INTRODUCTION AND METHODOLOGY

Transcription

1 February 6, 2009 TO: FROM: RE: MATT MILLER Association of Independent Commercial Producers SHARMAINE CHELEDEN PAUL GOODWIN Goodwin Simon Victoria Research Findings from 2008 AICP Member Survey, Executive Summary INTRODUCTION AND METHODOLOGY The Association of Independent Commercial Producers (AICP) asked Goodwin Simon Victoria Research to conduct its sixth annual on-line survey of its members. The 2008 survey was conducted on-line between November 18 and December 5, 2008, and asked members to share information about their work activities from January 1 to December 31, The dates and coverage periods for previous member surveys are found in Table 1. Table 1: AICP Member Surveys Survey Date Coverage Period N Size June/July 2002 January 2001-July September 2003 July 2002-June March/April 2005 January December September/October 2006 January-December August 2007 January-December November/December 2008 January-December In total, 126 members completed an interview, yielding a response rate of 40%. While not as high as the response rate for 2008, the 2007 response rate surpassed that of many previous years. P.O. Box 366 Culver City, CA / (phone) 310/ (fax) paulg@gsvresearch.com website:

2 GSV Research 2008 Page 2 Data Collection Innovations: In 2008, respondents received a preview of the survey along with the letter of introduction announcing the survey period and protocols. Providing respondents with a preview of the online survey allowed them to gather information and research records before they proceeded to answer the questions online. In addition, to encourage participation: 1. We targeted specific respondents or personnel positions to direct the survey to the person best able to answer it. 2. As was done in 2007, AICP staff personally contacted many respondents both to encourage initial participation and to urge completion of the survey. Compared to past studies, the 2008 survey included a more extensive assessment of the growing role of digital production and non-traditional advertising-related projects. To improve assessment of the economic role of these types of projects and production types, the 2008 survey incorporated a new battery of questions focusing on these areas. Most significantly, the 2008 survey incorporated an expanded series of questions to measure the economic impact of non-traditional advertising-related projects to build a more complete analysis of the total economic impact of the industry. As the volume of non-traditional advertising projects increases, estimating the total economic impact of the industry must include an assessment of this type of production. While last year's survey included a larger percentage of smaller companies than in past years, an analysis of 2008 survey respondents show there was a representative sample of companies across the spectrum of AICP members. This report refers to both mean and median results. The mean is what is commonly referred to as the average, in which the total response is divided by the number of responses. For example, the mean when the responses to a question were 3, 5, and 10 would be (3+5+10)/3 = 6. The median response refers to the point at which there are as many data points above as below that point. Thus in this example, the median response would be 5. Note that while the survey was conducted in 2008, it reflects findings from 2007 member activities. Thus we report the results as 2007 data while referring to the 2008 study in other places throughout the report.

3 GSV Research 2008 Page 3 SUMMARY OF KEY FINDINGS Part 1 Findings Production Expenditures A rough calculation shows that AICP members spent about $3.23 billion dollars on live-action production for traditional broadcast television commercials during the study period of January 1, 2007 through December 31, The comparable expenditure figure for 2006 was $3.1 billion, in the 2004 study it was $3.2 billion, and the figure in the 2003 study was $3.5 billion. The 2008 numbers are more similar to those recorded in past studies, while the 2007 numbers were likely influenced by a larger number of small companies that participated in the 2007 study. In the 2008 study, we asked members to report their sales numbers in 2007 for both traditional broadcast television commercials and non-traditional advertising-related projects. This was the first time we have directly asked for a measure of each member's total sales, an additional figure describing AICP members' economic impact. This change should be considered when comparing results from the 2008 study with those from earlier member surveys. To calculate the total economic impact of AICP members, we combined the total amount they spent making traditional live-action broadcast commercials in 2007 and added to that the amount of non-traditional projects they sold in Combining the live-action expenditures for traditional broadcast television commercial production ($3.23 billion) and the sales values for nontraditional advertising-related projects ($146 million) yields a total economic impact number of $3.38 billion for AICP members in We combined these numbers from two different types of indices because we did not have a comparable way of calculating the expenditure figures for the non-traditional projects. Comment: Is this a typo? Calculating economic impact based solely on self-report of sales, AICP members reported total sales of $3.5 billion for traditional broadcast television commercials and non-traditional advertising-related projects combined. While this is a slightly larger number than that generated by the

4 GSV Research 2008 Page 4 calculation based on live action production expenditures for traditional commercials, generally the sales figures are quite consistent with the calculations we created to assess the economic impact of AICP member companies. Of the $3.23 billion spent on live-action production for traditional broadcast television commercials, very roughly $2.71 billion is spent on domestic production and approximately $517 million is spent on overseas production. California-based companies spent about $1.74 billion on live-action production for traditional broadcast television commercials in 2007, with New York-based companies spending $564 million and those located elsewhere spending $923 million. The median annual expenditure per company on live-action production for traditional broadcast television commercials in 2007 was $3.6 million. This is an increase from the 2006 figure of $3 million, which was down from $4.53 million in 2005 and $4.38 million in The mean annual expenditure in 2007 was about $11.3 million compared to $9.1 million per company for The mean annual expenditure figure is substantially higher than the median figure, likely reflecting the impact of a few large companies that had high levels of expenditures. The 2007 figure approximates the 2005 number. Both the median and mean numbers for 2007 production are more consistent with the findings of previous years, excepting 2006, which is an outlier in many of the production expenditure categories.

