ON-DEMAND AUDIOVISUAL MARKETS IN THE EUROPEAN UNION

FINAL REPORT A study prepared for the European Commission DG Communications Networks, Content & Technology by

Digital Agenda for Europe

This study was carried out for the European Commission by

European Audiovisual Observatory, 76 Allée de la Robertsau, 67000 Strasbourg, France Authors: Director of publication: Susanne Nikoltchev, Executive Director, European Audiovisual Observatory Supervision: André Lange, Head of Department for Information on Markets and Financing, European Audiovisual Observatory Author: Christian Grece, Analyst at the European Audiovisual Observatory Preparatory notes: Lorenzo Principali, Analyst at the European Audiovisual Observatory

Internal identification Contract number: 30-CE-0520606/00-86 SMART number: 2012/0026

DISCLAIMER By the European Commission, Directorate-General of Communications Networks, Content & Technology.

The information and views set out in this publication are those of the author(s) and do not necessarily reflect the official opinion of the Commission nor of the European Audiovisual Observatory, its members or of the Council of Europe. The Commission does not guarantee the accuracy of the data included in this study. Data compiled by external sources are quoted for the purpose of information. The author of this report is not in a position to verify either their means of compilation or their pertinence. Neither the Commission nor any person acting on the Commission’s behalf may be held responsible for the use which may be made of the information contained therein..

ISBN 978-92-79-38425-7

DOI 10.2759/51823

© European Union, 2014. All rights reserved. Certain parts are licensed under conditions to the EU.

Reproduction is authorised provided the source is acknowledged.

INTRODUCTION ...... 5

1 DEFINITIONS ...... 7 1.1.1 The ITU definition of Video on Demand ...... 7 1.1.2 The legal definition provided by the Audiovisual Media Services Directive ...... 7 1.1.3 Market definitions ...... 9 1.1.4 The technical solutions for on-demand audio-visual services ...... 11 2 THE MAVISE DATABASE AND THE CENSUS OF ON-DEMAND AUDIOVISUAL SERVICES ...... 16 2.1 Services established in a country ...... 16 2.2 Services available in a country ...... 20 ADVERTISING-FINANCED ON-DEMAND AUDIOVISUAL SERVICES ...... 31

3 THE ONLINE ADVERTISING MARKET ...... 35 3.1 Online advertising in Europe in 2012 and 2013: trends and developments (IAB & eMarketer) .... 35 3.1.1 IAB Europe AdEx Benchmark 2012 and main figures available on the online advertising market in Europe 36 3.1.2 Online video advertising ...... 44 3.1.3 Mobile advertising ...... 50 3.1.4 Social network advertising ...... 53 3.1.5 Programmatic, real-time bidding and video advertising ...... 56 3.2 The online advertising market 2011– Data available on online advertising investments (IDATE & IAB data) 58 3.2.1 The online advertising market ...... 59 3.2.2 The European online advertising market ...... 64 3.2.3 Online ad spend compared to total and other media ad spend (Warc data) 2008-2014 ...... 69 3.2.4 The American online advertising market 2012 ...... 73 3.3 Online display advertising - a complex market ...... 82 3.3.2 Online video advertising, the rising star of display advertising ...... 85 3.3.3 Trends underlying the increased ad spend on online display advertising ...... 88 3.3.4 Various kinds of audiovisual services financed by advertising ...... 90 4 TYPES OF ADVERTISING-SUPPORTED ON-DEMAND AUDIOVISUAL SERVICES ...... 91 5 AUDIENCE DATA: COMSCORE’S VIDEO METRIX ...... 92 5.1.1 The United Kingdom ...... 94 5.1.2 Germany ...... 95 5.1.3 France...... 96 5.1.4 Spain ...... 97 5.1.5 Italy ...... 98 5.1.6 The Netherlands ...... 99 TRANSACTIONAL VIDEO ON-DEMAND SERVICES ...... 100

6 TYPES OF TRANSACTIONAL VOD SERVICE ...... 102 7 STRATEGIES OF SELECTED INTERNATIONAL PLAYERS ...... 103 7.1 Typology of players ...... 103 8 VOD MARKET STATISTICS ...... 115 8.1 International Video Federation (IVF) statistics ...... 115 8.2 Market shares of VoD services ...... 124 8.2.1 Market shares United Kingdom ...... 125 8.2.2 Market shares Germany ...... 131 8.2.3 Market shares France ...... 133 SUBSCRIPTION ON-DEMAND AUDIOVISUAL SERVICES ...... 136

9 TYPES OF SERVICES ...... 139 10 SUBSCRIPTION VIDEO ON DEMAND (SVOD) ...... 140 10.1 What is a subscription video-on-demand (SVoD) service? ...... 140 10.1.1 Main SVoD players in EU-5 and Nordics ...... 141

10.2 US OTT SVoD market ...... 146 10.3 Main market numbers available for Europe ...... 149 10.4 Growth drivers of SVoD services ...... 155 10.4.2 Exclusive licenses and licensing deals ...... 157 10.4.3 Investment in original content ...... 164 10.4.4 ATAWAD – Any time, anywhere, any device ...... 167 11 EXAMPLES OF THE STRATEGIES OF THE MAIN PLAYERS - NETFLIX ...... 180 11.1 Netflix ...... 180 11.1.1 Netflix’s background ...... 180 11.1.2 Change of paradigm in Netflix’s strategy: The beginning of streaming video content, the years 2008- 2010 183 11.1.3 Netflix 2011-2012: international expansion and original programming ...... 188 ON-DEMAND AUDIOVISUAL SERVICES OF PUBLIC BROADCASTERS ...... 202

12 SERVICES FINANCED BY PUBLIC FUNDS ...... 203 SAMPLE STUDY ON THE PRESENCE OF SELECTED EUROPEAN WORKS IN VOD PROVIDERS CATALOGUES 208

13 SAMPLE STUDY ...... 209 13.1 Introduction ...... 209 13.2 European movies in VoD catalogues: Sample results & Analysis ...... 213 13.2.1 Overview of results ...... 213 13.2.2 Analysis of results ...... 217 CONNECTED TVS AND CONNECTED DEVICES ...... 226

14 SMART TV AND APPS ...... 227 14.1 The Global Smart TV market ...... 227 14.2 The European Smart TV market ...... 233 14.2.2 The differences in statistics: Connected TV vs. Smart TV ...... 237 14.2.3 The global on-demand video market for connected TVs ...... 238

TABLE OF TABLES ...... 242

TABLE OF FIGURES ...... 247

Introduction

This report on on-demand audiovisual services in Europe was prepared by the European Audiovisual Observatory under a contract with the European Commission’s DG Connect. This is the fourth report that the Observatory has produced on this market. It is intended to be a roadmap for the rapidly developing European on-demand services landscapes. The sector is growing fast and the number of on-demand audiovisual services available in Europe is rising, driven by rapid consumer adoption and made possible by technological innovations and a shift in consumption habits. The rising importance of on-demand services in the media ecosystem is introducing a shift towards an attention economy. The introduction of the Internet as a delivery platform and the digitisation of audiovisual content have provoked major changes in the functioning of the media sector. The passage from a relatively closed media system where content was scarce, controlled and broadcast linearly to an open, uncontrolled media ecosystem where content is abundant and the audience chooses its favourite content on-demand (non-linear, “ATAWAD – any time, anywhere, any device”), the main challenge of traditional media companies, telecommunications companies and “over-the-top” on- demand audiovisual service players is getting the audience’s attention.

This shift towards an attention economy is impacting the audiovisual value chain and existing business models; commercial TV channels are more and more in competition with online services for advertising budgets, pay-TV channels are challenged by Subscription Video on-Demand services, the home video market (DVDs and Blu-ray) and cinemas see Transactional Video on-Demand and electronic sell-through services increasingly in competition with them for the consumer’s money and attention. In 2013, even though on-demand audiovisual services have existed for almost a decade, technology coupled with changes in the supply and demand sides have started to transform the European media sector.

The major developments in 2013 regarding on-demand audiovisual services were the rise of connected mobile devices and their increasing importance in video consumption (enabled by mobile broadband), the rising importance and expansion of “over-the-top” players (Netflix, Amazon, Apple, Google) as online video providers in Europe, the continuous enlargement by traditional media players of their business models to adapt to the technology and demand side changes (multi-screen viewing) and the increase in the online video advertising market, in 2013 the second most important advertising market after the TV advertising market in Western Europe.

Keeping track of market developments, audience behaviour and technology changes is particularly challenging, even more when considering the general lack of data on on-demand audiovisual services in Europe and the rapidity of the change that is happening. The opacity of financial and economic data renders the task of describing and analysing the market difficult. The report is based on the MAVISE database, comScore’s Video Metrix data for the online advertising market and advertising-financed on-demand audiovisual services and free available data from various sources. The lack of reliable and trustworthy sources of data on the European on-demand audiovisual market obliged us to rely on different sources: consulting groups, press releases and specialised news sites and professional organisations. The lack of transparency concerns various areas: financial data such as revenues from on-demand activities, ownership of services, editorial responsibility, catalogue information, audiences of audiovisual works, revenues of right holders, which raises obstacles in assessing the market, the market power of players, market shares and the importance of the on-demand market when compared to other business segments of the media value chain. The situation is paradoxical as the web economy as a whole produces huge amounts of data (referred to as “big data”) as every click and visit can be tracked, stored and analysed. Possessing data is a competitive advantage, and whereas data on other media sectors (such as broadcasting, cinema and home video) is relatively transparent, the sector which produces and is fuelled by data is very opaque.

The report is structured in order to give a general overview of the European on-demand audiovisual market in different business segments: online advertising and advertising-supported on-demand services, transactional video on-demand services, subscription video on-demand services and services provided by public organisations. The information was gathered throughout 2013. The European online landscape is fragmented, with each country having a different market situation,

language and culture, and this fragmentation adds another layer of complexity when we look at the pan-European picture. The data collected and analysed where possible should give a picture of the general state of the European on-demand market, pinpoint areas where more investigation is needed and help to identify potential challenges and issues that will affect the European media sector in the years to come.

1 Definitions

The on-demand audiovisual services ecosystem is complex, with sets of definitions, regulatory frameworks, technological solutions and several business models co-existing. This short section therefore summarises the main expressions and definitions relating to the on-demand audiovisual markets and the typology of services.

1.1.1 The ITU definition of Video on Demand

The technical definition in English recommended by the ITU in 2004 for the transmission of video on demand (VoD) was as follows: “Program transmission method whereby the program starts playing after a certain amount of data has been buffered while receiving subsequent data in the background, where the program is completely created by the content provider.”1

This definition was, however, rather restrictive as it was related to the classical download of files, which has been since then complemented by other technical solutions (VoD through streaming, VoD over IP, VoD on cable, etc.).

A more recent and broader definition was provided by the ITU in a report on requirements for the support of IPTV services.

“Video-on-Demand (VoD): “A service in which the end-user can, on demand, select and view a video content and where the end-user can control the temporal order in which the video content is viewed (e.g. the ability to start the viewing, pause, fast forward, rewind, etc.)2 NOTE - The viewing may occur some time after the selection of the video content”.

In a technical context, the legal status, the usage forms and types of content are not taken into consideration. Services that offer films and television broadcasts generally put onto a server by professional providers may be included, as may services based on the principle of making programmes provided by individual users available (“user generated content”).

1.1.2 The legal definition provided by the Audiovisual Media Services Directive

A legal definition of on-demand services is provided by the European Audiovisual Media Services Directive (AVMSD), which was adopted in November 2007: “an audiovisual media service provided by a media service provider for the viewing of programmes at the moment chosen by the user and at his individual request on the basis of a catalogue of programmes selected by the media service provider”.3

This definition is more restrictive than the technical definition as it excludes from its scope VoD forms that are not part of the normal service activities or cases where the use of VoD techniques is not part of the main objective of a service. In particular, the Directive’s definition does not cover services consisting of programmes provided by users.

1 ITU, J.127 (04), 3.314

2 [ITU-T Y.1901] adopted in 2009.

3 For general information on the AVMSD, see the website of DG Connect: http://ec.europa.eu/digital-agenda/en/audiovisual- media-services-directive-avmsd

To identify if a service is an on-demand audiovisual media service within the meaning of the Directive, various criteria should be met:  the service must enable the user to view the service at the time of his/her choosing and on individual demand;  there must be a service available, that is to say an offering normally provided against payment;  the service must be under the editorial control of an audiovisual media service provider,  the service is provided on the basis of a catalogue of programmes selected by the media services provider;  the purpose of the service must be to inform, entertain or educate the general public;  the principal purpose of the service must be to supply audiovisual programmes;  the service must be supplied by electronic communications networks.

The purpose of this report is not to discuss the definition provided by the Directive or how it is transposed by states into domestic law and interpreted by regulatory bodies responsible for producing reports on the application of Article 13, which relates to the promotion of European works4. However, it should be pointed out that it is generally accepted that:

 NVoD services (which entail the viewer watching a programme transmitted at a time chosen by the service provider) do not constitute on-demand audiovisual media services but television services;  video-sharing platforms, such as YouTube or Dailymotion, do not constitute OD AVMS as their operators do not have editorial control;  by contrast, the “channels” offered by commercial operators on these platforms may, under certain conditions, be described as on-demand audiovisual media services;  Newspaper websites with news videos are not OD AVMS as the use of videos is only subsidiary to the publication of texts.

4 For a legal approach to those issues see: Nikoltchev S. (ed.)The Regulation of On-demand Audiovisual Services: Chaos or Coherence? IRIS Special, European Audiovisual Observatory, Strasbourg, 2011; Nikoltchev S. (ed.), What Is an On- demand Service?, IRIS plus 2013, European Audiovisual Observatory, Strasbourg, 2013

1.1.3 Market definitions

Neither the technical nor the legal definitions are operational for the market analysis. The first is too broad, the second too restrictive. Unfortunately, market definitions are not as formalised as the technical and legal definitions.

A first classification will allow us to clarify the definitions used in this report.

Table 1 On-demand audiovisual services - Classification of on-demand audiovisual services

Catch-up TV

Premium TV ODMAS On demand audiovisual media services according to the AVMS Directive VoD

Branded services on sharing platforms

Video sharing platforms (YouTube, Dailymotion…) Social networks allowing video upload by users (Facebook, Other on demand audiovisual services etc.) not falling within the definition of the AVMS Directive Video pages of newspapers websites

Promotional websites with video content

Source : European Audiovisual Observatory

Catch-up TV (or Replay TV)

A catch-up TV service is an on-demand audiovisual service provided by a broadcaster who makes available recent programmes, after their initial broadcasting and during a limited period of time. A catch-up service can be delivered on different platforms (Internet, IPTV, cable, telephone, applications for smartphone, tablet or Smart TV).

Various business models are possible for catch-up TV services:

– free catch-up TV service: the service is accessible without payment (generally on the Internet and is financed by advertising or, in the case of public broadcasters, by public funding) – transactional catch-up TV service: the broadcaster providing the service makes the access conditional on payment for a single programme; – subscription catch-up TV service: the catch-up TV service is accessible on the condition that users pay a subscription in order to access it; – catch-up TV as part of a subscription: the catch-up TV service is part of a broader offer of TV and various on-demand audiovisual services provided by a distribution platform accessible by subscription.

Preview TV

A preview TV service of allows the user to access TV programmes (typically episodes of series) before their broadcast release. Preview TV is a paid-for service (transactional or subscription).

VoD

In the industry jargon, VoD is generally understood in a more restrictive sense that the technical definition proposed by the ITU. VoD services are those services providing access on demand to a

catalogue of films or audiovisual programmes (animation, TV series, documentaries, music, archives, training, general interest, etc.) independently of any television broadcast of those works. While catch- up TV services are almost exclusively provided by broadcasters, VoD services are provided by a wide range of companies: distributors of TV services (IPTV, cable, satellite, pay-DTT operators), film companies, video publishers, retailers, newspapers, companies created just for this activity. Some broadcasters may also provide VoD services in addition to their catch-up TV services.

 VoD services can be provided through various business models:

– TVoD - Transactional Video on-Demand: (a.k.a. Transactional Video on Demand, Pay Per View VoD, Standard VoD.) – With Transactional VoD the customer pays for each individual video on demand program. TVoD can take the form of digital retail (purchasing a title) or rental (renting a title for a defined time period, sometimes referred to as iVoD, Internet VoD). In contrast to EST, the video is not downloaded onto the customer’s device.

– EST - Electronic sell-through (digital retail): services offering the purchase of a digital video file online, whereby the file is downloaded and stored on a hard drive; the content may become unusable after a certain period and may not be viewable using competing platforms. Electronic sell-through can be provided for an unlimited period (download-to-own - DTO) or for a limited period (download-to-rent - DTR).

– SVoD - Subscription Video on-Demand: refers to a service that gives users unlimited access to a wide range of programmes for a monthly flat rate. The users have full control over the subscription, and can decide when to start the programme. Subscribers to SVoD services have unrestricted access to specified programmes for a routinely billed fee. In the case of SVoD services, the individual title rates are not applicable. SVoD operates on a distinct business plan when compared with transactional VoD (TVoD). The majority of SVoD services have similar content fees to TVoD businesses, although they do not include higher-margin income streams like Internet, pay-TV, and fixed or mobile subscriptions. Regardless of the quick boost in SVoD subscriber volumes, the majority of these services still depend on their physical distribution business to stay profitable5. Most known SVoD services in Europe include Netflix, LOVEFiLM, HBO Go, Wuaki.tv, Canal Play Infinity, FilmoTV, Maxdome, and Watchever.

– Pack VoD: services providing access, through a single transaction, to a limited number of films.

– AVoD/FVoD – Advertising-supported Video on-Demand/Free Video on-Demand/on-demand audiovisual services supported by advertising: video on demand providers (e.g. Sony’s Crackle, Snag Films, Viewster) where the content is financed by placing advertisements.

– TV VoD: Video on-Demand on a digital TV platform (IPTV, cable (US: C-VoD), satellite). TV VoD is VoD on a controlled platform where the service providers act as gatekeepers, the contrary of OTT VoD services that bypass this traditional distribution platform.

VoD services can also be classified according to the kind of content they provide. In the MAVISE database, the following categories are used:

- Generalist VoD: services providing various kind of programmes: films, TV fiction, documentaries, animation, programmes for children,

5 http://www.techopedia.com/definition/29272/subscription-video-on-demand-svod

- Film VoD: services providing only feature films - TV fiction VoD: services providing only TV fiction programmes (mainly series and soaps) - Film and TV fiction VoD: services providing both films and TV fiction programmes - Short movies VoD: services specialising in the provision of short films - Documentary VoD: services specialising in the provision of documentaries - Children/animation VoD: services specialising in the provision of children’s programmes or animation programmes (in particular mangas) - Music VoD: services specialising in the provision of music programmes (video music or music events) - General-interest programme VoD: services specialising in the provision of general-interest programmes , such as do-it-yourself or training programmes, - Adult VoD: services specialising in the provision of adult programmes.6 - Lifestyle and health VoD: services specialising in the provision of lifestyle and health programmes. - VoD with recorded sports events: services providing programmes with recorded sports events (mainly historical). This category differs from the category “Sport events”, which we do not consider as VoD.

It should be noted that we do not include in the category VoD the services specialising in the provision of archives (TV programmes, films from film archives) when they are free of access and provided on a non-commercial basis.

1.1.4 The technical solutions for on-demand audio-visual services

One of the difficulties in describing the market for on-demand audiovisual services is the extreme complexity and diversity of the technical solutions provided. The roll-out of these solutions differs from one country to another according to the pre-existing roll-out of platforms for the distribution of television services (cable, IPTV, satellite, DTT, telephone, broadband). Although it may be obvious to experts, it is important to underline that on-demand and online should not be confused: not all on- demand services are on-line (they may be transmitted through TV distribution platforms and not through the Internet) and not all online services are on-demand (hundreds of TV services are now available online).

6 In the MAVISE database and in the statistics published by the Observatory, adult VoD services are registered only if they are registered by a national authority or if they are included in the line-up of a distribution platform. It does not include online video services that generally use a mix of UGC content, sponsored programmes and paid-for programmes.

Table 2 Technical arrangements for the transmission of on-demand audiovisual services

Video is transmitted through the Open Internet, in a open Download without format (mpeg, avi) which can be played by using freely available specific player video players (e.g. VLC) and downloaded to the user's device allowing for portability and offline playback

Video is transmitted through the Open Internet, in a Download with proprietary format which requires a specific player (e.g. Microsoft specific player Silverlight) and downloaded to the user's device allowing for portability and offline playback

Video is streamed through the Open Internet, in an open or

proprietary format. Streaming requires an Internet connection Streaming and does not allow for offline playback as video is not "stored" on the user’s device (Netflix)

Video is exchanged between multiple users (e.g. torrent Peer-to-Peer protocol), downloaded to the users’ devices, can exist in multiple

formats. Internet Through an open Video is streamed to the user’s browser or application through platform (such as the Open Internet, requiring an Internet connection to allow YouTube, Dailymotion) playback.

Video is transmitted via the Internet on a closed platform and Through store (such requires the users to have downloaded the access (application) as iTunes Store) of the store.

Video is transmitted either via the Internet (WiFi connection) Through application or the mobile network (mobile broadband) when the user opens for mobile Internet the dedicated application.

Video is transmitted via the cable connection (Internet) on a closed platform where the service provider can optimise the Cable transmission. It can be streamed or downloaded to a set-

top/hybrid box

Video is transmitted via the Internet connection on a closed IPTV platform where the service providers can optimise the IPTV transmission. It can be streamed or downloaded to a set- top/hybrid box.

Video is transmitted using airwaves (frequencies) in the DTT DTT

network. Downloaded to user's set-top box platforms) Video is transmitted using the satellite link and downloaded to Satellite

the user's set-top box. TV platform TV (closed Telephone Video transmitted through mobile networks.

Through a dedicated Video is accessed via the open Internet and streamed to a box media device player (Apple TV, Roku).

Video is accessed via a video game console (Xbox One and Through a video 360, Playstation 3 & 4). Can be downloaded or streamed by games console using an Internet connection depending on the service used.

Through Video is accessed via an application downloaded from a applications for Smart Smart TV platform and streamed/downloaded to the user's TV Smart TV.

Connected TV Connected Through a hybrid Video is accessed via the open Internet and streamed/ box downloaded to the user's hybrid box.

The reception screens It should also be noted that the classical borderlines between reception on PC Screens and TV sets have become very blurry:

- the growing popularity of HDMI cables makes it possible to establish a direct connection between a computer or tablet and a TV screen, allowing the user to see any Internet content on his/her TV screen without any gatekeeping by the operator; - the possibility of viewing TV channels and on-demand audiovisual services on a PC or tablet screens is made possible by solutions provided by the distributors (“On the Go formula”), the broadcasters or a new category of players in the shape of service aggregators that provide specific software (such as Zattoo). - Wireless video streaming devices such as Google’s Chromecast which allow users to beam content from a mobile device onto a TV screen blurry the borders further.

The concept of “Over the top” (OTT) The concept of “Over the top” (OTT) has emerged in the audiovisual sector in the last few years. The classic definition is the distribution of voice, video and data services without going through the cable or telecommunications operators. A classical example is Skype, which provides a voice and video service via the Internet (but is not an on-demand audiovisual service).

In the field of on-demand audiovisual services, the definitions of OTT services are not always identical:

– Some definitions assimilate OTT to any on-demand audiovisual services accessible online ; – Some definitions will assimilate OTT services to services accessible through specific applications (on PCs, tablets, Smart TVs or through hybrid boxes). – Some other definitions will characterise OTT services by the fact that they are provided by new stakeholders which are not part of the classical media operators’ ecosystem (whether cable, IPTV or satellite operators or broadcasters). The creation of OTT services has led to wide-ranging competition between companies that offer similar or overlapping services. The traditional distributors (cable, IPTV and satellite platform operators) have had to anticipate challenges related to third-party firms that offer over-the-top services by creating their own audiovisual on-demand services. But the success of OTT services such as YouTube or Netflix and the development of household equipments like Smart TV sets or tablets are leading the traditional operators to recognise the interest of those services. These operators are therefore gradually adopting the so-called hybrid set-top box, which allows simultaneously for the distribution of TV channels by traditional means and the distribution of OTT services via a connection to the Internet and App stores.

 As the concept of OTT is rather imprecise, it has to be used with care, at least by stating exactly what is included. In this report, we will use the third definition (with the emphasis on the fact that OTT services are provided by new stakeholders which were not part of the traditional audiovisual ecosystem).

Multiplatform strategies vs. exclusivity strategies

Other elements of the complexity of the on-demand audiovisual markets are the different strategies adopted by providers to make their services available on the web, through various platforms. Some are looking for the broadest means of distribution, while others (in general, manufacturers such as Apple or Sony, who operate their own integrated ecosystem) are much more restrictive.

Table 3 Availability of the main on-demand audiovisual services through platforms in Europe (January 2014)

Services Catalogues Viewing option iTunes on Xbox Google Sony Netflix Viewster YouTube Store Video Play Unlimited PC Yes (PC Yes Browser (streaming) No Windows No Yes Yes Yes (480p) Media player) Yes (with Mac Download Yes No No Player No No No MediaGo) Yes (with PC Download Yes Yes No Player No No No MediaGo) Smartphones /

Tablets iOS Yes No Yes (no No Yes Yes Yes download) No (except Android No No Yes Sony Yes Yes Yes Xperia) Windows Phone No Yes No No Yes No Yes Via Surface/Windows RT No Yes Browser No Yes No Yes (no download) Kindle No No No No Yes Yes Yes Boxes Roku No No No No Yes Yes Yes Apple TV Yes No No No Yes Yes Yes Game consoles PSP No No No Yes No No No Xbox No Yes No No Yes No Yes

Services Catalogues Viewing option iTunes on Xbox Google Sony Netflix Viewster YouTube Store Video Play Unlimited Smart TV Apps Samsung No No No No Yes Yes Yes Sony Bravia No No No Yes Yes Yes Yes Yes (Android LG No No No Yes Yes Yes Smart TV platform) Yes (Android Philips No No No Yes Yes Yes Smart TV platform) Notes: This table takes account only of the availability agreed on by the providers. Some non-agreed solutions may exist. Services and viewing options are not necessarily available in all European countries Source: European Audiovisual Observatory 2014

Geolocation and its limits

A further criterion of the classification of on-demand audiovisual services is the definition of the extent of their geographical distribution.

Services provided by TV distribution platforms (cable, IPTV, DTT) are limited by the natural national coverage of those platforms. In the case of services provided by operators of satellite platforms (such as BSkyB or Sky Deutschland), the services will be accessible in the two or three territories where they market the service, together with a possible “grey market” in other countries. It should be noted, however, that some service providers (in particular the affiliates of major US studios) are designing VoD services that are sold to IPTV or cable operators in various countries.

The situation is more complex for services provided through the Internet, either directly or through open platforms (YouTube, Dailymotion), stores (iTunes Store, Google Play, Xbox Live). There are various business models:  Services accessible worldwide. This is the case for most open platforms (such as YouTube and Dailymotion) and the services they provide, but also for most of the catch-up TV services provided by TV broadcasters, video news pages provided by newspapers, portals, etc. Worldwide services are possible only for providers that own the world rights for the content offered.  Services accessible worldwide but with geolocation for specific content. Some VoD services (such as the ARTE VoD service or some VoD services on YouTube) are accessible worldwide but accessibility to specific content depends on whether rights have been secured for a specific country.  Services with geolocation. Most VoD services are geolocated in relation to the segmentation of markets by copyright owners. The geolocation is generally based on the consumer’s IP address, but it may also be based on the location of the credit card used for the payment (e.g. the iTunes Store) or on the location of the user’s postal address (e.g. the Google Play service). The geolocation of VoD services through an IP address is certainly the most frequent, but it is also the most easy to bypass. Consumers are more and more aware of the possibility of bypassing geolocation by subscribing to a VPN service or services such as Unlocator, which allows them to hide their location and access services geolocated in other countries. Providers of services are aware of the existence of this grey market and may use it as a way of penetrating new markets.7

7 See for example the arguments of the economist Eric Crampton, who points out that Netflix uses the grey market in New

THE MAVISE DATABASE AND THE CENSUS OF ON- 2 DEMAND AUDIOVISUAL SERVICES

Census of on-demand services: the MAVISE database

The first major information gap is the lack of comprehensive and up-to-date registers of services established in the Member States. Progress was made in 2013 and the co-operation with EPRA has allowed us to collect lists in 21 countries. However, authorities in major countries such as France, Germany and Italy did not provide us with any lists. When lists are provided, they are not necessarily comprehensive (in particular when related to on-line film VoD services) or up-to-date. Also, registers by national authorities do not give a comprehensive picture of the services available in one country but established in another.

In order to fill this gap the European Audiovisual Observatory has enlarged the MAVISE database to include on-demand audio-visual services. The comparison between data provided by authorities and listings from the MAVISE database (http://mavise.obs.coe.int) shows the discrepancies between official registration and the results of the data collection by the Observatory.

MAVISE allows also enables lists and statistics of services – established in a country – available in a country8 to be drawn up.

The definition of on-demand audiovisual services adopted in MAVISE is both wider and more pragmatic than that provided by the Audiovisual Media Services Directive. The aim of the MAVISE census is not to interpret the law but to present as complete as possible a picture of an extremely complex and rapidly changing market for which few reliable data are available. In other words, we can say that the Observatory’s MAVISE data collection is endeavouring to identify on-demand media services as defined by the Directive but has supplemented the analysis by including services that do not, at the outset, fall within the definition contained in the Directive, including, in particular, services in respect of which it is debatable whether or not it is correct to describe them as on-demand audiovisual services (“branded channels” in the iTunes or Xbox Video catalogue; podcasts and applications for smartphones and tablets that permit access to on-demand catalogues; applications for Smart TV or services on video-sharing platforms like YouTube and Dailymotion).

2.1 Services established in a country

The following table illustrates the discrepancies between the data collected by the authorities (and communicated by the EPRA Secretariat9) and the data collected by the Observatory. Discrepancies may be explained by various factors:

Zeeland as a way of reducing its costs of negotiating with content owners. E. CRAMPTON, "Netflix and fixed costs" in The National Business Review, http://www.nbr.co.nz/article/netflix-and-fixed-costs-ts-146464 8 A large number of free on-demand audiovisual services online are accessible worldwide. By “services available in a country” we consider only those for which there are clear indications that when established in a country A they target a country B: use of the language of the country B not in use in the country A, commercial marketing in the country B, delivery via a platform in the country B, etc.

9 EPRA is the European Platform of Regulatory Authorities (http://www.epra.org). 52 regulatory authorities are members of the platform.

 The authorities’ lists are drawn up on the basis of a declaration or the registration of the services and may include services not yet or no longer existing, while MAVISE aims to track existing services operational on the market.  The definition used by the authorities is (for the reasons already explained) more restrictive. It will in general not include, for example, branded channels, trailer and archive services or news services.  In MAVISE the different linguistic variants of the same brand (e.g. iTunes Store) will be considered to be as many different services as versions, while the authorities may consider them as a unique service  Some authorities only include services of a certain size in their list.  In various countries, authorities have mainly registered services provided by broadcasters and not taken into consideration those provided by other categories of players. In particular, we have noted that an significant number of online VoD services have not been taken included.

Table 1 Comparison between the number of on-demand audiovisual services identified by the national regulatory authorities and the MAVISE database (2013)

EPRA questionnaire (Sept. 2013) MAVISE (Feb. 2014)

AT 121 118 BE (CFR) 23 45 BE (VLG) 52 69 BE (DSG) n.a. 1 BG 15 25 CY 2 22 CZ n.a. 125 DE n.a. 330 DK n.a. 51 EE n.a. 14 ES n.a. 109 FI n.a. 28 FR n.a. 337 GB 206 682 GR n.a. 39 HR n.a. 16 HU n.a. 90 IE n.a. 26 IT 4 151 LT 3 15 LU 6 121 LV 3 21 MT n.a. 8 NL 20 120 PL 24 112 PT n.a. 40 RO 7 52 SE 41 153 SI n.a. 20 SK 45 51 Total EU n.a. 2991

BA n.a. 3 CH n.a. 46 IS n.a. 1 MK n.a. 2 NO 66 97 RU _ 74 TR n.a. 4 Source : EPRA and MAVISE / European Audiovisual Observatory

To give a comprehensive picture of the range of on-demand audiovisual services in Europe, it is also important to take account of services established in non-European countries that clearly target one or more European countries. Of course, quite a number of services established outside Europe are accessible there – as they are not geolocated and do not clearly target Europe. It is almost impossible to provide any figure on the number of worldwide services as this is increasing every month, but some of them are clearly targeting Europe, this is the case of:

 VoD services charging prices in EUR or in any national European currency (Google Play Movies services for France, Germany, the UK; various SVoD services on YouTube, French, German and Turkish versions of MUBI, etc.).  Services distributed by European platforms, in particular through the Xbox Live service operated by Microsoft Luxembourg S.A. Most of the Hollywood studios are operating VoD catalogues on this platform. Although no precise information is provided on their country of establishment, there are serious grounds for assuming that they are operated directly by the US mother company.  Services for which a detailed analysis by a European regulatory authority has concluded that they are established in a non-EU country. This is the case of the services operated by the Playboy Group for the UK market. After investigation, OFCOM reached the conclusion that those services were operated from Canada.

