VIDEO MARKETPLACE REPORT

GROWTH & CONVERGENCE: THE EVOLUTION OF PREMIUM VIDEO IN 2018

Q4 2018 WITH YEAR-END INSIGHTS CORE OBSERVATIONS: U.S. / DISTRIBUTION

Q4 2018 GROWTH & CONVERGENCE: THE EVOLUTION OF PREMIUM VIDEO IN 2018

CONTENTS Video Marketplace Report Letter from the authors 3 Video is evolving. We are evolving, too. The VMR now stands for the Video Marketplace 2018 timeline 6 Report, which reflects our heightened focus on consumer and buy-side trends to complement our comprehensive monetization data. As the worlds of linear TV and Core observations U.S. 10 premium digital video converge, this report evolves to highlight trends across both.

Core observations Europe 24 In addition, to align with industry definitions, we have replaced the term OTT devices with connected TV. The IAB describes Connected TV as, “A television set Conclusion 40 that is connected to the Internet via OTT devices, Blu-ray players, streaming box or stick, and gaming consoles, or has built-in internet capabilities (i.e., a Smart TV) Author bios 41 and is able to access a variety of long-form and short-form web-based content.”

Glossary and sources 42

VIDEO MARKETPLACE REPORT FROM THE AUTHORS THE LINES BETWEEN LINEAR AND DIGITAL TV DISAPPEAR

MOVING INTO 2019 THE VMR HAS advertisers in the U.S. and Europe confirmed publishers and operators have made strides EVOLVED INTO THE VIDEO MARKETPLACE that premium video is increasing in popularity in their abilities to deliver live content through REPORT and now looks at trends across and importance. Full year 2018 ad views grew premium video, consumer and advertiser both linear TV and premium digital video. by 27% and 15% in the U.S. and in Europe confidence in the medium has increased. In this issue we look back at 2018, which respectively, continuing multi-year trends. marked a big year in the convergence of the Premium video has matured as a medium Both primetime and anytime two. Viewership trends looked more similar and now mirrors many of the attributes of For the first time, the Video Marketplace than ever before, and there were significant linear TV, allowing advertisers to connect with Report looked at premium video daypart industry moves to unify advertising across audiences in their most engaged moments. viewing. The pattern across devices is similar both. According to a joint FreeWheel and Insights from the Video Marketplace to linear TV, with primetime viewing between Advertiser Perceptions study, media buyers Report highlighted the following U.S. trends 8 p.m. and 11 p.m. representing 23% of all ad are combining budgets and organizations, throughout 2018. views. In addition, desktop ad views reveal with 52% saying that the buying of linear a midday peak almost as high as primetime, TV and digital video is now combined, and Advertisers shared live moments with and smartphones have a ‘commutertime’ 91% saying it will be by 2021.1 Concurrently, audiences with ad views increasing during the morning publishers and operators are enabling more Live content on premium video comprised hours of 6 a.m. and 9 a.m. converged sales options. As part of the more than one-third of total ad views in 2018, 2018 U.S. Upfronts, NBCUniversal rolled out growing 86% over 2017. Record numbers of Lean-back viewing on Connected TV CFlight, a new ‘unified advertising metric’ that consumers watched tentpole sporting events Consumers are increasingly accessing content measures viewership regardless of when or like the PyeongChang 2018 Winter Olympics, on the television screen, which is valued by where consumption occurred. These steps the FIFA World Cup, and Super Bowl LII, on audiences and advertisers for its immersive are helping to ensure advertisers can reach digital platforms. For example, NBC Sports viewing environment. Connected TV ad views engaged audiences at scale, no matter where digital coverage of the Winter Games set for full year 2018 grew by 53% and accounted they are watching. a new record, with 2.17B total streaming for 40% of total ad views. As targeting and minutes and an 11% lift over its linear- measurement capabilities expand in 2019, these Throughout the year, audiences and 2 only audience. This demonstrates that as environments will become even more valuable.

3 FULL YEAR 2018 PREMIUM VIDEO CONVERGENCE TRENDS 86% 23 % 53% growth in premium video of premium video ad growth in connected TV live ad views in 2018 views occur in the key ad views in 2018 8 p.m.–11 p.m. daypart

VIEW FROM THE BUY SIDE

DIGITAL VIDEO & INTEGRATION OF TV/ LINEAR TV BUYING DIGITAL VIDEO SOLUTIONS

% % % 52 AND 91 74 of advertisers and say they will of advertisers and agencies say it is agencies combine the by 20211 important or extremely important to buying of digital video have integrated TV and digital video and linear TV data and technology

FreeWheel / Ad perceptions thought leadership study - February 2019 Q4 2018 / FREEWHEEL VMR / #FreeWheelVMR

FROM THE AUTHORS DATA-ENABLEMENT OF BOTH LINEAR TV AND PREMIUM DIGITAL VIDEO enable advertisers to better attribute TV ad In 2019, advertisers, publishers (waste reduction) of advertising. Willingness spend to consumer outcomes. and operators will build out tech stacks from both advertisers and publishers to move beyond the traditional GRP currency is an and partnerships that allow the overlay of In the following pages, the Video Marketplace important enabler to unlock these benefits. first- and third-party consumer data with Report looks back at 2018 and highlights the anonymized household/device level data. events and data points that demonstrate Advertisers follow customers across This will enhance targeting and measurement screens the strong growth of premium video and its capabilities across both premium video and continued convergence with linear TV. linear TV, cementing their convergence. In Linear TV is now supplemented by multi- particular, look for the following trends. screen premium video viewing, and Authors: advertisers are engaging with consumers Hasan Iqbal Advanced audience and addressable wherever they are watching. Premium video Senior Manager, Advisory Services drives incremental reach for advertisers buying scale Rebecca Rangeley beyond their linear TV buys, and cross-device There are over 50 million OTT households Head of Business Insight International mapping solutions will facilitate the extension in the U.S. and approximately 64 million Haley Glazer of reach in a de-duplicated manner. Viewers addressable TV households across the largest Consultant, Advisory Services MVPDs3, creating a significant opportunity are also increasingly comfortable making use David Dworin to deliver advertising to specific audiences of two screens concurrently, with eMarketer VP, Advisory Services beyond age and gender, or even to individual estimating 185 million people use a second households. This will increase both the screen to browse the internet while watching 4 effectiveness (bespoke targeting) and efficiency TV. The same cross-device technology will

Premium video drives incremental reach for advertisers beyond their linear TV buys, and cross-device mapping solutions will facilitate the extension of reach in a de-duplicated manner.