5 GSV Research 2008 Page 5 Commercials and Shoot Days The median number of commercials shot by member companies in 2007 was 20, the same as This is compared to 29 in 2005, 22 in 2003 and 2004, and 24 in The mean number of commercials, including both live action and in-house digital, completed in 2007 was 35. This was down slightly from 37 in This is a further decline from previous years when it was 42 in 2005, 47 in 2004, 45 in 2003, and 43 in For the traditional broadcast television commercials completed during 2007, 90% were live-action productions, and the remaining 10% were produced digitally in-house. This is the first year we asked members to evaluate the percentages of their work attributable to each production type for the traditional broadcast television commercial. For in-house digital productions only, more than one third (37%) were completed in Los Angeles while nearly one quarter (23%) were produced in New York. Visual effects accounted for the largest share (28%) of the digital-production techniques AICP members used, followed by graphic design (24%) and animation (17%). In 2007, members required 11 days on average (with a median of 6 days) to complete in-house digital production for traditional broadcast television commercials. The median number of live-action shoot days for traditional broadcast television commercials in 2007 was 30. This is virtually unchanged from the 2006 result (median=31). The mean number of live-action shoot days for traditional commercials was 60, very similar to the 2006 figure of 57 days. Again, the 2007 shoot day numbers declined from those recorded in the years prior to In 2004 and 2005, mean shoot days totaled 72, while median shoot days were approximately 40 in previous years. In 2007, members also completed an average of 6 non-traditional advertisingrelated projects in addition to the traditional live-action projects they produced. Members completing these non-traditional advertising-related projects reported that 78% of them were shot as live-action, while the remaining 22% were produced digitally in-house.

6 GSV Research 2008 Page 6 Companies that do non-traditional advertising tend to have more shoot days than those companies that only produce traditional television commercials. Shoot Locations In 2007, 57% of member companies shot only in the U.S. This represents a sharp increase in domestic-only shooting, which previously ranged from 36% to 41%. Larger companies in terms of revenue and size, and those located in New York and California, continue to be more likely to shoot overseas compared to smaller companies and those located in other places. Eighty-four percent of all reported shoot days took place domestically, with 16% abroad. This is similar to the proportions found in 2006 and 2004, while in 2005 U.S. shoot days accounted for less than 80% of the total. In 2007, the mean number of shoot days in the U.S. was 51, with a median of 22 days. The 2007 numbers fall between the 2006 domestic shoot day statistics with a mean of 44 and a median of 29 and those recorded for 2005 with a mean of 56 and a median of 30. Of those who shot abroad in 2007, the mean number of international shoot days was 17 days, with a median of 11. These were quite similar to the 2006 international shoot days which had a mean of 17 and a median of 9. In 2005, the mean was 27, with a median of 18. Southern California increased its popularity as a domestic shoot day location. Over half of all shoot days (54%) took place in Southern California, with 49% of all shoot days occurring in Los Angeles County. Further, Southern California locations accounted for 65% of all domestic shoot days. These numbers represent a large increase in the percentage of total and domestic shoot days centered in Southern California. From 2002 through 2006, between 38% to 43% of all shoot days were in Southern California. The large increase in Southern California shoot days does not appear to be a function of a growing number of California companies in the respondent pool for the survey as that number is fairly similar to those in past years. New York is a distant second with 12% of all shoot days and 14% of the domestic shoot day total, again nearly the same as in past years.

7 GSV Research 2008 Page 7 About 32% of all shoot days, and 18% of domestic shoot days, took place away from the major production centers of New York, Florida, and Southern California. Again, these results differ from those in previous years due to the larger number of shoot days in Southern California. In 2007, Central/South America became the most frequent non-u.s. location for shoots, with 6% of all shoot days (and 36% of all foreign shoot days), supplanting Canada which has previously been the most popular international destination for shoot days. The percentage of shoot days in locations other than Canada, Europe, and Central/South America decreased to 21%, a slight drop from the 25% recorded for Since 2002, we have seen a decline in agency or client requests to shoot overseas. In 2007, only 58% of members reported receiving requests to shoot overseas. This is down from 96% of members reporting such requests in 2002 to 76% in 2003 to 75% in 2004, 68% in 2005, and 56% in Larger companies continue to be more likely to get such requests compared to smaller ones, as are companies based in New York or California. In 2007, 72% of shoot days were conducted on location, a figure nearly unchanged from what we have seen in previous years. Payments About 39% of payments arrived on time in 2007, with 27% that were 31 or more days late. This is very similar to the payment pattern from 2004 to However, 50% reported that payment delays increased in 2007, a return to levels seen in 2005 and increase over the 30% of payment delays reported in By far the most frequent explanation for late payments received by members is that the client has not yet paid the agency (79% in 2007). This issue of timely payment of contracts retains its place for another year as the most important factor for members when it comes to their financial health, more important than client guidelines, the influence of cost consultants, and wrap-up insurance. Members report that on average 26% of their jobs shot in the U.S. were paid using the AICP payment guidelines (75% up front and a final payment of