Table 2 Services from non-European countries targeting Europe

US 223 CA 2 Source : MAVISE / European Audiovisual Observatory

Table 3 summarises the different genres of audiovisual on-demand services that are established in Europe and other countries (targeting European countries) and listed in the MAVISE database of on- demand audiovisual services. As of February 2014, the European Audiovisual Observatory has listed 2 991 on-demand audiovisual established in the EU and classified into 18 different categories of genres. The countries which have the most established ODAS are the United Kingdom (682), France (337) and Germany (330). When analysing the establishment of ODAS in the EU by genre, catch-up TV services (1 104), branded channels on open platforms (711) and VoD films are the genres most represented in Europe (by country of establishment).

Of course, those numbers have to be put into relation with the actual market force and market shares of those services. As the section on market shares of transactional on-demand services shows it in the United Kingdom, a few players seem to dominate the different market segments (by business model – SVoD, EST, TVoD, iVoD, TV VoD). Therefore, the overall number of on-demand audiovisual services has to be put into perspective with actual market power.

Table 3 Number of on-demand audiovisual services by country of establishment and by genre (February 2014)

Branded VoD VoD VoD VoD channels Catch up TV News / VoD VoD VoD VoD VoD Film/TV Film VoD VoD Country Films + TV Children/ Sport (5) General Short Various Total on open services (2) Portals (3) Generalist (4) Music Films TV fiction Documentary archives trailers Lifestyle Adult (6) fiction Animation Interest movies platforms (1) AT 5 63 16 1 1 6 1 1 1 5 1 17 118 BE 8 37 7 9 2 24 2 3 3 1 3 2 1 4 9 115 BG 1 12 5 1 5 1 25 CY 2 4 1 1 11 1 1 1 22 CZ 6 38 10 8 9 4 19 1 4 1 1 8 4 2 10 125 DE 77 126 8 4 5 26 11 23 7 13 2 10 5 7 1 5 330 DK 5 18 3 1 12 1 2 9 51 EE 1 10 3 14 ES 32 33 2 6 2 17 1 6 1 1 3 4 1 109 FI 3 5 3 11 1 2 1 2 28 FR 98 148 10 9 40 4 17 9 22 2 11 5 12 19 2 14 12 434 GB 236 206 10 18 23 44 2 46 17 29 4 3 19 16 9 682 GR 14 16 1 5 1 1 1 39 HR 6 3 1 4 2 16 HU 12 62 3 8 1 1 3 90 IE 10 7 2 3 2 1 1 26 IT 62 38 13 1 1 10 1 5 3 2 2 4 2 7 151 LT 6 5 4 15 LU 9 5 17 1 82 3 3 1 121 LV 3 15 3 21 MT 2 4 1 1 8 NL 44 34 1 1 27 2 2 2 4 2 1 120 PL 33 35 2 8 2 18 1 2 4 1 1 5 112 PT 11 20 2 1 3 1 2 40 RO 16 24 8 3 1 52 SE 3 99 4 29 8 1 6 1 2 153 SI 3 5 2 5 1 1 3 20 SK 3 32 6 1 2 2 1 1 3 51 Total EU 711 1 104 112 83 61 409 61 114 39 86 24 45 61 25 21 3 45 84 3 088 AL 1 1 BA 3 3 CH 3 10 4 3 23 2 1 46 IS 1 1 LI 0 ME 1 1 2 MK 1 1 2 NO 5 41 41 5 3 1 1 97 RU 30 6 8 19 5 1 2 1 2 74 TR 3 1 4 UA 6 5 4 16 4 35

CA 2 2 US 1 4 2 4 124 25 6 16 1 12 7 9 2 10 223

(1) Broadcasters’ branded channels on Dailymotion, YouTube etc. established in the country. (2) Catch-up TV services or promotional web services by broadcasters of the country or targeting the country. (3) Portals such as MSN, Yahoo! and video pages of newspaper websites. (4) VoD services accessible in the country providing a mix of films and various categories of TV programme. (5) Services providing access to sport events or archives of sports events. (6) Includes only services registered by a regulatory authority or part of the line-up of a distribution platform.

Source: European Audiovisual Observatory / MAVISE database © European Audiovisual Observatory - Yearbook Online Premium Service 2013

2.2 Services available in a country

In this section, video on-demand services (not on-demand audiovisual services in general as in the section before) that are available in a country are listed by country of establishment (table 4 – country of establishment categorised by national establishment, establishment in another EU country, establishment in the US or in another country). As was the case above with on-demand audiovisual services, we only took into consideration VoD services that target the country concerned and not those available worldwide without a specific geolocation and without directly targeting a specific country.

Table 4 Number of VoD services available (all genres except Adult) in the EU by country of establishment (February 2014)

Total of Established Established Established Unident- available VoD National in another in another in the US (1) ified services EU country country AT 87 11 21 52 3 BE - Flemish (2) 105 41 10 52 2 BE - French (2) 112 42 11 55 4 BE - German (2) 88 17 17 53 1 BG 14 9 5 CY 43 7 4 31 1 CZ 33 27 4 1 1 DE 171 97 16 54 3 1 DK 51 15 17 18 1 EE 12 3 6 0 3 ES 121 31 11 70 6 3 FI 89 13 21 54 1 FR 241 122 24 86 7 2 GB 241 126 7 99 9 GR 43 7 4 31 1 HR 11 7 2 0 2 HU 25 12 8 3 2 IE 95 6 14 71 3 1 IT 88 22 8 55 3 0 LT 13 4 6 3 LU 50 5 9 33 3 LV 12 3 6 3 MT 37 2 3 31 1 NL 68 29 14 21 3 1 PL 49 33 11 1 3 1 PT 48 7 7 33 1 RO 13 5 4 2 2 SE 50 14 10 23 3 SI 47 9 6 31 1 SK 19 7 8 1 2 1

Source: MAVISE / European Audiovisual Observatory

(1) The location of film VoD services (being branded catalogues of major studios) accessible through distribution platforms such as Xbox Live, iTunes Stores, YouTube is not available. In most cases, we have assumed that the branded services of US major studios were operated directly from the US. Studios and the MPAA declined to provide more information on this location issue. (2) VoD services for Belgium (Flemish, French and German) can be counted twice or three times due to their availability in the whole of Belgium.

Figure 1 Number of VOD services available (all genres except Adult) in the EU by country of establishment 300

250

200 86 99

150 54 24 7

16 100

55 52 70 122 54 53 126 52 55 71 50 21 1 10 11 97 18 11 23 14 11 31 33 33 31 31 8 17 31 17 21 21 41 42 33 10 31 27 6 7 29 22 14 12 4 4 9 14 15 11 13 17

0 7 7 9 7 5 6

SI FI

IT IE

LT

PL

SE ES

EE

SK

LV

CZ FR

PT

CY

LU

NL AT

DE

DK

HR

BG GR GB

RO

HU

MT

BEFrench -

BEFlemish - BEGerman -

National Established in another EU country Established in the US (1) Established in another country Unidentified

Source: MAVISE / European Audiovisual Observatory

The country of establishment is one way of measuring the actual state of national and cross-border VoD services in and outside the EU, be it for regulatory or tax purposes. Another way of reflecting the situation of the VoD service market in the EU is to identify the parent/controlling company of VoD services by their corporate headquarters and the country in which they are incorporated rather than putting the focus on the country of establishment. Tables 5 and 6 show the actual situation regarding the ownership of VoD services as of February 2014 in the EU by identifying the parent (controlling)

company and its country of incorporation10 (national, in another EU country, in the USA, in another country, unidentified location).

Table 5 Ownership of VoD services available in the EU by country and by origin of parent (controlling) company

Other National EU US(1) Unidentified Total country AT 6 18 60 3 87 BE - Flemish (2) 25 21 56 3 105 BE – French (2) 27 21 59 5 112 BE - German (2) 13 15 58 2 88 BG 6 4 3 1 14 CY 6 2 33 2 43 CZ 19 7 4 2 1 33 DE 48 28 90 4 1 171 DK 12 9 27 3 51 EE 3 2 1 6 12 ES 20 11 80 7 3 121 FI 4 14 69 2 89 FR 87 22 120 9 3 241 GB 42 7 176 14 2 241 GR 5 4 32 2 43 HR 5 2 1 3 11 HU 5 7 10 3 25 IE 4 8 77 5 1 95 IT 19 4 61 3 1 88 LT 4 2 1 6 13 LU 4 6 36 4 50 LV 2 3 1 6 12 MT 0 3 32 2 37 NL 17 14 31 4 1 67 PL 18 14 9 5 3 49 PT 6 5 35 2 48 RO 2 3 5 3 13 SE 11 3 31 5 50 SI 6 5 34 2 47 SK 3 7 4 4 1 19 Source: MAVISE / European Audiovisual Observatory 2014 (1) The location of film VoD services (being branded catalogues of major studios) accessible through distribution platforms such as Xbox Live, iTunes Stores, YouTube is not available. In most cases, we have assumed that the branded services of US major studios were operated directly from the US. Studios and the MPAA declined to provide more information on this location issue. (2) VoD services for Belgium (Flemish, French and German) can be counted twice or three times due to their availability in the whole of Belgium.

10 For example, Apple S.à.r.l incorporated in Luxembourg is controlled by Apple Inc. incorporated in the USA, and therefore considered as being controlled by a parent company established in the US. Similarly, Orange Polska is controlled (50%) by the French Orange S.A. and is therefore considered as being controlled by a company established in another EU country (France).

Figure 2 Figures for the ownership of VoD services available in the EU by country and by origin of parent company

300

250

200

120 150 176 90 100 22 56 59 80 28 50 60 58 61 69 31 77 87 7 4 9 27 21 21 33 32 34 35 14 36 31 14 11 48 7 32 9 15 4 42 19 5 5 18 3 17 18 19 14 8 25 27 20

0 3 62 54 6 6 46 11 12 6 13 4 4

SI FI

IT IE

LT

PL

SE ES

EE

SK

LV

CZ FR

PT

CY

LU

NL AT

DE

DK

HR

BG GR GB

RO

HU

MT

BEFrench -

BEFlemish - BEGerman -

National EU US Other country Unidentified

Source: MAVISE / European Audiovisual Observatory 2014

Figure 3 EU-5, ownership of available VoD services by country and by origin of parent company, in %

GB 17.4% 2.9% 73.0%

IT 21.6% 4.5% 69.3%

ES 16.5% 9.1% 66.1%

DE 28.1% 16.4% 52.6%

FR 36.1% 9.1% 49.8%

0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0%

National EU US Other country Unidentified

Source: MAVISE / European Audiovisual Observatory 2014

Table 6 Ownership of VoD services available in the EU by country and by origin of parent (controlling) company, in %

Other Uniden- National EU US(1) Total country tified AT 6.9% 20.7% 69.0% 3.4% BE - Flemish (2) 23.8% 20.0% 53.3% 2.9% BE – French (2) 24.1% 18.8% 52.7% 4.5% BE - German (2) 14.8% 17.0% 65.9% 2.3% BG 42.9% 28.6% 21.4% 7.1% CY 14.0% 4.7% 76.7% 4.7% CZ 57.6% 21.2% 12.1% 6.1% 3.0% DE 28.1% 16.4% 52.6% 2.3% 0.6% DK 23.5% 17.6% 52.9% 5.9% EE 25.0% 16.7% 8.3% 50.0% ES 16.5% 9.1% 66.1% 5.8% 2.5% FI 4.5% 15.7% 77.5% 2.2% FR 36.1% 9.1% 49.8% 3.7% 1.2% GB 17.4% 2.9% 73.0% 5.8% 0.8% GR 11.6% 9.3% 74.4% 4.7% HR 45.5% 18.2% 9.1% 27.3% HU 20.0% 28.0% 40.0% 12.0% IE 4.2% 8.4% 81.1% 5.3% 1.1% IT 21.6% 4.5% 69.3% 3.4% 1.1% LT 30.8% 15.4% 7.7% 46.2% LU 8.0% 12.0% 72.0% 8.0% LV 16.7% 25.0% 8.3% 50.0% MT 0.0% 8.1% 86.5% 5.4% NL 25.4% 20.9% 46.3% 6.0% 1.5% PL 36.7% 28.6% 18.4% 10.2% 6.1% PT 12.5% 10.4% 72.9% 4.2% RO 15.4% 23.1% 38.5% 23.1% SE 22.0% 6.0% 62.0% 10.0% SI 12.8% 10.6% 72.3% 4.3% SK 15.8% 36.8% 21.1% 21.1% 5.3% Source: MAVISE / European Audiovisual Observatory 2014 (1) The location of film VoD services (being branded catalogues of major studios) accessible via distribution platforms such as Xbox Live, iTunes Stores and YouTube is not available. In most cases, we have assumed that the branded services of US major studios were operated directly from the US. Studios and the MPAA declined to provide more information on this location issue. (2) VoD services for Belgium (Flemish, French and German) can be counted twice or three times due to the availability in the whole of Belgium.

When looking at the parent companies and their core business, one fundamental difference appears between EU and US limited companies. In the EU, the majority of parent companies that own VoD service providers in other EU countries operate in the telecommunications sector (such as Orange, Deutsche Telekom, Telefónica, Vodafone) and therefore control Internet access or companies already established in the media sector (such as Bonnier Group, the BBC, ProSiebenSat.1 Media AG, Bertelsmann SE & CO. KGaA, ARTE). Most US-incorporated parent companies owning VoD service providers in the EU are media groups (such as the Walt Disney Company, 21st Century

Fox and Viacom) already established in the European audiovisual landscape (pay-TV, TV channels, distribution) or pure OTT players (such as Apple Inc., Netflix Inc., Google Inc, Amazon) for which audiovisual services are not their core business (except for Netflix, which is in Europe a pure OTT player) but, rather, an addition to and expansion of their existing ecosystems and business model.

In Table 7, VoD services available in EU countries and Europe as a whole are split up by categories for more clarity. Film VoD services and Fiction VoD services lead the field in most EU countries as they are the most popular video content genres for consumers. Increasingly, VoD services with children’s programming are becoming established on the European markets as connected devices (such as tablets and smartphones) become more widespread among the European population.

Table 8 lists on-demand audiovisual services available in Europe, excluding VoD services for more clarity. The most popular ODAS (excluding VoD services) are catch-up TV services (usually offered by broadcasters to enable viewers to catch up on their linear content and mostly free of charge or part of a subscription) and branded channels of broadcasters on platforms such as YouTube and Dailymotion, which in this case are not “user-generated” but professionally produced and often originate from the linear programming of the broadcasters and content producers, the online presence of whose content represents an opportunity and a challenge to broadcasters as they try to reach “Generation Y” by occupying the online places where they consume content. The acquisition by Canal+ of Studio Bagel11 in March 2014 and the launch of over 20 YouTube channels12 illustrate this trend. As online advertising increases through the increasing consumption of content available from ODAS, broadcasters and TV groups expand their online reach and (possible) audiences in order to compete also for advertising budgets with other ODAS services financed by advertising (Newspapers, portals, user-generated content platforms, social networks). The section on advertising-financed on- demand audiovisual services shows in more detail the situation of the online advertising market.

As before, those figures of services established and owned have to be put into perspective by assessing the actual market shares of those services in order to establish their relative market power.

Table 7 Number of legal VoD services available by country in Europe (December 2013)

Note: a same service by be counted in two or more countries

VoD services Film + Generalist Films Fiction Children Document- General Sport Fiction Lifestyle Music Total (1) (3) (4) (5) aries interest (6) Country (2) Austria 2 2 34 8 9 2 9 7 8 0 81 Belgium - Flemish 10 0 41 10 7 1 10 6 5 0 90 Community Belgium - French 11 0 42 11 7 1 9 6 9 0 96 Community Belgium - German- 4 0 32 8 7 2 10 6 7 0 76 speaking Community Bulgaria 5 1 7 0 0 0 0 0 1 0 14 Croatia 1 4 4 0 0 0 0 0 0 0 9 Cyprus 1 0 10 8 2 0 9 6 4 0 40 Czech Republic 8 2 6 1 3 0 0 4 5 3 32 Denmark 2 6 38 3 2 0 0 0 1 0 52 Estonia 0 0 9 0 0 0 0 0 0 0 9 Finland 3 6 50 8 3 0 9 6 4 0 89 France 24 6 61 37 39 10 9 28 17 4 235 Germany 8 12 48 33 18 8 10 10 10 5 162

11 http://variety.com/2014/biz/news/canal-plus-acquires-leading-youtube-channels-network-studio-bagel-1201124490/ 12 http://variety.com/2013/digital/news/canal-plus-launches-youtube-channels-1200822327/

Greece 0 0 12 8 1 1 9 6 3 0 40 Hungary 1 2 12 1 4 0 0 0 2 0 22 Ireland 3 0 49 6 6 3 9 7 6 0 89 Italy 2 1 33 17 4 4 9 6 7 0 83 Latvia 0 0 9 0 0 0 0 0 0 0 9 Lithuania 0 0 10 0 0 0 0 0 0 0 10 Luxembourg 1 0 13 8 2 0 9 6 7 0 46 Malta 0 0 8 7 1 0 9 6 3 0 34 Netherlands 2 4 50 4 2 1 0 0 4 0 67 Poland 8 2 27 5 0 0 0 0 4 0 46 Portugal 2 0 10 9 3 0 9 6 5 0 44 Romania 2 1 5 1 2 0 0 0 0 0 11 Slovakia 2 4 7 1 2 0 0 1 0 0 17 Slovenia 2 2 12 7 2 1 9 6 3 0 44 Spain 8 2 43 16 7 1 9 16 8 3 113 Sweden 2 6 40 0 2 0 0 0 1 0 51 United Kingdom 13 3 80 44 30 19 9 17 13 7 235

Albania n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Armenia 0 0 1 0 0 0 0 0 0 0 1 Bosnia and Herzegovina 0 1 3 0 0 0 0 0 0 0 4 Iceland 1 0 0 0 0 0 0 0 0 0 1 Liechtenstein 1 0 2 0 2 0 1 0 3 0 9 Montenegro 1 1 0 0 0 0 0 0 0 0 2 Norway 1 7 37 0 2 0 0 0 1 0 48 Russian Federation 8 4 23 1 2 0 0 0 0 0 38 Serbia 0 2 0 0 0 0 0 0 0 0 2 Switzerland 6 0 40 1 6 2 1 0 7 0 63 “The Former Yugoslav 1 1 0 0 0 0 0 0 0 0 Republic of Macedonia” 2 Turkey 4 0 4 0 0 0 0 0 0 0 8

(1) VoD services providing various categories of works: film, fiction, documentaries, children’s programmes, etc. (2) VoD services providing films and TV fiction (3) VoD services providing only films (4) VoD services providing only TV fiction works (5) VoD services providing only works for children and/or animation (6) VoD services providing archives of sport events, training programmes, etc. to the exclusion of live events Source : European Audiovisual Observatory / MAVISE database

Table 8 Other types of on-demand audiovisual services in Europe (December 2013)

The various categories of services included in this table are, in most cases, not-geolocated and therefore accessible worldwide. In order to have meaningful figures we take into account only those services with some relevance for the country concerned (mainly based on the language).

Branded Catch-up Films channels TV News Portals Archives Sport trailers Various Total by broad- services (3) (4) (5) events (6) casters(1) (2) Austria 44 76 16 1 3 9 2 23 174 Belgium- Flemish 6 32 5 1 2 1 3 7 Community 57 Belgium- French 6 30 7 1 3 1 5 4 57 Community Belgium- German- 0 9 2 0 2 2 2 2 speaking Community 19 Bulgaria 1 15 0 0 0 0 0 1 17 Croatia 7 6 0 0 0 0 0 0 13 Cyprus 3 5 1 0 0 1 1 2 13 Czech Republic 5 39 8 2 1 6 1 10 72 Denmark 6 44 3 1 2 1 1 0 58 Estonia 3 20 0 1 2 1 0 0 27 Finland 4 27 1 1 3 2 2 2 42 France 94 128 7 1 4 7 14 26 281 Germany 44 124 7 2 4 3 12 14 210 Greece 14 19 2 1 2 0 2 2 42 Hungary 15 78 3 0 3 0 0 3 102 Ireland 16 28 1 0 2 2 2 8 59 Italy 68 44 10 5 4 2 6 14 153 Latvia 5 29 0 1 2 1 0 0 38 Lithuania 8 12 0 1 2 1 0 0 24 Luxembourg 4 8 4 0 2 2 4 3 27 Malta 2 4 1 0 0 0 1 2 10 Netherlands 52 32 1 1 4 2 1 1 94 Poland 38 58 1 1 6 1 1 5 111 Portugal 9 25 1 1 2 0 1 2 41 Romania 18 30 0 0 2 1 0 0 51 Slovakia 3 38 2 4 2 1 0 3 53 Slovenia 3 9 1 0 2 0 1 2 18 Spain 42 36 3 1 3 3 5 16 109 Sweden 7 95 4 0 3 5 1 2 117 United Kingdom 179 69 12 1 6 18 5 28 318

Albania 0 1 0 0 0 0 0 0 1 Armenia 0 0 0 0 0 0 0 0 0 Bosnia-Herzegovina 0 2 0 0 0 0 0 0 2 Iceland 0 1 0 0 0 0 0 0 1 Liechtenstein 41 8 1 0 1 1 0 0 52 Montenegro 0 0 0 0 0 0 0 0 0 Norway 7 80 0 1 1 1 0 0 90 Russian Federation 3 35 3 6 1 1 0 2 51 Serbia 0 2 0 0 0 0 0 0 2 Switzerland 47 26 2 1 3 3 4 2 88 The Former Yugoslav 0 3 0 0 0 0 0 0 Republic of Macedonia 3 Turkey 3 4 0 1 0 0 0 0 8

(1) Branded channels on open platforms such as YouTube, Dailymotion, Snack TV (2) Catch-up TV services online or part of the offer of TV distribution platforms. The coverage of catch-up TV services provided by local television is not comprehensive and may differ country by country (3) Include video web pages of newspapers and news TV channels (4) Video web pages of portals such as MSN, Yahoo, portals from ISPs, etc. (5) Film or TV archives

– Services are considered whatever their means of access or business models – The same service may be counted in several countries – A service is considered as "available" in a country when it is targeting this country in particular (language, marketing, geolocation, inclusion in a national platform or a store designed for the country, etc.). Services available worldwide but not specifically targeting the countries are not included.

Table 9 EU – Number of services by distribution mode

– This table has been produced with the data available in the MAVISE database as of 17.12.2013 – The data refer to the country of establishment of the service. This does not mean that that the country of reception is the same (e.g., the GB services established and received on IPTV include services received only in France) – The country of establishment is not always communicated by the providers (in particular for the services accessible through stores and video games consoles)

Internet only Through TV distribution platforms only 2 or more Internet Through video Download Video game Specific Smart TV Apps Store for tablets IPTV Cable Sat Hybrid DTT Mobile distribution TOTAL (1) open platforms (2) stores (3) consoles (4) box (5) Apps (6) or smartphones (7) (8) (9) PVR (10) box (11) (12) phone (13) modes (14) AT 101 3 1 n.a. n.a. 2 8 2 117 BE 29 9 n.a. n.a. 13 21 3 6 81 BG 17 1 n.a. n.a. 6 1 25 CY 14 2 n.a. n.a. 6 22 CZ 97 8 n.a. n.a. 7 2 10 124 DE 127 47 31 5 n.a. n.a. 18 52 1 281 DK 22 6 n.a. n.a. 10 5 1 7 51 EE 1 3 n.a. n.a. 1 2 6 13 ES 45 38 1 5 n.a. n.a. 9 3 8 109 FI 12 3 n.a. n.a. 13 28 FR 78 118 29 10 5 n.a. n.a. 36 19 18 1 73 387 GB 229 232 51 32 1 n.a. n.a. 59 17 3 2 2 43 671 GR 20 14 n.a. n.a. 4 1 39 HR 3 6 n.a. n.a. 5 2 16 HU 63 15 n.a. n.a. 10 1 89 IE 10 10 n.a. n.a. 1 1 3 25 IT 73 63 2 n.a. n.a. 6 2 5 151 LT 4 6 n.a. n.a. 3 2 15 LU 32 9 75 n.a. n.a. 3 1 120 LV 6 3 n.a. n.a. 9 2 20 MT 3 3 n.a. n.a. 2 8 NL 49 45 n.a. n.a. 6 17 2 119 PL 39 35 n.a. n.a. 10 9 7 6 6 112 PT 18 8 n.a. n.a. 3 6 35 RO 35 16 n.a. n.a. 1 52 SE 85 3 n.a. n.a. 6 3 1 58 156 SI 6 3 n.a. n.a. 7 2 2 20 SK 43 3 n.a. n.a. 4 1 1 52 EUR 28 1261 712 188 54 6 n.a. n.a. 258 179 1 30 9 12 228 2938

CH (15) 10 n.a. 1 11

CA (15) 2 2 US (15) 31 32 6 150 n.a. 4 223

Source: European Audiovisual Observatory 2013, from the database MAVISE (http://mavise.obs.coe.int) (1) Includes services with owned players - Some minor services are not included in the MAVISE database. (2) Mainly YouTube and Dailymotion - Includes only branded catalogues from broadcasters and paid VoD services (3) Mainly iTunes Store (does not include services through apps). (4) Services designed for Xbox or PSP consoles.

(5) Services accessible to specific boxes operated by companies other than TV distributors (cable, satellite, IPTV, DTT). (6) Services available only through Smart TV apps (NB: most of the services with apps also exist as pure Internet services and are therefore counted in the Internet category). (7) Services available only through apps for tables or smartphones (NB: most of the services with apps also exist as pure Internet services and are therefore counted in the Internet category). (8) Services accessible only to subscribers to an IPTV distribution service. (9) Services accessible only to subscribers to a cable TV distribution service. (10) Storage on a PVR from signal received from satellite. (11) Internet services accessible through the hybrid box operated by a TV distribution operator. (12) Services accessible only by subscribers to a DTT distribution platform. (13) Services accessible only to subscribers to a mobile telephone service. (14) Services accessible on two or more categories of platforms are not counted in the other categories. In most cases, these are services accessible through cable and IPTV. (15) Includes only services targeting the European Union.

Table 10 EU – Number of services by distribution mode (OTT only, TV platforms, multiplatform)

Internet Through TV distribution 2 or more only platforms only distribution TOTAL Total Total modes AT 105 10 2 117 BE 38 37 6 81 BG 18 7 25 CY 16 6 22 CZ 105 9 10 124 DE 210 70 1 281 DK 28 16 7 51 EE 4 3 6 13 ES 89 12 8 109 FI 15 13 28 FR 240 74 73 387 GB 545 83 43 671 GR 34 5 39 HR 9 7 16 HU 78 11 89 IE 20 2 3 25 IT 138 13 151 LT 10 5 15 LU 116 4 120 LV 9 11 20 MT 6 2 8 NL 94 23 2 119 PL 74 32 6 112 PT 26 9 35 RO 51 1 52 SE 88 10 58 156 SI 9 9 2 20 SK 46 5 1 52 EUR 28 2221 489 228 2938

CH (15) 10 0 1 11

CA (15) 2 0 2 US (15) 219 4 223 Source: European Audiovisual Observatory 2013, from the database MAVISE (http://mavise.obs.coe.int)

Audience data and market shares of services As for audience data, a clear distinction should be made between free services accessible online and mainly financed by advertising and paid VoD services.

For video online services, various companies (Comscore, Nielsen, Médiamétrie) have created audience measurement tools that are mainly designed to provide information to advertising stakeholders (agencies, advertisers). ComScore’s Video Metrix service is the only one with a harmonised methodology for various EU countries (France, Germany, Italy, Spain, UK and, since 2013, the Netherlands).

The Video Metrix service is becoming the currency at the international level, but it should be underlined that the measurement:

- is only related to fixed Internet and does not include audiences on the mobile Internet (smartphone, tablets) or audiences using Smart TV applications;

- includes not only video online services but also open platform file sharing (such as YouTube) and cloud storage services (such as Amazon Cloud);

- does not measure closed VoD services online (either streaming services like Netflix or stores like iTunes);

- includes Adult services but the audiences of those services are not included in the ranking of most popular services.

For VoD services, there is not yet any systematic or comprehensive measurement of the number of subscriptions, transactions and success of individual titles. In Spain, Rentrak is testing the measurement system already operational in the United States (established in collaboration with the main providers of services). In Germany, France and the UK, data are available on market shares of services established on the basis of panel interviews but not on the basis of real data.

The actual high number of services shouldn’t hide the fact that, as market shares for the United Kingdom seem to indicate, a few players dominate each segment (SVoD, EST, iVoD, TV VoD, AVoD) of the on-demand audiovisual services market.

For actual audience data and market shares, please refer to chapter 5 for advertising-financed audiovisual on-demand services and to chapter 8 for transactional VoD services.

Advertising-financed on-demand audiovisual services

Executive summary - The online advertising market in Europe

 The online advertising market in Europe had a market value of €24.3 billion in 2012, representing growth of 11.5% year on year  Paid Search remains the largest segment with a market value of €11.9 billion, up by 15.5%  Online display advertising had a market value of €7.8 billion, up by 9.1% in 2012  The main driver of this growth was online video advertising, with a market value of €661.9 million, up by 50.6%, representing 12.9% of the online display market in 2012, and mobile advertising, which was up by 78.3% and reached a total market value of €392 million.  Large disparities in online ad spend remain between Western/Northern Europe and Central and Eastern Europe, but CEE markets are experiencing strong growth as advertisers continue to invest in them.  Online advertising outperforms the advertising market and this trend is likely to continue as advertisers seem to see the opportunity to engage with consumers and advertising budgets continue to shift from print to online.  Online video ad spend had a market value of £159.6 million, up by 6.5% in 2012, in the United Kingdom with pre/post roll video ads representing a market value of £136.7 million (43.2% year on year) and Social and others representing £22.9 million(+69.1% year on year). The advertising revenues of VoD services in the UK had a market value of £104 million in 2012 and a total ad spend market share of 0.6%.  Online video ad spend in France in 2012 had a market value of €90 million, up by 50%.

Trends on the online display and video advertising market

 On-demand video sites and publishers are increasingly profiting from the online video advertising trend and seeing their number of unique viewers increase at a steady rate.  The amount of space available for online video ads is increasing, so the online video advertising market is expected to grow from €764 million in 2011 in Western Europe to €1.768 billion in 2017.  The surge of online video advertising will continue and intensify as it represents a new means for advertisers to run brand advertising and engage with their targeted customers in order to ensure the relevance of their advertising message.  Behavioural targeting is gaining in importance as marketers seek to target their core audience as was possible with TV ads.  Online video publishers are increasingly competing with one another for quality content and audiences.  The ecosystem of online display advertising is complex, fragmented and will tend in the future to become more concentrated.  Online publishers and advertising networks aim to convince advertisers that the Internet offers the same quality as traditional TV advertisements and therefore persuade them to shift their TV ad budgets towards online (until now, the shift mostly affected print advertising).  Whereas UGC platforms are dominated by Google’s YouTube, social networks by Facebook, portals by Yahoo! and Microsoft, this is not the same for newspaper and television websites in the EU, where national companies still have the lead on their national markets.  Advertising networks are the main players for the delivery of video advertisements in the European markets.  Google sites (YouTube, AdSense, AdWord) dominate the landscape by providing an integrated ecosystem where advertisers can find an all-in-one solution.  The online advertising market is concentrated: in 2012 in the United States, 10 companies accounted for 72% of total revenue. This trend is likely to continue and, although figures are not

available to us for Europe, the situation should not be very different from that in the United States.  Online publishers are increasingly incorporating advertising trading desks into their own structure instead of relying on third-party services.  Online video advertising coupled with behavioural and demographic targeting has made room for a new market: real-time bidding (RTB) for advertising space on publishers’ websites, which is similar to the spot/stock market. This has put downward pressure on CPM (cost per mille), the pricing method for online display advertising.  As consumers are more equipped with mobile devices (smartphones, tablets) and network capabilities are increasing in bandwidth, the trend towards online video advertising and mobile advertising will increase.  The use of “big data” to analyse consumer behaviour, tastes and demographics is increasing and will lead more and more to the better segmentation and targeting of audiences for advertisers and agencies.  Broadcasters are increasingly offering advertisers combined advertising campaigns on TV and the web through their websites. This new means of advertising is referred to as T/V advertising (combined television and video advertising).  Catch-up TV is becoming a means for broadcaster to counterbalance their shrinking advertising revenues.  All kinds of traditional media companies are moving into online video advertising in order to obtain a share of this fast-growing market.

Internet consumption among Europeans is increasing the trend towards online video advertising:

 426.9 million Europeans go online every week, 37% accessing the web from more than one device and spending on average 14.8 hours per week online.  91% (388.5 million) of those accessing the Internet read newspapers online.  73% watch TV online, but this figure is higher in the case of the younger generations: 83% of 16- 24-year-olds and 81% of 35-44-year-olds.  The Internet is becoming a multi-screen space, where advertisers target consumers across multiple devices.

