OTT Market AnalysisEMERGING PATTERNS AND OPPORTUNITIESROHAN PANJIAR

Digital Video has Reached Maturity

Pay TV201.8 million US adult viewers

Digital Video175.4 million US adult viewers

Broadband-only Homes Growing and Adopting OTT Services

Growth of broadband only homes◦ 9% of U.S. population in 2013◦ 15% of U.S. population in 2017◦ Approximately 17 million broadband-only homes

63% of U.S. broadband households subscribe to at least one OTT service

31% of U.S. broadband homes have multiple OTT service subscriptions

‘Practical’ Factors Driving Growth of OTT Market

Growth in smartphone users and mobile internet usage

Increase in broadband penetration

Growth of broadband only homes

Increase in digital ad spend

Consumer perception that content libraries are expanding and affordability versus Pay TV subscription

OTT is now being considered as a more ‘practical’ choice. This practicality can fuel the need for supplementary AVOD services that offer content that SVOD services don’t

OTT Market Landscape Germinating Multiple Business Models

OTT market is growing 20% annually

Pay TV revenues only growing 2% annually

AVOD◦ Free to air, advertiser supported◦ Premium video content◦ Digital content created by digital creatorsTVOD◦ Digital rentals and purchases◦ Apple iTunes’ store SVOD◦ Monthly fee for access to content library◦ Netflix, Amazon Prime VideoDVMPD◦ Subscription services that replicate traditional cable

bundle in a digital context◦ Sling TV, Playstation Vue, DirecTV Now

Growth being Captured by AVOD and SVOD

AVOD and SVOD have disrupted the industry

◦ New content models (short form + long form original content)

◦ New windowing models◦ Innovative pricing models ◦ Have captured 80% of global OTT

revenues

DMVPD and TVOD have had a muted impact

SVOD Services Growth Projection

Netflix: 120 million users

Amazon Prime: 76.2 million users

Hulu: 30 million users

Crowded space with well-entrenched competitors

Have cash flow to invest heavily in original programming that gives them a competitive advantage

Original Content Driving OTT Growth

Primary growth driver for Netflix, Amazon & Hulu

Has allowed HBO and Showtime to also make a mark in the OTT market

Critical to demonstrate value to the consumer to continue paying monthly subscription fee

Netflix subscriber trends (churn and additions) correlate with shows getting phased out/launched

AVOD Riding on Growth of Online Video Advertising

Boston Consulting Group projects that global online advertising expenditures are expected to increase 34.5% from $15.3 billion in 2015 to $34.5 billion in 2018

Lack of premium video inventory for advertisers◦ YouTube still dominated by creator content◦ Hulu has pivoted away from AVOD

Digital video ad spend share of total digital ad spend is growing

◦ 14.3% of total digital spend in 2016◦ 15.1% in 2017

Ad revenues for AVOD market growing impressively◦ $1.1 billion in 2010◦ $5.65 billion in 2015

Advertising Buying Trends: Programmatic Growing but Direct Sales Dominant

Programmatic growing but still a very small share◦ Automated Transaction Models grew (+64% YOY) ◦ Low percentage of overall premium video ad sales in the U.S. (11.4%)

Factors behind this: -◦ Strong direct sales across the premium video economy◦ Restrictions on targeting and tracking in certain environments like OTT◦ Risk factors related to managing user experience from Automated Transaction Models

Long form content dominant driver of ad views◦ 41% share of ad views (FreeWheel report Q3 2016)

Advertising Consumer Receptiveness: Differs from Display Digital Advertising

Online video viewers less receptive than live TV viewers◦ 19% of online video viewers responded favourably to ads compared to 27% for live TV viewers◦ Probably biased by the fact that online video was on-demand while TV is more linear, lean-back

More open to interest-based ads as opposed to re-targeting◦ 41%of people responded favorably to ads tailored to their interests◦ Only 25% liked ads that tracked their browsing history like a retargeted promo