8 GSV Research 2008 Page 8 25%), an increase over the 16% reported in For jobs shot outside the U.S. in 2007, members reported that 26% of the foreign jobs were also paid according the AICP guidelines. This level was similar to that found in the previous survey. Non-Disclosure Agreements Thirty-five percent of members say that they always or usually have to sign a non-disclosure agreement. Twenty-three percent say they rarely or never have to sign such an agreement. Among the members who reported having to sign non-disclosure agreements, one in four (25%) reported always or usually having to sign a non-disclosure agreement prior to bidding jobs, while a similar percentage (27%) said they rarely or never signed these agreements before bidding jobs. Forty-two percent of members say they rarely or never get to amend such agreements if they disagree with its terms. Non-Traditional Advertising-Related Projects Nearly six in ten (57%) members produced non-traditional advertisingrelated projects outside of the traditional television commercial in 2007, a decline from the percentages of members reporting they produced this type of work in 2005 (69%) and 2006 (67%). Again, the most common format for such projects was an internet or broadband viral, followed by original content (branded entertainment). Members produced an average of six non-traditional advertising-related projects in 2007, and the vast majority of these projects (78%) were shot as live action, while less than one quarter (22%) of them were produced digitally inhouse. Ad agencies and advertisers are most frequently the client for these nontraditional projects. Advertising agencies are most frequently generating the concepts for such projects. In 2007, members producing these non-traditional projects estimated that they comprised a mean average of 29% of their business. This was the first year we asked members to conceptualize the distribution in this way. In 2006, we asked members what percentage of their billings was for non-

9 GSV Research 2008 Page 9 traditional projects. In 2006, members reported that 18% of their billings were for this type of work. However, this figure is not comparable with the distribution of business (time and effort) recorded in this year's survey. Looking ahead, members expect that in three years such non-traditional projects will comprise 37% of their business on average, a figure virtually identical to that recorded in the previous year's survey. For those who are not currently working on such projects, the estimate for three years from now is 23%, compared to 47% for those already engaged in non-traditional production. Ad agencies and members themselves are most often generating the contract for such projects. For non-traditional projects where the contract is generated by the ad agency, a traditional agency broadcast agreement is most frequently used, with an AICP.next agreement used least frequently. Members say they very frequently provide a standard AICP bid form when producing non-traditional projects, and nearly as often they provide a bid letter. They rarely provide either the AICP short form or an AICP spec sheet. Members say they are most frequently compensated for non-traditional projects with a percentage of production costs, followed by a combination of a percentage of production costs plus a creative fee, followed by a creative fee only. They are least likely to be compensated with a licensing fee/retention of ownership of materials produced.

10 GSV Research 2008 Page 10 DETAILED FINDINGS FROM SURVEY 1 SHOOT DAYS To more accurately assess how members were producing both traditional broadcast television commercials and non-traditional advertising-related projects in 2007, members were questioned about the live-action shoot day component of each type of production. As a result, the total shoot days statistics for 2007 are not strictly comparable with those recorded in previous surveys. As the mix of production types for AICP members continues to evolve with the growth of digital techniques and non-traditional advertising projects, building a model of AICP members' production based on traditional shoot days will become less relevant. Total Live Action Shoot Days for Traditional Broadcast Commercials This study found that the mean number of live-action shoot days for traditional broadcast commercials between January 1 and December 31, 2007 was 60 days, with the median at 30 days. As illustrated in Figure 1, these figures are quite similar to those recorded for mean and median shoot days in 2006 while still falling below the levels recorded in past years. Figure 1: Mean and Median Shoot Days, Mean Median

11 GSV Research 2008 Page 11 Looking specifically at the results from 2007, we find that 6% of AICP members who produced traditional broadcast television commercials reported no live-action shoot days last year, while 21% reported more than 100 shoot days. Table 2: Shoot Days Distribution, Shoot Days % 2003 %2004 %2005 %2006 % shoot days shoot days shoot days shoot days shoot days shoot days Looking at the cross-tabulation tables, we find that the following: We see that companies that do non-traditional advertising-related projects also tend to have more shoot days, at a mean of 69 compared to a mean of 48 for those who produce only traditional television commercials. However, companies that get a higher proportion of their billings from nontraditional projects tend to have fewer shoot days. That is, among those with less than 10% of their billings from non-traditional projects, the mean annual shoot days is 75, compared to 66 for those for which non-traditional shoot days comprise 10% or more of their billings. Similar to the relationship we described in 2006, we find that companies that do non-traditional projects have more shoot days, but those that rely on such projects for more of their billings tend to have fewer shoot days. Again, this result may derive from the fact that larger companies tend to handle both types of projects, but that the non-traditional projects require fewer shoot days. Companies with offices in California (mean of 71 shoot days) and New York (mean of 71 shoot days) tend to have many more shoot days than those located in other areas (31 shoot days). Companies that shoot abroad tend to have far more shoot days, at a mean of 90, compared to a mean of 20 for companies that only shoot domestically.