3 The online advertising market

3.1 Online advertising in Europe in 2012 and 2013: trends and developments (IAB & eMarketer)

The rise of online video consumption has been accompanied by an increase in online video ads (and other display ad formats, both mobile and fixed), supported by the penetration of connected mobile devices (smartphones, tablets, etc), increased broadband speeds for fixed and mobile Internet connections, increased use of social networks and the rise of real-time bidding platforms which enable the automation of ad space buying between publishers and advertisers. In this short introduction, we provide an overview of major developments and figures for 2012 and 2013.

Major developments related to online display advertising are: - the growing importance of video advertising - mobile video advertising - the importance of social networks - the use of real-time bidding platforms and their increasing importance - more connected Internet users (mobile and fixed) Ad-financed on-demand audiovisual services such as user-generated content platforms like YouTube13 and Dailymotion14, video on-demand service providers such as Netzkino.de15 and Sony’s Crackle16 have seen a tremendous rise in their audiences over the past few years. They are competing more and more17 with broadcasters for the advertising budgets of agencies and brands through the use of online video ads (which are categorised under online display advertising).

One of their main goals is to prove that through their services advertisers can improve the targeting of their audiences for an advertisement (through the use of data collected by the services on users, behavioural advertising and a better knowledge of the viewer) and thus placing an advertisement on their services is more effective than on TV. Until recently, advertisers and agencies still heavily relied on TV advertising and online ads were seen as complementing a TV campaign, but with the proliferation of connected devices, the increase in the use of advertising-supported on-demand audiovisual services, improved fixed and mobile bandwidth allowing for smoother video consumption (be it at home or “on the go”) and the rising importance of social networks such as Facebook, advertising-financed on-demand audiovisual services are seen more and more as a true alternative and not only as a complement to traditional broadcast adverting. The recent figures available on the European, US and worldwide online advertising markets support this shift in the view of advertisers of advertising-supported on-demand audiovisual services. The following sub-section will present the overall online advertising market in Europe (mainly figures from IAB Europe and eMarketer), online

13 More than 1 billion worldwide users each month, 100 hours of video uploaded every minute, 6 billion hours of video watched every month in 2013 http://www.youtube.com/yt/press/statistics.html 14 105 million unique visitors per month, 2.2 billion video views per month, 32nd most visited website worldwide in 2012 http://advertising.dailymotion.com/stats/ 15 http://www.netzkino.de/#! 16 http://www.crackle.com/ 17 The overall champion remains Google with roughly 33% of net digital ad revenue worldwide and 55% of net mobile Internet ad revenue worldwide in 2013, according to eMarketer.

video advertising, mobile advertising, social network advertising and real-time bidding advertising.

3.1.1 IAB Europe1819 AdEx Benchmark 2012 and main figures available on the online advertising market in Europe

The three major categories of online advertising are search, display and directories & classifieds. The total value of the European online advertising market was €24.3 billion in 2012, an increase of 11.5% compared to 2011 (€21.8 billion. Search remains the strongest category (48.8% of total online ad spend), followed by display (32.4% of total ad spend) in 2012 (Figure 2).

Figure 1 Total online advertising in Europe 2011-2012

Total online advertising Europe in EUR billion 24.3 +11.5%

21.8

2011 2012

Source: IAB AdEx Benchmark Europe 2012

Figure 2 Format shares of online advertising Europe 2011-2012 Format shares of online advertising, Europe 2012 in % of total 120.0% 100.0% 19.6% 18.5% 80.0% 60.0% 32.7% 32.4% 40.0% 20.0% 47.1% 48.8% 0.0% 2011 2012

Search Display Classifieds and directories Others

Source: IAB AdEx Benchmark Europe 2012

18 http://www.iabeurope.eu/files/8813/7363/8652/Interact_2013_ADEX_Presentation_FINAL.pdf 19 26 countries are taken into account: Austria, Belgium, Bulgaria, Czech Republic, Croatia, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Netherlands, Norway, Poland, Russia, Romania, Serbia, Slovenia, Slovakia, Spain, Sweden, Switzerland, Turkey, United Kingdom.

Figure 3 Europe online ad format growth by category 2011-2012 Year-on-year growth by format in % 20.0% 17.9% 15.5% 15.3% 14.5% 15.0% 11.5% 9.1% 10.0%

5.7% 6.3% 5.0%

0.0% Search Display Classifieds & Total Directories

2011 2012

Source: IAB AdEx Benchmark Europe 2012

Looking at the growth rates of the different formats, search also leads the other categories. Display ads have experienced less rapid growth than in 2011 but display advertising is set to grow in the near future with the increased use of mobiles and the rising video consumption on mobile devices.

Online advertising has overtaken newspaper advertising for the first time in Europe and is the second biggest medium for advertising (figure 4). This illustrates the increased importance for advertisers and agencies of online as an effective medium to reach targeted audiences.

Figure 4 Advertising market in Europe, by medium 2012

in EUR billion

Cinema 0.6

Radio 4.6

Out-of-home 6.3

Magazines 8.7

Newspapers 19.3

Online 24.3

TV 28.1

0 5 10 15 20 25 30

Source: IAB AdEx Benchmark Europe 2012. Source for non-online ad revenue: IHS.

The rising importance of online advertising is also shown by the increase in its overall market share of ad budgets in just 6 years. From just 10.3% of ad budgets in 2006, online ad spend rose to 25.6% in 2012.

Figure 5 Online market share of ad budgets 2006-2012 Europe

in % of total ad budgets

30.0% 25.6% 25.0%

20.0% 19.0%

15.0% 10.3% 10.0%

5.0%

0.0% 2006 2009 2012

Source: IAB AdEx Benchmark Europe 2012

Based on the projections made by eMarketer, digital ad spend is set to continue its growth in value (from $23.51 billion in 2011 to $38.25 billion in 2017, table 1) whereas it is expected to stabilise its share of total ad spend in Western Europe (10.1% in 2012, 10.6% in 2017, table 2).

Table 1 Digital Ad Spending in Western Europe, by country, 2011-2017 in USD billions 2011 2012 2013 2014 2015 2016 2017 UK $7.63 $8.60 $9.63 $10.83 $11.70 $12.52 $13.27 Germany $4.57 $5.05 $5.65 $6.22 $6.59 $6.94 $7.29 France $2.49 $2.64 $2.80 $3.05 $3.26 $3.46 $3.65 Italy $1.44 $1.52 $1.65 $1.83 $2.05 $2.28 $2.51 Netherlands $1.37 $1.48 $1.60 $1.72 $1.84 $1.95 $2.05 Spain $1.15 $1.14 $1.15 $1.24 $1.36 $1.47 $1.57

Sweden $0.83 $0.91 $1.01 $1.10 $1.18 $1.25 $1.31 Norway $0.74 $0.79 $0.85 $0.91 $0.97 $1.03 $1.08 Denmark $0.65 $0.73 $0.80 $0.86 $0.92 $0.99 $1.05 Finland $0.28 $0.31 $0.35 $0.37 $0.39 $0.41 $0.42 Other $2.35 $2.60 $2.91 $3.25 $3.53 $3.80 $4.05 Western Europe $23.51 $25.76 $28.39 $31.31 $33.79 $36.09 $38.25

Note: includes advertising that appears on desktop and laptop computers as well as mobile phones and tablets on all formats mentioned; includes display - affiliates, banners, rich media, sponsorships, tenancies and video (in-stream, in-banner, in-text); search (paid listings, contextual text, links, paid inclusion); classifieds; and email (embedded ads only); includes mobile ad spending and lead generation within existing formats, mainly search and banners; numbers may not add up to 100% due to rounding

Source: eMarketer, June 2013; confirmed and republished August 2013

Table 2 Digital Ad Spending Share in Western Europe, by country, 2011-2017 % of total 2011 2012 2013 2014 2015 2016 2017 UK 32.5% 33.4% 33.9% 34.5% 34.6% 34.7% 34.7% Germany 19.4% 19.6% 19.9% 19.8% 19.5% 19.2% 19.1% France 10.6% 10.2% 9.9% 9.7% 9.7% 9.6% 9.5% Italy 6.1% 5.9% 5.8% 5.8% 6.1% 6.3% 6.6% Netherlands 5.8% 5.8% 5.6% 5.5% 5.4% 5.4% 5.4% Spain 4.9% 4.4% 4.0% 3.9% 4.0% 4.1% 4.1% Sweden 3.5% 3.5% 3.6% 3.5% 3.5% 3.5% 3.4% Norway 3.2% 3.1% 3.0% 2.9% 2.9% 2.8% 2.8% Denmark 2.8% 2.8% 2.8% 2.7% 2.7% 2.7% 2.7% Finland 1.2% 1.2% 1.2% 1.2% 1.2% 1.1% 1.1% Other 10.1% 10.1% 10.3% 10.4% 10.4% 10.5% 10.6% Note: includes advertising that appears on desktop and laptop computers as well as mobile phones and tablets on all formats mentioned; includes display - affiliates, banners, rich media, sponsorships, tenancies and video (in-stream, in-banner, in-text); search (paid listings, contextual text, links, paid inclusion); classifieds; and email (embedded ads only); includes mobile ad spending and lead generation within existing formats, mainly search and banners; numbers may not add up to 100% due to rounding Source: eMarketer, June 2013; confirmed and republished August 2013

Predictions made by eMarketer for the years 2013 to 2014 (Figure 6) show that online display advertising in Western Europe will continue to rise to reach $13.39 billion in 2017, up from $8.92 billion in 2013 (+50% over 4 years) and that the global online advertising market will reach a value of $38.25 billion in 2017.

Figure 6 Digital Ad Spending in Western Europe, by Format, 2011-2017 in USD billions $45.00 $38.25 $40.00 $36.09 $33.79 $35.00 $31.37 $6.61 $28.39 $6.38 $30.00 $25.76 $6.12 $23.51 $5.82 $25.00 $5.44 $12.36 $13.39 $5.14 $11.17 $20.00 $4.96 $10.08 $8.92 $7.99 $15.00 $7.34 $10.00 $17.34 $18.25 $14.03 $15.47 $16.49 $5.00 $11.21 $12.63 $0.00 2011 2012 2013 2014 2015 2016 2017

Search Display* Classifieds and directories

Note: includes advertising that appears on desktop and laptop computers as well as mobile phones and tablets on all formats mentioned; includes mobile ad spending within existing formats, mainly search and banners; numbers may not add up to total due to rounding; converted at the exchange rate of US$1=€0,78;*affiliates, banners, rich media, sponsorships, tenancies and video (in-stream, in-banner, in-text) Source: eMarketer, June 2013; confirmed and republished, Aug 2013

Looking at figures available for total online ad spend in Central and Eastern Europe, eMarketer expects that the amount will more than double in 6 years (from $£2.87 billion in 2011 to $7.03 billion in 2017). Online ad spend is closely related to Internet penetration among the population of these countries

(addressable market = the larger the audience for advertising, the more advertisements and therefore the more online ad spend). Table 4 shows that in the coming 5 years the proportion of Central & Eastern Europe’s Internet users will rise from 50.2% of the population in 2012 to 66.5% in 2017, which will still be behind Western Europe’s average of 68.7% in 2012 and 72.9% in 2017 (table 5) but catch up at a quicker rate as consumers become more equipped with Internet capable devices.

Table 3 Digital ad spending in Central & Eastern Europe, by country, 2011-2017 in USD billions 2011 2012 2013 2014 2015 2016 2017 Russia 1.21 1.62 2.01 2.37 2.68 2.95 3.18 Other 1.66 2.08 2.54 2.91 3.29 3.56 3.84 Central & Eastern Europe 2.87 3.7 4.55 5.28 5.97 6.5 7.03 Note: includes advertising that appears on desktop and laptop computers as well as mobile phones and tablets; includes all the various formats of advertising on those platforms; excludes SMS, MMS and P2P messaging-based advertising; numbers may not add up to total due to rounding Source: eMarketer, June 2013; confirmed and republished, Aug 2013

Table 4 Internet User Penetration in Central & Eastern Europe, by Country, 2011-2017 in % of population in each group 2012 2013 2014 2015 2016 2017 Russia 50.0% 54.4% 58.2% 61.3% 64.2% 66.3% Other 50.3% 54.4% 58.2% 61.3% 64.1% 66.6% Central & Eastern Europe 50.2% 54.4% 58.2% 61.3% 64.1% 66.5% Note individuals of any age who use the Internet from any location via any device at least one a month Source: eMarketer, Nov 2013

Table 5 Internet user penetration in Western Europe, by country, 2012-2017 in % of population of each group 2012 2013 2014 2015 2016 2017 Norway 85.0% 86.0% 87.0% 87.0% 87.0% 87.0% Denmark 83.0% 84.0% 85.0% 86.0% 87.0% 87.0% Netherlands 83.0% 84.0% 85.0% 86.0% 86.0% 86.0% Sweden 81.1% 82.1% 83.1% 83.1% 83.1% 83.1% Finland 80.9% 81.9% 82.9% 83.9% 84.8% 85.6% UK* 73.6% 75.0% 76.1% 77.1% 77.8% 78.3% France 72.9% 74.0% 74.9% 75.8% 76.6% 77.3% Germany 71.8% 73.3% 74.4% 74.9% 75.2% 75.4% Spain 61.9% 63.1% 64.0% 64.8% 65.2% 65.5% Italy 55.2% 56.1% 58.0% 58.6% 60.0% 60.3% Other 64.0% 65.1% 66.5% 67.2% 68.1% 68.4% Western Europe 68.7% 69.9% 71.1% 71.8% 72.5% 72.9%

Note: individuals of any age who use the Internet from any location via any device at least once a month; *forecast of Aug 2013 Source: eMarketer, Nov 2013

A glance at the overall importance of online advertising markets reveals that 46% of European online

ad spend is generated by two countries, the United Kingdom and Germany, and the Top 5 countries account for almost 69.5% of total online ad spend in Europe. Large disparities therefore exist as countries differ from one another by digital penetration, customers’ incomes, the proliferation of connected devices and general economic data such as total population, GDP, GDP growth, purchasing power, etc.

Figure 7 Total online ad spend by country 2012 in EUR million

7,000 6,642 6,000 5,000 4,551 4,000 2,770 3,000 1,536 2,000 1,418 1,207 920 841 1,000 617 591 0

Source: IAB AdEx Benchmark 2012, Presentation Interact Barcelona 2013, IAB Europe 2013

Figure 8 Share of online ad revenue by market in Europe 2012 in % 120.0%

100.0% 95.5% 86.7% 78.3% 80.0% 69.5%

60.0% 46.0% 40.0%

20.0%

0.0% Top2 Top 5 Top 7 Top 10 Top 15

Source: IAB AdEx Benchmark 2012, Presentation Interact Barcelona 2013, IAB Europe 2013

If we take a closer look at display ad growth, the category of interest regarding on-demand audiovisual services, we see that average European growth was 9.1% in 2012 according to IAB’s figures. But the growth rate varies from country to country (figure 9). The CEE countries (BG, CZ, HU, RO, PL), the UK, Italy and the Nordics (SE, FI, DK) saw their online display ad spend rise above the European average in 2012 whereas DE, AT, FR, IE, BE and NL saw their online display ad market fall below the European average. GR, ES, HR and SI are EU countries where display advertising actually shrank

during 2012 (one explanation could be that advertising expenditures tend to shrink during economic crises).

Figure 9 Growth of online display ads in Europe 2012, in %

Source: IAB AdEx Benchmark 2012, Presentation Interact Barcelona 2013, IAB Europe 2013

This general overview of the online advertising market in Europe gives indications of the raising importance of online advertising but does not show the categories that are of interest for on-demand audiovisual services, namely online video ads, mobile ads, advertising on social networks and real- time bidding. Figure 10 demonstrates the growing importance in the growth of online display advertising of video and mobile advertising which make up an important share of the overall growth of this category. When excluding them from the display ad growth, display ad growth in most of the countries would have increased at a lesser rate.

Figure 10 Growth of - online display – display excluding video ads – display excluding video and mobile Europe 2012, in %

Source: IAB AdEx Benchmark 2012, Presentation Interact Barcelona 2013, IAB Europe 2013

Global players: Google remained the undisputed champion of the global online advertising market in 2013, when the company’s market share for net digital ad revenues worldwide was 33% and was

even higher in respect of net mobile online advertising revenue, with more than half of the global market, estimated at $116.82 billion in 2013 (55.9%, figure 7). Facebook, the world’s leading social network and second-biggest advertising player worldwide, managed to obtain a market share of 5% for net online advertising revenue in 2013 and 12.9% of net mobile advertising revenue. The mobile advertising market illustrates well the importance of size and scale in the online advertising landscape. While the share of other players in the global mobile ad market was still above 50% in 2011, it represented less than a quarter of the global mobile advertising market in 2013 (23.53%).

Table 6 Net digital ad revenue share worldwide, by company, 2011-2013 % of total digital ad revenues 2011 2012 2013 Google 32.08% 31.46% 33.24% Facebook 3.65% 4.11% 5.04% Yahoo! 3.95% 3.37% 3.10% Microsoft 1.27% 1.63% 1.78% IAC 1.15% 1.39% 1.47% AOL 1.17% 1.02% 0.95% Amazon 0.48% 0.59% 0.71% Pandora 0.28% 0.36% 0.50% Twitter 0.16% 0.28% 0.50% LinkedIn 18.00% 0.25% 0.32% Millennial Media 0.05% 0.07% 0.10% Other 55.59% 55.48% 52.28% Total digital ($ billions) $86.43 $104.04 $116.82 Note: includes advertising that appears on desktop and laptop computers as well as mobile phones and tablets, and includes all the various formats of advertising on those platforms; net ad revenues after companies pay traffic acquisition costs (TAC) to partner sites; numbers may not add up to 100% due to rounding Source: Company reports, 2012 & 2013, June 2013

Table 7 Net Mobile Internet Ad Revenue Share Worldwide, by Company, 2011-2013 % of total 2011 2012 2013 Google 38,11% 52,36% 55,97% Facebook - 5,35% 12,90% Pandora 2,99% 2,71% 2,50% Twitter - 1,57% 1,95% Millenial Media 1,00% 0,82% 0,76% YP 2,32% 2,86% 2,39% Other 55,38% 34,33% 23,53% Note: net ad revenue after companies pay traffic acquisition costs (TAC) to partner sites; includes display (banner and other, rich media and video) and search; ad spending on tablets is included; excludes SMS, MMS and P2P messaging-based advertising; numbers may not add up to 100% due to rounding. Source: company reports, 2012 & 2013; eMarketer, June 2013

3.1.2 Online video advertising

The online video advertising market varies considerably across European countries, according to IAB’s figures for 2012 (be it in terms of total size or growth rates). The most important markets in terms of size are the United Kingdom (above €160 million), Italy (€125 million), Germany (around €110 million) and France (around €90 million) [Figure 11].

Figure 11 Size of online video advertising by country – Europe 2012

Source: IAB AdEx Benchmark 2012, Presentation Interact Barcelona 2013, IAB Europe 2013

In 2012, the share of the display advertising market obtained by online video ads was 13%, with two countries outperforming the European average, Italy (20%) and Spain (around 17.5%). Older forms of online display advertising such as banner ads and rich media formats are still widely used by agencies and brands, but with the increase in the measurability of the effectiveness and reach of online video ads and with better targeting capabilities, those players are starting to use online video ads more and more.

Figure 12 Online video share of display advertising, Europe 2012

Source: IAB AdEx Benchmark 2012, Presentation Interact Barcelona 2013, IAB Europe 2013

The average growth rate for online video ads outperformed display and search growth in 2012, with a European average of 50.6% (only the Netherlands saw its online video ad market shrink in 2012, while Spain’s online video ad market rose at an astonishing 200%).

As we did not find any free data on European advertiser expectations, tactics and ad budgets, we had to rely on predictions and statements made by US TV and agency executives in order to establish how the players in this market see future developments.

Figure 13 Online video growth – Europe 2012

Source: IAB AdEx Benchmark 2012, Presentation Interact Barcelona 2013, IAB Europe 2013

A trend that started in 2012 continued unabated in 2013. Advertisers and media buyers are beginning to transfer TV advertising budgets to digital video (as opposed to shifting budgets from online to video advertising). One of the main reasons is that advertising campaigns rely more and more on combined television and online video campaigns2021 as various marketing and specialised press articles indicate. Figure 14 shows that in 2013 75% of the sample of media buyers expected to shift more TV budgets to digital video.

Figure 14 Likelihood of Media Buyers shifting more TV dollars to digital video according to senior US executives, June 2013 % of respondents

Total 75% 15% 9%

Buy-side 70% 20% 10%

0% 20% 40% 60% 80% 100% 120%

Likely/very likely Undecided Unlikly/very unlikely

Note: total n=121, buy-side n=76, in the next 12 months; numbers may not add up to 100% due to rounding. Source: Interactive Advertising Bureau (IAB), "Digital Content NewFronts", Aug 8, 2013

20 http://www.viralgains.com/2013/09/tv-online-video-marketing-theyre/ 21 http://online.wsj.com/article/PR-CO-20131219-907788.html

TV ad spending will still largely outweigh digital video ad spending in the near future, even if the expected growth rates for digital video are in double digits. TV ad spending is forecast to increase from $66.35 billion in 2013 to $75.25 billion in 2017, whereas online video ad spending will increase from $4.14 billion in 2013 to $9.06 billion in 2017, representing just 12% of TV ad spend.

Table 8 US TV* vs. digital video** ad spending, 2011-2017 in USD billions and % change 2011 2012 2013 2014 2015 2016 2017 TV* $60.66 $64.54 $66.35 $68.54 $69.91 $73.05 $75.25 % change 2.8% 6.4% 2.8% 3.3% 2.0% 4.5% 3.0% Digital video** $2.00 $2.93 $4.14 $5.75 $6.99 $8.04 $9.06 % change 40.8% 46.5% 41.4% 38.9% 21.4% 15.1% 12.8% Note:* includes broadcast TV (network, syndication & spot) & cable TV **includes advertising that appears on desktop and laptop computers as well as mobile and tablets; data through 2011 is derived from IAB/PwC data; includes in-banner, in-stream (such as pre-roll and overlays) and in-text (ads delivered when users mouse-over relevant words) Source: eMarketer, March 2013

But when taking into account the overall digital ad spend (all categories), online ad spend is catching up with TV ad spend (at least in the US). TV ad spend will remain the number one advertising category for the near future, but the question is when will digital ad spend catch-up and overtake TV ad spend?

Table 9 US TV* vs. digital** ad spending, 2011-2017, in USD billions

$80.00 $73.05 $75.25 $68.54 $69.91 $70.00 $64.54 $66.35 $60.66 $60.40 $56.52 $60.00 $52.67 $47.80 $50.00 $42.52 $37.30 $40.00 $31.99 $30.00 $20.00 $10.00 $0.00 2011 2012 2013 2014 2015 2016 2017

TV* Digital**

Note:*includes broadcast TV (network, syndication & spot) & cable TV; **includes advertising that appears on desktop and laptop computers as well as mobile phones and tablets, and includes all the various formats of advertising on those platforms; data through 2011 is derived from IAB/PwC data Source: eMarketer, March 2013

This trend of shifting TV ad budgets towards online advertising is further illustrated by the expectations of US agency executives given in table 10. 25% and 23% respectively expect online video and mobile video to have the highest increase, followed by 17% for mobile display advertising whereas 25% see TV advertising as having the lowest growth for 2013 (online overtaken by direct response advertising).

Table 10 Ad tactics in which US agency executives expect to see the highest and lowest growth, March 2013 in % of respondents Highest growth Lowest growth Online video 25% 2% Mobile video 23% 4% Mobile display 17% 10% Social media 9% 4% Direct response 7% 32% Online display 7% 4% TV 6% 25% Search advertising 5% 5% Connected TV 2% 15% Note: numbers may not add up to 100% due to rounding Source: BrightRoll, "Digital Video 2013", May 1, 2013

What are the challenges remaining to fully exploit all the possibilities offered by online advertising (targeting, behavioural advertising – placing the right ad, at the right time in front of the right customer)? Online video advertising still needs to improve on its targeting capabilities for 73% of the marketing professionals surveyed, while 67% want improved measurement and 54% expect a better reach for online video (figure 15).

Figure 15 Factors that will affect the increase in digital video spending according to marketing professionals worldwide, April 2013

in % of respondents

Scale/Reach 54%

Measurement 67%

Better targeting 73%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Note: includes branded video content and video ads Source Be On, a division of AOL Networks as cited in press release, June 5, 2013 – eMarketer

The increased use of online video ads is also illustrated by the tremendous increase in branded video ads viewed worldwide between the 3rd quarter of 2012 and the 4th quarter 2012 (figure 16). From 1082.21 billion online branded video ad views in Q3 2012 to 1784.01 billion in Q4 2012 (+64% in a quarter showing the increased use of branded video ads during the Christmas season, which is a crucial time for brands in Western countries), a trend that continued throughout 2013 (even though there was a decrease in the number of branded ads viewed between Q2 2013 and Q3 2013).

Figure 16 Branded video ad views worldwide, Q3 2012 - Q3 2013

in billions 2,500.00

1917.55 2,000.00 1819.46 1784.01 1713.68

1,500.00 1082.21 1,000.00

500.00

0.00 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013

Note: all views were user-initiated and targeted to English-speaking audiences. Source: Visible Measures, "Q1 2013 Branded Video Report", Nov 2013

Video advertising can take on multiple formats. Figure 17 gives an overview of formats for which marketing professionals plan to increase their investment. From this figure (as always with surveys, to be taken with caution), it appears that pre-roll and social video ads are advertisers’ preferred formats . Google’s YouTube innovated by proposing a video ad format called “True View” for which advertisers only pay when the ad has been viewed and not when an impression is generated22.

Figure 17 Formats of digital video on which marketing professionals worldwide plan to increase spending, April 2013

% of respondents

Large format 34%

Display 37%

Branded content 38%

Promoted content 41%

Social 53%

Pre-roll 73%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Note: in the next 12 months Source: Be On, a division of AOL networks as cited in press release, June 5 2013

Finally, it seems that for the majority of marketing professionals (58%), video ads can achieve better customer engagement with the brand than TV ads, and for 47% video ads can raise brand awareness

22 https://www.google.fr/ads/video/advertisers/ad-formats.html

better than TV ads (whereas 31% find that video ads are worse than TV ads for raising brand awareness).

Figure 18 Ability of marketing professionals worldwide to achieve a better share of awareness and engagement with digital video than TV*, April 2013

in % of respondents

15% Worse 31%

14% Same 24%

58% Better 47%

0% 10% 20% 30% 40% 50% 60% 70%

Engagement Awareness

Note: read as 47% of respondents believe that digital video drives awareness better than TV and 58% of respondents believe that digital video drives engagement better than TV; includes branded video content and video ads; * for the same investment

Source: Be On, a division of AOL Networks, as cited in press release, June 5 2013

One last point that should be mentioned is that ad fraud is on the rise (traffic generated by machines and robots and false ad impressions23, comScore found that 36% of the traffic is generated by machines and not humans24). In order to reassure advertisers and marketers, this issue has to be addressed and the advertising industry is continuously working on methods to improve ad security, measurability and better targeting methods as the recent partnership in 2014 between Google and comScore demonstrates25.

23 http://bits.blogs.nytimes.com/2014/02/10/did-anyone-look-at-that-ad/?module=BlogPost- Title&version=Blog%20Main&contentCollection=Technology&action=Click&pgtype=Blogs®ion=Body 24 http://www.warc.com/LatestNews/News/Digital_traffic_fraud_hits_crisis_levels.news?ID=32571 25 http://blogs.wsj.com/digits/2014/02/10/with-comscore-google-hopes-to-attract-more-brand-ads/

3.1.3 Mobile advertising

In Europe, according to IAB’s figures, mobile display advertising accounted for an average of 5% of online display ad spend in 2012 (figure 19). The United Kingdom saw the most impressive rise in the share of mobile display advertising, which increased from 5.5% to just under 12% of total online display advertising. Table 11 gives the estimates and projections for mobile Internet ad spend (all categories) in Western Europe, which was worth $3.589 billion in 2013 and is projected to rise to $15.184 billion in 2017. The United Kingdom, Germany and France are expected to be the countries where mobile Internet ad spending will be the highest.

Figure 19 Share of mobile display advertising of total online display advertising in Europe, 2011 & 2012

Source: IAB AdEx Benchmark 2012, Presentation Interact Barcelona 2013, IAB Europe 2013

Table 11 Mobile Internet ad spending in Western Europe, by country, 2011-2017 in USD millions 2011 2012 2013 2014 2015 2016 2017 United Kingdom $323 $835 $1,586 $2,538 $3,680 $4,784 $5,885 Germany $112 $208 $436 $851 $1,361 $1,991 $2,787 France $87 $130 $240 $431 $690 $1,000 $1,361 Italy $63 $104 $198 $366 $568 $733 $916 Netherlands $45 $78 $172 $307 $460 $598 $747 Sweden $21 $57 $142 $238 $333 $416 $483 Norway $23 $50 $109 $183 $265 $339 $400 Denmark $26 $48 $105 $177 $247 $309 $380 Spain $21 $35 $68 $128 $224 $370 $574 Finland $10 $20 $43 $77 $108 $132 $152 Other $50 $107 $491 $1,092 $1,262 $1,377 $1,499 Western Europe $780 $1,669 $3,589 $6,388 $9,199 $12,050 $15,184

Note: includes display (banners, video and rich media) and search; excludes SMS, MMS and P2P messaging-based advertising; includes ad spending on tablets; numbers may not add up to total due to rounding;*eMarketer benchmarks its UK mobile ad spending projections against the IAB UK/PwC data for which the last full year measured was 2011. Source: eMarketer, June 2013; confirmed and republished, Aug 2013

The addressable markets for mobile Internet ad spending depend on the percentages of mobile Internet users in each country, which are given in table 12 for mobile phones in Western Europe (persons who used a mobile Internet phone at least once a month) and table 13 for tablets for the EU- 5 (persons who used a tablet at least once a month). The addressable market in Western Europe for smartphones was 40% of the total population and is expected to grow to 66% of the total Western European population in 2017. Regarding tablets, another mobile Internet device, 17.8% of the EU-5 population used one and this percentage is expected to rise to 27.1% of the EU-5 population who use a tablet at least once a month.

Table 12 Mobile phone Internet user penetration in Western Europe, by country, 2012-2017 % of population 2012 2013 2014 2015 2016 2017 Norway 50.7% 57.1% 63.5% 72.4% 79.3% 81.9% Sweden 43.1% 51.6% 57.9% 63.9% 69.2% 74.4% Denmark 40.8% 49.7% 59.7% 69.6% 77.4% 83.4% UK 42.7% 49.3% 54.6% 59.0% 62.9% 66.4% Finland 38.5% 47.2% 55.8% 62.8% 69.5% 76.6% Netherlands 38.6% 47.1% 56.8% 66.3% 73.8% 80.5% Spain 32.0% 42.5% 48.7% 54.8% 58.3% 61.8% France 26.8% 36.7% 47.6% 54.7% 60.3% 65.2% Germany 27.6% 35.5% 44.6% 56.5% 64.1% 70.8% Italy 26.4% 34.1% 42.7% 51.6% 56.8% 58.7% Other 29.1% 37.0% 45.0% 52.5% 57.8% 61.8% Western Europe 31.7% 40.0% 48.2% 56.2% 61.7% 66.0% Note: mobile phone users of any age who access the Internet from a mobile browser or an installed application at least once a month; use of SMS/MMS is not considered mobile Internet access. Source: eMarketer, Dec 2013

Table 13 Tablet user penetration in the EU-5, by country, 2010-2016 % of population 2010 2011 2012 2013 2014 2015 UK 2.8% 6.5% 15.6% 21.2% 26.9% 31.9% Spain 3.0% 6.2% 12.7% 19.7% 25.0% 28.8% Germany 2.0% 4.8% 11.9% 16.5% 21.1% 25.7% France 1.8% 4.9% 11.2% 16.4% 21.2% 25.4% Italy 2.4% 4.9% 10.2% 15.9% 20.4% 24.3% EU-5 2.3% 5.4% 12.3% 17.8% 22.7% 27.1% Note: individuals of any age who use a tablet at least once a month. Source: eMarketer, Nov 2012

Table 14 Tablet user growth in the EU-5, by country, 2011-2016 % change 2011 2012 2013 2014 2015 2016 Germany 144.7% 149.1% 38.1% 27.6% 21.5% 14.7% UK 132.1% 140.0% 36.8% 27.6% 19.3% 13.3% France 173.4% 129.4% 47.2% 29.7% 20.3% 12.1% Italy 109.4% 108.5% 56.1% 28.2% 19.9% 9.9% Spain 108.8% 106.4% 56.3% 27.9% 16.3% 11.1% EU-5 132.6% 128.9% 45.1% 28.1% 19.6% 12.5% Note: individuals of any age who use a tablet at least once a month. Source: eMarketer, Nov 2012

Finally, in regard to video ads, viewers tend to consume more video content on their mobile Internet connected devices (smartphones, tablets)2627 with user-generated content (50% of mobile device owners as stated by the Accenture video consumption survey in 201328) and short films/clips (49% of mobile device owners as stated by the Accenture video consumption survey29) leading video consumption. Smartphones and other mobile Internet connected devices permit consumption “on the go” as well as at home. The increase in video viewers in the EU-5 was 112% year on year in 2013, as indicated by table 15. This trend is likely to continue as screens increase in size, mobile broadband coverage is increased and on-demand video services optimise their services (apps, html5 and other standards) in order to permit smooth mobile video consumption. ABI Research has found that online mobile viewing represented 20% of total online viewing worldwide in 201330. With the rising number of mobile video consumers, mobile display advertising will also increase, thus providing another source of finance and profit for on-demand audiovisual services.

