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PREMIUM HEATS UP AS MORE STREAMING SERVICES ENTER THE FRAY

Q3 2019 Q3 2019 / FREEWHEEL VMR - U.S. / #FreeWheelVMR

A COMPETITIVE LANDSCAPE

The premium video streaming landscape continues to get more competitive as new direct-to-consumer offerings hit viewer screens. In November 2019, Apple TV+ and Disney+ debuted with NBCU’s Peacock and Warner Media’s HBO Max set to follow in 2020.

Companies have a range of objectives for their new streaming services, but at their core all desire to build direct relationships with viewers. These relationships will allow them to cross-sell products like toys or theme parks and limit the potential for disintermediation from aggregator platforms.

Their introduction is likely to shake up the competitive landscape, but the overall market trends in ad-supported premium video observed in previous quarters look set to continue.

CHART 1 1. Distributor platforms represent TOP LINE GROWTH AND BREAK-OUT OF AD VIEWS BY two-thirds of ad views versus publisher SYNDICATION PLATFORM, U.S. owned-and-operated platforms, and are Q3 2019 also growing faster. MVPD (IP Platforms) Distribution Type Distributor Platform Breakdown

DISTRIBUTOR DIGITAL / IP STREAMING SERVICES 2. IP-based delivery platforms make up AND vMVPDs almost 80% of the dynamically inserted ads and are growing significantly faster than traditional set-top-boxes as viewing habits evolve. 65% +78% YOY 78% 3. The IP-enabled ‘TV Everywhere’ options OWNED & OPERATED +113% YOY offered by traditional MVPDs represent a % relatively small portion of IP-based delivery, % STB 90 35 22% with streaming services from virtual players +9% YOY TRADITIONAL MVPD % +13% YOY 10 taking the lion’s share of ad views.

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THE IMPACT ON AD-SUPPORTED CONTENT

Subscription services offer video-on-demand content from various sources (including originally produced content), as well as live TV from traditional networks. was the pioneer in the streaming services field and famously maintains an ad-, subscription-only model. A number of services are initially following suit (see chart 2).

CHART 2 OVERVIEW OF SELECT STREAMING SERVICES, U.S.

Service Average Monthly Cost* Content

Netflix $12.66 No Licensed shows and movies and Netflix originals

Ads for original content & some live Licensed content, originals and Thursday night Amazon Prime $8.99 sports football

Hulu $8.99 Some ads on less expensive plans Live and on-demand content from multiple networks

Disney+ $6.99 No Movies and series from Disney brands

CBS All Access $7.99 Some ads on less expensive plans Live CBS channels and CBS originals catalog

HBO $14.99 No HBO series and movies

FuboTV $66.24 Focus on live sporting events

Sling $30.00 Yes Live TV channels both national and local

PlutoTV Free Yes (no sign-up required) Live content and some back catalog on-demand content

TubiT V Free Yes (no sign-up required) Live content and some back catalog on-demand content

*Average of multiple packages where they exist. Based on publicly available data as of November 2019.

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CHART 3 However, despite the current popularity of subscription-only U.S. VIDEO-ON-DEMAND (VOD) SERVICES VIEWERS models, a number of factors suggest advertising will play an PERCENT OF TOTAL USERS IN GIVEN DEMOGRAPHIC increasingly important role in premium video streaming. H1 2018

1. The ‘freemium model’. Consumers appreciate having a choice between less expensive, ad-supported content and a higher fee-paying, subscription model. This is similar to the pricing in other content domains 92% 88.2% e.g., ’s pricing for music streaming.

81.5% 2. Cost pressure. There is evidence that cost pressure to recoup content and service enablement fees will 66.9% continue to build. For example, last year Sling raised its Orange package price by 25%1, and it has been estimated that to break even Disney will need to 52.3% attract 60-90 million subscribers by 20242. Therefore service providers will be under increasing pressure to raise prices, or to generate revenues from other mechanisms, such as advertising.

3. Advertisers seek access to younger audiences. Younger generations consume TV digitally at higher rates (see chart 3), and advertisers looking to tap into these lucrative demographics may be willing to pay a premium. This would offer a tantalizing revenue opportunity for subscription service providers and likely support adoption of ad-supported models. 16-24 25-34 35-44 45-54 55-64

Age Group [1] Sling TV Raises Price of Live TV Streaming to $25 Per Month .com Source: The Global Media Intelligence Report 2018 eMarketer [2] Disney+ Launches, Representing The Capstone Of Bob Iger’s Tenure Forbes.com

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THE POWER OF PREMIUM VIDEO Q3 2019

Advertiser demand for premium video will only increase as scale of audiences, % sophistication of targeting, and simplicity of access improve. Data from the Video +46 Marketplace Report for Q3 2019 demonstrates the value for advertisers:

1. Overall video ad views grew 46% for data-backed targeting Overall ad views grew 46% YOY year-over-year, driven in large solutions which are enabled part by connected TV (up 110% by companies like FreeWheel YOY). This immersive viewing and industry consortiums like platform constituted 56% of all OpenAP. Behavioral targeting % % ad views. constitutes most of audience +78 -98 targeted ads (69% share), 2. Premium video ad completion showcasing advertisers’ appetite rates remained extremely high, Ad completion rates were 78% to 98% for more than just simple between 78% to 98% across demographic targeting. content formats for both pre-roll and mid-roll, showcasing the value 4. Direct deals continue to of premium video to advertisers. % comprise the majority of +69 3. Audience targeted ad views transactions with a share of 79%. grew 34%. Although this growth However programmatic ad views 69% of audience targeted ads focus on grew 76% YOY, twice as fast as comes from a small base, it is an behavioral segments indication of advertisers’ demand direct deals.