5 Q4 2018 / FREEWHEEL VMR / #FreeWheelVMR CORE OBSERVATIONS: U.S. / DISTRIBUTION

FEBRUARY 2018 THE PYEONGCHANG WINTER OLYMPICS

The Olympic Games exemplified the growing role non-linear delivery methods play in live sporting events. NBC’s total audience (linear and digital) uplift of 11% over its linear only audience was indicative of viewing behavior observed throughout 2018 other tentpole events5.

A LOOK BACK AT THE EVENTS THAT MOVED THE INDUSTRY FORWARD.

VIDEO MARKETPLACE REPORT

JAN FEB

6 Q4 2018 / FREEWHEEL VMR / #FreeWheelVMR MAY 2018 ADVERTISERS OFFERED MAY 2018 GDPR COMES INTO UNIFIED BUYING AT THE EFFECT 2018 U.S. UPFRONTS MARCH 2018 E.U. regulations seven years Publishers pitched fewer DATA PRIVACY COMES in the making finally went into commercials, better measurement INTO FOCUS effect. The legislation was aimed capabilities and brand safety at ensuring companies handle Facebook lost approximately to compete with digital display personal data appropriately. This 20% of its market capitalization advertising6. Companies like has had important implications in the wake of the Cambridge Turner and NBCU looked to for how advertisers and Analytica scandal, in which the showcase the progress they had publishers manage data used for information of an estimated 87 made in cross-screen content targeted advertising. million users was passed to a delivery and measurement to third-party without consent. This facilitate unified buying. event highlighted the importance of user trust in the data-enabled future of marketing.

JUNE 2018 THE FIFA WORLD CUP

Soccer fans flocked to stream matches of this marquee sporting event given the early start times. The Fox Sports app became the 3rd most downloaded iPhone app as the tournament began, having previously been outside the top 1000.

MAR APR MAY JUN JUL Q4 2018 / FREEWHEEL VMR / #FreeWheelVMR

JUNE 2018 JUNE – DECEMBER 2018 TV AND VIDEO SUPPLY-SIDE M&A DOMINATE AT CANNES ACTIVITY PROMISES LIONS SCALE OF INVENTORY TV and digital video were the most FOR ADVERTISERS popular mediums for entrants, at 22% and 14% respectively7. Merger and acquisition The takeaway was that video in activity announced in 2018 will any format is key to delivering fundamentally impact supply-side emotional and impactful dynamics. Aggregation of premium messages. AUGUST 2018 video will help advertisers looking to PUBLISHERS PARTNER reach targeted audiences at scale, as well as drive the value proposition of TO BRING ADVANCED new streaming services. AUDIENCES TO • AT&T received approval on its LINEAR TV acquisition of Time Warner (June 2018) In a move symbolizing the industry’s focus on data-enabling • Comcast announced acquisition linear TV, Fox agreed to license of Sky (September 2018) Viacom software to power audience • The Walt Disney Company optimization8. The Vantage offering announced a definitive seeks to bring data targeting to agreement to acquire 21st linear TV through matching custom Century Fox (December 2018) audience definitions and TV- viewing data.

AUG SEP OCT NOV DEC 2018 CORE OBSERVATIONS

Comprehensive Premium Video Data With Year-End Insights CORE OBSERVATIONS: U.S

CHART 1 TOTAL VIDEO AND AD VIEW GROWTH, U.S. FULL YEAR 2014 – 2018 TOTAL VIDEO AND AD VIEW GROWTH, U.S. VIDEO VIEWS AD VIEWS Q4 2017 vs. Q4 2018 CLICK TO TWEET

32% 30% % % 30 27% +20 % 26% 26% AD VIEWS +19 27% VIDEO VIEWS 25% 24% 22%

2014 2015 2016 2017 2018

CONTENT FULL-EPISODE CONTENT REIGNS SUPREME IN THE FALL SEASON, BUT LIVE IS FASTEST-GROWING

For the full-year 2018, video views grew by 25% an estimated $13 billion9. However, licensed but there was also significant growth in news and ad views grew by 27%, continuing a multi- content on Netflix, including “Breaking Bad,” and entertainment ad views (46% and 102% year upward trend. Full-episode content “Friends,” and “The Office,” remained the respectively). A halo effect from viewers remains the most widely-viewed segment, most popular10, suggesting there is lasting streaming second quarter tentpole events, particularly in the fall viewing season, and value in premium content. such as the Winter Olympics, likely supported constituted 61% of ad views in Q4 2018. 95% the persistence of live viewing throughout the of these ad views occurred on entertainment Despite the continued dominance of full- year. There has been a fundamental scaling of content. Streaming services in particular episode content, live was the biggest driver the format as technology matures and viewer used original content to entice subscribers, of growth, increasing 51% year-over-year in adoption accelerates. In Q4, clips constituted and the unprecedented levels of investment Q4 2018. Sports content accounted for 57% 10% of ad views, with many content owners look set to continue. Netflix alone invested of total live ad views, dominating the format, choosing to limit ad exposure.