Table 15 Smartphone video/TV viewers in the EU-5, by country, June 2013 % of change versus same period in previous year

Total EU-5 112%

France 77%

UK 103%

Spain 110%

Italy 124%

Germany 150%

0% 20% 40% 60% 80% 100% 120% 140% 160%

Note: ages 15+; three-month average for periods ending June 2012 and June 2013. Source: comScore MobiLens as cited in company blog, Aug 19, 2013

The use of mobile devices as second screens3132 (using a mobile device while watching TV333435 but second screens can also be laptops or desktop computers) also enables more advertising, especially for social networks (commenting, exchanging views on a TV show, movie or live TV [sports, reality shows, political discussions] on social networks like Facebook or Twitter) and other marketing tactics and strategies3637. Second screen engagement with TV shows, movies and advertising (interactive ads, combined ad campaigns, extra content, information on shows) provide yet another option for advertisers and marketers.

26 http://www.digitalstrategyconsulting.com/intelligence/2013/02/mobile_streaming_trends_how_are_consumers_using_their_s martphones_and_tablets_infographic.php 27 http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-Video-Over-Internet-Consumer-Survey-2013.pdf 28 Idem page 5 29 Idem page 5 30 https://www.abiresearch.com/press/mobile-video-growth-will-continue-to-outpace-viewi 31 http://www.techopedia.com/definition/29212/second-screen 32 http://www.nytimes.com/2013/10/03/technology/social-networks-in-a-battle-for-the-second-screen.html?_r=0 33 http://www.emarketer.com/Article/Second-Screen-Viewing-Becomes-Common-Activity-UK/1009981 34 http://www.emarketer.com/Article/Multiscreen-Viewing-on-Rise-Sweden/1010182 35 http://www.theguardian.com/technology/appsblog/2012/oct/29/social-tv-second-screen-research 36 http://www.jwtintelligence.com/wp-content/uploads/2012/05/TV_5-8.pdf 37 http://www.theguardian.com/media-network/media-network-blog/2012/sep/10/second-screen-experience-mobile-tablet-tv

3.1.4 Social network advertising

Social network advertising is becoming more and more important, rising at a growth rate of29.9% in 2012 in Western Europe (figure 20) to attain $1.65 billion in 2012 (representing 6.4% of total digital ad spend) and at a rate of 57% to attain $207.3 million (representing 5.6% of total digital ad spend) in Central and Eastern Europe (figure 21). The projections for 2015 for Western Europe are an increase to $2.82 billion for social ad spend, which represent 8.4% of total digital ad spend and in Central Europe an increase to $477,4 million, representing 8% of total digital ad spend, according to eMarketer’s expectations.

Figure 20 Social network ad spending in Western Europe, 2012-2015 in USD billions, % change and % of digital ad spending

$3.00 $2.82 35.0% 29.2% $2.50 $2.38 30.0% $2.00 25.0% $2.00 $1.65 19.1% 18.3% 20.0% $1.50 21.4% 15.0% $1.00 8.4% 6.4% 7.1% 7.6% 10.0%

$0.50 5.0%

$0.00 0.0% 2012 2013 2014 2015

Social network ad spending % change % of digital ad spending

Note: includes display, search, video and other forms of paid advertising appearing within social networks, social games and social applications; excludes spending by marketers that goes towards developing or maintaining social network profile pages or branded applications. Source: eMarketer, Sep 2013

Figure 21 Social network ad spending in Central and Eastern Europe, 2012-2015 in USD millions, % change and % of digital ad spending

$600.00 60.0% 53.8% $477.40 $500.00 57.0% 50.0% $390.80 $400.00 40.0% $318.70 $300.00 22.6% 22.2% 30.0% $207.30 $200.00 20.0%

7.0% 7.4% 8.0% $100.00 5.6% 10.0%

$0.00 0.0% 2012 2013 2014 2015

Social network ad spending % change % of digital ad spending

Note: includes display, search, video and other forms of paid advertising appearing within social networks, social games and social applications; excludes spending by marketers that goes towards developing or maintaining social network profile pages or branded applications. Source: eMarketer, Sep 2013

Regarding the addressable market for social ad spend, social network penetration in Western Europe reached 38.5% of the population in 2012, a percentage expected to raise to 49.4% in 2017 (table 16). Table 17 shows a decline in the growth in the number of social network users in the coming years, down from 12.1% in 2012 to only 3.1% in 2017.

Table 16 Social network user penetration in Western Europe, by country, 2011-2017 % of population in each group 2011 2012 2013 2014 2015 2016 2017 Netherlands 59.5% 64.7% 69.6% 71.8% 74.4% 76.1% 77.3% Norway 59.0% 64.3% 69.2% 73.0% 75.5% 77.9% 79.8% Sweden 54.4% 59.6% 64.5% 68.2% 70.8% 73.2% 75.1% Finland 46.7% 51.7% 56.3% 59.9% 63.0% 65.3% 67.2% Denmark 46.5% 51.4% 56.0% 59.5% 62.6% 65.5% 67.3% United Kingdom 43.5% 47.7% 50.2% 52.6% 53.9% 55.0% 55.6% Spain 33.1% 37.2% 41.2% 44.5% 46.9% 49.2% 50.8% Germany 31.5% 35.9% 39.9% 42.8.% 45.1% 47.2% 48.9% France 30.6% 33.5% 35.9% 37.8% 39.1% 40.3% 41.2% Italy 25.9% 29.6% 32.6% 35.0% 36.8% 38.3% 39.7% Other 28.7% 32.6% 35.8% 38.4% 40.2% 41.9% 43.4% Western Europe 34.5% 38.5% 41.9% 44.5% 46.4% 48.1% 49.4% Note: Internet users who use a social network site via any device at least once a month. Source: eMarketer, April 2013

Table 17 Social network user growth in Western Europe, by country, 2011-2017 % change 2011 2012 2013 2014 2015 2016 2017 Spain 18.8% 13.0% 11.5% 8.8% 6.4% 5.8% 4.1% Germany 20.8% 13.7% 11.1% 7.0% 5.3% 4.5% 3.4% Italy 27.8% 15.0% 10.2% 8.0% 5.3% 4.3% 4.0% Denmark 14.3% 10.8% 9.1% 6.5% 5.4% 5.0% 3.0% Finland 17.1% 10.7% 9.0% 6.3% 5.3% 3.7% 2.8% Sweden 12.9% 9.8% 8.4% 6.0% 4.0% 3.6% 2.8% Norway 12.1% 9.3% 8.0% 5.8% 3.9% 3.5% 2.8% Netherlands 11.9% 9.3% 8.0% 5.8% 3.9% 3.5% 2.8% France 12.2% 10.1% 7.6% 5.8% 3.8% 3.5% 2.8% United Kingdom 14.2% 10.5% 6.3% 5.6% 3.4% 2.8% 2.0% Other 22.5% 13.9% 10.3% 7.4% 5.2% 4.4% 3.7% Western Europe 17.6% 12.1% 9.1% 6.6% 4.7% 4.0% 3.1% Note: Internet users who use a social network site via any device at least once a month. Source: eMarketer, April 2013

Facebook is the undisputed champion of social networks with over 1.19 billion monthly active users worldwide (and 728 million daily active users) in 201338 (of which 874 million mobile users, an increase of 45% year on year - mobile advertising revenue therefore surged to represent 53% of Facebook’s total advertising revenues of39 in Q4 2013). In Western Europe, Facebook had 153 million monthly active users in 2013, and the number is projected to increase to 182.7 million users in 2017 (table 18).

Table 18 Facebook users in Western Europe, by country, 2011-2017 in millions 2011 2012 2013 2014 2015 2016 2017 United Kingdom 25.6 28.3 29.9 31.4 32.2 33.0 33.6 Germany 16.7 20.0 22.1 23.6 24.9 25.9 26.9 France 17.6 20.4 22.0 23.4 24.4 25.2 25.9 Spain 12.8 16.4 18.3 20.0 21.3 22.6 23.8 Italy 12.9 16.3 18.0 19.3 20.3 21.3 22.1 Netherlands 9.2 10.0 10.8 11.1 11.5 11.8 12.0 Sweden 4.5 4.9 5.4 5.7 5.9 6.1 6.2 Norway 2.6 2.8 3.0 3.2 3.3 3.4 3.5 Denmark 2.3 2.6 2.8 3.0 3.1 3.3 3.4 Finland 2.2 2.5 2.7 2.8 3.0 3.1 3.2 Other 13.0 16.3 18.0 19.4 20.4 21.4 22.3 Western Europe 119.5 140.5 153.0 162.8 170.4 177.0 182.7 Note: Internet users who access their Facebook account via any device at least once a month; numbers may not add up to total due to rounding. Source: eMarketer, April 2013

Western Europe is second worldwide regarding social network ad spending per user at $10.24, behind North America where social network ad spending per user was $19.03 in 2012. CEE social network ad spending per user was $1.36 in 2012 (table 19). Spending per user will increase to $16.17 in Western Europe and to $2.54 in CEE by 2015.

Table 19 Social network ad spending per social network user worldwide, by region, 2012-2015 in USD 2012 2013 2014 2015 North America $19.03 $26.05 $32.82 $39.89 Western Europe $10.24 $12.04 $13.71 $16.17 Asia-Pacific $2.95 $3.36 $3.60 $4.12 Central & Eastern Europe $1.36 $1.87 $2.21 $2.54 Latin America $1.41 $1.78 $2.17 $2.39 Middle East & Africa $0.27 $0.37 $0.50 $0.66 Worldwide $5.14 $6.18 $6.97 $7.98 Note: includes display, search, video and other forms of paid advertising appearing within social networks, social games and social applications; excludes spending by marketers that goes towards developing or maintaining social network profile pages or branded applications. Source: eMarketer, Jan 2014

38 http://www.prnewswire.com/news-releases/facebook-reports-third-quarter-2013-results-229923821.html 39 http://online.wsj.com/news/articles/SB10001424052702304428004579350971373442410

3.1.5 Programmatic, real-time bidding and video advertising

Real-time bidding40 is the automation of ad exchanges between a publisher and an advertiser. “A highly complex, computer auction-based system of buying ads – with transactions taking fractions of a second – programmatic trading is similar to how stocks and share are traded on stock markets. The trading, which takes the form of automated real-time bidding based on complicated algorithms, matches ads with audiences.41” It enables cost-reductions (as the process is automated and involves less staff, such as sales and other agencies’ in-house teams. Real-Time bidding is mostly used with display advertising and its introduction to online video ads has brought about a market increase (see chapter 3.3 - Online display market – a complex market). Real-time bidding can help to improve video ad placements but the process is still in expansion (having been around since 2003 but only used to sell unsold inventory) but is promised a bright future, rising fast at +233.1% in 2013 in the EU-5 according to SpotXchange data. As table 20 shows, programmatic digital video ad spending in EU-5 was worth €119.6 million in 2013 (12.2% of total video ad spending) but will rise to €626.5 in 2017 (representing 33.2% of total video ad spending).

Table 20 Programmatic digital video ad spending in the EU-5, 2012-2017 In EUR millions, % change and % of total video ad spending 2012 2013 2014 2015 2016 2017 Revenues 35.9 € 119.6 € 225.5 € 368.8 € 503.0 € 626.5 € % change - 233.1% 88.5% 63.5% 36.4% 24.6% % of total video ad spending 4.6% 12.2% 18.7% 25.8% 30.3% 33.2%

Source: IHS, "Video goes programmatic: Forecasting the European online video advertising landscape" commissioned by SpotXchange eMarketer calculations, Sep 5, 2013

Table 21 Programmatic video ad spending share in the EU-5, 2012-2017 % of total video ad spending 2012 2013 2014 2015 2016 2017 UK 9.0% 18.2% 24.3% 31.2% 36.2% 38.9% France 3.0% 11.4% 17.5% 24.5% 28.7% 31.4% Italy 3.9% 11.3% 19.0% 28.7% 32.8% 36.0% Spain 2.5% 9.1% 16.3% 22.9% 27.2% 29.8% Germany 1.9% 6.7% 13.1% 18.9% 23.1% 26.6% Source: IHS, "Video goes programmatic: Forecasting the European online video advertising landscape" commissioned by SpotXchange

Taking into account overall display ad spending, the rise of programmatic display ad transactions is further highlighted. In the US in 2012, $4.8 billion was spent through programmatic transactions, or 63.2% of total display ad spending, and this figure is projected to rise to $16.9 billion in 2017, representing 51.8% of total display ad spending.

Worldwide (that is to say in Australia, China, France, Germany, Japan, Netherlands, Spain, UK and the US according to Magna Global figures), programmatic display ad spending will rise from $7.6 billion in 2012 to $32.6 billion in 2017.

40 http://marketingland.com/the-mechanics-of-real-time-bidding-31622 41 http://www.theguardian.com/media/media-blog/2014/feb/09/advertising-sales-programmatic-trading

Table 22 US and worldwide* programmatic display ad spending, 2011-2017 USD billions, % change and % of total 2011 2012 2013 2014 2015 2016 2017 US $2.8 $4.8 $7.5 $9.8 $12.4 $14.8 $16.9 % change - 71.4% 56.3% 30.7% 26.5% 19.4% 14.2% % of total 62.2% 63.2% 62.5% 59.0% 56.6% 54.2% 51.8% Worldwide $4.5 $7.6 $12.0 $16.6 $21.9 $27.3 $32.6 % change - 68.9% 57.9% 38.3% .1.9 24.7% 19.4% Note: Includes both RTB and other programmatic/automated platforms for banner, social and video ads on desktop and mobile devices *includes Australia, China, France, Germany, Japan, Netherlands, Spain, UK and the US. Source: MAGNA Global as cited in press release; eMarketer calculations, Oct 14, 2013

3.2 The online advertising market 2011– Data available on online advertising investments (IDATE & IAB data)

Advertising in the online landscape was still on the rise in 2012. While paid search continues to represent the main proportion of ad spend in the online landscape, display ads are increasingly being used. This is mainly due to two factors: the rise of online video ads and of mobile display ads coupled with technical improvements regarding bandwidth and the ongoing equipping of consumers with connected devices (smartphones, tablets, PCs).

This section explores in more detail the state of online display advertising relating to audiovisual on- demand services.

In regard to financial figures and statistics, the major source for online advertising remains the Interactive Advertising Bureau (IAB). Most of the main players on the online advertising market do not communicate precise financial data or statistics on their businesses. Reports on advertising-supported video on-demand services made by consulting groups such as PwC or Rentrak are very costly, so we had to rely on figures either communicated by business organisations like IAB, Warc, Idate or ad- network financed studies (like BrightRoll, Brightcove or TubeMogul) which play an active part on the online advertising market and have a direct commercial advantage to prove to advertisers the importance of online display advertising in order to encourage them to shift their TV ad spend to online display ads. Or else we had to rely on articles in the specialised press relating to online advertising, mostly written or funded by industry players.

Also, we found that figures are much more readily available on the US than the European market, so the figures cited in this section should be taken as a guideline to actual trends.

As the note was commissioned in March 2013 when IAB’s AdEx Benchmark 2012 Europe was not yet available, most of the data in this note rely on IAB’s AdEx Benchmark 2011.

Digital Content: the main driver of online display advertising

Increased network capabilities, the general availability of broadband connections permitting the smooth delivery of videos via the Internet and the appetite of consumers to view videos and engage with content viewed are driving online display advertising. Publishers are increasingly competing for original content that appeals to consumers and therefore increases the audience of their websites, making it more valuable to advertisers and thus generating higher advertising revenue. Advertising agencies and ad networks provide advertisers with the technical know-how and capabilities of targeting consumers, thus making the advertising message more coherent and relevant to them. Technical innovations like dynamic online video ad insertion depending on the consumers’ profile (tastes, consumption habits, browser history retrieved through cookies and behavioural analysis) have allowed advertisers to engage and reach their target audience in a new way. Unlike TV advertising, online advertising permits a much more fine-grained audience analysis and therefore a more valuable advertising message for advertisers. Whereas paid search advertising focused on a more return on investment approach as advertisers could measure the impact of their ad campaign through click- through rates and traffic attracted to their websites coming from search results (a short term approach to online marketing where advertisers seek to attract traffic in order to make sales or identify sales leads), display advertising is more focused on delivering a brand message. For a long time, display advertising consisted mainly of banner ads mixing text and images, whether moving or not, which did not permit the effective delivery of a a brand’s message. With the introduction of video ads, advertisers could more effectively engage in storytelling like on TV and thus convey the brand’s core message. Therefore, the main drivers of the growth of the online display ad market have since 2010 been online video ads and mobile ads, videos allowing better brand advertising and mobile ads making it possible to engage with the consumer wherever he/she is connecting from, such as a smartphone or tablet.

The reason underlying the better targeting capabilities is to be found in the rise of so-called “big data”. Video-on-demand websites financed by advertising are taking advantage of those innovations. As advertisers and marketers see the Internet as a viable form of brand advertising, close to the way advertising was carried out through television with improved targeting and audience segmentation, the competition to provide advertisers and marketers with the audience they need has improved. What does attract an audience and ensure a large audience base? In this study, the focus is on on-demand audiovisual services, so we will concentrate on the forms of display advertising found on on-demand video sites. These are increasingly video ads which enable advertisers to conduct brand advertising and tell a story about their brand. The perception of the Internet not only as a medium for result- and ROI-centric advertisements, e.g. paid search, but also as a place to communicate and engage with customers around the brand message conveyed is fundamental to the rise of both video on-demand sites financed by advertising and in the surge of display advertisements, especially online video ads. Broadcasters have played an active part in the promotion of this form of advertising to counterbalance the shrinking of their TV advertising revenues.

3.2.1 The online advertising market

“The global market of online advertising will rise from 60 billion EUR in 2012 to 108 billion EUR in 2016”42 according to IDATE. (The following section is an extract from IDATE’s report on online advertising).

USA dominant in the field, with APAC growing rapidly

Figure 22 Online advertising market worldwide 2012-2016

Online advertsing market - revenues worldwide 2012- 2016 in EUR million

120,000 108,400 100,000

80,000 60,217 60,000

40,000

20,000

0 2012 2016

Source: IDATE, July 2012

42 http://blog.idate.fr/world-Internet-markets-on-line-advertising/

Online advertsing market breakdown of revenues worldwide 2012 in %

12% 24%

28%

36%

EU27 USA Asia-Pacif Rest of world

Source: IDATE, July 2012

Online advertsing market breakdown of revenues worldwide 2016

19% 20%

31% 30%

EU27 USA Asia-Pacif Rest of world

Source: IDATE, July 2012

Online advertising represents an important part of total media advertising

Online advertising will continue to be a main part of the advertising landscape, passing from around 16% in 2012 of the total media advertising market to 24% in 2016.

Figure 23 Online advertising’s share of total media by market 2012-2016

Online advertising's share of the total media advertising market by region, in 2012 and 2016e 30% 24% 25% 25% 23% 23%

20% 18% 16% 17% 17% 15%

10%

5%

0% World EU27 USA APAC

2012 2016e

World EU27 USA 30% 30% 24% 23% 30% 23% 18% 20% 16% 20% 17% 20% 10% 10% 10%

0% 0% 0% 2012 2016e 2012 2016e 2012 2016e

APAC 30% 25% 17% 20% 10% 0% 2012 2016e

Source: IDATE43, July 2012

43 http://blog.idate.fr

Video, mobile and social networks lead the way

The advertising market is dominated by global players such as Google, Facebook, Apple… Mobile advertising is set to generate the most revenue as connected mobile devices are more used by customers and the advertising industry adapts rapidly to those new technologies.

Figure 24 Breakdown of online advertising market by segment worldwide 2012 and 2016 Breakdown of online advertising market by segment, worldwide in 2012 and 2016 in EUR million 16,000 14,050 14,000 12,500 12,000

10,000 7,975 8,000 5,840 6,000 4,425 4,000 3,317

2,000

0 Video advertising Mobile advertising Social network advertising

2012 2016

Source: IDATE44, July 2012

44 http://blog.idate.fr/wp- content/uploads/2012/07/world_Internet_advertising_Img3_breakdown_online_advertising_segment.jpg

Highest per-user revenue for advertising on social networks

Social Networks allow addressing targeted advertisement to identified target groups of social network users, which as more value for advertisers as the advertising revenue per user shows

Figure 25 Breakdown of online advertising per-user revenue per year by segment 2012 and 2016

Breakdown of online advertising per-user revenue per year by segment, worldwide in 2012 and 2016 in EUR 9 8.2 8 7

6 5.3 4.9 5 4.1 4

3 2.3 2.5 2 1 0 Video advertising Mobile advertising Social network advertising

2012 2016

Source: IDATE45, July 2012

45 http://blog.idate.fr

3.2.2 The European online advertising market

Online advertising is continuing to rise, totalling €20.9 billion in Europe46 in 2011 (an increase of 14.4% compared to 2010) and $36.57 billion in the USA in 201247 (up by 15% from $31.74 billion in 2011). Driven by the increased consumption of online content, video in particular, and increased mobile advertising, ad spend on the web now represents 20%48 of total ad spend in Europe and is the fastest growing advertising segment (the overall European advertising market, excluding online, grew at 0.8% in 2011).

Figure 26 Economic and ad growth 2011 Europe Economic and ad growth 2011 in % 25.0%

19.7% 20.0%

14.4% 15.0% 11.5% 9.7% 10.0%

5.5% 5.0% 3.2% 3.6% 1.7% 1.5% 1.3% 0.8% 0.0% Western Europe CEE Total Europe -1.0% -5.0%

GDP Total exluding online Online Total

Source: AdEx 2011, IAB Europe

The resistance of advertising to the economic crisis, which affected ad spend in other media such as newspapers or magazines shows the increased need for advertisers to get into touch with consumers where they are, which, in the 21st century, is most definitely the Internet. With marketers and advertisers getting more and more used to the Internet as an effective medium not only to convey an advertising message but also to interact with consumers, the next shift that is already underway is the increasing interconnection between TV ads and online video ads, which are referred to as T/V advertisements. However, how do advertisers in Europe spend their money on Internet advertisements? The AdEx report by IAB Europe only makes a distinction between the three major formats, display

46 AdEx Benchmark 2011, IAB Europe, http://www.iabeurope.eu/media/97996/2012_interact_presentation_final_delivered.pdf AdEx 2011 coverage, 26 countries : Austria, Belgium, Bulgaria, Czech Republic, Croatia, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Netherlands, Norway, Poland, Russia, Romania, Serbia, Slovenia, Slovakia, Spain, Sweden, Switzerland, Turkey, United Kingdom. 47 IAB Internet advertising revenue report 2012, IAB and PwC, http://www.iab.net/media/file/IAB_PWC_Internet_Advertising_Revenue_Report_FY_2012_Apr_16_2013.pdf 48 AdEx Benchmark 2011, IAB Europe.

advertising, paid search advertising and classifieds & directories.

Paid search advertising accounted for €9.7 billion in 2011 (up 17.9% from €8.2 billion in 2010) or 46% of total ad spend. Display advertising represented €7 billion or 33.5% of the total online advertising market (up by 14.7% from €6.1 billion in 2010) with classifieds and directories accounting for 19% of the total online advertising market at €4 billion (up by 5% from €3.8 billion in 2010).

Figure 27 Europe online formats 2011 and 2012 Growth across formats pushes online above €20 billion mark in EUR billion 25 20.9 20 18.3

15 9.7 10 8.2 6.1 7 5 3.8 4

0 Display Classifieds & Directories Search Total

2010 2011

Source: IAB Europe AdEx Benchmark 201149. “Other” not shown separately, but included in total

Figure 28 Europe online ad growth by format Europe: online ad growth by format 30%

25%

20% 2009 15% 2010 10% 2011

5%

0% Display Classified Search Total

Source: ScreenDigest, Focus March 2012

49 http://www.iabeurope.eu/files/9113/6852/1903/2011_adex_benchmark_final.pdf

Figure 29 Online ad format by share of total online advertising

Format shares of online ads - Paid-for search remains the largest segment 120.0% 100.0% 80.0% 33.4% 33.6% 60.0% 40.0% 45.1% 46.5% 20.0% 20.9% 19.3% 0.0% 2010 2011

Classified & Directories Search Display Others

Source: AdEx Benchmark 2011, IHS ScreenDigest, IAB.Europe Paid search still dominates the online ad market owing to its ability to allow a more ROI-centric approach as its results are measurable either by sales directly made or by a traffic increase on a website. Also, as advertisers and marketers were from the beginning of online advertising more used to paying for search keywords (Google’s keywords and paid search being the most valued and used) the shift to a more display focused approach to online advertising took some time. Remember the time when the only online display advertisements were mainly banner ads which provided poor click- through ratings? Online branding through display advertisements (video, rich media, new banner ads with improved click-through ratings) is still relatively recent so there is still time for marketers to get used to them and adopt them as a marketing tool equal to TV ads before it is too late.

With regard to country-by-country online ad spend, 7 of the 26 countries included in the study account for 75% of total ad spend, with the United Kingdom accounting for over 25% of total online ad spend in Europe.

Figure 30 Top 7 online advertising markets represent a share of 75%

Figure 31 Growth in European online advertising market

Another conclusion that can be drawn from the 2011 AdEx Benchmark report is that Central European countries’ online ad spend is growing enormously compared to Western Europe. The increased network capabilities coupled with increased web access for the Central and Eastern European populations are providing advertisers with a new audience which must be addressed. Russia’s online ad spend growth is particularly impressive with a rise of 55% over one year. The more mature markets of Western and Northern Europe are in line with the general trend observed in Europe of around 10% growth in 2011.

On 23 May 2013, IAB Europe published a press release on its website50 announcing the AdEx Benchmark survey for 2012 (not yet available at the date of this note). In 2012, the European online advertising market, according to the press release, surpassed €24.3 billion, up by 11.5% from 2011. While paid-for-search advertising remains the main category in Europe’s online advertising market with a market value of €11.9 billion in 2012 and growth of 15.5% over the year, display advertising grew by 9.1% compared to 2011 and has a market value of €7.8 billion. Display advertising was mainly driven by mobile and online video. “More reliable audience metrics, better campaign measurements, improved automation and simplification of purchasing online advertising space developed by industry, increased confidence amongst marketers in the online ad medium”.

Advertisers and ad agencies need to evaluate their ad campaigns and, in order to do so, need metrics on the ROI of funds invested in ads, the better targeting of core audiences to which the ad message is addressed and a simpler method of placing online display ads. As we will see in section 1.3, which deals with online display advertising and online video advertising, the emergence of “big data” and behavioural analysis allow for better audience segmentation and targeting whereas real- time bidding permits a much more simple and automated way of placing online ads. Those improvements in online display ads, particularly in video ads, have ensured that marketers and advertisers rely more on the Internet as a medium which can effectively convey a brand message.

The press release also states “Continued strong migration of ad spends online, which followed media usage patterns, underpinned the overall strong growth. Demand for online video advertising increasingly acted as a major draw for brand advertisers growing by 50.6% in 2012, to nearly

50 http://www.iabeurope.eu/news/european-online-advertising-market-surpasses-24bn-euros-in-value.aspx

€661.9M. This is the first time in Europe that online video has grabbed double-digit display market share, jumping to 12.9%”.

As we will see below, online advertising is also eating into advertising budgets of other media, particularly print. However, the gap between online advertising and TV advertising in Europe is continuously narrowing: online ad spend represented 25% of total ad spend, TV 28% (as IAB has not yet published this report, we have relied on Warc which had access to it51). In the United Kingdom this is already the case and the figures show that online advertising, while progressing in the future, will have to convince advertisers that online ads have the same strength as TV advertisements.

The IAB Europe press release also establishes a ranking of the top 10 European markets in regard to total online ad spend. The United Kingdom leads this ranking with a total of €6.6 billion in 2012, followed by Germany with €4.6 billion, France €2.8 billion. Russia was the only country which progressed, passing in front of Italy with online ad spend growth of 34% between 2011 and 2012, totalling €1.5 billion. Italy ranks in fifth place with €1.4 billion, followed by the Netherlands with €1.2 billion and Spain with €0.9 billion.

Top 10 Country Rankings, AdEx Report 2012

Table 23 Top 10 country rankings in 2012 in Europe by online advertising ad spend

– United Kingdom – €6.6bn – Germany – €4.6bn – France – €2.8bn – Russia – €1.5bn – Italy – €1.4bn – Netherlands – €1.2bn – Spain – €0.9bn – Sweden – €0.8bn – Norway – €0.6bn – Denmark – €0.6bn

The IAB Europe AdEx reports are useful in order to measure the total European online advertising market and to distinguish between their three major categories. The freely available report unfortunately does not furnish any more information, this section being reserved for IAB members. In order to see the progress of online ad spend in Europe, we choose to incorporate Warc data where available. This data is presented in the following section.

51 http://www.warc.com/Blogs/IAB_Europes_AdEx_report_Whats_the_future_for_online_branding.blog?ID=1721

3.2.3 Online ad spend compared to total and other media ad spend (Warc data) 2008-2014

 France

Table 24 Online ad spend compared to total ad spend 2008 -2014 France

Source: Warc

Online ad spend has risen steadily in France since 2009 and the economic crisis (negative growth only between 2008 and 2009 of -3.3% quickly offset by growth of 19.5% between 2009 and 2010). From only 13.8% of total ad spend, the Internet accounted in 2012 for 20.1% of total ad spend and was the only medium which did not shrink between 2011 and 2012 (Newspaper ad spend shrank by - 10.2% and even the huge TV ad spend experienced a fall of -4.5%). At €2.7 billion in 2012, online ad spend accounted for 65% of TV ad spend, up from only 46.9% in 2008.

France’s online ad spend is following the main trends in Europe, with greater investment in online ads in order to expand the reach and ensure the better targeting of ads. The data available do not allow for a more precise breakdown as we do not have the figures for online display advertising or paid search.

 Germany

Table 25 Online ad spend compared to total ad spend 2008 -2014 Germany

Source: Warc

 United Kingdom

Table 26 Online ad spend compared to total ad spend 2008 -2014 United Kingdom

Source: Warc

 Italy

Table 27 Online ad spend compared to total ad spend 2008 -2014 Italy

Source: Warc

3.2.4 The American online advertising market 2012

More online ad spend data are provided in IAB’s US AdEx report 201252, which does provide a breakdown between ad spend, distinguishing between several formats instead of only the three used in the IAB Europe report.

The revenues of the online advertising market rose by 15.2% between 2011 and 2012 to reach $36.6 billion. The most impressive increase came from mobile advertising, which went from 5% of overall ad spend in 2011 ($1.585 billion) to 9% in 2012 ($3.29 billion). The overall weight of paid search was slightly reduced but still accounted for $16.8 billion in 2012, followed by display advertising at 7.6 billion.

The interesting aspect of the figures supplied is that they provide a breakdown between digital video ads and display ads (unlike in Europe): proportion of video ads in regard to total ad revenues is stable at 6%, rising from $1.9 billion in 2011 to $2.19 billion in 2012. IAB USA has become aware of what a powerful tool online video ads are for marketers and advertisers.

52 http://www.iab.net/media/file/IAB_Internet_Advertising_Revenue_Report_FY_2012_rev.pdf

Evolution of Ad formats 2011-2012 in the USA

Figure 32 USA: evolution of ad formats 2011 - 2012 Ad formats - full year 2011 Total - $31.7 billion 4% 4% 1% 5% 6%

5% 47%

8%

21%

Search Display / Banner Classifieds Mobile Digital Video Lead Generation Sponsorship Rich Media Email

Source: IAB53

Ad formats - full year 2012 Total - $36.6 billion 5% 2% 3% 0% 6%

9% 46% 7% 21%

Search Display / Banner Classifieds Mobile Digital Video Lead Generation Sponsorship Rich Media Email

Source: IAB

53 http://www.iab.net/media/file/IABInternetAdvertisingRevenueReportFY2012POSTED.pdf

Looking at the historical trend of these different shares between 2006 and 2012, several observations might be made:

– Search remains powerful and accounts for more than 40% of overall ad spend – Display ads are stable over the time period – Classified ads experienced a significant decrease as a proportion of overall ad spend, whereas they their use is still growing in Europe – The enormous surge of mobile ads and video ads, with mobile ads overtaking classified ads for the first time in 2012 and therefore becoming the third most important format for online advertisements.

Figure 33 USA – Advertising format share 2006-2012

As the report explains, the rise in mobile ads is explained by several facts: the increased equipping of the population with smartphones which allow for smoother mobile web navigation coupled with faster connection speeds, as well as the shift of social media onto mobile consumption and, therefore, the ability to target consumers “on the go”.

