Case StudyCase StudyCase StudyCase Study

Utopia Media, Inc.AAN Publisher Conference

Santa Fe, New Mexico10/31—11/1 2008

Presented by Terry GarrettBusiness As If and

Oasis Web Logistics—CMS for news media publishingterry@oasiscms.com 415.302.9583

PurposePurposePurposePurpose

To demonstrate what is urgently required of publishers to tackle a new media economy.

Process ParticipationProcess ParticipationProcess ParticipationProcess Participation

1. Read market situation2. Read Utopia Media profile3. Contribute your expert opinion in the

prediction market4. Engage in interactive ‘Strategy Sprint’ at

the conference

Here’s howHere’s howHere’s howHere’s howPublishers coordinate supply and demand of a two-sided market.Consumer attention has shifted from abundance to scarcity.

And…And…And…And…

•Advertisers follow consumers.

•Advertisers supply the money.

•Where consumers go, so goes the money.

Follow the moneyFollow the moneyFollow the moneyFollow the money

From perspective of two major demographic groups

Past Present Future

Younger 18-39 Print Digital

Print Digital

Older 40+ Print PrintDigital

DigitalPrint

Survival dependsSurvival dependsSurvival dependsSurvival depends

•Choosing the right business model to coordinate content

And

•Deliver attention and advertising plus other services

Utopia Media, Inc.Utopia Media, Inc.Market ProfileMarket Profile

Utopia Media, Inc.Utopia Media, Inc.Market ProfileMarket Profile

Utopia—Market Statistics Comments

Population 18+ 1 Million DMA

Demographics Proportionate to US

# of business est. 40,000 Same as US average

Major University Yes Several colleges

Other Same as US averages Avg. Temp 72°

Utopia Media ProfileUtopia Media ProfileUtopia Media ProfileUtopia Media Profile

Utopia Print Statistics

Circulation 80,000

Pages 68—84

Average $CPM

$20

F-T Employees

28

Years in business

20

Utopia Digital Statistics

Visitors 65,000

Page views 150,000

Average $CPM

$5

F-T Employees

1.5

Years in business

8

Utopia Media Financials Pg.1Utopia Media Financials Pg.1Utopia Media Financials Pg.1Utopia Media Financials Pg.1

In thousands (000) 2005 2006 2007 2008

Sales 3,500 3,300 3,200 2,900

Fixed asset investment 50 80 20 0

Cost and expenses

Cost of goods sold 25.71% 26.52% 26.56% 28.45%MSG&A 65.00% 69.70% 70.31% 72.41%Dep. & Amortization/sales 0.14% 0.30% 0.31% 0.38%Average days & other

Receivables 32.3 30.4 27.4 31.5Payables 36.8 43.6 28.3 32.4NetPrft/AvgNetFxdAssets 146.17% 36.54% 26.67% -14.69%Debt/equity 0.25 0.26 0.19 0.11

Utopia Media Financials Pg.2Utopia Media Financials Pg.2Utopia Media Financials Pg.2Utopia Media Financials Pg.2

2005 2006 2007 2008

DuPont Power Analysis

1.Return on Sales 8.46% 2.88% 2.50% -1.52%2.Asset Turnover 5.41 4.60 4.52 4.14 3.Return on Assets (1 x 2 = 3) 45.71% 13.24% 11.31% -6.28%4.Financial Leverage 2.59 2.13 1.81 1.77 5.Return on Equity (3 x 4 = 5) 118.40% 28.15% 20.51% -11.13%

3 Bottom Lines +ROA        

Operating Cash Flow (OCF) $331 $60 $95 -$28OCF / Sales 9.46% 1.82% 2.97% -0.97%Net Profit (Loss) $296 $95 $80 -$44Return on Assets (ROA) 45.71% 13.24% 11.31% -6.28%

Financial DashboardFinancial DashboardFinancial DashboardFinancial Dashboard

Market SituationMarket SituationMarket SituationMarket Situation

“A marginal business always goes down disproportionately more whenever the economy goes down, and it comes up disproportionately less whenever the economy comes up. With every turn of the business cycle, it becomes weaker.

And once a business has become marginal, it is exceedingly difficult to reverse in this downward drift; in fact, it is almost impossible.”

Peter F. Drucker

Market SituationMarket SituationMarket SituationMarket Situation

1. Have print publications become marginal? Yes

2. Are alt-weeklies immune from the trend of dailies and magazines? Not entirely

Three Really Big QuestionsThree Really Big QuestionsThree Really Big QuestionsThree Really Big Questions

1. What to do with Print product and with digital products?

2. What is the right size for each?

3. How are they positioned demographically and psychographically?

Utopia Print is heading SouthUtopia Print is heading SouthUtopia Print is heading SouthUtopia Print is heading South

How far South will sales go in 2009, 2010?

A. $2.0 to $2.3MB. $2.4 to $2.8MC. $2.9 to $3.2MD. Greater than $3.2M

Ok, so what does Utopia do?Ok, so what does Utopia do?Ok, so what does Utopia do?Ok, so what does Utopia do?

Assess the situationWhat is the external reality, i.e. market forces and where is that taking us?