10 Q4 2018 / FREEWHEEL VMR / #FreeWheelVMR

CHART 2 CONTENT COMPOSITION AND GROWTH BY FORMAT, AD VIEWS, U.S. FULL YEAR AND Q4 2018

CLICK TO TWEET

Content Format Composition Content Format by Vertical FULL YEAR AND Q4 2018 Q4 2018 FULL YEAR 2018 Q4 2018

% 11% 10 Entertainment -13% YOY -14% YOY % 41 % 24 News 56% 61% +24% YOY +16% YOY 35% Sports

3% Sports 2% News

95% Entertainment

13% News Entertainment In 2018, live was the biggest 33% 29% 30% driver of growth. +86% YOY +51% YOY

57% Sports

11 CLIPS (0-5MIN.) FULL-EPISODES (5+ MIN.) LIVE CORE OBSERVATIONS: U.S

CONTENT PRIMETIME, BUT ALSO ANYTIME

This quarter, the Video Marketplace Report analyzed device 2. Desktop over-indexes during the day – Desktop viewing viewership patterns across different dayparts. Premium displays a midday peak almost as high as evening primetime. video viewing follows similar time patterns to linear TV, (18% of total ad views are delivered between 12 p.m. and 3 p.m.). indicating audiences are shifting screens and not viewing Despite the overall decline of this device format, it still captures habits. However, there are some key insights that can help significant daytime viewing share. The ease of click-through may inform buyer strategy: make this an interesting format for marketers looking to drive direct response outcomes. 1. Connected TV volumes surge at primetime – The big screen dominates the premium video viewing 3. Mobile has both primetime and ‘commutertime’ – experience in the key 8 p.m. to 11 p.m. daypart, when Smartphones are the device of choice during the morning hours audiences are ‘leaning-back’ in their living rooms. 23% of 6 a.m. to 9 a.m. Marketers can use this format to engage with of Connected TV and set-top-box video on demand viewers on the go. (STB VOD) ad views occur in this 3 hour period.

CHART 3 SMARTPHONE SHARE OF AD VIEWS BY TIME OF DAY, PER DEVICE Q4 2018 DESK TOP The big screen CONNEC TED TV CLICK TO TWEET dominates Premium video displays STB ODVOD the traditional primetime Day time viewing across screens 25 indexes higher on desktop and and is the premium largely driven by news consumption 20%20 video viewing Smartphone displays a ‘commutertime’ experience in the 15 uplift in ad views key 8 p.m. to 11 10%10 p.m. daypart. 5

0%0 5-7 AM 8-10 AM 11-1 PM 2-4 PM 5-7 PM 8-10 PM 11-1 AM 2-4 AM Q4 2018 / FREEWHEEL VMR / #FreeWheelVMR

DISTRIBUTION SUPPLY-SIDE PLAYERS INTRODUCE NEW CAPABILITIES TO SUPPORT THE CONNECTED TV/STB VOD MARKET

In 2018, Connected TVs and smartphones before. As Connected TV and STB inventory most versatile devices with a relatively emerged as the fastest-growing devices, with ad expands, the supply-side is working to enhance even split of ad views between clips, full- view growth rates of 45% and 43%, respectively. measurement for advertisers. For example, in episodes and live formats, allowing viewers Premium video remains multi-screen, but as of June 2018 Nielsen and FreeWheel announced to access content out-of-home, while Q4 2018, Connected TVs and STB VOD (the big they would work together to expand affording advertisers strong targeting screen) together comprised 58% of the market. measurement capabilities in Connected TV and and measurement capabilities. For these For advertisers, this is an opportunity to take STB VOD environments11. reasons, smartphones and desktops may be advantage of an engaging, lean-back viewing particularly useful for lower marketing funnel environment—at greater scale than ever Smartphones and desktops remained the outcomes, such as driving purchase.

TO ALIGN WITH INDUSTRY DEFINITIONS, WE HAVE REPLACED THE TERM “OTT DEVICES” WITH CONNECTED TV. The IAB describes Connected TV as, “A television set that is connected to the Internet via OTT devices, Blu-ray players, streaming box or stick, and gaming consoles, or has built- in internet capabilities (i.e., a Smart TV) and is able to access a variety of long-form and short-form web-based content.”

13 CORE OBSERVATIONS: U.S.

CHART 4 AD VIEW COMPOSITION AND GROWTH, BY DEVICE, U.S. Q4 2014 — Q4 2018

CLICK TO TWEET

-18% YOY DESKTOP 14%

-4% YOY 16% STB VOD +45% YOY % CONNECTED TV 42

+43% SMARTPHONE 20% YOY

TABLET % +14% 8 YOY Q4 Q4 Q4 Q4 Q4 2014 2015 2016 2017 2018

Premium video remains multi-screen, but as of Q4 2018, Connected TVs and STB VOD (the big screen) together comprised 58% of the market. 14 Q4 2018 / FREEWHEEL VMR / #FreeWheelVMR

CHART 5 FORMAT COMPOSITION BY DEVICE, AD VIEWS, U.S. Q4 2018

CLICK TO TWEET

CLIPS (0-5MIN.) FULL-EPISODES (5+ MIN.) LIVE

Desktop 32% 43% 25%

Connected TV 3% 59% 38%

STB VOD

100%

Smartphone 20% 47% 33%

Tablet 10% 56% 34% 15 CORE OBSERVATIONS: U.S.

Smartphones may be particularly useful for lower marketing funnel outcomes, such as driving purchase.