Internet economies are under the network effect and prone to monopolistic or oligopolistic markets. The US AdEx report 2012 underlines this fact by showing that 72% of overall revenues in the 4th quarter of 2012 were generated by 10 companies (Google being number 1 but the report does not provide any other company names). Also, almost 90% of total online advertising revenues are commanded by 50 companies, and this trend is likely to continue as many small start-up companies are either bought by the Internet giant if they overperform or a gently pushed out of business as they do not possess the capacities, either financially or technically, to compete in the long run with their much bigger competitors.

Figure 34 USA – Online ad revenue share by number of companies

Source: IAB, AdEx USA 2012

With search remaining the main online ad format, performance based pricing is still the dominant form. Click-through cost and cost-per-action are the main pricing models here. Advertisers pay if the consumers click on their ad or search result or if the advertisement leads to an action resulting in a sale or registration on a web site or provides a lead for the advertising company to follow up. In 2012, performance-based pricing accounted for 66% of overall ad revenues.

Cost-per-mille (CPM) is typically used for display ads, video ads and mobile ads. Here, advertisers pay the website/publisher a rate which varies greatly (from $0.1 up to $40 for exclusive top-tier sites) for each thousand views/unique viewers of the ad. This form of pricing can be equated to TV advertising, where the advertiser also pays for an overall audience reached (gross rating points, or GRP).

As we will see in section 1.3 dealing with display ads and video ads, this ecosystem allows for a large number of intermediaries, each intervening in one or more stages to reach the target audience. With the increasing amount of quality content available on the web and the ever larger number of advertisers, CPM is on a downward spiral and applies more to a seller’s market. Also, real-time bidding mechanisms implemented by the main advertising sellers and start-ups are increasingly automating the selling and buying of display advertisements and putting further pressure on the price of CPM. In order to be able to command top CPM’s, publishers and ad-space selling companies have to provide quality content valued by the target audience.

Pricing models used in the online advertising market in the US

Figure 35 USA – Pricing model rises and falls 2011 - 2012 Pricing models - FY 2011 Total - $31.7 billion

4%

31% Performance CPM Hybrid 65%

Pricing models - FY 2012 Total - $36.6 billion

2%

32% Performance CPM Hybrid 66%

Source: IAB, AdEx USA 2012

Figure 36 USA – Internet ad revenues by pricing model Internet ad revenues by pricing model in % of total revenues 70% 65% 66% 62% 60% 59% 57% 50% 51% 47%48% 46% 45% 41% 40% 39% 37% 33% 30% 31% 32%

20% 13% 10% 5% 4% 4% 4% 5% 4% 0% 2% 2005 2006 2007 2008 2009 2010 2011 2012

Performance CPM Hybrid

Source: IAB, AdEx USA 2012

Figure 37 USA – advertising revenue market share by media 2011

Advertising revenue market share by media 2011 in USD billion Cinema 0.7 Video Games 0.8 Out of Home 7.5 Raido 16.1 Newspaper 19.4 Magazines*** 22.8 Cable Television** 32.5 Internet 36.6 Broadcast Television* 39.6

0 10 20 30 40 50

The total US advertising market includes other segments not charted here.

*Broadcast Television includes network, syndicated and spot television advertising revenue

**Cable Television includes national cable networks and local cable television revenue

***Magazines include consumer and trade magazines

Source: IAB Internet Advertising Revenue Report, PwC

Figure 38 USA – advertising revenue market share by media 2005-2012

Changes in US ad spend 2005-2012

As the above tables show, Internet overtook cable television advertising in 2011 and continued its rise throughout 2012 to reach almost the figure for broadcast television. The trend is likely to continue, with increased branding capabilities offered by online video advertising and improved targeting methods allowing marketers/advertisers to reach customers on their mobile device. In the not-too- distant future, revenue from online advertising will be equivalent to or higher than broadcast television. This trend is enhanced by the fact that traditional broadcasters have heavily invested in the web to profit from these new methods of advertising and limit the stagnation of their traditional revenues. The fact that they aim at advertisers with an offer comprising TV ads coupled with online ads to increase the reach of an advertising campaign is a sign of their adaptation to the online advertising market. It is also a way for broadcasters to increase the value of their content.

Table 28 USA – Net Online display ad revenue of Top 5 ad-selling companies

Net US online display ad revenues at Top 5 ad-selling companies in USD billion 2011 2012 2013 2014 Facebook $1.73 $2.58 $3.29 $3.75 Google $1.71 $2.54 $3.68 $4.76 Yahoo! $1.35 $1.40 $1.50 $1.64 Microsoft $0.56 $0.67 $0.80 $0.96 AOL $0.53 $0.62 $0.71 $0.81 Total Top 5 $5.88 $7.81 $9.98 $11.91 Total online display $12.40 $15.39 $18.57 $21.91

Note: eMarketer benchmarks its US total online display ad spending projections against IAB/PwC data, for which the last full year measured was 2010; mobile included: net ad revenues after companies pay traffic acquisition costs (TAC) to partner sites; includes banners, rich media, sponsorships and video

Source: eMarketer Feb 2012; company reports 2011 & 2012

As the table from eMarketer shows, the US online display market is heavily dominated by the pure players on the web. The leading social network (Facebook), the leading video platform and advertising network (Google) and the leading portals (Yahoo!, Microsoft, AOL) are in the top 5. This situation will be further enhanced by the recent acquisitions by these players (Instagram in the case of Facebook, Tumblr in the case of Yahoo!). The competition for content and therefore audience has been underway for years and the situation on the online display market is tending to become oligopolistic.

Table 29 USA – Top online video content properties ranked by unique video viewers

Table 30 Top online video ad properties ranked by unique video viewers

The last two tables show that ad networks such as Bright Roll and Adap.tv are on the rise. In fact, for many advertisers and publishers they are the main intermediaries for the delivery of video ads. Google, which has an integrated approach as it is both a publisher through YouTube and an ad- network through DoubleClick (both acquired during the late 2000s, YouTube for $1.7 billion and DoubleClick for $3.1 billion), sees its strategy paying off, enjoying as it does a dominant position on the online content video market and a leading position on the ad video market.

3.3 Online display advertising - a complex market

Figure 39 LUMA online display advertising ecosystem

Source: LUMA Partners 2012

The above graphs show the complexity of the ecosystem of the online display market. Marketers/Advertisers who want to launch an advertising campaign on websites have to interact with many players, the main ones being the marketers/advertisers, whose goal/need is to place an advertisement/advertising campaign on the Internet, the ad agencies which will develop the ad/campaign, the ad servers which will deliver the advertisements, the demand side platforms (DSPs) which provide agencies with a unique interface for placements on various publishers’ websites, ad networks which “run” the business (Google, Yahoo!, AOL, Tremor Video) and, finally, the publishers which through their content attract the desired audience for the marketer/advertiser.

The complexity has for a long time made it difficult for marketers to effectively run ad campaigns on the Internet, having concerns as they do about the effectiveness of ads, the measurability of the reach of their campaigns and, ultimately, the various intermediaries with whom they have to negotiate. Recently, however, DSP or integrated ad networks like Google have simplified the task for marketers and offer a one-stop place to advertise.

Figure 40 Online display advertisement industry structure

This is a simplified structure of the online display market. The value-added service providers represent in this part the various intermediaries from the LUMA landscape. The interesting point in this schema is that advertisers can also contact publishers (here Yahoo!, MSN) directly or go through an advertising network such as Google ad networks (DoubleClick, AdSense) to place their campaign.

Table 31 Online display ad spending in Western Europe by format 2011-2016 in € millions

Online display ad spending in Western Europe, by format in € millions 2011 2012 2013 2014 2015 2016 Rich media* €1,686 €2,120 €2,551 €3,010 €3,508 €4,045 Video €764 €920 €1,112 €1,321 €1,540 €1,768 Text ads €963 €1,042 €1,139 €1,238 €1,345 €1,447 Static image €723 €681 €631 €567 €506 €425 Total €4,136 €4,763 €5,433 €6,136 €6,899 €7,685

Source: *: excludes video Forrester Research “Digital Media Buying Forecast 2012 to 2017” as cited by TechCrunch, Oct 9 2012, retrieved from eMarketer

Table 32 Online display ad spending in Western Europe by format 2011-2016 in % change

Online display ad spending growth in Western Europe, by format, in % change 2012 2013 2014 2015 2016 Rich media* 25.7% 20.3% 18.0% 16.5% 15.3% Video 20.4% 20.9% 18.8% 16.6% 14.8% Text ads 8.2% 9.3% 8.7% 8.6% 7.6% Static image -5.8% -7.3% -10.1% -10.8% -16.0% Total 15.2% 14.1% 12.9% 12.4% 11.4%

*: excludes video

Source: Forrester Research “Digital Media Buying Forecast 2012 to 2017” as cited by TechCrunch, Oct 9 2012, eMarketer calculations, retrieved from eMarketer

Rich media ads and video ads are enjoying growth in Western Europe, with a rise of 20% projected in 2013. Advertisers prefer more and more those display ad formats which allow them to engage with the target audience and carry out brand advertising/storytelling, which is not possible through simple static images. The banner we are used to is likely to slowly decrease in importance. The newer ways of reaching and engaging with the audience are clearly preferred by marketers, so exclusive/quality content will remain important for publishers in order to attract the desired audiences and, therefore, advertisers.

Figure 41 Europe: mobile display ads as share of online display

Mobile display ads as share of online display - Europe 2011 % of Display 6.0% 5.3% 5.0%

4.0% 3.6% 3.6%

3.0% 2.3% 2.2% 2.2% 1.8% 2.0% 1.7% 1.5% 1.7%

1.0% 0.5% 0.4% 0.0%

Source: AdEx Benchmark 2011, IHS ScreenDigest, iab Europe

Mobile advertising is also playing an increasing role for advertisers. With smartphone penetration approaching 50% of Western Europe’s population, advertisers aim increasingly to reach and engage with potential consumers everywhere they connect and this is more and more “on the move”.

3.3.2 Online video advertising, the rising star of display advertising

Figure 42 Video advertising as share of online display ads in Europe

Video ads as share of online display - Europe 2011 % in of online display 12.0% 9.8% 9.7% 10.0% 8.5% 8.3% 8.0% 7.5% 6.5% 5.9% 5.8% 5.8% 6.0% 5.2%

4.0%

2.0%

0.0%

Source: IAB Europe AdEx Benchmark 2011 Non-existent 8 years ago, online video ads are taking an increasing share of online display advertising and ensuring the growth of this format. Germany and the United Kingdom, according to estimates by ScreenDigest, reached a market value of over €100 million in 2012, and that figures does not take into account ad revenues generated by YouTube, the major online ad-financed video platform.

Figure 43 IP-delivered net video revenue by market in € million

IP-delivered net video ad revenue* by market 2011 in EUR million 120

100

80

60

40

20

0 Spain Italy France Germany United-Kingdom

*excluding YouTube Source: ScreenDigest, Focus August 2012

Warc provided figures in 2012 relating to online video advertising in the United Kingdom.

Table 33 Online video ad spend in the United Kingdom (2011-2012) GBP million

2011 2012 2012/2011

Online video - pre/post roll 95.4 136.7 43.2%

Online video - social and other 13.5 22.9 69.1%

Online video - total 108.9 159.6 46.5%

Source : Warc

Total online video ad spend had a market value of £159.6 million in 2012 in the United Kingdom, up by 46.5% year on year. Pre- and post-roll video ads represented the bulk of total online video revenues, with £136.7 million in 2012 (+43.2%) whereas online video advertising on social networks and other sites accounted for £22.9 million (+69.1%).

In France, the national regulator CSA stated in a press release that online video advertising had a market value of €90 million in 2012, up by 50%, and that the bulk of that ad revenue was generated by national broadcasters’ catch-up TV websites54.

Figure 44 US digital video ad spending 2011-2017 US Digital Video Ad spending 2011-2017 in USD billion and % change $10.00 46.5% 50.0% $9.06 $9.00 45.0% 41.4% $8.04 $8.00 38.9% 40.0% 40.8% $6.99 $7.00 35.0% $5.75 $6.00 30.0% $5.00 $4.14 25.0% $4.00 15.1% 20.0% $2.93 12.8% $3.00 21.4% 15.0% $2.00 $2.00 10.0% $1.00 5.0% $0.00 0.0% 2011 2012 2013 2014 2015 2016 2017

Digital video ad spending % change

Note: includes advertising that appears on desktop and laptop computers as well as mobile phones and tablets; data through 2011 is derived from IAB/PwC data; includes in-banner, in-stream (such as pre-roll and overlays) and in-text (ads delivered when users mouse-over relevant words)

Source: eMarketer, March 2013

54 http://www.csa.fr/Etudes-et-publications/Les-dossiers-d-actualite/Le-marche-publicitaire-en-2012-et-les-perspectives-pour- 2013

Table 34 US online video ad CPM by inventory tier 2010-2017

US online video ad CPM, by inventory tier 2010-2017 Indirect Midtier Premium Average CPM 2010 $16.10 $25.00 $45.00 $26.90 2011 $16.90 $25.00 $40.50 $26.00 2012 $17.80 $25.00 $36.50 $25.30 2013 $18.60 $25.00 $32.80 $24.60 2014 $19.60 $25.00 $31.20 $24.45 2015 $20.50 $25.00 $31.20 $24.80 2016 $21.60 $25.00 $31.20 $25.30 2017 $22.70 $25.00 $31.20 $25.80

Note: excludes mobile display ad impressions; average COM calculated using weighted average for online display ad impression share

Source: Credit Suisse, “Web 2.012”, Feb 2012 retrieved from eMarketer

As the above graphs show, online video ad spend is bound to increase to $9.06 billion in 2017 with premium content seeing its CPMs decrease over time. We did not find current figures for Europe.

Figure 45 USA – online video reels in ad revenue

55 Source: The Wall Street Journal In the USA, according to figures published by BrightRoll and eMarketer, the online video ad market is set to reach an overall market value of $4.1 billion in 2013 out of a total digital advertising market of $42.5 billion. As the figures show, there is also pressure on a downward trend for CPMs on top-tier sites. With the increase in ad space and quality content available, added to RTB platforms, the market is becoming more profitable for advertisers.

55 http://online.wsj.com/article/SB10001424127887324034804578346540295942824.html

3.3.3 Trends underlying the increased ad spend on online display advertising

The main trend which explains the rise of online video advertising is that it makes it possible for advertisers to convey a better branding message to consumers. Advertisers can engage with their target audience by offering them videos that may raise their interest. Also, new measurement methods, the increase in real-time bidding mechanisms and platforms are transforming the online display ad market and making it more dynamic. Videos are not only paid for but advertisers are seek to engage consumers, and with social networks that allow the sharing of videos the success of a campaign is not only measured by views or clicks but also by the number of times the video has been shared, commented on and viewed.

Native advertising, advertising in line with the content of a web page/site, is becoming more common. In fact, it is a good way not only to pass on the advertising message but also to identify the brand with the publisher’s content. The graphs below show the rise of brand advertising as a share of online display in Europe. From only 5% of branding found on the online display market on 2008, this share rose to 18% in 2011 with a clear trend towards a further increase over the next year. This development has to be seen in the context of the increase in online video advertising.

Figure 46 Brand advertising as a share of online display, Europe 2008 Brand advertising as a share of online display - 2008 5%

95%

Brand Direct response

Source: IPA Digital Group

Figure 47 Brand advertising as a share of online display, Europe 2010 Brand advertising as a share of online display - H2 2010

87%

Brand Direct response

Source: IPA UK

Figure 48 Brand advertising as a share of online display, Europe 2011 For copyright reasons this figure cannot be reproduced in the public version of this report

Source: IHS Screen Digest

The statistics below show that while the major pure Internet players, such as Google or Facebook, continue to dominate the online video market (Google through YouTube and its ad network), pure ad networks are on the rise for video served. The BrightRoll video Network is the major online video advertising network worldwide.

Figure 49 Video websites’ worldwide ranking by unique viewers in January 2013

Ranking of worldwide video sites by unique visitors in millions, January 2013 Unique visitors YouTube 755 Facebook 296 Vevo 255.8 Viacom Digital 161.1 BrightRoll video network 152.8 Youku 144.8 Tencent 126 Liverail.com 120.4 Adap TV 117.9 Yahoo! 177.3 Specific Media 116.14 Dailymotion 116.12

Source: comScore Video Metrix, January 2013, Worldwide 15+, Les Echos

Figure 50 Broadband household penetration in USA and Western Europe 2000-2014 For copyright reasons this figure cannot be reproduced in the public version of this report

The rise of online video advertising (and video sites in general) has to be seen in the context of the ever-increasing household broadband penetration. Videos require a larger bandwidth and this is achieved through broadband connections (ADSL, fibre optic, etc). As more and more households have broadband access, permitting the smooth viewing of videos, online video advertising is on the rise, both in Western Europe and the US as the addressable markets expands.

.

3.3.4 Various kinds of audiovisual services financed by advertising

In this section, we will present the major kinds of audiovisual services financed by advertising in 5 European countries (Germany, France, Spain, Italy and the United Kingdom) using the comScore Video Metrix dataset. For the whole section, the comScore dataset is for the key measurements (unique visitors, videos available and viewed, total number of minutes spent by visitors) as of March 2013 and for the trends between March 2012 and March 2013, the last available when we began this report (May 2013).

Videos are increasingly used to attract viewers and therefore enlarge the audience reached through online advertising. Video content proves to be more appealing to visitors and therefore has the ability to generate higher traffic and increase advertising revenues.

The audience data of comScore’s Video Metrix can be found in the annexes in the section “Various kinds of audiovisual services financed by advertising” for:

- Top 30 overall video sites by country

- TV channel websites by country

- Portals by country

- Social networks by country

- Newspapers by country

- YouTube partners by country

- Ad-focused networks by country

- Video advertising networks by country

For copyright reasons these figures and graphs cannot be reproduced in the public version of this report.

4 Types of advertising-supported on-demand audiovisual services

Various services that provide video content can be considered on-demand audiovisual services offering video content free of charge to users and financing this service through advertisements.

- Advertising-financed VoD services (e.g. Snack, Netzkino, Crackle, etc): these services offer films and TV shows in their catalogues and users can view them “free of charge”. The service is financed by placing advertisements (which can take many forms, such as video advertising, rich media advertising, banners, etc).

- Commercial TV channels’ websites and catch-up TV financed by advertising (e.g. TF1, ITV, ProSieben): on the websites and catch-up apps of commercial TV, their linear programming is in general offered for catch-up viewing after their linear diffusion (content for which catch-up rights have been acquired for an average period of up to 7 days).

- User-generated content platforms (e.g. YouTube, Dailymotion): platforms which provide user-generated content free of charge, financed by advertisements, are considered on- demand audiovisual services. These services also offer branded channels of content rightholders and subscription on-demand audiovisual services in the case of YouTube.

- Newspaper websites with video content (e.g. Der Spiegel, The Guardian): newspaper websites include video content (reports, insights) to illustrate news. This trend is general and on the rise and for this reason newspaper websites which offer video content are on- demand audiovisual services.

- Social networks (e.g. Facebook): social networks allow users to post videos and links to videos and are thus considered on-demand audiovisual services that also function as (social) recommendation tools. Also, social networks sell targeted advertisements (videos, banners, rich media ads) to advertisers by using the data on their members collected through their service.

- Portals with videos financed by advertising (e.g. MSN, Yahoo!, AOL, Orange, Free): portals offer content on their web pages financed through advertisements.

5 Audience data: comScore’s Video Metrix

A main source of information on advertising-financed video websites is comScore’s Video Metrix56. We subscribe to the Video Metrix data for the following countries: the United Kingdom, Germany, France, Spain, Italy and the Netherlands. In the following section, the main statistics for these countries are given for unique viewers, videos per viewer and minutes per viewer and their monthly annual averages. Data given for 2013 is only for January to September 2013 as they were the latest data available as of December 2013.

Also, please note that as comScore’s Video Metrix does not track consumption on mobile Internet and connected devices (smartphones, tablets) and only views and unique visitors accessing those web sites from a desktop computer on a fixed Internet connection are included. As video consumption and web navigation are migrating to mobile devices, this lack of data can explain the decrease in viewers and time per viewer in some cases. As the introductory section showed, more mobile connected devices induce more mobile video viewing and mobile advertising. The comScore Video Metrix statistics therefore only give a picture of video viewing on fixed access networks and devices such as a desktop or laptop at a time when 40% of YouTube’s video viewing takes place on a mobile device57 (up from only 25% in 2012 and 6% in 2011) and more than half of Facebook’s ad revenues come from mobile advertising (53% of its ad revenues in Q4 201358) – 77% of its 1.2 billion monthly active users access Facebook from mobile devices). This is why the picture given by the comScore Video Metrix59 is certainly enlightening for a “fixed line” situation but incomplete when considering all the mobile video consumption that is now taking place and is increasing every month.

In order to provide multiplatform data, comScore has launched in 2013 a new service, MMX Multi- Platform60. MMX Multi-Platform provides the industry’s first comprehensive view of digital consumer behaviour across desktop computers, smartphones and tablets. The services provide data for US, UK and Spain. Extension of the service to other European countries (including France and Germany) is announced for 2014. In US, comScore works in close collaboration with the CIMM (Coalition for Innovative Media Measurement), a platform federating major media and advertising companies.61

comScore has not authorised the European Audiovisual Observatory to reproduce systematic data from the Video Metrix database for the public version of this report. To access some of the data collected by comScore, the public is invited to visit the website of the company, where press releases and reports are made available. While the company has a policy of regular disclosure of data for the US online video market, its disclosure of data for the European markets is only done from time to time.62

56 https://www.comscore.com/Products/Audience_Analytics/Video_Metrix 57 http://techcrunch.com/2013/10/17/youtube-goes-mobile/ 58 http://online.wsj.com/news/articles/SB10001424052702304428004579350971373442410 59 comScore has launched mobiLens in order to measure the audience on mobile devices https://www.comscore.com/Products/Audience_Analytics/MobiLens 60 http://www.comscore.com/fre/Products/Audience_Analytics/Media_Metrix_Multi-Platform 61 http://cimm-us.org. See also : http://www.comscore.com/fre/Insights/Press_Releases/2014/1/comScore_Collaborates_with_CIMM_to_Expand_its_Pionee ring_Cross-Platform_Measurement_Service 62 See . http://www.comscore.com/Insights Various 2013 reports related to digital markets in Europe are available here : http://www.comscore.com/fre/actualites_et_evenements/Blog/2013_Digital_Future_in_Focus_- _Un_tour_d_horizon_du_marche_du_Digital_dans_le_monde

Audience of Reportable European Markets by Ranked by Videos per Viewer - August 2013 Total European Audience, Age 6+, Home and Work Locations Source: comScore Video Metrix

Total Unique Viewers Videos per Viewer (000)

United Kingdom 37,992 323.6

Netherlands 11,090 269.5

Spain 22,193 228.3

Turkey 21,810 207.7

France 39,885 194,6

Germany 46,529 179.3

Italy 26,850 158.7

Russia 60,016

Source : comScore, Press release, 7 October 201363

63 http://www.comscore.com/fre/Insights/Press_Releases/2013/10/comScore_Launches_Online_Video_Measurement_Service _in_the_Netherlands

5.1.1 The United Kingdom

 Monthly data 2008-2013

Figure 1 GB – Unique Viewers – Monthly data – 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 2 GB – Videos per viewer – Monthly data – 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 3 GB – Time per viewer – Monthly data – 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Table 1 GB – Summary key statistics 2013 (first 9 months)

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

 Annual monthly average 2008-2013

Figure 4 GB – Unique viewers – Annual monthly average 2008 - 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 5 GB – Videos per viewer – Annual monthly average 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 6 GB – Time per viewer – Annual monthly average 2008 - 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Table 2 GB – Annual monthly average 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

 Top 20 sites by visitors and time in September 2013

Table 3 United Kingdom – Top 20 by visitors - September 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Table 4 United Kingdom - Top 20 by minutes - September 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

5.1.2 Germany

 Monthly data 2008-2013

Figure 7 DE - Unique Viewers – Monthly data – 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 8 DE – Videos per viewer – Monthly data – 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 9 DE – Time per viewer – Monthly data – 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Table 5 DE – Summary key statistics 2013 (first 9 months)

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

 Annual monthly average

Figure 10 DE – Unique viewers – Annual monthly average 2008 - 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 11 DE – Videos per viewer – Annual monthly average 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 12 DE – Time per viewer – Annual monthly average 2008 – 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Table 6 DE - Annual monthly average 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 13 Germany - Top 20 by minutes - September 2013

For copyright reasons this figure cannot be reproduced in the public version of this report

comScore Video Metrix

Figure 14 Germany – Top 20 by visitors - September 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

5.1.3 France

 Monthly data 2008-2013

Figure 15 FR - Unique viewers – Monthly data – 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 16 FR – Videos per viewer – Monthly data – 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 17 FR – Time per viewer – Monthly data – 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Table 7 FR – Summary key statistics 2013 (first 9 months)

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

 Annual monthly average 2008-2013

Figure 18 FR – Unique viewer – Annual monthly average 2008 - 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 19 FR – Videos per viewer – Annual monthly average 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 20 FR – Time per viewer – Annual monthly average 2008 - 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Table 8 FR – Annual monthly average 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

 Top 20 sites by visitors and time in September 2013

Table 9 France – Top 20 by visitors - September 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Table 10 France – Top 20 by minutes - September 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

5.1.4 Spain

 Monthly data 2010-2013

Figure 21 ES - Unique viewers – Monthly data – 2010-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 22 ES – Videos per viewer – Monthly data – 2010-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 23 ES – Time per viewer – Monthly data – 2010-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Table 11 ES – Summary key statistics 2013 (first 9 months)

For copyright reasons this figure cannot be reproduced in the public version of this report

 Annual monthly average 2010-2013

Figure 24 ES – Unique viewers – Annual monthly average 2010 - 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 25 ES – Videos per viewer – Annual monthly average 2010-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 26 ES – Time per viewer – Annual monthly average 2010 - 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Table 12 ES – Annual monthly average 2010-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix   Top 20 sites by visitors and time in September 2013

Table 13 Spain – Top 20 by visitors - September 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Table 14 Spain – Top 20 by minutes - September 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

5.1.5 Italy

 Monthly data 2010-2013

Figure 27 IT - Unique viewers – Monthly data – 2010-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 28 IT – Videos per viewer – Monthly data – 2010-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 29 IT – Time per viewer – Monthly data – 2010-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Table 15 IT – Summary Key statistics 2013 (first 9 months)

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

 Annual monthly average 2010-2013

Figure 30 IT – Unique viewer – Annual monthly average 2010 – 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 31 IT – Videos per viewer – Annual monthly average 2010-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 32 ES – Time per viewer – Annual monthly average 2010 - 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Table 16 IT – Annual monthly average 2010-2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

 Top 20 sites by visitors and time in September 2013

Table 17 Italy – Top 20 by visitors - September 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Table 18 Italy – Top 20 by minutes - September 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

5.1.6 The Netherlands

For the Netherlands, data are only available for August and September 2013.

Figure 33 NL - Unique viewers – Monthly data – Aug/Sept 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 34 NL – Videos per viewer – Monthly data – Aug/Sept 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Figure 35 NL – Time per viewer – Monthly data – Aug/Sept 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

 Top 20 sites by visitors and time in September 2013

Table 19 Netherlands – Top 20 by visitors - September 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Table 20 Netherlands – Top 20 by minutes - September 2013

For copyright reasons this figure cannot be reproduced in the public version of this report comScore Video Metrix

Transactional video on-demand services

6 Types of transactional VoD service

In this section, an overview is provided of all types of VoD services which involve a transaction (rental and purchase). Transactions for video can take different technical forms, streaming or direct download to the user’s device (electronic sell-through). We have included in this section different forms and business models of transactional video on-demand services, differentiated by the core business of the service provider (OTT players, telecommunications companies, TV groups) and the platform on which the service operates (closed platforms versus open Internet in the case of OTT players, but the trend is for all players to offer their services also on their website or through apps for smart phones, tablets, connected devices and Smart TVs).

Rentals of video content (movies & TV shows) through transactional video on-demand services:

 TVoD services (also referred to as iVoD) – digital rental services operated by OTT players (e.g. Blinkbox, Univers Ciné, etc): movies and TV shows are rented for a specific period against payment through TVoD services and streamed to the customer’s device (thereby requiring an Internet connection and access to the service).

 Download-to-rent VoD services (e.g. Apple’s iTunes): movies and TV shows are rented against payment and downloaded to the customer’s device for a limited period. This form of rental has the advantage of not requiring an Internet connection and lets the customer transfer his/her rented content to other devices.

 TVoD services – digital rental services operated by telecommunications groups (e.g. Orange, BT Vision): video content that is rented through VoD services offered by telecommunications groups via their IPTV platforms (and, generally, also on the web).

 TV VoD services – digital rental services operated by TV groups and networks (on TV platforms) (e.g.TF1 VoD, Canal+ VoD, Film4oD): VoD services that are operated by a broadcasting group. Originally the services were rendered on TV platforms (IPTV, cable, satellite) but they are generally also provided on the Internet.

Purchase of video content (movies & TV shows) through transactional video on-demand services:

 TVoD services – digital purchase services operated by OTT players (e.g. Blinkbox): movies and TV shows are rented for a specific period against payment through TVoD services and streamed to the customer’s device (thereby requiring an Internet connection and access to the service).

 Electronic sell-through (download-to-own) VoD services [EST/DTO] (e.g. Apple’s iTunes Stores, Xbox Video, Sony Entertainment Network): movies and TV shows are purchased against payment. The content purchased is downloaded to the customer’s device and stored without a time limit.

 TVoD services – digital purchase services operated by telecommunications groups (e.g. Orange, BT Vision): movies and TV shows that are purchased and digitally stored on VoD platforms operated by telecommunications groups (generally, also accessible on the Internet).

 TV VoD services – digital purchases of VoD services operated by TV groups and networks (on TV platforms) (e.g. Disney): movies and TV shows are sold through TV VoD platforms (and their websites) operated by TV groups and networks and are stored for access online.

7 Strategies of selected international players

7.1 Typology of players

Towards a typology of pan-European strategies of providers of on-demand audiovisual services

This section aims to describe and analyse various types of pan-European strategy by leading providers of on-demand audiovisual services.64 The notes on the individual players are in the annexes.

Since its appearance at the end of the 19th century, with the creation of a recorded music market and then of the film market, the audiovisual industry has always had an international market. Since the beginning, manufacturers and producers of recorded music and films have tried to realise economies of scale by establishing international distribution networks. This has generally taken the form of creating local affiliate companies in the main countries of operation and adapting to the various national frameworks. Television followed the same patterns in the first decades of its development. However, since the mid-1980s, the development of satellite and cable has created the possibility of the cross-frontier circulation of services, leading to the need for the definition of European legal frameworks (Convention on Transfrontier Television, Television without Frontiers Directive) and to the roll-out of pan-European strategies by a number of TV groups, mainly European and American but also some Asian and Arab investors interested in the European markets. The possibility of interconnecting satellites has enabled TV or radio services established outside the continent to be beamed to European countries or territories but this has remained a marginal practice without major impacts on the market itself. By establishing some liabilities for satellite operators for the retransmission of extra-European channels, the revision of the Directive has enable to control over a basic regulatory European framework to be maintained.

The roll-out of the World Wide Web and the ability of broadband to distribute audiovisual services have dramatically changed the situation: audiovisual signals can now be delivered worldwide without the need to establish even a single company in the continent targeted.

This report aims to discuss the legal aspects of the globalisation of the distribution of audiovisual services and assess its impact on the market. The objective is to identify how companies operate on a worldwide or pan-European level in practice, define their corporate strategy to deal with the potentiality of the EU market as well as with the territorial limitations which remain a reality due to various factors (linguistic and cultural diversity of markets, persistence of different regulatory frameworks in various fields such as content regulation, IPR, rules relating to the promotion of European works, tax systems and technical considerations such as the existence of data centre capacities).

64 The concept of “on-demand audiovisual services” is used in this report with a broader definition than that of “on-demand audiovisual media services” provided by the AVMS Directive.” In particular, it includes references to services like open video platforms (more often defined by the ambiguous term UGC platforms), video search tools, video portals, etc.

Methodology

The report is based on various systematic data collection processes:

The European Audiovisual Observatory has undertaken a regular census of existing on-demand audiovisual services established (or assumed to be established) in its Member States65 or services targeting one or more of its Member States.66 This census is based on various systematic data collection operations:

– The analysis of lists of on-demand media audiovisual services as published by national regulatory authorities, – The analysis of line-ups of distribution platforms – The analysis of the variations by language and countries of the pan-European service concepts.67

Typology of strategies

The report focuses on the geographical strategies employed by major firms operating on-demand audiovisual services and the way they have implemented their services throughout Europe. We distinguish between seven different strategies with regard to geographical deployment.

 Centralised world-wide strategy in a single language. Some on-demand services are provided worldwide in a single language, generally English. This is the case, for example, of Sony Pictures Entertainment and its Crackle on-demand streaming service. The service is managed and deployed worldwide, without any country-specific adaptation, be it language or content. Crackle is free but follows a geolocation policy to prevent access to the service for countries not targeted (in Europe, only UK residents can access the service). The services deployed under this strategy are often distributed via the Internet. The provider of the on-demand service neither

65 The identification of the company providing the services (and then the identification of the country of establishment of that company) is not obvious in some cases:

VoD services or portals without a clear identification of the company providing the services.