Past Present Future

Younger 18-39 Print Digital

Print Digital

Older 40+ Print PrintDigital

DigitalPrint

Economic climate down for foreseeable future.

Internal Assessment of KPI’sInternal Assessment of KPI’sInternal Assessment of KPI’sInternal Assessment of KPI’s

Financial Metrics Operating Metrics Cultural Metrics

35% 35% 30%

3 bottom lines Productivity yields Unity with purpose

Sales Contraction impact Unity with strategy

Investment in future Optimization at right size Levels of satisfaction

What is our trend and what is important to use for assessment?

Know Your Primary ResourcesKnow Your Primary ResourcesKnow Your Primary ResourcesKnow Your Primary Resources

Knowledge Capital TimeCrucial

Physical Assets

Financial literacy Cash Productivity Infrastructure

Tech literacy Leverage Measurement Technology

Market & Cultural literacy Equity Alignment/

AllocationCoordination/Optimization

Informs us of the things we need to know & learn, and where & how to apply it

How much we need to stay in business, grow & where allocated

When to do things, how long it takes

What tools, space, etc. do we need to optimize the other resources’ value

KnowledgeKnowledgeKnowledgeKnowledge

Knowledge = ‘right info’ + performance experience + intuitive and reasoned judgment

Knowledge = ‘right info’ + performance experience + intuitive and reasoned judgment

What do we know and what don’t we know?Requires Systematic:

1. Gathering2. Filtering3. Analysis4. Evaluation5. Application6. Measurement

How these work togetherHow these work togetherHow these work togetherHow these work together

Strategy defines and allocates resources.

Operations reflects strategy by coordinating resources to achieve goals.

Culture determines the amount of friction encountered and thus effectiveness, sustainability and efficiency.

Where is Print positioned andWhere is Print positioned andwhat’s the right size?what’s the right size?

Where is Print positioned andWhere is Print positioned andwhat’s the right size?what’s the right size?

40 years & older demographic?

LOHAS (Lifestyles of health and sustainability) & Moderns psychographic?

$1.5 to $2M sales?

What if…What if…What if…What if…

A Print operation at $1.5M is the right sizeA Print operation at

$1.5M is the right size

With capacity to increase to $2.0M?

With capacity to increase to $2.0M?

Net profit at $1.5M — 12%, $180,000

ROA —30%OCF—12%

Even better performance at $2M

Net profit at $1.5M — 12%, $180,000

ROA —30%OCF—12%

Even better performance at $2M

And you shrink the number of And you shrink the number of customers by drawing the linecustomers by drawing the lineAnd you shrink the number of And you shrink the number of customers by drawing the linecustomers by drawing the line

Full

3/4

2/3

1/2

1/3

1/4

1/6

1/8

1/12

1/16

Full

3/4

2/3

1/2

1/3

1/4

1/6

1/8

1/12

1/16

Move smaller advertisers to web directory pages &

reverse publish to print seasonally

Print ad sizes

Number of Accounts by SizeNumber of Accounts by SizeCut Print Customers in HalfCut Print Customers in HalfNumber of Accounts by SizeNumber of Accounts by SizeCut Print Customers in HalfCut Print Customers in Half

Reduces transactions by 63% and space by 34%Reduces transactions by 63% and space by 34%

Revenue by SizeRevenue by SizeMove 1/3 of income to webMove 1/3 of income to web

Revenue by SizeRevenue by SizeMove 1/3 of income to webMove 1/3 of income to web

Move all small accounts to web directory. Can reverse the flow into print directories.

Free Cash FlowFree Cash FlowFree Cash FlowFree Cash Flow

Proactively reduce print operation to a highly profitable level by:

• Only sell ¼ page and larger sizes

• Fewer transactions means fewer print reps and production work flow diminishes, which lowers costs and the product looks better.

• Reduce circulation from 80,000 to 60,000 in order to target 40 year olds +

• Build vertical websites and mobile web to reflect digital opportunities—one site to marry with print product; one site for younger folks that has heavy user-generated content and drives mobile web; other vertical sites as opportunity arises.

It’s easier and more profitable to manage a stable, slightly growing print operation in contrast to a contracting one.

After Right-sizingAfter Right-sizingAfter Right-sizingAfter Right-sizing

Goes from negative operating cash flow to $232,000 in first year.

Invest in Digital CustomersInvest in Digital CustomersInvest in Digital CustomersInvest in Digital Customers

In the traditional media economy, marketing drove popularity, i.e. relatively cheap and abundant consumer attention was less expensive to acquire than the more expensive investment in scarce production and distribution.

In the new media economy, quality drives popularity and network effects amplify it (connected consumption/ user-generated content) made possible by web and mobile.

Make cash while you still can in print and move it to digital.Make cash while you still can in print and move it to digital.

Case StudyCase StudyCase StudyCase Study

Utopia Media, Inc.AAN Publisher Conference

Santa Fe, New Mexico10/31—11/1 2008

Presented by Terry GarrettBusiness As If and

Oasis Web Logistics—CMS for news media publishingterry@oasiscms.com 415.302.9583