12 GSV Research 2008 Page 12 Shoot Days in the U.S. Compared to Foreign Locations Eighty-four percent of all reported shoot days took place domestically in 2007, one of the few figures that has remained fairly constant compared to results from previous years. Figure 2: Percent of Domestic/Foreign Shoot Days, % Domestic Abroad As Table 3 illustrates, the mean number of shoot days in the U.S. in 2007 was 51, (compared to 57 in 2002, 64 in 2003, 60 in 2004, and 56 in 2005 and a low of 44 in 2006). The median number of domestic shoot days fell to 22, a decline from the numbers recorded in previous years. The mean number of non-u.s. shoot days for all companies in 2007 was 10 while the median number of days was 3. While the 2007 numbers for international shoot days mirror those for 2006, they remain below the levels recorded for shoot days abroad from 2002 through Table 3: Mean and Median Shoot Days in U.S. and Non-U.S Mean Domestic Median Domestic Mean Non-U.S Median Non-U.S

13 GSV Research 2008 Page 13 Note that in Table 4, we see that 43% of member companies shoot only in the U.S. (up from 39% in 2005) with 57% who also shoot abroad. If you exclude the companies that do not shoot abroad, we derive a slightly different, and perhaps more informative number, seen in the right column in Table 4: the 58% of member companies that work outside the U.S. shot a mean of 17 shoot days abroad during the study period (with a median of 9 days). This is down substantially from a mean of 27 days and a median of 18 days in 2005, again due almost certainly to the change in who participated in the survey this year. Table 4: Shoot Days in the U.S. and Abroad in 2007 Shoot Days in the U.S. Shoot Days Abroad 0 1% 0 43% % % % % % 50+ 3% Mean (all members with shoot days) 51 days Mean (all members) 10 days Median (all members with shoot days) 22 days Median (all members) 3 days Mean (only companies shooting abroad) Median (companies shooting abroad) 17 days 11 days As we have seen in past years, larger companies (those with more shoot days, those that make more commercials, and those with higher annual expenditures) are much more likely than smaller companies to shoot overseas. In fact, of those with annual expenditures below the median, 42% shoot overseas, compared to 76% of those with annual revenues at or above the median. Companies located in New York or California are more likely than companies located elsewhere to shoot overseas: 62% of California members and 80% of New York members shoot overseas, compared to 33% of members located elsewhere.

14 GSV Research 2008 Page 14 Shoot Days in U.S. Locations Southern California remains by far the most frequent location for member shoots. For the 2008 study, members divided Southern California shoot day totals into those within Los Angeles County and those outside Los Angeles County. Unless specified, Southern California will refer to the combined totals inside and outside Los Angeles County. As Figure 3 illustrates, 54% of all shoot days took place in Southern California, a substantial rise in the percentage of reported shoot days for that location compared to previous years. Figure 3: Percent of All Shoot Days by Domestic Location, So Cal Other US New York Florida Figure 3 details the distribution by location of all shoot days. The increase in the proportion of all shoot days based in California was coupled with a corollary drop in the number of shoot days in other domestic locations outside of New York and Florida. The patterns in the distribution of overall shoot days do not change when we look at shoot day totals as a function of domestic totals only. In fact, the dominance of Southern California as a shoot day location is reinforced: 65% of all domestic shoot days take place in Southern California, with about 12% in New York and about a fifth elsewhere in the U.S. In Table 5, we detail mean shoot days for all members in each domestic location as well as mean shoot days by location for those members that actually shot in that

15 GSV Research 2008 Page 15 location. Specifically, in 2007, 54% of all shoot days took place in Southern California, and the average member shot 33 days there. But since some members did not shoot at all in Southern California, the average number of shoot days in that location for those who did shoot there was 50 days. Table 5: Shoot Days in the U.S. by Location 2007 Location % of all Shoot Days in This Location % of Domestic Shoot Days in This Location Mean Shoot Days in This Location for All Members In Study Period Mean Shoot Days in This Location For Those Who Shoot There Los Angeles County 49% 59% Southern California (outside L.A. County) 5% 6% 3 12 Northern California 2% 2% 1 5 New York City 10% 12% 6 11 New York State (Outside New York City) 2% 2% 1 8 Florida 2% 3% 1 4 Other Southeast 3% 3% 1 6 Southwest 3% 4% 2 6 Illinois 3% 4% 2 7 Louisiana 0% * 0% * 0 * 2 Other U.S. Locations 15% * Percent is less than 1% Companies based in California shot on average 47 days in Southern California, compared to 31 days for companies based in New York. But companies based in New York shot on average 17 days in New York, while companies based in California shot only 6 days in New York. Compared to figures for 2006, we found sizable increases in the mean number of shoot days for those who shoot in Southern California (from a mean of 30 shoot days