Branded channels (in particular on YouTube) or branded catalogues (in particular on iTunes Stores in France, Germany and the UK): the group providing the service is not difficult to identify, but it is not possible to identify what affiliate company of the group is providing the services.

Branded VoD services provided by some IPTV or cable service operators: IPTV and cable operators may include in their line-up on-demand services (VoD, catch-up TV services) provided by third parties. Those services will generally be provided by well-identified groups, but, once again, without any clear identification of the affiliate company providing them;

Applications enabling access to on-demand audiovisual services in the stores provided by manufacturers of smartphones, tablets or smart TV sets: the publisher of the application and the providers of the services are not necessarily clearly identified.

66 By services targeting European markets, we mean services that are clearly designed for those markets. They may be identified by the design of the service, the language chosen, the currency in which payment is to be made, the explicit geolocation, etc. It is., of course, not possible to provide a comprehensive census of all on-demand audiovisual services established outside Europe and accessible in Europe but for which Europe is probably not the main market. This is the case of a large number of catch-up TV services from non-European broadcasters or of worldwide VoD services providing Asian or Arabic films which may be accessible in Europe but for which Europe is obviously not the core market.

67 The itemisation by language or country of services is an issue not covered by the definition in the AVMS Directive. As for the census of television channels in the MAVISE database, we have opted for the linguistic or national version of an on- demand audiovisual offering to be considered a separate service. This may differ from the option chosen by national authorities when drawing up the list of services established in their countries.

adapts the content to countries where it is deployed nor the language (English being the most common language found on those services). It permits the less complicated central management of the service, the only major issue remaining being to reach agreements with rightholders for the distribution of their content. Access to the service can be allowed or denied on the basis of geolocation through the IP address or credit card number.

 Centralised world-wide strategy with a linguistic adaptation towards targeted national or linguistic markets The second geographical strategy found on the market for on-demand audiovisual services is a centralised worldwide strategy involving linguistic adaptation to the national market targeted. The services are mostly managed from the US but the content provided is adapted to the tastes and languages of the national market it is aimed at. Services available worldwide are all adapted by making content agreements with national content providers or establishing branded channels, as in the case of YouTube. The on-demand audiovisual services following this strategy are mainly YouTube (based in the US), YouTube Movies (US), MUBI68 (US), Acetrax (CH) [bought and closed down by Sky in June 2013], Viewster69 (CH) and HBO OD70 [or GO] (CZ). The on-demand services applying this strategy are centrally managed but are adapted to the languages of the countries where they are deployed and, occasionally, also provide country-specific content such as films or TV shows. The central management and adaptation to each country makes it necessary to conduct negotiations with rightholders for specific content and translated content as well as to reach agreement to provide the content in each country of deployment.

 Worldwide strategy with regional hubs Another worldwide approach consists in relative decentralisation by world regions (America, Europe, Asia, etc) through regional hubs and then the national variant of a service concept . The companies implementing this strategy adapt both the language and some content to the national market targeted but follow a general worldwide strategy in the delivery of on-demand audiovisual services. Even if the language and some content is adapted to the national market, the overall strategy is defined by the corporate headquarters. Firms following this strategy are Apple (iTunes), Microsoft (Zune and Xbox Live Gold) and Sony Unlimited. In this strategy, the on-demand service provider adapts to the national market targeted by translating content and providing national programmes such as TV shows or films. The service provider, even if adapting to the national market, still closely manages the service on a central basis. Providing country-specific content and linguistically adapted TV shows and films also calls for more negotiations and agreements with rightholders because distribution agreements most be reached for each region or country. The on- demand service market is very competitive, so negotiations with rightholders can prove very tough. Moreover, as more and more rightholders (TV groups, film studios) enter the VoD market (with different business models and strategies), having exclusive rights to films or TV shows is less common than at the beginning of the on-demand video market.

 Regional roll-out through national affiliated companies The fourth strategy in regard to geographical implementation consists in establishing national affiliated companies in the markets targeted which will handle the brand on the market concerned, adapting it to national and linguistic constraints. An example of a company operating under this strategy is Voyo71, the service provided by the Bermuda based group Central European Media Enterprises (CME), the leading group providing free TV in Central and Eastern Europe. In this case, the different variants of the service concept are operated by the national companies running the grouping national TV channels. This strategy seems to be related to the willingness to take into consideration national

68 https://mubi.com/ 69 http://www.viewster.com/ 70 http://m.hbogo.cz/pages/default.aspx 71 http://voyo.ro/ http://voyo.bg/welcome http://voyo.si/ http://voyo.nova.cz/

market specificities, as also exemplified by the TV programme production strategy of the respective companies of the group. By using an affiliate company in the country of operations under the same brand name, the companies applying this strategy seek to benefit from the brand name and reputation and to adapt to the country by providing content adapted in language and tastes. This allows for a more precise targeting of national markets.

 Heterogeneous strategies One strategy, mostly followed by telecoms and cable operators on their distribution platforms, is that of a decentralised and heterogeneous, country-specific approach to on-demand audiovisual services. The platform is adapted to meet country-specific needs in regard to language, content and regulation. The groups which have operated under this strategy are Orange-France Telecom, Deutsche Telekom and Liberty Global, all operators present in different countries and offering a variety of services. They tend to adapt to each market and not try to base their on-demand audiovisual services on a general strategy like smaller competitors would do. This kind of strategy is often applied by telecoms companies that operate IPTV platforms and have therefore already set up national structures in each country in which they are established. As the affiliate companies mostly conduct business independently of their headquarters, only reporting financial figures and implementing general business strategies, their on-demand services are also operated independently of their headquarters. This strategy enables the content provided to be adapted to a country at specific needs in terms of language and content (national films and TV shows, international content translated into the national language).

 Mixed strategies A sixth strategy consists of a mix of centralisation and a country-by-country approach. A good example of this is the German group ProSiebsenSat.1 Media, which operates national decentralised pay-VoD services (Maxdome72 in Germany, NUTV73 in Denmark) and at the same time a centralised free VoD service (MyVideo74), with five national versions operated from Romania and targeting Germany, Switzerland, Romania, Hungary and Turkey. One other example is the roll-out of LOVEFiLM75 (owned by Amazon Inc.): the service for the UK is operated by a UK company, the service for Germany by a German company and the services for the Nordic countries by the same UK based company [the service stopped operating in mid-2013 and LOVEFiLM exited the Nordic markets].

 Network of independent national companies Finally, the seventh strategy identified is the establishment of a network of on-demand services provided by different independent companies whose strategy aims to maximise potential exposure and customer capture by sharing the effort and expenses of deploying an on-demand audiovisual service. An example of such a network is EuroVoD76. By establishing a network of independent companies, the firms choosing this strategy try to benefit from the network effect, that is to say to share the costs of running the platform and marketing expenses while operating under the same label. This strategy is often chosen by smaller, independent firms which do not possess the financial resources of the bigger groups and companies. As we have seen, many different geographical strategies in regard to on-demand audiovisual services may exist in Europe. The on-demand audiovisual market is still recent and a definitive business model has not yet been found, which is why the strategy followed by a given group depends on its overall financial strength and on the content it may provide through deals and licences obtained by producers and rightholders. Pre-existing activities (such as television) may also have an impact on

72 http://www.maxdome.de/ 73 http://nutv.dk/ 74 http://www.myvideo.de/ 75 http://www.lovefilm.com/ 76 http://www.eurovod.org/

the roll-out of VoD services. The various case studies mentioned in this report focus on the main groups by trying to describe the services offered and the strategy followed.

The fact is that the Internet enables the online distribution of audiovisual content and has therefore dismantled all the traditional barriers of entry into a national market and even the European territory. Economic and political regulation faces many difficulties, especially in regard to content regulation. A simple description of the market will not be enough to show the dramatic changes that have occurred over the last few decades, which is why we have analysed the strategies employed by the providers of on-demand audiovisual services in Europe, doing so mainly by studying their annual reports, press releases and content provided by their services but also by analysing reports and news relating to those companies in general.

Panel of companies

The census conducted by the European Audiovisual Observatory shows the growing VoD market, with over 2200 on-demand services established in Europe. It is in an effort to rationalise and synthesise our analysis that we have chosen the main and most representative firms operating in a number of countries in Europe, namely:

– Apple – Microsoft – Google – Bonnier Group – Netflix – Deutsche Telekom The case studies give an interesting overview of the on-demand audiovisual services provided by the firms, the countries they are operating in and their financial situation, where available.

Concerning the strategies studied, we have tried to provide an overview of the chosen strategies by listing licence agreements and deals made with film studios and TV networks. Those deals and agreements show whether country-specific content is provided and, therefore, whether the on-demand service is adapted to the national situation or language. Also, the financial structure and management of the on-demand audiovisual service gives an insight into how the service is managed and whether it is centralised at corporate headquarters or decentralised.

The report will focus on the different strategies implemented by the groups studied. We have chosen to present an analysis of the following firms: Apple and the iTunes Store (electronic sell- through - EST), Netflix (Subscription VoD), Google (advertising-financed via YouTube, EST with Google Play for movies), Bonnier (catch-up TV and on-demand subscription television), Microsoft (Zune EST and MSN video portals, free VoD) and Deutsche Telekom (various models, Free VoD, SVoD, catch-up, streaming and downloads).

The first case study presents Apple and the iTunes Store through which audiovisual content is sold in Europe. The strategy followed by Apple is that of a regional, decentralised on-demand audiovisual service with a clearly centralised corporate strategy. In order to assess the strategy, the first part of the case study focuses on Apple’s general business strategy in regard to the products and service sold and then shows how audiovisual content is sold in Europe through the national iTunes Store, which is managed from and established in Luxembourg. The iTunes Store business model is based on the electronic sell-through and download of audiovisual content (EST).

The second case study briefly presents Netflix and its business model. Netflix also applies a corporate strategy involving the highly decentralised regional provision of on-demand audiovisual content. As Netflix only launched its business in Europe at the beginning of 2012, the case study gives an overview of general financial data and agreements with content owners. In regard to its business model, Netflix operates a subscription based video-on-demand service (SVoD) where customers can,

in exchange for a monthly subscription, have unlimited access to the entire catalogue of content, which is delivered through streaming.

The third monograph presented is that of Google with its services Google Play and YouTube, provided under a worldwide centralisation strategy of with linguistic adaptation to a national market. YouTube is a free video-on-demand (FVoD) service and Google Play is an electronic sell-through (EST) service. YouTube streams its content to its viewers, whereas the customer downloads content from Google Play.

After this case study, a monograph of Microsoft is provided. Microsoft mainly operates two services with on-demand audiovisual content, the MSN portals, which provide Free VoD services, and the Xbox Video Store, which is a transactional video-on-demand service.

Bonnier Group, the Scandinavian audiovisual conglomerate, provides several on-demand audiovisual services, mainly catch-up TV and transactional video on-demand. The case study gives an overview of its main audiovisual activities and explores further the on-demand service provided by its different entities, the main ones being SF Anytime and C More.

Finally, the last report provides a short overview of Deutsche Telekom’s strategy regarding on- demand audiovisual services in Germany and Europe. The notes are in the annexes.

Netflix

(Note written in March 2013 – Annex)  Founded in 1997, until 2007 America’s leading online DVD rental-by-mail service World’s leading SVoD service. Evolved from a DVD rental-by-mail service into an online subscription video-on-demand service in 2007  Key financial figures (as of end 2012 – annual report 2012) [refer to note for information on previous years] o Revenues: $3 609.3 million o Total cost of revenues: $2 625.9 million o Net income: $17.2 million o Gross margin: 27.25% o Profit margin: 0.48% o Streaming content obligations: $5 633.68 million  Subscribers end of Q3 2013 (30 September 2013): 40 million - 29.93 million in the USA and 9.19 million internationally (not broken down by country  Netflix does not break down its subscriber numbers or financial results by country, distinctions are made between USA and international territories and financial results consolidated  Main US competitors: Amazon Instant Video, Hulu Plus  Main EU competitors (depending on country): Amazon LOVEFiLM (GB), HBO Go (Nordics), wuaki.tv (GB)  Start of international expansion in 2011 (Canada, Central and South America, Caribbean) and 2012 (United Kingdom, Ireland, Sweden, Denmark, Norway and Finland). [Update September 2013: Netflix launched in the Netherlands]  Netflix Europe is based in Luxembourg and does not publish its financial results (only balance and no P/L sheet)  Started to produce (acquire first pay-TV window rights) original content (mostly TV shows) in 2013 (first VoD service provider to make this move, competing with traditional pay-TV on licensing rights): House of Cards, Hemlock Grove, Orange is the New Black, Lilyhammer, Arrested Development season 4, Bad Samaritans, Derek, Turbo, Sense8 (and more to come)  Exclusive pay-TV deals with: o Relativity Media (and Rogue Pictures) o DreamWorks Animation (in 2013, after the expiry of its deal with HBO) o Open Road Films o Film District o The Weinstein Company o Walt Disney Studios Motion Pictures (Walt Disney Pictures, Walt Disney Animation Studios, Disneynature, Pixar, Lucasfilm, Marvel Studios)  Non-exclusive licensing deals with: o Universal Studios o Time Warner (Turner Broadcasting Systems, Warner Bros Television – Cartoon Network, Warner Bros Animation, Adult Swim) o Disney’s ABC Television Group o DreamWorks Classics o Kino International o CBS Television Distribution

Apple Inc.

(Note written in February 2013 – Annex)  Founded in 1976, world’s largest pure technology company with revenues of $156.5 billion in 2012.  Operating in various business segments: personal computers, computer software, consumer electronics, commercial servers and digital distributor of media content (iTunes, since 28 April 2003)

 Key financial figures 2012 [refer to note for information on previous years] o Net sales: $156.5 billion o Net income: $41.7 billion o Total assets: $176 billion o Profit margin: 26.67% o Return on assets: 23.7% o Return on equity: 35.3%

 Business strategy: o Integration of software and hardware o Innovation o Product differentiation through design and high- pricing o Simplification of products o Focus on essential core business

 Product lines o Macintosh – Net sales 2012: $23.2 billion (+6.6% annual growth andand net sales/total sales 14.8%) o iPod (since 2003) – Net sales 2012: $5.6 billion (-24.66% annual growth and net sales/total sales 3.59 %) o iTunes Store – Net sales 2012: $8.5 billion (+35.16% annual growth and net sales/total sales 5.45%) o iPhone – net sales 2012: $80.4 billion (+71.02% annual growth and net sales/total sales 51.42%) o iPad – net sales 2012: $32.4 billion (+59.27% annual growth and net sales/total sales 20.7%)

 Operating segment o America – Net sales 2012: $57.5 billion (50.1% annual growth and net sales/total sales 36.75%) o Europe – Net sales 2012: $36.32 billion (30.76% annual growth and net sales/total sales 23.2%) o Japan – Net sales 2012: $10.57 billion (94.43% annual growth and net sales/total sales 6.75%) o Asia-Pacific – Net sales 2012: $33.27 billion (47.28% annual growth and net sales/total sales 21.26%) o Retail (395 stores in 14 countries. EU: 35 in the United Kingdom, 15 in France, 12 in Italy, 10 in Germany, 10 in Spain, 2 in Sweden, 1 in the Netherlands ) – Net sales $18.8 billion (33.28% annual growth and net sales/total sales 12.03%)

On-demand video – iTunes Stores

 iTunes is an electronic sell-through service provider. Customers buy or rent video content (TV shows and movies) and download it to their device.  Global roll-out of iTunes Stores worldwide operated by 4 affiliated companies o Stores for North and South America are operated directly by Apple Inc. o Stores for Europe, Africa, Middle East and most of Asian countries are operated by iTunes S.à.r.l. (Luxembourg) o The store for Japan is operated by iTunes K.K. o The stores for Australia and New Zealand are operated by Apple Pty Limited (Australia)  iTunes started to sell video in 2005 in the USA by striking a deal with NBCU and for several hit TV shows (for a precise chronology of deals made and number of films and TV shows available on iTunes please, refer to section 2.2 of the annex)  Availability of TV shows and films varies from country to country, depending on territorial licences, and therefore renders the task of a complete listing difficult. The EAO has undertaken a listing of the various genres of films available in European iTunes Stores which can be found in the annexes  Apple’s iTunes Store for Europe (and Africa, Middle East & Asia) is located in Luxembourg, as iTunes S.à.r.l  Apple begun selling video content in Europe in 2007 in the United Kingdom and Ireland, 2008 in Germany and France (initially TV shows, then movies)  Sales of iTunes S.à.r.l. are not broken down by country or content sold. For a precise analysis of iTunes S.à.r.l’s accounts and taxes please refer to the annexes, section 2.2.3.  Key financial figures for iTunes S.à.r.l.(as listed by Creditrefrom Luxembourg/Amadeus) o Operating revenue 2011: 1 038.1€ million (+40.8%) – Net income 2011: 63.56€ million o Operating revenue 2012: 1 534.39€ million (+47.9%) – Net income 2012: 55.48€ million (-12.7%)  As of March 2012, 112 national iTunes Stores were operated by iTunes S.à.r.l.  75 national iTunes Stores provide catalogues of films  3 national iTunes Stores also provide catalogues of TV shows (DE, FR and GB)  Various branded catalogues of content providers (TV networks and studios) can be found in the iTunes Stores in Germany, France and the United Kingdom  The question of taxes effectively paid by Apple and iTunes S.à.r.l in Europe is sensitive. It seems that operating revenues are transferred to Ireland and from there to the Virgin Islands (Baldwin Holdings). This technique is known as “double Irish with a Dutch sandwich”. For more information, please refer to section 2.2.3 of the annexes.

Google

(Report written by Lorenzo Principali in January 2013 – Annex)  Founded in 1998, core business at the beginning was “web search”, founded on an innovative algorithm, and online advertising (search, display)  Extension of business segments to online video (YouTube, Android/Google TV), mobile operating systems (Android), applications/entertainment stores (Google Play), browser (Google Chrome), location services (business segments are related to the online advertising ecosystem)  3 core business sectors: Advertising, Operating systems and platforms and Enterprise [please refer to section 3.1.2 for a comprehensive listing of all activities)  Revenues 2012: $50 billion only broken down into “advertising revenues” (Google website and ad network) and “other revenues”  Hundreds of subsidiaries worldwide. 36 in the US, at least 34 in Europe  Google does not provide comprehensive data for many of its European subsidiaries

On-demand audiovisual services

 YouTube, bought by Google for $1.65 billion 2006  Google does not release any financial data on YouTube, which are consolidated in the group results o Estimates made by eMarketer for 2013 put YouTube’s gross ad revenue at $5.6 billion and net ad revenues at $1.96 billion and its share of the US video ad market at 20.5%  At the beginning, YouTube was a user-generated content platform and evolved into a digital platform with professional content from broadcasters (branded channels) and content producers. o Over one billion unique viewers each month watching 6 billion hours of video, as of 2013 o 100 hours of video uploaded every minute  YouTube partner programme allows content creators and rightholders to create channels and monetise their video through advertising (and recently through a subscription fee)  For a comprehensive listing of branded channels and comScore data on leading branded channels by country, please refer to annexes 3.2.2  Google Play is the Android based App store for smartphones and tablets. The service is provided by Google Commerce Limited, based in Ireland o Movies are available on Google Play for rental in FR, DE, GB, ES and for purchase in FR, DE, ES, GB (as of January 2013) o For a listing of TV apps provided in Google Play, please refer to annexes 3.2.3

Microsoft

(Report written by Lorenzo Principali in December 2012 – Annex)  Revenues 2012: $72 billion  Operations in 5 business segments: o Windows & Windows Live Division o Server and Tools o Online Services Division – operating in online audiovisual services (MSN portals, Bing) o Microsoft Business Division o Entertainment and Devices Division – operating in online audiovisual services (Xbox Video)  51 affiliated operating companies in Europe in 2011  Online service division: Bing Video and MSN portals, generating revenue through the sale of search and display advertising ($2.8 billion in 2012)  MSN portals generate advertising revenues through content provided within a partnership with broadcasters  In Europe, 19 different national MSN portals exist (as of end of December 2012) (see section 4. 2.3 in the annexes for a comprehensive listing of the various national portals)  Bing, the online search tool, was launched in 2009 to replace the former search tools provided by Microsoft. Bing enables video searches  Xbox Video (launched in 2006) is the other branch of Microsoft which provides video content, regrouped under in the Entertainment and Devices division (Revenue 2012: $9.59 billion)  Xbox Marketplace is under the control of Microsoft Luxembourg S.à.r.l., entirely owned by Microsoft Ireland Operations Limited, which is a subsidiary of Microsoft Inc.(section 4.2 of the annex)  In the EU, Xbox Video is available in 12 countries: AT, BE, DE, DK, ES, FI, FR, GB, IE, IT, NL, SE  The P&L account and balance sheet of Microsoft Luxembourg S.à.r.l. can be found in section 4.2 but no breakdown between the different services and products commercialised through Xbox Live is provided (revenue 2011 $336.9 million, net income 2011: $8.8 million)  For a listing of licensing agreements between Microsoft and content rightholders (studios) by EU country please refer to figure 13 in section 4.2

Deutsche Telekom

(Report written by Lorenzo Principali in January 2013 – Annex – Chapter 5)  One of the world’s leading integrated telecommunications companies (129 million mobile customers, 36 million fixed-network lines), operating in 50 countries with a revenue 2011 of €58.7 billion.  In Germany, DT offers through its IPTV service the “Entertain TV” service, which incorporates over 15 000 programmes, and through its T-Online portal  Videoload is a transactional and SVoD service owned by DT. No data is provided on Videoload.  On-demand audiovisual services are used as a commercial argument for its IPTV services in various countries where DT has made significant investments in the telecommunications sector (mainly Eastern European countries: CZ, HR, HY, MK, SI, SK, PL, GR) by including a VoD offering into the triple-play/fixed-line service  On-demand audiovisual services are country-specific: language and content  Section 5.1 provides a comprehensive listing of on-demand audiovisual services provided by DT in the countries of its operations  DT does not provide any data related to its operations in the audiovisual field. Data are merged into the business “Consumer” segment

Bonnier Group

(Report written by Lorenzo Principali in December 2012 – Annex – Section 6)  Swedish media conglomerate operating in 16 countries in 6 main business sectors: o Books o Magazines o Broadcasting & Evening Paper – operates in online audiovisual services o Entertainment – operates in online audiovisual services o Morning paper o Others  In the EU, 70 active affiliates with over 600 companies (see section 6.1.1 of the annexes for a comprehensive listing of affiliates)  The Broadcasting business area of Bonnier Group includes: o TV4 AB, fully-owned subsidiary since March 2007, operating 14 TV channels in SE, DK, FI and NO (section 6.1.2. of the annexes), 6 catch-up TV on-demand services as of December 2012 o C More Entertainment AB, pay-TV provider under the brand C More, operating its on- demand audiovisual services (C More Play, C Sports, C Now and Filmnet) in SE, NO and FI, DK (please refer to section 6.1.2 of the annexes for a comprehensive listing) o MTV Oy, Finnish commercial TV fully owned by Bonnier Group, operating 10 TV channels  The Entertainment business area of Bonnier Group o SF Anytime AB, based in Sweden and operating the on-demand audiovisual service SF Anytime in the Nordics (language adapts to country of operation), 2011revenues: €9 million (please refer to section 6.1.3 of the annexes for a full listing of SF Anytime AB activities)

8 VoD market statistics

8.1 International Video Federation (IVF) statistics

The data in this section are drawn from the European Video Yearbook 2013 of the International Video Federation77.

Table 1 Consumer level digital video and TV VoD 2010- 2012 IVF Yearbook in EUR million

2010 2011 2012 2012/2011 Consumer level digital video 228.1 341.8 673.7 97.1% Europe Consumer level TV VoD 594.7 698.3 884.5 26.7% Consumer level digital video 0.3 1.2 9.8 696.3% Belgium Consumer level TV VoD 36.6 54.7 71.5 30.8% Consumer level digital video 1.2 2.8 10.9 291.7% Demark Consumer level TV VoD 7.2 13.7 21.9 60.3% Consumer level digital video 0.5 0.9 2.3 159.5% Finland Consumer level TV VoD 0.5 2.0 3.3 62.2% Consumer level digital video 47.6 78.6 106.4 35.3% France Consumer level TV VoD 138.0 145.8 167.9 15.1% Consumer level digital video 50.6 70.7 125.3 77.1% Germany Consumer level TV VoD 33.5 43.5 63.5 46.0% Consumer level digital video 0.1 0.2 3.1 1706.4% Hungary Consumer level TV VoD 0.8 1.4 2.2 55.1% Consumer level digital video 2.9 5.5 11.9 117.1% Ireland Consumer level TV VoD 5.5 5.7 6.3 11.2% Consumer level digital video 1.7 10.2 20.8 105.0% Italy Consumer level TV VoD 62.6 58.7 59.8 1.8% Consumer level digital video 1.9 3.3 8.0 144.4% Netherlands Consumer level TV VoD 17.2 25.5 39.1 53.6% Consumer level digital video 0.1 0.5 4.2 702.9% Poland Consumer level TV VoD 18.1 27.9 35.6 27.8% Consumer level digital video 0.0 0.4 3.8 749.0% Portugal Consumer level TV VoD 17.1 19.9 24.8 24.6% Consumer level digital video 2.1 6.3 14.2 126.0% Spain Consumer level TV VoD 33.2 31.5 32.0 1.6% Consumer level digital video 3.1 7.8 18.6 138.9% Sweden Consumer level TV VoD 10.6 15.7 20.2 28.3%

77 http://www.ivf-video.org/

2010 2011 2012 2012/2011 Consumer level digital video 104.5 124.4 273.2 119.6% UK Consumer level TV VoD 189.1 215.0 281.0 30.7% Consumer level digital video 566.3 1 375.0 2 936.2 113.5% USA Consumer level TV VoD 1 528.2 1 391.9 1 533.1 10.1% Consumer level digital video 10.7 17.8 33.8 89.6% Norway Consumer level TV VoD 5.1 7.0 10.6 51.9%

Source: IVF European Yearbook 2013

Consumer level digital video: The purchase or rental of movies and TV series delivered over the open Internet through transactional models (also known as EST, DTO, Internet VoD) or on a subscription basis.

Consumer level TV VoD: The delivery of movies and TV content on a transactional (VoD, NVoD/PPV) basis via cable/satellite/IPTV services. [Closed and controlled platforms]

In Europe, on-demand consumption is still dominated by TV VoD (with the notable exception of Germany and Ireland and soon the UK) but online video consumption is increasing at a higher rate (+97.1% year-on-year growth, TV VoD +26.7% on average). With the increasing broadband speeds and number of services, it is only a matter of time when Europe will follow the American situation (Table 3) where on-demand services delivered over the open Internet are more popular than TV VoD (closed and controlled platforms). The growth rates of online digital video exceed those for TV VOD in all European countries and, with an increasingly connected population (mobile devices, mobile broadband) and changing consumer patterns, the catch-up will happen soon.

Figure 1 Ranking of EU on-demand markets by size 2010-2012 in EUR million

300 €

250 €

200 €

150 €

100 € 2010 50 € 2011 2012

0 €

Consumer levelConsumerTV VoD ConsumerlevelTV VoD ConsumerlevelTV VoD ConsumerlevelTV VoD ConsumerlevelTV VoD ConsumerlevelTV VoD ConsumerlevelTV VoD ConsumerlevelTV VoD ConsumerlevelTV VoD ConsumerlevelTV VoD ConsumerlevelTV VoD ConsumerlevelTV VoD ConsumerlevelTV VoD ConsumerlevelTV VoD

Consumer levelConsumervideo digital Consumerleveldigital video Consumerleveldigital video Consumerleveldigital video Consumerleveldigital video Consumerleveldigital video Consumerleveldigital video Consumerleveldigital video Consumerleveldigital video Consumerleveldigital video Consumerleveldigital video Consumerleveldigital video Consumerleveldigital video Consumerleveldigital video GB FR DE BE IT NL ES PL SE DK PT IE FI HU

Source: IVF Yearbook 2013

Table 2 Europe – IVF Video Yearbook 2013 - Consumer level digital video and TV VoD, 2007- 2012

Source: IVF European Yearbook 2013

In comparison, the data for the United States:

Table 3 United States – IVF Video Yearbook 2013 - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

On the following pages, an overview for each country for which the IVF provides market data is provided for the years 2007-2012.

 Belgium

Table 4 Belgium - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 Denmark

Table 5 Denmark - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 Finland

Table 6 Finland - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 France

Table 7 France - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 Germany

Table 8 Germany - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 Hungary

Table 9 Hungary - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 Ireland

Table 10 Ireland - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 Italy

Table 11 Italy - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 Netherlands

Table 12 Netherlands - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 Norway

Table 13 Norway - Consumer level digital video and TV VoD. 2007-2012

Source: IVF European Yearbook 2013

 Poland

Table 14 Poland - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 Portugal

Table 15 Portugal - – Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 Spain

Table 16 Spain - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 Sweden

Table 17 Sweden - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 The United Kingdom

Table 18 United Kingdom - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

8.2 Market shares of VoD services

For 2013, precise market share figures are hard to obtain as the market lacks of transparency. In most cases, the market share and values are based on panels. Also, the lack of standard measurement tools and methods makes it hard to compare actual market values between countries. In this section, we give the figures available for the UK, Germany and France. All figures should be interpreted with care as they are mostly estimates or extrapolations of panels and surveys. Also, for France for example, GfK figures only measure revenues from established national VoD services and do not take into account revenues and sales from VoD services established outside France. Therefore, OTT players like Apple’s iTunes, Microsoft’s Xbox Video Marketplace or Sony Entertainment Network are not taken into account in the current market figures, which constitutes a serious omission and therefore does not fully reflect the real market values and shares.

In order to assess competitiveness and market structure, the analysis needs to be based on the market figures of all players which have entered the market. When this note was drawn up, the problem of reliable figures appeared to be of concern and the general opacity of the on-demand audiovisual services market in Europe means there is a need for more transparency (be it of financial figures, revenues, current catalogues or subscriber/uses numbers – data which are available for other audiovisual sectors such as TV, cinema and music) in order to be able to better understand and analyse these emerging but already important markets.

8.2.1 Market shares United Kingdom

The data shown in this section were taken from the British Video Association (BVA) Yearbook 2013 and elaborated by Kantar Worldpanel.

 Digital retail market

The digital retail market was worth £96 million in 2012, an increase of 20% compared to 2011 according to the latest IHS figures.

Table 19 United Kingdom digital retail market shares 2012 in % value, 2012 (total value £96 million)

Service % iTunes 81.90% Blinbox 11.80% Sony Entertainment Network 2.20% Xbox Live Marketplace 1.20% Other 2.90%

Source: BVA Yearbook 2013/Kantar Worldpanel

Figure 2 United Kingdom digital retail market shares, 2012 in % value

Retail market shares (£96 million) - value 2012 in % 1.20% 2.20% 2.90%

11.80% iTunes Blinbox Sony Entertainment Network Xbox Live Marketplace Other 81.90%

Source: BVA Yearbook 2013/Kantar Worldpanel

On the digital retail market, Apple’s iTunes is over-dominant according to Kantar Worldpanel figures, with a market share of over 80% in 2012, and two players (Apple and Tesco’s Blinkbox) have over 90% of the retail market (highly concentrated, Concentration ratio: CR2= 93.7% - oligopoly)

Table 20 GB - Digital retail market shares 2012, in % volume

Service % iTunes 74.90% Blinbox 17.80% Sony Entertainment Network 2.90% Xbox Live Marketplace 1.70% Other 2.70%

Source: BVA Yearbook 2013/Kantar Worldpanel

Figure 3 GB - Digital retail market shares 2012 by volume

Retail market shares 2012 by % volume 2.70% 2.90% 1.70%

17.80%

74.90%

iTunes Blinbox Sony Entertainment Network Xbox Live Marketplace Other

Source: BVA Yearbook 2013/Kantar Worldpanel

 Digital rental market shares 2012

The digital rental market was worth £196 million in 2012 (excluding subscriptions, SVoD), an increase of 23% compared to 2011. When subscriptions are added, the market was worth £362 million, up by 65%. The SVoD market was worth £84 million in 2012, an increase of over 2000% compared to 2011 (Netflix launched in December 2011 and Sky Now in July 2012). TV based rental services (TV VoD) dominate the sector, with a market worth £241 million in 2012.