Stats based on study by Millward Brown

Facebook’s Shift from Live Video to Long-form Video Content

Change in algorithm to give preference to long-form videos with higher completion rate

Testing mid-roll ads

Testing new video-only tab

Rumored to be in talks with studios and producers about licensing exclusive shows to Facebook

Connected TV apps for Apple TV and Chromecast

Facebook is more interested in the YouTube model of collecting tons of quick video clips than investing in long-form shows or films like Netflix

Looking to build a wide range of content by paying content creators and sharing revenue

Ultimate aim to attract ‘episodic content’ similar to YouTube where creators regularly post videos

DirecTV Now more of a DMVPD To stem subscriber losses for DirecTV pay TV service

Added 200,000 subscribers in first month of operations

Buoyed by introductory price offer of $35 per month

Unlikely to cannibalize growth of SVOD or AVOD services given the differing value propositions◦ DirecTV Now: cheaper alternative to Pay TV◦ SVOD: Access to exclusive content for low prices◦ AVOD: Access to wide content library for no cost, supplementary to SVOD

Amazon, Netflix

Original contentAccess to TV content/wide content library

Paid

Free

DirecTV Now

Skinny Bundles

YouTube Pluto TV

Hulu

Connected TV Devices Growth Projections

Chromecast is dominant: 30.6 million users

Amazon Fire TV is the fastest growing device

Apple TV: 20.5 million users◦ Low predicted growth due to

◦ High device cost◦ Lack of original programming

Connected TV Usage Growth Driven by Younger Homes

Millennials form a dominant part of broadband only homes

This trend of heavy usage of streaming devices will likely increase

Roku and Fire TV Ideal Platforms to Focus On

Despite its lead in terms of number of users, Chromecast usage pales in comparison to Roku

Roku along with the Amazon Fire TV seem to be the connected TV devices to focus on in 2017 given their usage and growth respectively

Streaming Activity Pattern on Connected TV Mirrors Linear TV Watching

Peaks during primetime

Indicative that connected TV user is strikingly similar to linear Pay TV user in terms of consumption patterns

OTT Consumption Increasingly Driven by Connected TV Devices

“We are clearly seeing OTT video moving to the television… OTT users watch OTT services on their TV screens between 17-20 days per month, much more than platforms such as a PC, smartphone, or tablet.”

◦ Snappington of Parks Associates

Widening Gap in TV Consumption Amongst Age Groups

Deloitte forecasts that 18-24 year olds in the US will be watching less than 2 hours of traditional TV by 2020

Continuing decrease in TV consumption amongst 18-24 year olds:

◦ Watched 58% as much live and time-shifted TV as those over 65 years of age in 2008

◦ Down to 36% in 2015

Future Growth in Multiple SVOD Subscriptions

Digital TV Research has forecasted that the average U.S. SVOD user will pay for 1.33 subscriptions

◦ Implies multiple SVOD subscription

12 % of broadband-only households subscribe to Netflix and Amazon Prime

SVOD Broadband-only Homes Consume More Devices, Platforms

More affluent customers◦ Nearly half of homes with SVOD access have a yearly household income of more than $75,000

Heavier users of technology◦ U.S. households with SVOD subscriptions spend nearly 50 minutes more per day using TV-connected

technology than does the typical U.S. household◦ Average 10 more minutes daily watching time-shifted TV and double that in terms of time spent using a

multimedia device (such as Apple TV and Roku) than a typical TV home

Clearly they have an appetite to consumer more content, devices and platforms

Key Takeout Two key growth drivers

◦ Original content◦ Free access to content library that supplements SVOD services

Connected TV devices growing particularly in millennial homes, mirror behavior of traditional TV viewer

Relative dearth of premium video inventory for advertisers

YouTube and Facebook video platforms increasingly embracing long-form video content to capture these ad dollars

◦ Facebook live broadcasts◦ YouTube skinny bundle

Emerging picture of broadband-only homes depicts multiple subscriptions, devices, platforms

Opportunity for a service that is free and provides access to TV content and a wide content library