16 GSV Research 2008 Page 16 in 2006 to a mean of 50 shoot days for 2007). This likely reflects the growth in the number of California-based companies that responded to the survey. Shoot Days Outside the U.S. As shown in Figure 4, Central/South America became the most frequent non-u.s. location for shoots in 2007, with 6% of all shoot days (and 36% of all foreign shoot days), surpassing Canada which had previously been the single most popular international destination for shoot days. Vancouver remains a frequent non-u.s. city for shooting, with 16% of all foreign shoot days taking place there. With 7% of other foreign shoot days taking place in Toronto and other Canadian locations, Canada accounts for approximately onequarter (23%) of all foreign shoot days (and 4% of all shoot days, combining foreign and domestic locations). The drop in Canadian shoot days was fueled by a substantial decline in the percentage of shoot days in Vancouver (from 27% in 2006 to 16% in 2007 of all international shoot days). By contrast, the number of shoot days in Central and South America rose to its highest recorded level. More than one out of three (36%) international shoot days took place in either Central or South America (including Mexico). The number of international shoot days recorded for "other" locations fell to 21% in 2007 from its high of 25% in 2006.

17 GSV Research 2008 Page 17 Figure 4: Percent of Non-Domestic Shoot Days by Foreign Location, Europe/UK Vancouver Central/South America Toronto/Other Canada Other Foreign Table 6: Shoot Days Abroad by Location 2007 Location % of all Shoot Days in This Location % of All Foreign Shoot Days in This Location Mean Shoot Days in This Location for All Members in Study Period Mean Shoot Days in This Location For Those Who Shoot There Vancouver 3% 16% 3 days 6 days Toronto/Other Canada 1% 7% 1 day 5 days Central/Eastern Europe 3% 16% 3 days 6 days Mexico, South/ Central America 6% 36% 6 days 15 days Australia/New Zealand 1% 8% 1 day 5 days U.K. 1% * 4% 1 day 4 days South Africa 1% 4% 1 day 6 days Other Foreign Locations 1% 9% 2 days 7 days * Percent is less than 1%

18 GSV Research 2008 Page 18 NUMBER OF COMMERCIALS COMPLETED The mean and median numbers of commercials completed during 2007 were very similar to that recorded for 2006, while they remained below those recorded in previous years. As Figure 5 showcases, the mean number of commercials completed fell from a high of 47 in 2004 to 42 in 2005, 37 in 2006 and 35 in The median fell from 29 commercials in 2005 to 20 commercials in both 2006 and Figure 5: Number of Commercials Completed, Mean Median Table 7 details the actual distribution of commercials completed by range since 2003 (2002 data is not disaggregated in the same way). Table 7: Completed Commercials Distribution (%), Shoot Days commercials commercials commercials commercials commercials commercials

19 GSV Research 2008 Page 19 As we have seen in the past, companies based in New York appear to have completed more commercials (a mean of 49 compared to 35 for Californiabased companies). Those who do non-traditional projects averaged 39 commercials, compared to 28 for those who do only traditional TV commercials. REQUESTS TO SHOOT OVERSEAS The proportion of members who report being asked to shoot overseas has fallen from the levels seen in previous years, although this figure (58%) remained the same from 2006 to Fifty-eight percent said they received a request from a client or agency to shoot overseas in both 2006 and 2007, compared to 68% in 2005, 76% in 2003 and 2004, and a much larger 96% in Figure 6: Requests to Shoot Overseas from Agencies or Clients, Yes We find that the larger companies are more likely to get requests to shoot overseas. That is: Among companies with 30 or more shoot days (the median), 78% got requests to shoot overseas, compared to just 38% of those with fewer shoot days.

20 GSV Research 2008 Page 20 Among companies that make 20 commercials a year or more (the median), 74% got a request to shoot overseas, compared to 42% of those that make fewer commercials. Among those with annual production expenditures above the median of $3.6 million a year, 76% got a request to shoot overseas, compared to 41% with lower expenditure figures. Only about one in five (21%) of those participating in the survey reported an increase in requests to shoot overseas thus far in As Figure 7 highlights, this continues the downward trend in the proportion reporting an increase in requests to shoot overseas. Figure 7: Have You Seen an Increase in Requests to Shoot Overseas from Agencies or Clients, Yes This drop in the increase in requests to shoot overseas was found across member companies regardless of company size (based on expenditures), number of commercials completed, and shoot day costs. TIMING OF PAYMENTS We asked members when payments from clients typically arrive. As shown in Table 8, 39% of payments made by clients arrived on time or before the due date. One in four (27%) payments were more than 30 days late or never arrived. These figures are very similar to what has been reported in previous years.