16 Q4 2018 / FREEWHEEL VMR / #FreeWheelVMR

CHART 6 SHARE AND GROWTH OF AD VIEWS BY SYNDICATION PLATFORM, U.S. STREAMING SERVICES Q4 2018 DRIVE CONTINUED CLICK TO TWEET

GROWTH Total Volume of Ad Views, U.S. In 2018, premium video ad views on syndicated platforms stood at 45%. While owned and operated (O&O) properties retained a greater ad share at the end of the year, syndicated % platforms are growing faster (21% vs. 18% year-over-year) and will likely overtake O&O Syndicated +21% YOY ad views in 2019. The biggest growth factor is user access via MVPD platforms, which 45 saw ad view growth of 66% in Q4 2018. In particular, virtual MVPDs (vMVPDs), including Sling, Fubo and Sony Playstation VUE, are Total Volume of Ad Views, U.S. growing rapidly. Hulu, which acts as both a vMVPD and aggregator portal, finished the year with over 25 million subscribers, an % increase of 8 million over 2017, demonstrating the power of having exclusive access to Owned & Operated +18% YOY library content12. 55 The trend in growth of streaming services is Breakdown by Channel set to continue in 2019 with a plethora of new services slated to come out from the likes of MVPD (IP PLATFORMS) % Disney, Apple and Warner Media. 27 +66% YOY 41% SYNDICATED MVPD (STB PLATFORMS) % 35 FULL -4% YOY YEAR 2018

PORTALS % 59% 38 O&O +24% YOY

17 CORE OBSERVATIONS: U.S.

CHART 7 AD VIEW SHARE BY ADVERTISER INDUSTRY, U.S. PROGRAMMERS Q4 2018 MONETIZATION CLICK TO TWEET ADVERTISERS ACROSS ALL INDUSTRIES VALUE PREMIUM 19 % VIDEO Premium video is popular with Advertisers clearly view Entertainment advertisers across industries, premium video as a valuable & Media with entertainment and media, tool for reaching and engaging retail, consumer packaged goods, their audiences, with demand financial and business services, increasing across all genres, and auto accounting for 75% formats and devices. At the 2018 of the total views in Q4 2018. A U.S. Upfronts publishers touted large percentage of ads served both their linear and digital were for high value or sticky capabilities, and the convergence products from industries such between the two. For example, % % % % % as auto and financial services, NBCUniveral showcased their 18 15 14 9 7 suggesting that advertisers in cross-platform viewing metric Retail Consumer Financial Auto Computing these categories valued the CFlight, which they subsequently Packaged & Business Products outcomes that premium video cited as having played a significant Goods Services can readily deliver. role their Upfronts success13. Expect more of this as we move towards the 2019 U.S. Upfronts.

5% Healthcare & Pharma 2% Travel & Leisure

4% Quick Service Restaurants 1% Government & Non-Profit

5% Telecom 1% Energy, Manufacturing, Utility & Industrials

18 Q4 2018 / FREEWHEEL VMR / #FreeWheelVMR

DIRECT DEALS DOMINATE, YET PROGRAMMATIC’S MARKET SHARE GROWS

Advertisers and agencies still favor direct CHART 8 deals, which accounted for 87% of total ad SHARE AND GROWTH views in Q4 2018. Programmatic transactions OF DIRECT AND accounted for just 13% of ad views, but grew PROGRAMMATIC 58%, a notable lift over Q4 2017. MONETIZATION, U.S. Q4 2018 Often, deals that are executed automatically are still negotiated directly between two CLICK TO TWEET parties. Both the buy- and sell-side recognize the potential for programmatic, especially as the industry’s ability to use data for targeting and measurement increases. Programmatic % can enhance the speed and efficiency of Programmatic buying and execution and allows advertisers +58% YOY to map their goals to the optimal audience 13 and inventory.

More broadly, technology that enables self- service access to both linear TV and premium video inventory holds the potential to extend % the advertiser pool to small and medium size enterprises that have traditionally been Direct +19% YOY locked out of TV. 14% 87 Programmatic FULL YEAR 2018 86% Direct

19 CORE OBSERVATIONS: U.S.

Technology that enables self-service access to both linear TV and premium video inventory holds the potential to extend the advertiser pool to small- and medium- size enterprises.

20 Q4 2018 / FREEWHEEL VMR / #FreeWheelVMR

CHART 9 AVERAGE NUMBER OF ADS PER MID-ROLL BREAK, FULL EPISODES, U.S.

CLICK TO TWEET

Q4 2018 vs. Q4 2017 Q4 2018 by Device Distribution of Ads per Mid-Roll Break

114s 99s 42% BREAK BREAK DURATION DURATION

% 4.0 35 3.9 3.9 4.0 4.0 3.9 23%

Q4 2017 Q4 2018 AVERAGE AVERAGE DESKTOP CONNECTED TV SMARTPHONE TABLET 1-2 ADS 3-4 ADS 5+ ADS

AD EXPERIENCE PREMIUM VIDEO CONTINUES TO OFFER AN EXCEPTIONAL AD EXPERIENCE

Premium video continued to deliver high ad trended down in 2018, with the average The repetition rate of mid-roll ads on full completion, with rates of 80-90% across mid-roll lasting 99 seconds, down from episodes remains low, with only 12% of content formats for both pre- and mid-roll. 114 seconds in Q4 2017. While some big creatives repeating once or more in a full- In Q4 2018, the average ad load for a mid- players like NBCUniversal, Fox and Hulu have episode stream. This demonstrates the roll was 3.9 ads per break. Smartphones mentioned further reductions across their growing diversity of advertisers and ads in had slightly lower ad loads suggesting some portfolios, for premium video these are likely the marketplace, as well as better frequency publishers have a differentiated strategy to be incremental and not fundamentally management by publishers. for these ‘on-the-go’ devices. Ad durations different from today.