In conclusion, we see a bright future for ad-supported premium video as more direct-to-consumer products enter the market. The fundamentals of premium video remain strong, and it is an engaging environment for advertisers to connect +76% with consumers. In addition publishers and distributors will need to recoup the content and technology costs of their new services in a competitive market. This bodes well for advertisers being able to access premium video to tell their stories. Programmatic ad views grew 76%

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CHART 4 CHART 5 VIDEO AD VIEW AND AD VIEW GROWTH, U.S. CONTENT COMPOSITION BY FORMAT, U.S. Q3 2018 - Q3 2019 Q3 2018 - Q3 2019

Q3 2018 Q3 2019

% % 11% 7 +4% YOY +46 57% +25% YOY AD VIEWS 56% +37% VIDEO VIEWS

36% +100% YOY 33%

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

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CHART 6 CHART 7 AUDIENCE SEGMENT TYPE TARGETED AD VIEW GROWTH, U.S. SHARE OF TARGETED Q3 2019 CAMPAIGNS, U.S. Q3 2019

+34% Audience Segment Type* AUDIENCE TARGETED %

31 Demo

%

69 Behavioral *‘Demo’ audience segment types are those that target based on age and gender

‘Behavioral’ audience segment types are those that target more advanced segments such as auto intenders, sports enthusiasts etc.

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CHART 8 CHART 9 AD VIEW COMPOSITION AND GROWTH, FORMAT COMPOSITION BY DEVICE, AD VIEWS, U.S. BY DEVICE, U.S. Q3 2019 Q3 2019

Connected TV 56% 3% 47% 50%

Mobile App 12% 58% 30%

Mobile Web 55% 27% 18%

% % % 14 15 15 STB VOD 100%

Desktop

CTV Mobile STB VOD Desktop 15% 43% 42% +110 % +16% +13% +7% YOY YOY YOY YOY CLIPS (0-5MIN.) FULL-EPISODES (5+ MIN.) LIVE

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CHART 10 SHARE AND GROWTH OF AD VIEWS BY DISTRIBUTION PLATFORM, U.S. Q3 2019

Total Volume of Ad Views, U.S. Distributor Platform

DIGITAL / IP % Publisher Platforms 35 +9% YOY

78% +113% YOY

% STB Distributor % Platforms 22 +13% YOY 65 +78% YOY

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CHART 11 SHARE AND GROWTH OF DIRECT AND INDIRECT DEALS, AD VIEWS, U.S. Q3 2019

Total Volume of Ad Views, U.S.

%

Indirect 21 +76% YOY

%

Direct 79 +38% YOY

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CHART 12 AVERAGE NUMBER OF ADS PER MID-ROLL BREAK, FULL EPISODES, U.S. Q3 2019

Q3 2018 vs. Q3 2019 Q3 2019 by Device Distribution of Ads per Mid-Roll Break 95s BREAK 107s 48% DURATION BREAK DURATION 4.0 3.8 3.7 3.4 3.2 27% 25%

Q3 2018 Q3 2019 AVERAGE AVERAGE MOBILE CONNECTED TV DESKTOP 1-2 ADS 3-4 ADS 5+ ADS

CHART 13 AD COMPLETION RATES BY AD UNIT AND CONTENT DURATION, U.S. Q3 2019

Pre-Roll Mid-Roll 87% 98%

83% 97% FULL-EPISODE LIVE % CLIPS 78

11 Q3 2019 / FREEWHEEL VMR - U.S. / #FreeWheelVMR AUTHOR BIOS

AUTHOR BIOS

HASAN IQBAL HALEY GLAZER LAURA GAMBINO DAVID DWORIN

Senior Manager in FreeWheel’s Consultant in the Advisory Consultant in FreeWheel’s Leads FreeWheel’s Advisory Advisory practice and helps Services team, and works Advisory practice. Her areas Services team, where he clients generate insights with media clients to deliver of expertise include data helps clients navigate the through data-backed analyses. industry benchmarking, network analytics, market research, and ever evolving premium video His areas of expertise include optimization and reporting and advanced TV technology. Prior ecosystem. Prior to joining market benchmarking and analytics enhancements. Prior to FreeWheel, Laura was a data FreeWheel, David spent a analysis, revenue strategy, to FreeWheel, she worked in ad scientist at Omnicom Media decade leading growth strategy and scaling of organizational sales research and corporate Group on the Advanced TV team initiatives at leading agencies, capabilities. Prior to FreeWheel, analytics at Scripps Networks where her primary focus was consultancies, and professional Hasan was a strategy Interactive and iHeartMedia, and smart TV data strategy. services firms. consultant with PwC Strategy& is currently pursuing her Master’s where he advised media and Degree in Data Science. technology companies.

12 Q3 2019 / FREEWHEEL VMR - U.S. / #FreeWheelVMR GLOSSARY

GLOSSARY

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

13 THE FREEWHEEL VIDEO MARKETPLACE REPORT highlights the 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. Q3 2019

FreeWheel.com @FreeWheel @TeamFreeWheel

MORE INFORMATION MEDIA INQUIRIES David Dworin Dan Friedman VP, Advisory Services VP, Communications [email protected] [email protected]

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