21 GSV Research 2008 Page 21 Table 8: What Proportion of Your Payments Arrived % 2003 % 2004 % 2005 % 2006 % 2007 Before due date On Time days late days late days late days late No payment While the timeline for arrival of payments does not seem to have changed markedly over the series of studies we have conducted, AICP members report that they have seen an increase in payment delays in 2007 compared to what they experienced in As shown in Figure 8, 50% said that payment delays increased in 2007, compared to 30% who said they increased in The delays reported for 2007, however, are similar to those we found in previous years. This finding may suggest that while members are reporting a similar payment delivery schedule from year to year, their perception of the change in payment delays may be fueled by other subjective factors impacting their overall assessment of the prevailing economic conditions affecting the conduct of their business. Figure 8: Did Payment Delays Increase, Decrease, or Stay Same in Study Period ( ) Increased Decreased No Change

22 GSV Research 2008 Page 22 We then asked members to report the explanation they most frequently hear when they try to collect late payments. As was the case in the past, the vast majority, 79%, say the most frequent explanation they hear is that the client has not paid the agency. Eleven percent report that the most frequent explanation they hear is that the agency billing procedures do not allow for timely payment. These responses are virtually unchanged from previous years. Table 9: Most Frequent Explanation for Late Payment % 2004 % 2005 % 2006 % 2007 Client has not paid agency yet Agency billing procedures to not permit timely payment Other Not sure Larger companies are far more likely than smaller companies to be told that payment delays are caused by the client not paying the agency. Smaller companies are more likely than larger companies to attribute payment delays to agency billing procedures. Both of these findings continue trends in payment delays recorded in previous years. FACTORS INFLUENCING FINANCIAL HEALTH OF MEMBER COMPANIES We asked members to rate on a five-point scale the possible impact of five factors on the financial health of their company. A response of 1 indicated they felt the factor had a very low impact on their company, and a response of 5 indicated they felt it had a very high impact. In Figure 9, we show the mean score response to each factor, with higher numbers indicating a greater impact.

23 GSV Research 2008 Page 23 Figure 9: Impact on Financial Health of Company (Mean Score Rating) 2004, 2006, 2007 and 2008 Timely payment of contracts Client guidelines Influence of cost consultants Wrap-up insurance and liability Low Impact High Impact The most important factor remains timely payment of agency contracts, with 76% who rated it as important (a 4 or 5 rating). The factor rated as least important was wrap-up insurance and liability issues, with just 25% who rated it as important. As illustrated in Figure 9, responses in the 2008 survey were quite similar to those in both 2007 and Members from larger companies are more likely to say that cost consultants have a high impact on the health of their company. Wrap-up insurance and liability issues appear more important to companies that do non-traditional projects compared to those that do traditional projects only. PAYMENT GUIDELINES Following up on a question we initiated in 2007, we asked members whether their payments from clients were meeting the recommended guidelines of 75% upfront and a final payment of 25%. On average, 26% of members said their payments were

24 GSV Research 2008 Page 24 meeting these guidelines for jobs shot in the U.S., an increase over the proportion (14%) saying payments met these guidelines in In fact, as shown in Table 10, just over 1 in 3 members (37%) reported that none of their clients were meeting these guidelines for jobs shot in the U.S. in This stands in stark contrast to the results for 2006 when nearly 2 out of 3 members (63%) said that 0% of payments met these guidelines. However, for jobs shot outside of the U.S., the mean average continued to be higher at 28% than that for the domestic jobs. Still, 56% said that none of their jobs shot outside the U.S. met the payment guidelines in Table 10: % of Payments Meeting Recommended Guidelines: U.S. % 2006 Abroad % 2007 U.S. % 2007 Abroad % Mean Median % %-24% %-69% % Smaller companies tend to have fewer jobs that use these payment guidelines. For example, among those companies with fewer than 30 shoot days in 2007, 53% said that none of their U.S. jobs used these payment guidelines. Among companies with 30 or more shoot days in 2006, only 16% said they had no U.S. jobs that used the guidelines. We see a similar effect looking at jobs shot outside of the U.S. NON-DISCLOSURE AGREEMENTS Once again this year, we asked members if they are required by clients or agencies to sign non-disclosure agreements. As Figure 10 illustrates, in the 2008 survey members reported such agreements are required always or usually 35% of the time and are rarely or never required 22% of the time. By contrast, in the 2007 survey, members said they were required to sign these agreements always or usually 29% of the time and were rarely or never required to sign them 26% of the time. Comparing the results from 2008 to 2007, AICP members seem to have experienced an increase in the frequency of requirements for non-disclosure agreements.