21 CORE OBSERVATIONS: U.S.

CHART 10 AD COMPLETION RATES BY AD UNIT AND CONTENT DURATION, U.S. Q4 2018

CLICK TO TWEET

FULL-EPISODES (5+ MINUTES) LIVE CLIPS (0-5MIN)

Pre-Roll 89%

81%

79%

Mid-Roll 98%

97%

CHART 11 AD REPEAT FREQUENCY PER STREAM BY CONTENT FORMAT, U.S. Q4 2018

CLICK TO TWEET

2+ REPETITIONS 1 REPETITION NO REPETITION 2% 10% 16%

Full-Episode Live % % % % of Ads 88 66 % of Ads 18 Delivered Delivered

22 Q4 2018 CORE OBSERVATIONS: EUROPE

Premium Video Continues to Scale in Europe CORE OBSERVATIONS: EUROPE

CHART 12 TOTAL VIDEO VIEW AND AD EUROPEAN PREMIUM VIDEO REMAINS VIEW GROWTH, EUROPE STRONG IN A CHALLENGING MARKET Q4 2017 VS. Q4 2018

CLICK TO TWEET ADVERTISERS CONTINUED TO SHOW Collaboration and consolidation drives CONFIDENCE IN PREMIUM VIDEO as the industry forward ad views grew across Europe, ending 2018 Media companies within the region 22% higher than 2017. In Q4 2018, ad views demonstrated a willingness to work together % were up 15% while video views were down to improve the quality of offerings for brands +15 19%, driven by post-GDPR content delivery in terms of scale and technical capabilities. AD VIEWS restriction by U.S. publishers. These partnerships help media companies compete with streaming services that continue Live ad views more than doubled year-over- to grow quickly in Europe and divert eyeballs year, as publishers enabled more content, from commercial airtime. There is also a clear and now represent 6% of all premium video opportunity for an ad supported OTT platform % ad views. Dynamic ad insertion into live, -19 in Europe to replicate the success of the model VIDEO VIEWS represents a significant opportunity for in the U.S. Examples include France’s three advertisers, both old and new to TV, as it major television networks creating a joint OTT enables more sophisticated use of the linear platform called SALTO, and ProSiebenSat.1 and ad schedule. Multiple different ads can be Discovery partnering to create a German OTT14 delivered into the same primetime slot to platform. There was also major mergers and better meet campaign delivery goals. acquisitions activity as Comcast acquired the 15 Over the course of the year, we observed a British broadcaster Sky . few key trends:

Live ad views more than doubled year-over-year, as publishers enabled more content, and now represent 6% of all premium video ad views. 24 Q4 2018 / FREEWHEEL VMR / #FreeWheelVMR

CHART 13 TOTAL VIDEO AND AD VIEW GROWTH, EUROPE Publishers pool inventory 2017 vs. 2018

2018 saw publishers pool inventory to drive scale and reach for CLICK TO TWEET advertisers. An example was RTL Netherlands’ purchase of Branddeli, the sales house for the Discovery, Fox and Viacom brand portfolio, in December 2018. The European Broadcasters Exchange is an example of a pan-European alliance, offering scale and improving efficiency through a single point of access for media buyers.

In the wake of GDPR, U.S. publishers limit distribution % in Europe 36% 22 The premium video market grew steadily in 2018, but Europe did feel % the effects of GDPR. In an effort to protect themselves from legal risk, 34 some U.S. publishers limited distribution in Europe16. This caution was warranted, as failure to comply can cost publishers up to €20 million, % or 4% of the worldwide annual revenue of the prior financial year­— -16 whichever is higher17. Google learnt this the hard way, as the French 2017 2018 data regulator CNIL fined the digital giant 50 million euros (£44m) for not complying with data privacy regulations18. European-based publishers and operators were more able to continue with business as usual, having invested greater resources in GDPR preparation. AD VIEWS VIDEO VIEWS Overall, the impact of GDPR, at least on premium video, appears to be less dramatic than many feared.

Ad Views ended 2018 with double digit growth, continuing the strong growth story of previous years.

25 CORE OBSERVATIONS: EUROPE

CHART 14 AD VIEW COMPOSITION AND GROWTH BY CONTENT CONTENT DURATION, EUROPE Q4 2017 vs. Q4 2018

MONETIZATION OF LIVE CLICK TO TWEET MORE THAN DOUBLES Content Format Composition Content Format by Vertical AND ON DEMAND Q4 2017 vs. Q4 2018 CONTINUES TO GROW Q4 2018

% % % 9 18 Publishers continue to accelerate monetization of live 12 +1% YOY News inventory, with ad views more than doubling this quarter. However, ad views on live premium video within Europe % are still not at the scale seen in the U.S. and is unlikely % 85 85 +16% YOY 24% to unless measurement capabilities extend to the big Sports screen. Full-episode programming continues to dominate 58% with 85% share of ad views and a growth of 16%. Clip Entertainment content is up marginally as digital pure plays reduce their reliance on shorter content, while clips’ share of total ad 1% views is down by three percentage points. Sports

New data on the European market shows that sports dominated live viewing, accounting for 55% of total ad views. Sports rights are fiercely battled over for this reason, as eyeballs will follow the best sports events. 99% Full-episodes and live conent comprised 94% of total Entertainment premium video ad views in 2018. In Q4, 99% of full- 1% episode ad views occurred during entertainment content. News