Table 21 GB- Digital rental market shares 2012 by volume – Total VoD Total VoD Service Share LOVEFiLM 31.40% Netflix 24.20% Total Sky 18.70% Total Virgin Media 8.20% BT Vision 5.10% iTunes 4.60% Blinkbox 2.50% Other 5.30%

Source: BVA Yearbook 2013/Kantar Worldpanel

 Total VoD includes subscription services

Figure 4 GB - Digital rental market shares 2012 by volume - Total VoD Digital rental market shares 2012 by volume - Total VoD

2.50% 5.30% 4.60% LOVEFiLM 5.10% Netflix 31.40% Total Sky 8.20% Total Virgin Media BT Vision

18.70% iTunes Blinkbox 24.20% Other

Source: BVA Yearbook 2013/Kantar Worldpanel

[Market shares by volume: As these shares are given in terms of volume and not value, an actual assessment of market concentration cannot be carried out. (However, here again, the market would have been highly concentrated, C4=82.5%, if these market shares by volume related to market shares by value)].

 iVoD

Table 22 GB - Digital rental market shares by volume 2012 - iVoD Internet-VoD (iVoD) Service Share iTunes.co.uk 39.10% Blinkbox 21.40% Sony Entertainment Network 6.80% Google Play Store 7.50% Xbox Live Marketplace 4.90% HMV 2.70% Film4oD 4.10% Acetrax 3% Total Virgin Media 1.80% Other 8.70%

Source: BVA Yearbook 2013/Kantar Worldpanel

Figure 5 GB - Digital rental market shares 2012 by volume - iVoD Digital rental market shares 2012 by voulme - iVoD

1.80% 8.70% 3% iTunes.co.uk 4.10% Blinkbox Sony Entertainment Network 2.70% 39.10% Google Play Store 4.90% Xbox Live Marketplace HMV 7.50% Film4oD Acetrax 6.80% Total Virgin Media Other 21.40%

Source: BVA Yearbook 2013/Kantar Worldpanel

[Market share by volume: As these shares are given in terms of volume and not value, an actual assessment of market concentration cannot be carried out. (The market would have been medium concentrated, C4=74.8% if these market shares by volume related to market shares by value)].

 SVoD

Table 23 GB - Digital rental market shares by volume 2012 – SvoD

Service Share LOVEFiLM 55.20% Netflix 42.60% BT Vision 1.10% Other 1.10%

Source: BVA Yearbook 2013/Kantar Worldpanel

Figure 6 GB - Digital rental market shares 2012 by volume - SVoD

Digital rental market shares by volume 2012 - SVoD

1.10% 1.10%

LOVEFiLM 42.60% Netflix BT Vision 55.20% Other

Source: BVA Yearbook 2013/Kantar Worldpanel Combined Subscriber base of over 2 million for the three services (Netflix, LOVEFiLM, BT Vision) as stated in the BVA Yearbook. SVoD market value 2012: £84 million (+ 2000% year-on- year growth) according to Kantar Worldpanel.

[Market shares by volume: As these shares are given in terms of volume and not value, an actual assessment of market concentration cannot be carried out. (The market would have been highly concentrated, C2=97.8%, if these market shares by volume related to market shares by value)].

 TV VoD

Table 24 GB - Digital rental market shares 2012 in Volume – TV VoD TV-VoD Service Share Total Sky 59,70% Total Virgin Media 25,80% BT Vision 14,20% TalkTalk TV 0,30%

Source: BVA Yearbook 2013/Kantar Worldpanel

Figure 7 GB - Digital rental market shares 2012 by volume – TV VoD

Digital rental market shares by volume 2012 - TV VoD 2012

0.30%

14.20%

25.80% 59.70%

Total Sky Total Virgin Media BT Vision TalkTalk TV

Source: BVA Yearbook 2013/Kantar Worldpanel

[Market shares by volume: As these shares are given in terms of volume and not value, an actual assessment of market concentration cannot be carried out. (The market would have been highly concentrated, C3=99.7%, if these market shares by volume related to market shares by value)].

8.2.2 Market shares Germany

Figure 8 Germany - Market shares of TVoD services (1 half 2012)

Market share of TVoD in HY1 2012 0.5% in % 1% 8% 2% Maxdome

6% iTunes 0.5% 27% T-Home Videoload Sky

10% Media Markt Unitymedia Kabel Deutschland Playstation Network 19% 26% Alice Other

Source: GfK Panel Service Germany, 2012; n=652 VoD/PpV, evaluation period January to June 2012, revenues in %

In Germany, the leading TVoD services are ProSieben’s Maxdome and iTunes in the transactional video on-demand segment, followed by Videoload, a subsidiary of Deutsche Telekom, accessible on the Internet as well as on DT’s IPTV services and Sky, operated by Sky Deutschland. Unitymedia and Kabel Deutschland are the two leading cable operators. Note that SVoD offerings are not included in these market shares.

Goldmedia 2013 statistics and forecast78for 2018

Goldmedia published on 3 February 2014 a market forecast and press release concerning the VoD market in Germany.

Here are the statements and projections:

- At the beginning of 2014, there were around 50 VoD services in Germany

- Overall turnover of the market in 2013: €163 million (projected to be worth around €449 million in 2018 with the arrival of a big SVoD player according to Goldmedia)

- TVoD (rental): €73 million in 2013

- EST (download-to-own): €57 million in 2013

- SVoD: €33 million in 2013

78 http://www.goldmedia.com/presse/newsroom/vod-forecast-2018.html#c12800 press release on the Video-on-Demand Forecast 2018, Goldmedia

- No specific data on the AVoD market.

- Around 4 million users, 8 digital rentals and 6 digital sell-throughs on average.

Figure 9 VoD market in Germany 2007-2018 (projection based on the expectation that one big SVoD player will win/arrive on the German market

Source: Goldmedia 201479

79 http://www.goldmedia.com/uploads/media/Goldmedia_VoD-Forecast_2007-2018_Big_Player_Szenario_print.jpg

8.2.3 Market shares France

Table 25 France - Ranking of VoD services by % of customers 2011-2012

2012 Rank 2011 2011 1 La VoD d'Orange 37.9% 1 34.0% 2 CanalPlay 27.4% 2 25.6% 3 Club Vidéo (SFR) 20.0% 3 18.4% 4 MyTF1VoD 18.7% 4 14.6% 5 iTunes Store 17.0% 5 13.5% 6 Pass M6 12.7% 7 9.7% 7 Free Home Video 12.5% 6 12.2% 8 Video Unlimited (Sony) 5.7% 8 4.2% 9 Video Futur 5.3% 10 2.4% 10 Virgin Mega 4.6% 9 3.4% 11 Xbox Video 3.5% 11 2.0% Other services 17.4% - 16.5%

Source: CNC-Harris Interactive, 15 years and more

Internet users who have stated that they pay for watching movies and TV shows through on-demand services. Read as: in 2012, 37.9% of consumers stated that they paid in order to watch a programme on Orange’s VoD service.

Table 25 gives the result of a survey (statements by consumers who said that they had paid for on- demand services). Those surveys attempt to reflect market situations but should be interpreted with care as they are based on own statements and should not be extrapolated to assess a market situation.

Figure 10 France – VoD market figures 2007-2011

Source: GfK Retail and Technology, Le marché de la VoD en France, NPA Conseil, Novembre 2011

The GfK 2013 press presentation of the cultural goods market in France estimated the overall French VoD market to be worth €245 million in 2013, a decrease over the €252 million for 201280. These figures are to be interpreted with care as GfK does only take into account VoD services established in France and only includes 15 services. A service like Apple’s iTunes, believed to be leader on the EST market, or the Xbox Video Marketplace and Sony’s Entertainment Network is therefore not taken into account (please refer to the note for table 26 for further details). The decrease in the French VoD market in 2013 should therefore be viewed with caution as methodological explanations can be given for this.

Table 26 French VoD market, in EUR million

2009 2010 2011 2012 2013* Revenue of VoD services sold in France 97 152 219 252 245 Year-on-year change 75% 44% 15%

Note: In order to measure the VoD market in France, the GfK/NPA Barometer aggregates the total of sold or rented items from 15 generalist VoD platforms established in France (Bouygues Télécom, CanalPLay VoD, Darty Box, Free, MyTF1, Numericable, Orange, SFR, Vidéo Futur, Virgin Media). Therefore, VoD services such as Apple's iTunes, established in Luxembourg, are not taken into account.

* from GfK/NPA press presentation, Feb 2014 Source: GFK Barometer

Source: GfK Barometer as cited in “CSA: Rapport81 au Gouvernement sur l’application du décret n°2010-1379 du 12 novembre 2010 relatif aux services de médias audiovisuels à la demande”, page 12

80 http://www.zdnet.fr/actualites/video-et-vod-les-consommateurs-sauveront-ils-le-marche-39797850.htm 81 http://www.csa.fr/Etudes-et-publications/Les-autres-rapports/Rapport-au-Gouvernement-sur-l-application-du-decret-n-2010- 1379-du-12-novembre-2010-relatif-aux-services-de-medias-audiovisuels-a-la-demande-SMAD

Subscription on-demand audiovisual services

SVoD – Executive Summary

 Subscription video-on-demand services are services which allow subscribers by paying a flat rate to access an SVoD service and consume unlimited video content.  There are two main types of SVoD service: Over-the-top (OTT) services provided mainly by pure Internet players and the SVoD services of pay-TV channels and networks.  Since 2010, OTT SVoD services (essentially those of Netflix and Amazon) have met with huge success on European and international markets, which had led to a tremendous increase in subscribers (e.g. +113.8% for international subscribers for Netflix in 2013) (section 1)  Market data are scarce. This note essentially deals with the SVoD offerings of players in the EU-5 and the Nordics.  The USA is the country where OTT SVoD services have the largest subscriber base and can therefore accumulate the necessary financial resources to enter new, international markets.  As with other Internet based businesses, size matters and the first-mover advantage is also on the strategic OTT SVoD market.  In 2012, the worldwide OTT SVoD market accounted for $4.7 billion with 66 million subscribers (over 50 million in the USA, an increase of 50% compared to 2011). (Section 2.2)  The OTT SVoD market in Western Europe is estimated at $575 million in 2012, representing 11% of worldwide SVoD subscribers (7 million). In Eastern Europe, the OTT SVoD market is estimated at $255 million, with 7% of worldwide subscribers (4 million).  The world-wide OTT SVoD market is estimated to generate $8 billion in revenue by 2017, with more than 120 million worldwide subscribers.  In the United Kingdom, the SVoD market was worth £84 million in 2012, an increase of over 2000% compared to the £3.8 million generated in 2011 before the entry of Netflix and Amazon LOVEFiLM.  Netflix UK (42.6% market share) and Amazon’s LOVEFiLM(55.2% market share) have formed a duopoly on this market with a combined market share of 97.8%, leaving a mere 1.1% to BT Vision and 1.1% to the rest of the players (Sky Now, wuaki.tv), and set to grow to £160 million in 2013.  Scandinavia is another thriving OTT SVoD and pay- SVoD market with several players competing with one another.  Germany has four main SVoD services: LOVEFiLM (Amazon), Watchever (Vivendi), Maxdome (Pro7) and Videoload (Deutsche Telekom)  France has two main SVoD providers: Canal Play and FilmoTV, each with200 000 subscribers.  Spain and Italy are mostly served by pay-SVoD but have factors for further growth.  The rapid adoption of SVoD by consumers is based on several growth drivers (section 2.3): o The proliferation of connected devices o The service is offered anytime, anywhere and on any device (ATAWAD) o Exclusive licensing o Attractive content libraries through licensing deals with major studios and networks o Original programming financed by the major players (Netflix, Amazon and Hulu) o Personalised viewing experiences for the individual subscriber  Release windows are playing an important role for SVoD providers and determine how attractive their content library is to subscribers. France, with the longest window for movies for SVoD services (36 months), lags behind the rest of Europe in SVoD adoption.  Increasingly, OTT SVoD providers are challenging established pay-TV channels and networks on their turf, as illustrated by Netflix surpassing HBO in the number of subscribers in the USA.  The question for the near future will be whether “cord cutting” (abandoning traditional pay-TV for OTT SVoD) will become more widespread or whether co-existence between the two services will be established.

9 Types of services

Subscription based video on-demand services can be classified into two broad categories: pure over- the-top services and SVoD offerings from TV networks & channels and telecommunications groups. SVoD services give subscribers access to a catalogue of movies and TV shows which they can watch unlimited at will through a subscription fee (which generally between €5 and €10 per month). The main challenge is access to premium content in order to differentiate their services by agreeing exclusive licences with rightholders. The rise of Netflix and Amazon Instant Video (formerly LOVEFiLM in the United Kingdom and Germany) has shown that SVoD services, with a range of interesting content of consistent quality, can appeal to customers as they are a less expensive way to access content on an “all you can watch” basis82. Who are the main players on the SVoD market?

We have distinguished three main groups of SVoD players by their core business, TV/Media groups, telecommunications groups and OTT players such as Amazon, Netflix and Wukaki.tv.

– OTT SVoD players (Netflix, Amazon, Wukaki.tv, FilmoTV, etc.) – SVoD services of TV groups and networks (HBO GO Nordics, CanalPlay, etc.) – SVoD services of telecommunications groups (BT Vision, Club SFR, etc.)

82 As is also the case with subscription streaming music services like Deezer, Spotify and Pandora. The subscription based business model could be sustainable, as a study by Kurt Salomon points out ( http://www.forum- avignon.org/sites/default/files/editeur/Etudes_Kurt_Salmon_Forum_Avignon_2013.pdf).

10 Subscription video on demand (SVoD)

10.1 What is a subscription video-on-demand (SVoD) service?

Subscription video on demand (SVoD) services allow subscribers, who pay a monthly flat fee (which varies normally between €5€ and €10 a month for pure Internet players), to view an unlimited amount of content, which is generally but not limited to videos, movies or TV shows. They can freely decide what, when and often where and on which devices they want to view the content. In contrast to transactional video on demand or electronic sell-through, titles are not billed individually. Furthermore, most services are streamed directly to the subscriber’s device.

The main competitive arguments of SVoD services are the quality of the content in their catalogues, the relative cheapness of the subscription compared to traditional pay-TV, personalised viewing experiences (recommendation of video content based on the consumer’s preferences). Recently, with the success of Netflix in the USA and Europe, the shift has also been towards the exclusivity of content and original programming and the fact that the video content can be consumed anywhere, on any device and at any time.

Netflix is certainly the most internationally successful player on the SVoD market, demonstrated by its recent surpassing of HBO with regard to the number of subscribers in the USA. However, other players are eager to enter this promising market and the competition for paying customers has been underway since 2010. The two main categories of SVoD players are pure Internet players, known as over-the-top SVoD services (OTT) and SVoD services operated by pay-TV players. Free-to-air television channels, special-interest channels, content producers and retailers of DVDs and Blu-ray discs have also started to enter this market.

The OTT players have brought about the unprecedented success of SVoD, with most of the rapid subscriber growth coming from one player, Netflix (in the US between Q1 2012 and Q1 2013 +24.5% subscribers, internationally +113.8% for the same period). This success has forced other players with the necessary financial resources to acquire and even produce content to enter the market. This note will give an overview of the actual situation, the main players and the on-going developments of those players.

We decided to mainly focus on the OTT players in the main European markets for SVoD services (GB, Nordics, DE, and FR). Those are the players which have enabled the growth of the SVoD sector, so we believe it is important to focus on them.

The note first gives an overview of the main OTT players and SVoD services of pay-TV channels before trying to outline the European SVoD market. As is so often the case with the on-demand audiovisual services markets, concrete and free data are rare available due to the poor communication of financial information by the players concerned. We will, however, try to provide a picture of the market and how it may evolve. Section 2 will give a more precise picture of the main drivers of the growth of SVoD services, as well as of exclusivity licences for video content and original production, ATAWAD, and release windows and their crucial importance for the success of SVoD services.

10.1.1 Main SVoD players in EU-5 and Nordics

This section briefly presents the main OTT SVoD services and the SVoD services of traditional pay- TV channels in the EU-5 and Nordics. The following table lists the main SVoD players by country. A full listing of all SVoD players can be found in the annex. A recent strategy of pay-TV providers, imitating the TV Everywhere83 incentive by the American pay-TV and cable operators, is to offer their programming to their subscribers on any device and on-demand. As these premium pay-TV channels have more recent movies, are not under the constraint of release windows and negotiate streaming rights when acquiring a programme in the pay-TV windows, these services can also be considered subscription on-demand, part of a pay-TV subscription84 (e.g. Canal + à la demande in France). Although not truly SVoD services as such, these offerings are an attempt by pay-TV groups to render their services more attractive to their customers in order to stop “cord-cutting”.

Table 1 Main SVoD services in EU-5 and Nordics

OTT pay-TV/Teleco Canal Play, Canal à la demande, Orange FilmoTV, Pass Videofutur, MUBI, Jook France Cinema Series Go, Pass Cinéma SFR, (M6 Video, Dailymotion kids +, Vodeo Pass Pass)

United Netflix, LOVEFiLM , wuaki.tv, Animax, Sky Now, BT Vision Kingdom Picture Box Films (NBCU)

Sky GO, Sky Anytime, Videoload (DT) Germany LOVEFiLM , Watchever (Vividendi), Maxdome (Pro7)

Filmnet (C More Entertainement/TV4), Netflix, HBO Nordic, MUBI, Voddler, Nordics Viaplay (MTG), Telenor, Canal Digital, Film2Home, TriArt YouBio (TDC)

Premium Play (Mediaset), Cubovision Italy (Telecom Italia), Sky on Demand, OnDemand (3 Italia)

Spain wuaki.tv (Rakuten), YouZee Nubeox (Planeta), yomvi (CanalPlus)

83 http://www.businessinsider.com/tv-everywhere-is-exploding-in-the-us-2013-10 84 http://www.digitalspy.co.uk/tech/news/a226807/lovefilm-worried-by-sky-svod-monopoly.html

Figure 1 USA- Number of Channels with TV Everywhere

For copyright reasons this figure cannot be reproduced in the public version of this report

Source: IHS Inc., October 2013

Without comprehensive market share data, an assessment of market strength is difficult so we will try to rely on reports from journalists, IHS Screen Digest data and information gathered from consulting groups (report by Arthur D. Little, “Over-the-Top Video – First to scale wins”85 and by IDATE). However, as so often on the web, size matters (larger subscriber base, financial resources for content acquisition and the amortisation of investments, such as technical platforms, application development and R&D expenses) and it is therefore no surprise that the first movers and those with a larger subscriber base seem to dominate the market.

In order to convince potential customers to subscribe to a SVoD service, the extent diverse content of video libraries and the relative cheapness of the service compared to traditional pay-TV remain the main arguments. The first-mover advantage is crucial in the market for securing rights (exclusivity rights even more), rights which allow for a richer and more attractive video library. By attracting enough subscribers and stabilising their revenues as a result, OTT SVoD services have recently been able to adopt an even more ambitious strategy: producing original content. The players that have managed to do so are all American OTT SVoD providers: Netflix, Amazon and Hulu (not yet available in Europe). Also, as all the following figures are based on 2012, it is no longer correct that LOVEFiLM is still present in Scandinavia as it left those markets in August 201386. Also, HBO GO has been present in Scandinavia since 2013 with its OTT service HBO GO (in partnership with Persifal International.

As Figure 2 shows, the main US SVoD players began their international expansion throughout 2012, Netflix by growing domestically, giving it both the scope and the financial assets to expand into promising European markets. ,, Netflix entered another EU market, the Netherlands in September 201387. Amazon expanded its Amazon Instant Watch SVoD service by acquiring the DVD rental and SVoD service LOVEFiLM in 2011 for £200 million. HBO has expanded its offering, being already present in Eastern Europe. However, an interesting fact worth noting is that HBO GO in the Nordics is available as a strictly OTT service, in contrast to the USA, where the subscriber must still sign up to HBO’s pay-TV service in order to access HBO GO. Figure 8 gives an overview of the main US services, TVoD, SVoD and AVoD, launched as of 2012 in Europe.

85 http://www.adlittle.com/downloads/tx_adlreports/TIME_2012_OTT_Video_v2.pdf 86 http://www.screendigest.com/news/2013_06_lovefilm_exits_the_nordics/view.html 87 http://www.dutchnews.nl/features/2013/09/netflix_launches_into_a_crowde.php

Figure 2 Global presence of US players in 201288

Table 2 lists the main characteristics of these US SVoD services in their home country. It can be seen from this table that having an extensive catalogue and a subscription price below $10 a month is common to all three, so the services are competing with each other on the basis of original content, exclusive movies and TV show licences, as well as by moving more and more into traditional pay-TV.

Table 2 Main US SVoD services and catalogues 2012

Name Price Titles Catalogue Amazon Prime Instant Video $79/year 18 000 TV: past seasons /Movies: back catalogue TV: pas seasons + catch-up TV + 1 day/Movies: Hulu Plus $7.99/month 54 000 back catalogue TV: past seasons /Movies: from 28 days after Netflix $8/month 20 000 DVD release

Source: IDATE Digiworld 2012 However, Europe also has a few European players operating on their national SVoD markets. As we will see in the next sections, market size and conditions are not homogenous throughout Europe. The markets where SVoD seems to have the most success and subscribers are the United Kingdom and the Nordics, followed by France, Italy and Spain. Figure 1 provides a picture of the main SVoD services in Europe.

In the United Kingdom, Sky Now, operated by BSkyB, can obtain SVoD streaming rights for most of the films released on its pay-TV channels and acts as a complement to the Sky Go service already available to Sky subscribers89. Although it has not yet done so, the BBC, through its affiliate BBC Worldwide, is thinking of transforming its iPlayer into a SVoD service for international markets90.

The Nordic countries, where the market is characterised by good broadband connections and a

88 http://eebc.ua/images/eebc/conf2013/ott/website/2013%2003%2022_ADL_OTT%20Video%20Threat%20or%20Opportunity_ Scwaiger.pdf 89 http://www.screendaily.com/news/digital/sky-names-svod-service-now-tv/5039544.article 90 http://www.theguardian.com/media/2013/oct/18/bbc-worldwide-netflix-amazon-hulu#!

good telecommunications infrastructure, high GDPs and widespread use of new technologies among the population91, the SVoD market is attractive to players and is therefore more competitive. Accordingly, a larger number of players than on the other European markets have entered the SVoD service market. Table 3 gives the main OTT SVoD players in the Nordics (IHS Screen Digest) to which we have added some other players in Figure 1.

As already pointed out, LOVEFiLM is no longer operating in the Nordics and HBO GO Nordics is missing from these figures, which were edited in 2012. However, the fact that LOVEFiLM exited the market after the arrival of Netflix and that HBO Go92 is struggling in its competition with Netflix and the other SVoD players may indicate that this market seems to be more competitive than others in Europe, no doubt mainly due to the extensive catalogue offered by Netflix and local pay-TV players. SVoD services are also provided by local broadcasters such as TV2 Sumo in Norway and TV2 Play in Denmark, which we do not discuss in this short note on OTT SVoD services.

Table 3 Main subscription online movie services in the Nordic region 2012 For copyright reasons this figure cannot be reproduced in the public version of this report

Source: IHS/ Screen Digest 2012

In Germany, the market seems to be dominated by three SVoD players: LOVEFiLM, Maxdome (owned by Pro7 and also offering a TVoD service) and Watchever (Vivendi) with an SVoD offering from Videoload on top of its TVoD service (owned by Deutsche Telekom). The SVoD services all belong to large media or telecommunications groups who can accordingly invest in movie and TV show licences.

Table 4 Main SVoD services in Germany

Maxdome Watchever Lovefilm.de Videoload Duration 1 month 1 month 1 month 1 month Cancel. period 14 days none 1 day 10 days Subscription rate 6.99 8.99 6.99 4.99 Movies available ≈3 000 n.a. ≈1 200 250* * changes every month

91 http://www.screendigest.com/news/2012_08_netflix_to_launch_in_the_nordic_region/view.html 92 http://www.thevideoink.com/news/netflix-is-besting-hbos-unbundled-ott-service-in-sweden/#.UpYGi-ISNnU

Finally, the markets where none of the three big American SVoD services has yet arrived, although rumours on the arrival of Netflix in Spain9394, France95 and Italy have been circulating, are those where there are strict release windows (France), thus making it hard to offer a new and interesting video catalogue, or which do not yet have the necessary telecommunications infrastructure or sufficiently high GDP or where content is held by pay-TV groups. Spain’s Japanese-owned wuaki.tv (acquired in 2012 by the Internet giant Rakuten96) has now expanded to the British market (in 201397) and plans on entering France in 201498. In France and Spain, Canal + group is offering an SVoD service: Canal Play in France (formerly Canal Play Infinity) and yomvi in Spain (launched in 201199). In Italy, where the main consumption of VoD is still via TV platforms and not online as figure 3 indicates, Mediaset and Telecom Italia seem to be the biggest SVoD providers on the market through their Premium Play and Cubovision services.

Figure 3 Online video versus TV VoD in Italy 2007-2012

Fi

Source: European Audiovisual Observatory/IHS Screen Digest

93 http://www.screendaily.com/news/digital/netflix-to-launch-in-spain-in-january-2012/5030897.article 94 http://variety.com/2011/tv/news/netflix-preps-euro-launch-in-2012-1118039987/ 95 http://www.bfmtv.com/economie/netflix-coupe-court-aux-rumeurs-arrivee-france-551414.html 96 http://thenextweb.com/insider/2012/06/13/japanese-e-commerce-giant-rakuten-buys-spanish-video-on-demand-firm-wuaki- tv/ 97 http://www.hollywoodreporter.com/news/japans-rakuten-launches-online-video-636926 98 http://www.pcinpact.com/news/80966-svod-netflix-et-amazon-devances-en-france-par-rakutenwuaki.htm 99 http://www.prisa.com/en/sala-de-prensa/canal-launches-yomvi-a-new-connected-way-to-enjoy-tv-2/

10.2 US OTT SVoD market

The SVoD market really started to expand in the USA with the transition of Netflix’s DVD rental-by- mail business to subscription streaming in 2007100 and then in 2010 when the company offered a streaming-only option101 (Watch Instantly). Since 2010, the number of subscribers and the revenues of the SVoD market in the US have risen exponentially, as Figures 4 and 5 show.

Figure 4 Online video markets in the US HY2 2010 - HY1 2012, in USD billion

1.2 $ bn

1

0.8

0.6

0.4

0.2

0 S2 2010 S1 2011 S2 2011 S1 2010 Electronic Sell-Thru VoD SVoD

Source: IDATE Digiworld 2012

Figure 5 Netflix subscribers – US streaming, US DVD, inter. streaming 2010-2013, in million

35 29.17 29.81 30 27.15 25.1 23.41 23.94 25 21.67 20

15

10 7.75 6.12 7.14 4.31 3.07 3.62 5 1.86 0 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013

US Streaming US DVD International Streaming

Source: Netflix Annual and Quarterly reports & press releases

100 https://signup.netflix.com/MediaCenter/Timeline 101 http://mashable.com/2010/10/23/netflix-streaming-subscription/

The rise in the SVoD market in the US not only came from Netflix but also from its two competitors, Hulu Plus (the SVoD service of the advertising-financed Hulu VoD service launched in June 2010102) and Amazon (Amazon does not disclose the number of its “prime members”103. It is interesting to note that Amazon offers its SVoD service to these members who for $79 a year get free shipments when they make purchases on Amazon.com, an example of bundled services with the two services adding value to customers). Figure 6 shows that the Hulu Plus service was also very popular on the market, with the number of subscribers hitting the 4 million mark in 2013, two and a half years after the launch.

Figure 6 Hulu Plus subscribers 2010-2013 Hulu Plus Subscribers in millions 5

4

3

2

1

0 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013

Source: Press releases, Company reports

If we take a look at market share figures for TV shows in the US, the market domination of Netflix is evidenced by Figure 7, even though Hulu Plus and Amazon Prime gained a small share between 2012 and 2013. Why base the market shares on TV shows rather than movies or both categories? A recent survey by GfK104 of subscribers of these services found out that 81% preferred TV shows to movies (even 96% for Hulu, 77% for Netflix and 79% for Amazon Prime).

Figure 7 OTT SVoD market share for TV shows in the US 2012-2013, in % of shows streamed

100% 93% SVoD market shares for TV shows 89% in % of shows streamed 80%

Q1 2012 Q1 2013 60%

40%

20% 7% 10% 1% 2% 0% Netflix Watch Instantly Hulu Plus Amazon Prime

Source: MarketingCharts.com

102 http://blog.hulu.com/2010/06/29/introducing-hulu-plus-more-wherever-more-whenever-than-ever/ 103 http://www.vulture.com/2013/07/streaming-scorecard-amazon-prime.html 104 http://advanced-television.com/2013/07/19/svod-users-prefer-tv-shows-over-movies/

Figure 8 Use of paid OTT video providers in the US 2012, in % of users of paid OTT services

90 84 82 80

70

60

50

40

30 22 20 17 15 16 8 10 6

0 Netflix Amazon instant iTunes Hulu Plus Video

Q1 2012 Q3 2012

Source: 451 Research

Number of Netflix subscribers also paying for Amazon Instant Video in % 20 18 14 15 10 5 0 Q1 2012 Q3 2012

Source: 451 Research

If we look at the percentage of users who pay for OTT video overall, we see that Netflix still dominates the others but Amazon Instant Video in this chart is outpacing Hulu Plus as this market share is no longer only based on TV shows.

With this lightning-fast success of SVoD services in the US the past three years, what is the situation in Europe? As we have seen, SVoD is quite recent and a shift from the USA to Europe always takes some time. However, first indications are that the situation and the subscription service are as appealing to European customers at they were to Americans when the first services appeared. The next section will assess the market situation in Europe. As the market is still in its infancy, market numbers are scarce.

10.3 Main market numbers available for Europe

In Europe, market figures available on revenues, subscribers and additional data are scarce. In the last section, we saw that US and European players have entered the SVoD market in reaction to the success of those services in the US. For customers, SVoD is a cheaper alternative to TVoD, even if the most recent movies will not be in SVoD catalogues and can be a complement to or a substitute for pay-TV.

In 2012, according to a study by IHS105, SVoD viewing represented 1 in every 7 minutes of online long-form viewing. MRG, Research and Markets, stated in its 2013 report “Worldwide Over-the-Top Subscription Video on Demand Market106” that the Western European OTT SVoD market generated $575 million in revenue, representing 11% with 7 million subscribers. The situation in Eastern Europe, with many more local players and domestic content, had revenues of $255 million or 7% of the worldwide market and 4 million subscribers. The worldwide OTT SVoD market is projected to reach $8 billion by 2017 with more than 120 million subscribers, and therefore almost doubling in 5 years.

Table 5 MRG,- Research and Markets OTT SVoD market study 2012107 Research and Markets "Worldwide OTT SVoD Market"

Market 2012 % of WW OTT SVoD market Subscribers North America n.a. n.a. 50 million (+50%) Western Europe $575 million 11% 7 million Eastern Europe $255 million 7% 4 million Asia $225 million 5 million WW market $4,7 billion 66 million

Source: Researchandmarkets, 2013 Further data for the United Kingdom can be found in the hard-copy release of the BVA Yearbook 2013. The SVoD market was worth £84 million in 2012, an increase of over 2000% (in 2011, the SVoD market was worth £3.8 million), mainly driven by the entrance of Netflix (and Sky GO).

Looking at market shares, Netflix and Amazon’s LOVEFiLM form a duopoly with a share of the SVoD market of 55.2% for LOVEFiLM and 42.6% for Netflix (an impressive 97.8% of the total SVoD market!), leaving only 1.1% to BT Vision and 1.1% to the rest of the players. Deloitte108 predicts for 2013 a market value of £160 million (€190 million) with an increase compared to 2012 of 167%. As we can see from those figures, the UK SVoD market is striving ahead and gaining more subscribers but seems to be dominated by two US players.

Figure 9 shows the subscriber numbers for Netflix and LOVEFiLM in Europe but the withdrawal of LOVEFiLM from the Nordic countries has impacted on the current validity of these figures. According to the most recent figures109, Netflix has 1.2 million subscribers in the UK and LOVEFiLM 2.5 million.

Another country for which SVoD figures were released (free of charge, of course) is France, where SVoD is estimated to have been worth €27 million in 2012110 according to GfK and NPD figures. Canal Play and FilmoTV (Wild Bunch) are each reported to have around 200 000 subscribers. Media release windows as well as the absence of one of the two US players Netflix and LOVEFiLM may explain this

105 http://www.digitaltveurope.net/102182/svod-and-catch-up-accelerate-us-uk-linear-viewing-decline/ 106 http://www.researchandmarkets.com/reports/2698525/worldwide_overthetop_subscription_video_on 107 http://www.theconvergence.tv/2013/11/06/ott-subscription-vod-market-to-8-billion-by-2017/ 108 http://www.digitaltveurope.net/100602/uk-svod-revenues-to-reach-e190-million/ 109 http://www.journaldunet.com/media/expert/53362/svod--qui-sera-le-prochain-netflix-francais.shtml 110 http://www.telecompaper.com/news/tf1-puts-svod-plans-on-hold-report--948785

notable difference with the UK. Another interesting point is that TF1 and M6 have decided this year not to launch their planned SVoD service as the investment required over €50 million and, as we can see, the market conditions probably do not yet exist to make such an investment profitable111.

Figure 9 European subscribers to Netflix and LOVEFiLM in 2012 3

2.5

2

1.5

1

0.5

0 Q1 Q2 Q3 Q4

Netflix LoveFilm

An IHS chart, figure 11, shows the still enormous difference in online video-on-demand consumption between the US and the rest of the world. As stated in MRG’s report on the worldwide OTT SVoD market, SVoD services accounted for 43% of the online video market, but internationally this share drops to only 6% (the US being the most competitive with 25 OTT SVoD services).