25 GSV Research 2008 Page 25 Figure 10: How Often Are You Required to Sign a Non-Disclosure Agreement? Rarely 17% NeverNot Sure 5% 1% Always 9% Usually 26% Sometimes 42% In a follow up question, we asked those who said they are asked to sign nondisclosure agreements (i.e. we excluded those who said they are never asked to sign or are not sure) how often such agreements are required prior to bidding. As Figure 11 highlights, one quarter (25%) of all respondents said they were always (2%) or usually (23%) required to sign these agreements prior to bidding jobs. A similar proportion (27%) answered that they rarely or never signed these agreements during the time prior to bidding. This is a contrast to the findings in the 2007 study. Last year, only 5% said this is usually required (0% said it was always required) and 48% said it was rarely or never required.

26 GSV Research 2008 Page 26 Figure 11: How Often Are You Required to Sign a Non-Disclosure Agreement Prior to Bidding? Not Sure Never 10% 0% Always 2% Usually 23% Rarely 27% Sometimes 38% We also asked those who had signed such an agreement how often they are able to amend the language if there is a disagreement about its terms. Nineteen percent said this occurs always or usually, and 42% said this happens rarely or never. Another 14% said this does not apply to them. Figure 12: How Often Are You Able to Amend a Non-Disclosure Agreement? Not Sure 15% Always 3% Usually 16% Not Applicable 14% Sometimes 12% Never 16% Rarely 24%

27 GSV Research 2008 Page 27 SOUND STAGE OR ON LOCATION? Most shoot days -- 72% on average -- are conducted on location, with the balance conducted on stages. As Figure 13 illustrates, these figures are virtually unchanged since As was the case in the past, those reporting lower costs per shoot day were somewhat more likely to report shooting on stages as opposed to on location. Figure 13: Mean % on Sound Stage or Location ( ) Sound Stage Location NON-TRADITIONAL PROJECTS Nearly 6 in 10 members (57%) produced non-traditional, advertising-related projects outside of the traditional broadcast television commercial in 2007, a decline of 10% from the number producing this type of projects in 2006.

28 GSV Research 2008 Page 28 Figure 14: Did You Produce Any Non-Traditional Advertising Projects? Yes As noted previously, larger companies are much more likely to say that they have produced non-traditional ads compared to smaller companies. For example, of those with fewer than 30 shoot days, 56% do non-traditional work. For those with 30 or more shoot days, 62% say they have produced non-traditional projects. We also see that companies based outside of New York and Los Angeles are more likely to say they do non-traditional projects (64%, compared to 53% for California companies and 59% for New York companies). The most common format was an internet or broadband viral, followed by original content. This is seen in Table 11 and varies little from what we found in 2006.

29 GSV Research 2008 Page 29 Table 11: Format for Non-Traditional Projects: % (N=56) 2007 % (N = 104) 2008 % (N = 75) Internet/broadband virals Original content (branded entertainment) Mobile contact (cell phones, ipods) Podcasts In-game advertising (video games) Other (banner ads, music video, print ads, industrials, etc.) * Exceeds 100% as multiple responses permitted SOURCE OF CLIENT OR IDEA FOR NON-TRADITIONAL PROJECTS As shown in Table 12, ad agencies are very frequently the client in these projects, as are advertisers directly. These figures are fairly close to what we found in 2006 and Table 12: Who Is the Direct Client in Non-Traditional Projects? % (N = 56) 2007 % (N = 104) 2008 % (N =) Ad agency Advertiser Branded entertainment specialist Other ( corporations, network, etc.) * Exceeds 100% as multiple responses permitted Larger companies and those based in New York are more likely to say that advertisers are the client for non-traditional projects. We then asked members where the concept for their non-traditional advertising projects is generated. As seen in Table 13, ad agencies are where most of the concepts are generated, followed by the member s company. This is quite similar to findings in both 2006 and 2007.

30 GSV Research 2008 Page 30 Table 13: Where are Concepts for Non-Traditional Ads Generated? Mean Scores for (N = 56) 2007 (N = 104) 2008 (N = 72) Ad agency Your company Advertiser Branded entertainment specialist NON-TRADITIONAL ADVERTISING RELATED PROJECTS PRODUCTION For the first time this year, we asked members to report the number of nontraditional advertising-related projects completed during Again, after discussions with members about how to conceptualize non-traditional projects, we shifted from a shoot-day to a project-based assessment to analyze the volume of work in this domain. As Table 14 illustrates, members completed an average of six non-traditional advertising related projects in 2007, with a median of four projects completed. The majority of members (57%) completed less than five of this type of projects, while only 15% of members completed more than 10 non-traditional projects. Table 14: Average Number of Non-Traditional Advertising Related Projects Completed, 2007 Mean 6 Median 4 0 1% % % % % We found that smaller companies (as defined by revenue) tended to complete on average a higher number of non-traditional projects than companies with