55% Sports

6% 44% 3% +52% YOY Entertainment

CLIPS (0-5MIN.) FULL-EPISODES (5+ MIN.) LIVE 26 Q4 2018 / FREEWHEEL VMR / #FreeWheelVMR

VIEWING TRENDS IN PREMIUM VIDEO MIRROR TRADITIONAL TV

This quarter, deep dive analysis on dayparting and later again at 9 p.m. Drilling further and 3. Smartphone ad views increase during across Europe shows 10 p.m. is primetime for looking at Saturday alone, our data shows that the 5 a.m. to 9 a.m. “commuter period” premium video in Europe. In the UK, early primetime ad views peak at 7 p.m. forming a valuable on-the-go audience for peak is between the hours of 5 p.m. and 8 There are some interesting implications and advertisers. p.m. while in France, 9 p.m. is classified as takeaways for advertisers: 4. STB & Connected TV ad views grow peak. 1. Premium video in Europe is incremental steadily throughout the day peaking at On-demand ad views comprise an 85% share to linear and can be used to tap into new 9 p.m. This shows that consumers are of premium video, suggesting that video on audiences. continuing to choose the big screen to demand is incremental to linear TV viewing, as enjoy highly engaging premium content viewing is taking place after traditional linear 2. Desktop is still an important medium for in the evening, from the comfort of their peaks within Europe. Isolating those ad views reach, and takes the top spot for weekday living rooms. that are live, there are peaks at both 7pm ad views between 8 a.m. and 10 p.m.

CHART 15 CHART 16 EUROPEAN AD VIEWS BY TIME OF DAY EUROPEAN AD VIEWS BY TIME OF DAY AND PLATFORM Q4 2018 10PM Q4 2018

CLICK TO TWEET CLICK TO TWEET AD VIEWS AD VIEWS

1-2AM 3-4AM 5-6AM 7-8AM 9-10AM 11-12AM 1-2PM 3-4PM 5-6PM 7-8PM 9-10PM 11-12PM 1-2AM 3-4AM 5-6AM 7-8AM 9-10AM 11-12AM 1-2PM 3-4PM 5-6PM 7-8PM 9-10PM 11-12PM

27 DESKTOP SMARTPHONE CONNECTED TV STBVOD TO ALIGN WITH INDUSTRY DEFINITIONS, WE HAVE REPLACED THE TERM “OTT DEVICES” WITH CONNECTED TV. The IAB describes Connected TV as, “A television set that is connected to theCORE Internet OBSERVATIONS: via OTT EUROPE devices, Blu-ray players, streaming box or stick, and gaming consoles, or has built-in internet capabilities (i.e., a Smart TV) and is able to access a variety of long-form and short-form web-based content.”

10pm is ”primetime” for premium video. This is post the traditional linear peaks in Europe.

28 Q4 2018 / FREEWHEEL VMR / #FreeWheelVMR

TO ALIGN WITH INDUSTRY DEFINITIONS, WE HAVE REPLACED THE TERM “OTT DEVICES” WITH CONNECTED TV. The IAB describes Connected TV as,

DISTRIBUTION “A television set that is connected to the Internet via OTT devices, Blu-ray players, streaming box or stick, and gaming consoles, or has built-in internet 40% OF AD VIEWS capabilities (i.e., a Smart TV) and is able to access a variety of long-form and NOW ON THE short-form web-based content.” BIG SCREEN AND GROWING CHART 17 AD VIEW COMPOSITION AND GROWTH, BY DEVICE, EUROPE Advertisers are recognizing the ability of Q4 2014 — Q4 2018

Connected TV and STB to engage audiences CLICK TO TWEET at scale. Both platforms continue to grow steadily, and by the year-end, they comprised a +16% total market share of 40%, with above market YOY growth of 29%. % DESKTOP Desktop remains the largest platform for 29 premium video ad views overall at 29% and is particularly important throughout the daytime hours. Smartphone retained 20% share and continues to grow in line with the market at +20% 15%. However, ad views on tablets were down 17% YOY 4% on the same period last year. STB VOD +36% More live content has opened up across YOY all platforms, with tablet and Connected % TV driving 11% and 3% of live ad views CONNECTED TV 23 respectively. This indicates that publishers are % opening up more opportunities on primetime +15 YOY SMARTPHONE shows and that advances in technology are % helping advertisers overcome concerns about 20 server side ad insertion (SSAI) and latency.

TABLET -4% 11% YOY

Q4 Q4 Q4 Q4 Q4 29 2014 2015 2016 2017 2018 Q4 2018

CORE OBSERVATIONS: EUROPE

CHART 18 FORMAT COMPOSITION BY DEVICE, AD VIEWS, EUROPE Q4 2018

CLICK TO TWEET

CLIPS (0-5MIN.) FULL-EPISODES (5+ MIN.) LIVE

DESKTOP

14% 76% 10%

CONNECTED TV

% In keeping with a trend 97 3% observed in 2017, viewers STB VOD watched the most premium 7% 93% video on the big screen.

SMARTPHONE

12% 83% 5%

TABLET

6% 83% 11%

30 Q4 2018 / FREEWHEEL VMR / #FreeWheelVMR

CHART 19 SHARE AND GROWTH OF AD VIEWS BY SYNDICATION PLATFORM, EUROPE PUBLISHERS EMBRACE Q4 2018

SYNDICATION AS A TOOL CLICK TO TWEET

FOR GROWING THEIR Total Volume of Ad Views, Europe AUDIENCE AND MAXIMIZING ROI %

Syndicated ad views grew 25% in Q4 2018 and ended the year with a 20% share. This growth is fueled by increased operator syndication, up 30% year-over-year, as publishers continue to distribute content through 20 Syndicated OTT platforms as a means to grow audiences. Operators +25% YOY in turn are keen to gain control of the most attractive content, for example sports and high impact drama, to grow and retain their own audience base. %

However, unlike the U.S., owned and operated looks like it will continue to dominate the European premium video market for the foreseeable future, despite the growth in syndication. Within Europe there is lower penetration of 80 Owned & Operated operator IP platforms that are present in the U.S. (such +17% YOY as Sling, Fubo and Hulu), as publishers are protective of Breakdown by Channel their premium content and also consumer end points. (Like for Like Volume Growth) Sky this year integrated Netflix within its Electronic 91% 94% Program Guide, creating the UK’s largest on demand +30% YOY library19. 17% Q4 2017 SYNDICATED Furthermore, content distribution via aggregators and long-tail sites retracted 23% over the same period as publishers continue to regulate where their premium content appears. Aggregators continue to hit the 9% % headlines raising concerns over brand safety for content 6 -23% YOY % providers and advertisers. 4 Q4 2017 Q4 2018 SYNDICATED Q4 2016 OPERATOR AGGREGATOR/LONG-TAIL

