many) Linear Channel, but for a High-Single Digit Monthly Subscription Fee? .......................................................................................................................................................................................................... 36 Reverse Compensation and the Cost of Content ...................................................................................................................................... 38 Network TV Pricing Trend Proprietary Upfront/Scatter Pricing Trend Analysis Indicates Viacom and Discovery Have the Most Tailwind and Scripps Has the Most Headwind as 2011 Progresses................................................................................................ 39 NFL Lockout and the Upcoming Upfronts .............................................................................................................................................. 46 Network TV Ratings Update Surprise! Cable Taking Viewership Share From Broadcast ................................................................... 48 Network TV Market Update More Of The Same With Pricing Hot And Inventory Scarce ................................................................. 50 Local/Spot TV Market Update................................................................................................................................................................. 51 2011 Box Office Season Starting The Year With A WhimperNot Expecting Much Until The Summer ......................................... 53 Large-cap Media Company Notes ........................................................................................................................................................ 57 The Walt Disney Company (NYSE: DIS) ................................................................................................................................. 60 Discovery Communications Inc. (NASDAQ: DISCA) ............................................................................................................. 66 News Corporation (NASDAQ: NWSA) .................................................................................................................................... 69 Scripps Networks Interactive, Inc. (NYSE: SNI) ...................................................................................................................... 74 Time Warner Inc. (NYSE: TWX) ............................................................................................................................................. 78 Viacom Inc. (NYSE: VIA.B)..................................................................................................................................................... 83 Advertising Agencies Company Notes ................................................................................................................................................. 87 Interpublic Group of Companies (NYSE: IPG) ......................................................................................................................... 90 MDC Partners Inc. (NASDAQ: MDCA) ..................................................................................................