31 GSV Research 2008 Page 31 a larger volume of revenue. For example, companies with expenditures below the median completed seven non-traditional projects compared to five for companies with expenditures above the median. We also see that companies located outside of New York and California tend to complete more non-traditional projects. As Table 15 highlights, the vast majority (78%) of non-traditional projects completed by members were shot as live action. Less than one-quarter (22%) of these projects were produced digitally in-house. Table 15: Percentage of Non-Traditional Advertising Related Projects Finished in % In-House Digital 22 Live Action 78 PROJECTED BUSINESS FROM NON-TRADITIONAL PROJECTS To expand our understanding of how members are dividing their time and effort between different types of production, we asked them for the first time this year what percentage of their company's business is made up of non-traditional advertising-related projects. This question was intended to measure a more subjective assessment of time and effort spent working in the non-traditional domain rather than a quantitative measure of sales or costs. According to members working on non-traditional projects, they spend on average over one quarter (29%) of their time and effort on this type of business. The median percentage of business devoted to non-traditional projects was 20%. As Table 16 illustrates, nearly one-third (32%) of members spend from 25% to 50% of their time and effort working on non-traditional projects. Table 16: Percentage of Business Made Up of Non-Traditional Advertising-Related Projects, 2008 % Mean 29 Median 20 Less than 10% 17

32 GSV Research 2008 Page % % 32 51% or more 14 Companies with traditional live action expenditures below the median estimate that 36% of their time and effort focuses on non-traditional advertising-related projects. By contrast, larger companies (as defined by volume of live action expenditures) spend only 19% of their time and effort on these projects, approximately half the amount of the smaller companies. Further, members with main offices outside of California and New York reported the highest percentage (40%) of business attributable to nontraditional projects. New York based companies reported that 34% of their business is made up of these types of projects, while California companies said only 21% of their business was in the non-traditional realm. Regardless of the current amount of business they attribute to them, members do think that these non-traditional projects will comprise a growing share of their work in the coming years. Members estimate that in 3 years, on average such projects will comprise 37% of their work. This includes estimates from those who do not currently handle non-traditional projects. This estimate is similar to that recorded in Table 17: Proportion of Expected Business in 3 Years from Non-Traditional Advertising 2006 % (N = 82) 2007 % (N = 155) 2008 % (N = 155) Mean Median % % % % % % Among those companies that do not currently work on non-traditional projects, the mean estimate is that in three years it will comprise 24% of their

33 GSV Research 2008 Page 33 business. Companies already doing this type of work estimate it will comprise nearly half (47%) of their business in 3 years. For companies located in California, the mean estimate is that in three years non-traditional projects will comprise 31% of business on average. The figure for New York companies is 41%. But for companies located elsewhere, the figure is 46%.

34 GSV Research 2008 Page 34 NONTRADITIONAL PROJECT CONTRACTS As noted on page 29, ad agencies tend to be the client and the source of concepts for non-traditional projects. Ad agencies are also the entity most likely to generate the contract for such projects, as seen in Table 18. This question was not asked in previous years. Table 18: Source of Contract for Non-Traditional Projects: % 2007 % Ad agency Your company Advertiser Branded entertainment specialist 5 2 Other 1 4 Again, this year we asked a follow-up question for those who said that at least some of their contracts for non-traditional projects come from advertising agencies. We asked them to rate how frequently they get three types of contracts from ad agencies. As shown in Table 19, the traditional agency broadcast agreement is still most frequently used. In fact, 52% rated this type of contract as a 4 or 5, where 5 meant they always use these types of contracts. This year we also asked members to rate how often they used the non-traditional AICP.next agreement. This agreement was used least frequently by members. Table 19: How Often Do You Get Each Type of Contract from Ad Agency for Non-Traditional Project: (1-5 Scale) Mean Score 2007 Mean Score 2008 Traditional agency broadcast agreement Traditional agency broadcast agreement amended for this project Non-traditional AICP.next agreement * 1.74 Non-traditional media agreement *Not asked in 2007 We also asked those who get contracts for non-traditional projects from advertising agencies to rate how often they provide different types of bid forms. As shown in Table 20, bid letters are most often used (67% rated the use of such forms with a 4 or

35 GSV Research 2008 Page 35 5), followed by the standard AICP bid form. Only 9% rated the use of AICP spec sheets with a 4 and 5, and just 5% rated the use of AICP short forms with a 4 or 5. Table 20: How Often Do You Provide Each Type of Bid Form: (1-5 Scale) Mean Score 2007 Mean Score 2008 Standard AICP bid form Bid letter Other AICP spec sheet AICP short form MEANS OF COMPENSATION FOR NON-TRADITIONAL PROJECTS Following up on a question we initiated in 2007, we asked members to rate how often they get compensated in each of five ways for non-traditional projects. As shown in Table 21, the most common form of compensation for non-traditional projects is by being paid a percentage of the production costs. Sixty percent rated the frequency of being paid this way with a 4 or 5. The next most common way of getting paid is a combination of production costs and creative fees, with 31% rating the frequency of being paid this way with a 4 or 5. Table 21: How Often Do You Get Compensated in Each Way for Non-Traditional Project (N = 104) (1-5 Scale) 2006 Mean Score 2007 Mean Score 2008 % of production costs % of production costs + create fee Creative fee only Licensing fee + retention of ownership of materials Other