31 CORE OBSERVATIONS: EUROPE

CHART 20 AD VIEW SHARE BY ADVERTISER CATEGORY, EU Q4 2018

CLICK TO TWEET

MONETIZATION % THE WORLD’S LARGEST 29 ADVERTISER CATEGORIES FMCG SPEND BIG IN PREMIUM VIDEO AS PROGRAMMATIC MAINTAINS STRONG GROWTH

The strong growth of ad views in Europe shows that advertisers are tuned in to the power of premium video advertising. Additional analysis this quarter shows % % % that within Europe, the top 5 advertising categories 16% 17% 8 7 7 accounted for 77% of ad views in Q4 2018. The largest Retail Entertainment Auto Financial Travel category within premium video is FMCG (Fast Moving & Media & Business & Leisure Consumer Goods) with almost 30% of all ad views. It is Services promising to note that this category contains 4 out of the top 5 advertisers in the world20. Furthermore, the top 4% COMPUTING PRODUCTS categories for premium video in Europe closely mirror the 4% top categories of advertising spend globally, evidence that TELECOM premium video is a key component of many media plans. 3% HEALTHCARE & PHARMA As advertisers take stock of the results that premium video 2% ENERGY, MANUF, UTILITY & INDUSTRIALS can deliver, publishers are recognizing the need for improved 2% QUICK SERVICE RESTAURANTS automation to cope with demand. Therefore, programmatic continues to grow at 17% year-over-year. The overall volume 2% GOVERNMENT/NON-PROFIT of deals has grown significantly for both programmatic and direct, but direct sold has scaled quicker and increased its

32 Q4 2018 / FREEWHEEL VMR / #FreeWheelVMR

overall share of transactions. As commented on efficiencies programmatic can afford. Private marketplaces can also allow for in the FWCE21 Programmatic paper, Cracking advertisers to target their audiences by the Programmatic Conundrum, released in Around 2% of programmatic deals are mapping their first-party data to publisher February 2019, direct sold is favored as taking place via exchanges. This quarter, inventory. However, the complexity of publishers value the security of upfront open exchange transactions have more endpoints, regulations and legacy sales deals to maintain the value of their inventory. than doubled and now represent 39% of all models act as a moderating factor in the Marketers also value the guarantees that exchange transactions. Private marketplace growth of open exchange transactions and come with making a deal directly, but appear transactions increased 65% over the last year, programmatic overall. increasingly interested in the executional and now account for 61% of transactions.

Programmatic continues to grow, up 17% year-over year.

33 CORE OBSERVATIONS: EUROPE

CHART 21 SHARE AND GROWTH OF AD VIEWS BY PROGRAMMATIC MONETIZATION, EUROPE Q4 2018

CLICK TO TWEET SHARE OF DEAL TYPE Programmatic Direct 98% Direct Exchange % Transactions 87 % +13%YOY 2

Programmatic %

SHARE OF TRANSACTION MODEL

13+17%YOY Open Exchange 39% Private Exchange 61%

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Premium video continues to provide an engaging experience for viewers.

35 CORE OBSERVATIONS: EUROPE

AD EXPERIENCE ENGAGEMENT IS KEY TO PREMIUM VIDEO’S APPEAL

Advertisers look to leave a lasting impression half of all mid-roll breaks in premium video have on consumers and premium video proves to be less than 5 ads per mid-roll. Advancements in one of the most effective media to do this. Ad targeting make this inventory more valuable completion rates, a barometer for engagement, helping to offset the reduction in impression remain high, at 87% overall and 92% for the volumes. average live pre-roll break. In Q4, the average break duration was 111 seconds with 5 ads per Also, in keeping with a trend observed in mid-roll break. Publishers over the last year the U.S., ad repetition rates were low, with have been experimenting with ad loads as 88% and 82% of full-length episode and live part of a conscious effort to preserve the user content respectively, containing no repeated experience. Research from Yospace, a UK- ads in Q4. Content in live ads may be based provider of SSAI technology reveals that repeated more frequently, in part because of reducing ad load can improve user engagement the nature of sponsorship deals. in the OTT space22. Testament to this is that over

CHART 22 Ad Completion Rates by Ad Unit and Content Duration, Europe Q4 2018

CLICK TO TWEET FULL-EPISODE LIVE CLIPS

Pre-Roll 85%

92%

74%

Mid-Roll

92% https://www.thebroadcastbridge.com/content/entry/12438/reducing- ad-load-for-ott-boosts-viewers-engagement?cat_id=72 95% 36 Q4 2018 / FREEWHEEL VMR / #FreeWheelVMR

CHART 23 AVERAGE NUMBER OF ADS PER MID-ROLL BREAK, FULL EPISODES, EUROPE

CLICK TO TWEET

Q4 2018 Q4 2018 by Device Distribution of Ads per Mid-Roll Break

111s BREAK DURATION 6.0

4.8 4.6 46% 5.1 4.1 34% 20%

Q4 2018 OTT 5+ ADS AVERAGE TABLET SMARTPHONE DESKTOP 1-2 ADS 3-4 ADS

In Q4 2018, the average ad duration is 111 seconds and almost 5 adverts per mid-roll break.

37 CORE OBSERVATIONS: EUROPE

CHART 24 Ad Repeat Frequency per Stream by Content Format, Europe Q4 2018

CLICK TO TWEET

2+ REPETITIONS 1 REPETITION NO REPETITION 3% 10%

Full-Episode % % of Ads 88 Delivered

6%

Publishers over the last year have been experimenting Live 82% % of Ads 12% with ad loads as part of a Delivered conscious effort to preserve the viewer experience. 38 Q4 2018 / FREEWHEEL VMR / #FreeWheelVMR

Q4 2018 CONCLUSION

In the eyes of many viewers, premium digital video and TV are now one and the same. “Watching TV” can be tuning into a program on linear TV, streaming a favorite series on a Connected TV, or following a live sporting event on a smartphone. This convergence will be solidified for marketers in 2019 as the industry makes progress in its ability to target and measure precise audiences at scale, across screens big and small. What is indisputable though, is the place premium video has earned at the center of the viewing experience, and the unique value it brings to both advertisers and publishers.

39 AUTHOR BIOS

AUTHOR BIOS

HASAN IQBAL REBECCA RANGELEY HALEY GLAZER DAVID DWORIN

Senior Manager in FreeWheel’s Head of Business Insight for our Consultant in the Advisory Leads FreeWheel’s Advisory Advisory practice and helps International Business. Through Services team, working with Services team, where he helps clients generate insights through interrogation of our datasets, media clients to deliver industry clients navigate the ever evolving data-backed analyses. His areas Rebecca ensures that the insights benchmarking, network premium video ecosystem. Prior of expertise include market we generate for the International optimization and reporting and to joining FreeWheel, David spent benchmarking and analysis, Business generate return on analytics enhancements. Prior a decade leading growth strategy revenue strategy, and scaling investment for clients. Prior to to FreeWheel, she worked in ad initiatives at leading agencies, of organizational capabilities. FreeWheel, Rebecca managed the sales research and corporate consultancies, and professional Prior to FreeWheel, Hasan Digital Insight Team at Sky Media analytics at Scripps Networks services firms. was a strategy consultant in the U.K., delivering insights Interactive and iHeartMedia, and with PwC Strategy & where he to drive Sky U.K.’s advertising is currently pursuing her Master’s advised media and technology revenue for VOD, online and Degree in Data Science. companies. mobile applications.

Special thanks to: Xu Yao,Esra Akturk, Abraham Martinez, and Arnaud Stebe

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GLOSSARY

Ad Completion Rate - Measures the into the same ad break Operator - Provides pay TV services in the Server Side Ad Insertion (SSAI) - percentage of ads that were completed once EU, functioning similarly to MVPDs in the U.S. Technology that enables the stitching together started FreeWheel Council for Premium Video Examples include Sky UK, Sky Germany and SFR of video and ad content prior to delivery to the (FWC) - Serves the interests of those in the player Ad View – An impression that is accrued after premium video industry through leadership Over-the-top (OTT) – Viewing content the first frame of an ad is displayed positions, research, and advocacy to promote delivered over an internet connection. Typically Set-top Box Video On Demand (STB VOD) the premium video economy seen as OTT Device, which includes devices like – Accompanies a cable/broadcast/satellite Aggregator – A high-traffic content aggregator, Roku, Apple TV, Connected TVs, etc. setup. Contains a cable input and outputs to a for example AOL or MSN Impression – Occurs each time an ad is TV. Integrations via FourFronts STB VOD and displayed. Synonymous with “ad view” Over-the-top Device (OTT Device) – Viewing Canoe Phase III AVOD - Advertising video on demand business content delivered over an internet connection model Inventory – An ad opportunity. A piece of on a TV streaming device, including devices like Simulcast – A digital stream of a live event that inventory is filled by an ad impression Roku, Apple TV, Connected TVs, etc. is simultaneously broadcast on linear TV Connected TV (CTV) – A television set that is connected to the Internet via OTT devices, Linear – Traditional broadcast, cable, or Pre-roll – An ad break that occurs before Syndication – Viewing that occurs outside of a Blu-ray players, streaming box or stick, and satellite television content starts publisher’s Owned and Operated properties or gaming consoles, or has built-in internet primary platforms capabilities (i.e., a Smart TV) and is able to Long-tail – Small scale/niche content Premium Video – Video content that is access a variety of long-form and short-form aggregators professionally produced, rights managed, and TV Everywhere (TVE) – Apps that allow web-based content limited in supply viewers to access content over the internet Mid-roll – An ad break that occurs in the by logging in with their MVPD subscription Content vertical – Content genre, e.g. news, middle of content Programmatic – The use of automation credentials entertainment, sports software or managed services to execute an Multichannel Video Programming advertising deal Video Start – Accrued after the first frame of Deal ID – Unique deal identifier of a Distributor (MVPD) – Provides pay TV video content is displayed. Formerly referred to programmatic transaction that can be used to services delivered either through broadcast Programmer – U.S. publishers that generate as video view match advertisers and publishers directly satellite or cable TV. Examples include Comcast the majority of their advertising revenue from and Verizon linear TV services and offer a diverse content Virtual MVPD (vMVPD) – Digital-only cable Direct-sold – Advertising deals made directly mix in digital environments as well alternatives that offer access to both live and between a publisher and an advertiser New Living Room – The same high-quality TV on demand premium video content for a content that was traditionally consumed in the Publisher – Producers or syndicators of subscription fee Dynamic Ad Insertion (DAI) – Process living room is experienced today by the same content. This can be programmers or digital of dynamically inserting ads into a content audience through a multitude of screens and pure- plays stream, such that different ads can be inserted locations

41 THE FREEWHEEL VIDEO MARKETPLACE REPORT highlights ways in which advertisers, publishers and distributors are using premium video content to drive advertising outcomes.

The data set used for this report is one of the largest available on the usage of professional, rights-managed video content worldwide, and is based off of census-level advertising data collected through the FreeWheel platform.

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