Figure 10 Online video market by business model, USA 2012, in % For copyright reasons this figure cannot be reproduced in the public version of this report

Source: IHS Electronics & Media

111 http://www.telecompaper.com/news/tf1-puts-svod-plans-on-hold-report--948785

Figure 11 Online video market by business model, international markets, 2012, in % For copyright reasons this figure cannot be reproduced in the public version of this report

Source IHS Electronic & Media

As we have seen, the success of SVoD in the USA was mainly due to OTT players. Before we look at market projections, figure 12 shows a breakdown of the video-on-demand market between managed networks (TV VoD platforms) and OTT services (including all business models, not only those specific to SVoD – TVoD, SVoD, EST, DTR). The situation for the OTT distribution of video is more favourable in Germany, where over 50% of the market is distributed over the top. In the United Kingdom, around 60% of video-on-demand services in 2012 were distributed through managed networks and 40% OTT (however, with the arrival of Netflix and its success the figures will certainly have changed). In France, the market for OTT video services represented only less than 30% of the on-demand video market. It might be assumed that, without an appealing content offering, customers still rely on the on-demand video services provided by their pay-TV or TV distributors (IPTV, cable TV, SatTV). The arrival of a major player might have an impact on this imbalance between OTT and managed networks, as it most certainly had in the UK after the arrival of Netflix and Sky GO and the explosion (+2000%) of the OTT SVoD market.

Figure 12 Breakdown in FR, GB and DE of the video-on-demand market between managed networks and OTT, 2012 100% 90% 80% 70% 60% 50% Managed

40% OTT 30% 20% 10% 0% France UK Germany

Source: IDATE estimates

IHS Screen Digest published a forecast in 2013 for the years 2012-2016 for OTT SVoD movie revenues in EU-17 (figure 18).

This figure shows expected growth in revenues through more attractive offers and widespread OTT SVoD adoption. The EU-17 market is, if predictions prove true, set to rise from not even €10 million in 2011 to over €180 million in 2016 which, we believe, no longer seems likely in view of the MRG figures and Deloitte’s study on the UK market (the UK SVoD market alone is expected to be worth €190 million in 2013). As we do not know how those figures were projected, this difference cannot be explained (perhaps it can by excluding all TV show transactions but the differences still seem enormous to us). Figures 13, 14 and 15 are taken from the study “Why territories matter112” by Oliver Bomsel and Camille Rosay.

112 http://www.letsgoconnected.eu/files/Study-Olivier_Bomsel-Why_Territories_Matter-FINAL_14_Oct_2013.pdf

Figure 13 SVoD OTT movie revenues in 17 EU countries 2004-2016, in EUR million

For copyright reasons this figure cannot be reproduced in the public version of this report

Figure 14 SVoD OTT movie subscribers in 17 EU countries, 2004-2016, in EUR million

For copyright reasons this figure cannot be reproduced in the public version of this report

Figure 15 Total subscription revenue – SVoD + pay-TV in 17 EU countries 2004-2016, in EUR million

For copyright reasons this figure cannot be reproduced in the public version of this report

Figure 16 shows a breakdown of worldwide consumer revenues (sales excluding VAT/sales taxes) for paid-for movies and TV content between all distribution methods (digital/physical, rental/retail, SVoD Digital subscription). Accordingly to this chart, SVoD will continuously rise from 2012. This is in line with the most recent figures given at the beginning of this section, although, once again, we do not know about the methodology and projection scenario.

Figure 16 Consumer revenue on paid-for-movie and TV content 2007-2016 For copyright reasons this figure cannot be reproduced in the public version of this report

Subscription video on-demand services have, as this section has demonstrated, a bright future ahead of them. The flat fee for “all you can watch” appeals to customers and, as Kurt Salmon has pointed out 113, constitutes a stable business model114 (compared to music subscription services such as Deezer and Spotify). The next section will focus on the growth drivers and keys to the success of SVoD services and providers, both from the demand side (AWATAD – anywhere, anytime, any device – the proliferation of connected devices, high broadband speeds, binge watching) and from the supply side (exclusive licensing, original content, release windows).

113 http://www.forum- avignon.org/sites/default/files/editeur/Etude_Kurt_Salmon_Qui_a_le_pouvoir_dans_la_chaine_de_valeurs_ICC_FA13_BD_. pdf 114 http://meta-media.fr/2013/11/24/culture-et-numerique-les-modeles-economiques-commencent-a-se-stabiliser-etude.html

10.4 Growth drivers of SVoD services

What are the growth drivers behind the tremendous expansion of OTT SVoD services (see Figure 17) in the last two years? Clearly, the low price compared to traditional pay-TV appeals to subscribers, but in our view OTT SVoD services fulfil other consumer expectations. In a world where connected devices proliferate and high broadband speed permits smooth OTT video consumption, consumers expect to be able to view their video content on whatever devices they choose to and therefore have multiscreen options115 offered them when deciding to subscribe to an OTT SVoD service for a personalised viewing experience116117. Also, selecting an SVoD service is based on the content that the service has in its content library, (non-exclusive but increasingly exclusive content118 or even original programming (and first pay-TV windows). The fact that the video library contains recently produced content is fundamental to convincing potential customers, which is why release windows are an important issue for SVoD services. The use of big data to analyse viewing habits, recommend content119 to subscribers and even acquire/produce original content is also one of the factors for the success of the big SVoD providers.

Figure 17 Percentage of people in the US who use or subscribe to OTT SVoD % of people in the U.S. who use or subscribe to video streaming services 40% 38% 35% 31% 30% 25% 20%

15% 12% 13% 9% 10% 6% 7% 4% 5% 0% Netflix Hulu Hulu plus Amazon Instant Video

2012 2013

Source: Nielsen

115 http://www.adostrategies.com/blog/category/tv-shows-crossmedia/ 116 http://www.cinemablend.com/television/Netflix-Offers-Subscribers-Television-Experience-60527.html 117 http://www.dailytech.com/Netflix+Introduces+Profiles+for+Individualized+Streaming+Experience/article33094.htm 118 http://www.reuters.com/article/2012/12/07/us-netflix-studios-licensing-idUSBRE8B613420121207 119 Netflix has created over 76 000 microgenres of movies in order to identify user appreciation and recurring patterns in movie consumption http://www.theatlantic.com/technology/archive/2014/01/how-netflix-reverse-engineered-hollywood/282679/

Figure 18 Netflix’s revenue and subscriber forecast 2012-2017120 Changes in Netflix subscriber base worldwide in millions 50 44 47 45 41 39 40 36 35 30 Evolution of Netflix 25 24 subscriber base world- 20 wide 15 10 5 0 2012 2013 2014e 2015e 2016e 2017e

Source: Forecast by Kurt Salmon, Netflix annual reports

Changes in Netflix's total and streaming revenue worldwide ($ billion)

12 10.4 10 8.2 7.9 8 6.5 6.1 6 5.1 4.8 4 3.7 4 3.6 3.3

2

0 2012 2013 2014e 2015e 2016e 2017e

Total revenue Streaming revenue

Source: Forecast by Kurt Salmon, Netflix annual reports

The SVoD world champion is Netflix, which managed to reach this position by continuously adapting its strategy to deliver the service that its customers want and expect. If we look at the projections made by Kurt Salmon based on Netflix data, we see that Netflix is expected to have around 47 million subscribers by the end of 2017 and to generate around $10.4 billion that year. The first-mover advantage and the fact that in 2007, when Netflix started its streaming business,

120 http://www.forum- avignon.org/sites/default/files/editeur/Etude_Kurt_Salmon_Qui_a_le_pouvoir_dans_la_chaine_de_valeurs_ICC_FA13_BD_. pdf

rightholders did not value streaming rights contributed to the expansion of its business. However, this success is not only explained by these two factors but also by Netflix’s ability to adapt to changing consumer habits and expectations and by its ability to innovate. The entrance of several big players in the SVoD business be it in Europe or the US, made it clear there would be intense competition for licensing rights, original programming and innovation in order to offer the best consumer experience. What are the main keys of success for and SVoD service to succeed?

The following section will present the main drivers of the rapid adoption of SVoD by customers in the USA, and where available, in Europe in order to see what strengths and market conditions are needed to succeed on the SVoD service market. The first section stresses the importance of licensing deals, and the second gives an overview of original content produced by Netflix, Hulu and Amazon. Section 3 shows the proliferation of connected devices, the importance of those devices in the viewing of video content and the relationship between broadband Internet and the presence of one of the big streaming players, while the final section stresses the importance of movie release windows for an attractive SVoD catalogue.

10.4.2 Exclusive licenses and licensing deals

Licensing deals with major studios for their content are essential to any SVoD business. In order to reach those deals, it is clear that size and financial clout matter. Basically, SVoD service providers are engaged in a battle for (exclusive or non-exclusive) licensing deals for movies, TV shows and, more recently, children’s programmes in order to distinguish themselves from competitors [differentiation through exclusive content].

It was not possible to unravel the opaque exclusive licensing deals, where the licensing terms are rarely made public, in the timeframe available. Industry and news reports (Netflix121122123124125, Hulu126127128 and Amazon129130131132133 being the main players in this field) indicated many exclusive licensing deals made over the past year between the major SVoD services and rightholders134. Exclusive deals are crucial as they constitute a commercial argument for customers, and losing a licensing deal can cause an SVoD provider to lose a huge part of its content library, be it exclusive or general content (Netflix lost over 1 800 titles in May 2013135 by not renewing its license with MGM, Warner Bros. and Universal). Although we cannot list all licensing deals made in the past few years, we can say that the sector is very dynamic and competitive and that the three major SVoD services are in a fierce battle to gain exclusive licences136 and, if they cannot obtain those licenses, for the streaming rights of non-exclusive content.

American licensing deals are already very numerous due to the scarcity of quality content that appeals to customers and constitutes a commercial argument. Obtaining information on such deals for the European market is even harder. In Europe, most deals are territorial and apply only to a particular country. Also, news journals and the industry have up to now reported more on American than on

121 http://ipjournal.law.wfu.edu/2013/02/exclusive-licensing-netflix-disney-deal-sets-new-standard-for-future-releases/ 122 http://www.foxbusiness.com/industries/2013/08/20/netflix-scores-exclusive-licensing-deal-with-weinstein-brothers/ 123 http://techcrunch.com/2013/01/14/netflix-signs-multi-year-licensing-agreement-with-turner-broadcasting-and-warner-bros- television/ 124 http://venturebeat.com/2013/06/17/netflix-signs-licensing-deal-for-new-dreamworks-animation-tv-content/ 125 http://www.deadline.com/2013/07/cbs-netflix-extend-licensing-deal/ 126 http://www.tvguide.com/news/cw-hulu-streaming-agreement-1039136.aspx 127 http://www.hollywoodreporter.com/live-feed/cbs-heads-hulu-multi-year-386376 128 http://variety.com/2011/tv/news/fox-renews-hulu-licensing-pact-1118038960/ 129 http://www.deadline.com/2013/11/amazon-prime-reaches-multi-year-licensing-deal-with-a24/ 130 http://wallstcheatsheet.com/stocks/cbs-and-amazon-renew-game-changing-licensing-deal.html/ 131 http://www.multichannel.com/distribution/amazon-mgm-expand-licensing-agreement/146220 132 http://online.wsj.com/news/articles/SB10001424053111903461104576457903964131950 133 http://www.hollywoodreporter.com/news/amazon-viacom-ink-multiyear-licensing-562460 134 http://www.hollywoodreporter.com/news/lionsgate-make-more-tv-shows-561179 135 http://www.adweek.com/news/technology/netflix-loses-1800-titles-license-deals-expire-149067 136 http://money.cnn.com/2013/06/04/technology/amazon-viacom/

European licensing deals, so we are unable to give a precise overview of the licensing deals for SVoD services targeting Europe.

However, we have managed to obtain an overview of the exclusive licensing deals of the Modern Times Group for Scandinavia and Central and Eastern Europe (Table 6), for pay-TV, free-to-air TV and SVoD. In this table, the first thing that is obvious is the territorial component of the exclusive licensing deals made by the MT Group (deals for Scandinavia are not valid for CEE and vice-versa, TV content seems easier to license than the films of the big six studios).

Table 6 Exclusive content deals Modern Times Group Scandinavia and CEE 2012

Pay TV Free TV SVoD CEE & CEE & CEE & Scandinavia Scandinavia Scandinavia Baltics Baltics Baltics NBC Universal, Fox X X X X X - Walt Disney X X - X X - Sony Pictures X - X - X - under under MGM negotiation X negotiation - - - under

Warner Bros negotiation - - - X - Hollywood studios Hollywood Paramount - X X X - -

HBO - X - Endemol - X X FremantleMedia - X X

TV content TV CBS - - - Nordisk Film X X X

Local Scanbox X X X

Source: MTG capital markets day presentation

A look at studio content rights for the first pay-TV window in Europe (Table 7), shows that the situation seems to vary throughout Europe but the majority of content rights belong to national pay- TVs (first pay-TV window). In is interesting to note that in the United Kingdom and Spain, one national player (Sky and Prisa TV) is in a monopoly situation for content from the six major studios and that, in most cases, content rights from those studios for the first pay-TV window are still in the hands of two national players (except for Poland where four players divide those rights up between themselves. The only OTT SVoD that has exclusive rights to one of the six major studios is LOVEFiLM in Germany.

Table 7 Studio content rights belonging to national pay-TV players, 2012 Exclusive content rights from 6 Country Player major studios Canal + 5/6 France Orange 1/6 UK Sky 6/6 Sky Deutschland 5/6 Germany LOVEFiLM 1/6 Spain Prisa TV 6/6 Sky Italia 4/6 Italy Mediaset 2/6

Europe Sweden & C More 3/6 Norway Viasat 3/6 TVN 2/6 HBO 2/6 Poland Canal + 1/6 Cyfrowy 1/6

Movie Central 3/6 Canada Netflix 1/6 HBO 3/6 USA Starz 1/6

North America North Epix 2/6 x/6: Exclusive contracts for x out of 6 Hollywood major studios Majors: Paramount, Sony Pictures, Universal, Walt Disney, 20th Century Fox, Warner Bros

Source: Screen Digest, Arthur D. Little137

Acquiring exclusive content is becoming more and more important as players try to distinguish themselves from their competitors. However, exclusive rights seem to be only part of the success equation in this business. Content acquisition is also crucial in order to have a rich and diversified video library that appeals to customers. Pay-TV operators are, of course, still the financial powerhouse on the market for content acquisition and content rights but the new entrants of the ilk of Netflix and Hulu are slowly catching up. Of course, this will not come overnight, but by expanding their subscriber base and accumulating the necessary financial clout needed for content acquisition through this expansion; those players are starting to challenge pay-TV channels on their home turf.

137 http://www.adlittle.com/downloads/tx_adlreports/TIME_2012_OTT_Video_v2.pdf

Figure 19 US content spending by pay-TV and SVoD services US pay-TV subscribers in millions, Q3/2011 80 76 70 60 50 51 50 40 33 30 20 10 6 0 Pay-TV Cable pay TV: Satellite pay IPTV pay TV: OTT Video*: Networks: Comcast, Time TV: DirecTV, AT&T, Verizon Netflix, Hulu, Hbo/Cinemax, Warner, DISH Hulu+ Starz, Charter, Showtime, EPIX Cablevision, Others

Source: Salter Group, Arthur D. Little Analysis138, Investor relations

*subscribers as per Q4 2011

US content spending by selected players in bn USD 2010-2012 12 9.8 10 8.7 7.9 8 7.4

6

4 2 1.6 2 0.9 0.5 0 0.3 0.3 0 Comcast DirecTV HBO Netflix Hulu

2010 2011 2012

Source: Salter Group, Arthur D. Little Analysis139, Investor relations

*subscribers as per Q4 2011

138 http://www.adlittle.com/downloads/tx_adlreports/TIME_2012_OTT_Video_v2.pdf 139 http://www.adlittle.com/downloads/tx_adlreports/TIME_2012_OTT_Video_v2.pdf

Figure 19 shows that spending on content by the major cable pay-TV players (Comcast at $7.9 billion) and satellite pay-TV players (DirecTV at $9.8 billion) by far exceeded that of Netflix ($1.6 billion) and Hulu ($500 million) in 2012, but Netflix is definitely getting close to HBO ($2 billion) in this connection. In 2013, Netflix (30 million subscribers) overtook HBO (28.7 million in the USA) in terms of subscribers and, if we look at Netflix’s current and long-term obligations in figure 20, the trend is upwards for its content acquisition.

Moreover, the increase in subscriber numbers projected in figure 23 will allow Netflix to increase its content spending over the coming years. The outbidding140 by Netflix of HBO in the acquisition of House of Cards shows a trend that is likely to repeat itself as Netflix is now in direct competition with HBO for original content and first pay-TV windows for series and even movies141.

Figure 20 Netflix’s content obligations 2010-2012142 Netflix's streaming content obligations in USD billion 6

5 2.3 2.3 4 1.7 1.9 2.1 1.4 3 1.1 2 0.7 3.1 3.3 3.4 2.7 3 2.9 1 0.5 1.8 1.2 0.7 0 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013

Long Term Obligations Current Obligations (due in < 1 year)

Source: Netflix annual and quarterly reports, Netflix press releases

140 http://www.hollywoodreporter.com/news/netflix-outbids-hbo-david-fincher-167882 141 http://www.hollywood.com/news/movies/55038991/will-netflix-original-movies-be-successful 142 http://www.hackingnetflix.com/investor_relations/

Figure 21 Netflix’s 200 most watched video content compared to availability on Amazon, Hulu, Redbox143

Source: Netflix

Figure 21 shows the availability of Netflix’s Top 200 videos (100 TV shows and 100 movies) on the competing services Amazon, Hulu Plus and Redbox. From this figure, it appears that Netflix has managed to secure exclusive licensing deals for a significant proportion of its most-watched videos, stressing yet again the importance of exclusive licensing deals. Amazon, for example, only has 73 of this top 200, Hulu 27 and Redbox a mere 12. Of course, not all content in the Netflix’s Top 200 is under exclusivity rights but it seems that Netflix was more successful than its competitors in securing those rights.

In Europe, we managed to find a comparison between Netflix and LOVEFiLM in the United Kingdom, where they form a duopoly, as we saw in the previous section (97.8% of the £84 million UK SVoD market, a market expected to be worth £160 million in 2013 by Deloitte). Out of a catalogue of 1668 films, 1399 titles are exclusive to Netflix (83.8%). For LOVEFiLM’s 3284 movie titles, 3015 are exclusive (91.8%). Regarding TV titles, Netflix has the exclusive rights to 78% of its 412 titles and LOVEFiLM 70% of its 300 TV titles. This once again stresses the importance of exclusive streaming rights in this player’s opinion. The question of what access players smaller than these two giants have to titles remains unanswered.

143 http://socialtimes.com/amazon-hulu-cant-replace-netflix_b117095

Table 8 Netflix and LOVEFiLM :catalogue comparison in the UK 2012144

On On On Netflix LOVEFiLM both Exclusive to Netflix Exclusive to LOVEFiLM Films 1 668 3 284 269 1 399 3 015 TV Titles 412 300 90 322 210 TV seasons 925 589 210 715 379

Note: Film vs TV classifications are set by Netflix and LOVEFiLM . A number of documentaries that were only ever shown on TV are classed as films because they were one-off specials rather than a series. This is considered valid in the same way as straight-to-DVD releases are classed as films.

Source: TechCrunch

With regard to the availability of recent movies on those two services in the United Kingdom, although LOVEFiLM has a larger choice of titles in its library (3284 versus 1668); Netflix seems to have had the more recent selection in the past few years (from 2010). As LOVEFiLM has established for longer than Netflix on the British market, it has certainly had an advantage in securing rights before the arrival of its competitor but the situation seems to have changed in the year of Netflix’s entry into the UK market.

Figure 22 Netflix’s and Lovefilm’s movies compared by release date145

Source: TankTop Movies

144 http://techcrunch.com/2013/01/18/netflix-u-k-has-far-more-tv-shows-series-than-lovefilm-instant-but-amazons-on-demand- service-has-twice-as-many-films/ 145 http://blog.tanktop.tv/2013/06/netflix-vs-lovefilm-and-netflix-vs.html

10.4.3 Investment in original content

As the previous section demonstrated, licensing rights, especially exclusive rights, are essential to SVoD services. A subscriber is in search of attractive content (premium content) and the fact that one service might have more exclusive titles than another can be a commercial argument. Being in competition with each other as well as with more and more other players (pay-TV), the three major American SVoD services have since 2012 started their own original programming, thus mimicking the pay-TV channels. TV shows are currently what those SVoD providers are investing in and not original movies as these shows seem to have more success146(81% of SVoD users preferred to watch TV shows), allowing for “binge viewing”147 (viewing multiple episodes of a show at one time).

The first to really invest heavily in original content was Netflix with Lilyhammer (the second season was released on Netflix in October 2013), made by the Norwegian producer Rubicon TV AS and then by reliving Arrested Development, a show cancelled by Fox after three seasons but having a huge fan base148. The real success came with House of Cards, for which it paid $100 million149 upfront for two seasons (26 episodes or almost $4 million per episode) and won three Emmy awards150, the first time ever for an online TV show (HBO won its first Emmy after 25 years with Sex and the City in 2001). Continuing to pursue this strategy, Netflix’s next original series was Orange is the New Black. As Netflix does not release viewing figures, one can only guess as to the success but on it would seem from various reports151152 that both shows were a success among viewers and helped to gain new customers153 , thus helping it to overtake HBO in terms of subscriber numbers. With the success of its first original shows, Netflix is continuing on this path and planning a second season for Orange is the New Black154. It is also planning on adding other original programmes and even movies155156.

One game changer to the traditional TV industry is that Netflix releases all of the season of its original TV shows on the same date, allowing subscribers to binge-watch. In fact, Netflix’s CEO Reed Hastings thinks157 that the broadcasting industry builds a lot on “managed dissatisfaction” which he wants to eliminate.

“Hastings, the CEO of Netflix, has a name for this prison and what it does to the people trapped inside it: managed dissatisfaction. The traditional entertainment ecosystem is built on it, and it's a totally artificial concept," says Hastings. "The point of managed dissatisfaction is waiting. You're supposed to wait for your show that comes on Wednesday at 8 p.m., wait for the new season, see all the ads everywhere for the new season, talk to your friends at the office about how excited you are." If it's a movie, he adds, you wait till the night it opens, you wait for the pay-channel window, you wait for it to come to cable. Waiting means pent-up demand, millions of people watching the same thing at the same time, preferably at night, when they're pliant with exhaustion and ready to believe they need the stuff being hawked in all those commercials. Waiting, Hastings says, is dead.”158

Amazon and Hulu, copying Netflix’s original-content strategy of, have also commissioned their own original content TV shows in the past two years. Amazon159, through its affiliate Amazon Studios, has

146 http://www.homemediamagazine.com/digital-evolution/survey-svod-users-prefer-tv-shows-movies-30931 147 http://articles.latimes.com/2013/feb/01/entertainment/la-et-ct-binge-viewing-20130201 148 http://www.cleveland.com/tv- blog/index.ssf/2013/05/arrested_development_returns_after_7_years_thanks_to_ardent_fans_and_netflix.html 149 http://www.thewire.com/technology/2013/02/economics-netflixs-100-million-new-show/61692/ 150 http://www.theverge.com/2013/9/22/4759754/netflix-challenges-the-tv-establishment-with-emmy-wins-for-house-of 151 http://www.forbes.com/sites/afontevecchia/2013/10/21/netflixs-awesome-shows-bring-in-more-subscribers-as-profits- quadruple-in-q3/ 152 http://mashable.com/2013/10/21/orange-is-the-new-black-netflix-most-watched/ 153 http://business.financialpost.com/2013/10/21/netflix-q3-2013-subscribers/?__lsa=61e9-6025 154 http://www.deadline.com/2013/06/netfilx-renews-orange-is-the-new-black-for-second-season/ 155 http://variety.com/2013/biz/news/netflix-to-preem-movies-the-same-day-they-bow-in-theaters-1200796130/ 156 http://variety.com/2013/digital/news/theater-owners-might-kill-movies-warns-netflixs-sarandos-1200765818/ 157 http://www.gq.com/entertainment/movies-and-tv/201302/netflix-founder-reed-hastings-house-of-cards-arrested-development 158 http://www.gq.com/entertainment/movies-and-tv/201302/netflix-founder-reed-hastings-house-of-cards-arrested- development#ixzz2lxoRHKoG 159 http://www.theverge.com/2013/11/26/5147796/betas-how-amazon-is-rethinking-the-way-television-is-made

had customers vote on pilots (released online in April 2013160) and pitches of future TV shows and movies to see which had the most appeal to subscribers. The submission of scripts was open to everyone (700 test movies, 14 000 movie scripts and 2 700 series were submitted) and finally 14 TV show pilots were selected. The idea behind letting consumers vote is explained by Simon Morris, chief marketing officer of LOVEFiLM UK “It was the logical next step in a consumer-focused company. Amazon’s DNA is data and using data to drive the service. Amazon’s goal is to be the world’s most consumer-centric company.”161 In November 2013, Amazon released the first three episodes of Alpha House and Betas, but differs from Netflix in that the whole seasons are not released at once162 but according to the traditional broadcast model, that is to say one every week163.

One essential similarity between the two companies is that they employ user data164 in order to “predict” which shows will be the most appealing to subscribers and meet with success. This use of such data is new, as it can provide the “whole picture” in contrast to sample groups and general audience data used in the broadcast model. The use of data, which neither Netflix nor Amazon communicates, can help to diminish risks. Netflix, which has a higher market share than Amazon, has an advantage in the use of big data to select new original programming. Those companies also use big data to recommend shows to their subscribers, based on previous viewing and similar viewings of other subscribers. This new method of discovery is also a very important part of the success of these services, as users need some help in discovering shows and movies unknown to them.

Hulu Plus also invests in original programming and co-financing shows165 and eight shows have been announced up to now166. Hulu being a joint venture between NBCUniversal (Comcast), Fox Broadcasting Company (21st Century Fox) and Disney-ABC Television Group (The Walt Disney Company) also has access to TV shows from these channels. The fact that the company was up for sale in 2013 and then finally held on to by the owners167, which injected $750 million for further development, shows that these big TV groups have seen advantages in Hulu’s current business model of and future signs of growth168 (the final three bidders were DirecTV, AT&T and Chernin Group and Time Warner Cable and the owners expected to sell Hulu for $2 billion, an amount which unlikely to be reached).

Figure 31 gives an overview of original content of the three players. The pace of development is so rapid in this sector that new projects have been announced since this table was produced, but no further details have been given.

The move to invest in original shows can be explained by Figure 32, which shows the importance of original programmes for users when selecting a SVoD service. For 63%, original content is “very/somewhat” important but if we look at younger age groups we see it is “very/somewhat” important for 66% of 18-24-year-olds and “important” for 72% of 25-34-year-olds.

Another explanation is that in the battle for original content, where there is not only competition between SVoD services but also with well-established pay-TV channels and groups, acquiring one’s own original content is a differentiator. By doing so, SVoD providers are more and more entering the turf of pay-TV channels and starting to compete with them. In the long term, as early signs show (section 3, cord-cutting and the fall in the number of pay-TV subscribers), the cheaper offerings of SVoD providers, the use of big data and the acquisition of exclusive licensing rights coupled with investments in original content could mean a serious threat to traditional pay-TV. Also, as we have seen, the innovation in the release strategy and the fact that videos can be seen anytime, anywhere

160 http://variety.com/2013/digital/news/amazon-studios-releases-pilots-online-1200387487/ 161 http://screenrant.com/amazon-tv-series-pilots-vote/ 162 http://www.cinemablend.com/television/Amazon-Studios-Director-Explains-Decision-Take-Netflix-All-Once-Approach-With- Original-Series-60427.html 163 http://business.time.com/2013/11/05/amazon-wants-you-to-actually-leave-your-house-instead-of-binge-watching-its-shows/ 164 http://www.marketplace.org/topics/tech/amazon-may-have-alpha-house-netflix-has-data 165 http://www.bloomberg.com/news/2013-07-31/hulu-targets-binge-viewers-with-full-release-of-original-series.html 166 http://www.tv.com/shows/misfits/community/post/hulu-announces-three-new-original-series-including-an-animated-witness- protection-sitcom-and-puts-dates-on-several-more-137530088505/ 167 http://online.wsj.com/news/articles/SB10001424127887324879504578601840989680844 168 http://variety.com/2013/biz/news/hulu-sale-called-off-disney-nbcu-and-21st-century-fox-hold-on-to-tv-site-1200562049/

and on any device (ATAWAD - next section) will entice more potential customers.

One question that will need to be addressed is the future of European SVoD services and access of European content to those services. As the example of the United Kingdom demonstrates, the two American SVoD services, Netflix and LOVEFiLM, have split the market up between them. With their size and financial clout, European competitors will struggle to acquire licensing rights, and with more and more exclusivity deals, the “premium” content seems promised to the players with the most financial resources.

Table 9 Original programming of Netflix, Hulu Plus and Amazon Prime 2011-2013

Figure 23 Importance of original programming when selecting an SVoD service, USA 2013

Importance of original programming when selecting an SVoD service, according to US Internet users, by age, June 2013 120%

100% 8% 11% 15% 14% 23% 20% 80% 23% 23% 23% Not at all important

60% 29% Not very important 44% Somewhat important 40% 45% 37% 40% Very important 32% 20% 28% 25% 23% 21% 16% 0% 18-24 25-34 35-49 50-59 Total

Note: ages 18-89 Source: PricewaterhouseCoopers (PwC), “Consumer Intelligence Series: Video Content Consumption”, September 1, 2013, as quoted by eMarketer

10.4.4 ATAWAD – Any time, anywhere, any device

Added to the explanation for the success of SVoD providers such as Netflix and Amazon through exclusive and original content is the fact that these services allow subscribers to enjoy a personalised viewing experience, which is made possible through three main characteristics, known by the acronym ATAWAD169:

1. Any time: subscribers can access their video content through their SVoD service and consume as much as they want of it at their personal convenience and are no longer forced to wait as in the case of linear TV. 2. Anywhere: with the increase in mobility brought about by tablets and smartphones, the consumption of video content is made possible at any place. Adapting to this increase in mobility in our society, SVoD enables video to be consumed for as long as a subscriber has a connection to the web (which in our modern world is tending more and more to be everywhere). 3. Any device: the monopoly of the television set is over in a world where connected devices (smart phones, tablets, games consoles, and dongles) are almost part of every household. Through continuous innovation, including the development of apps, the main SVoD providers enable their subscribers to access their services from the device of their choosing. (Pay-TV providers operating on a managed TV platform have long resisted this move. The TV Everywhere initiative of American and European channels reflects the change in their mindsets and the desire to adapt to these new consumer demands).

Connected devices – anywhere and any device

Recent years have seen the steady adoption of smartphones and mobile Internet usage among Europeans. As Figure 24 shows, there were 77.2 million mobile Internet users in the EU-5 in 2013, of whom 29.9% were mobile phone users.

169 http://www.paristechreview.com/2013/04/30/business-model-vod/

Figure 24 Mobile Internet users and penetration in EU5 2009-2015

Mobile Internet users and penetration in EU-5, in millions and % of mobile users 100 94 85.7 77.2 80 67.9 58.3 60 47.6

40 34.7 29.9 32.5 23.5 26.8 35.1 20 19.7 14.7 0 2009 2010 2011 2012 2013 2014 2015

Mobile Internet users % of mobile users

Note: mobile phone users of any age who access the Internet from a mobile browser or an installed application at least once a month; excludes SMS, MMS and IM; includes France, Germany, Italy, Spain and the UK

Source: eMarketer, Feb 2011

This increasing adoption of smartphones, and access to the Internet ”on the move” is accompanied by an increase in the number of people who watch videos or TV on their mobile phone (Figure 25). The change year-on-year (2012-2013) for the EU-5 represented an increase of 112%. SVoD services that make it possible to watch videos on smartphones will benefit from this development.

Figure 25 Year-on- year growth of smartphone users watching video or TV in EU-5, 2012-2013170

170 http://www.frandroid.com/actualites-generales/163733_video-smartphone-en-succes-en-europe

The smartphone usage is not the only change in European habits. Tablets enable mobility while improving the screen size, therefore making them the device of choice for accessing long-form audiovisual content (Figure 26).

Figure 26 Tablets – installed bases in EU-5171 Tablet market in Europe - installed bases million units 10 8 6 4 2 0

2010 2011 2012f

Sources: Deloitte, GfK, IDC, Bitkom, Netconsulting, Assinform

Figure 26 shows the rapid penetration of tablets in the EU-5. The United Kingdom, where only a little more than 1 million tablets were installed in 2010, saw this number skyrocket to over 8 million in 2012. The other EU-5 countries saw a similar increase in the installed bases of tablets in just 2 years and this trend in continuing. Looking at Figure 27, in 2012 15.5% of smartphone owners also owned a tablet. The possession of multiple connected devices is likely to increase in Europe over the next few years, and SVoD services which permit a continued viewing experience through these connected devices will benefit from this trend.

Figure 27 Percentage of European smartphone owners that also have a tablet, EU-5, 2012

% of European smartphone owners that also have a tablet EU-5, 3 -month average, Sept 2012

Germany 12.8%

France 15.1%

Italy 15.1%

Spain 16.9%

United-Kingdom 17.7%

Europe 15.5%

0.0% 5.0% 10.0% 15.0% 20.0%

Source: comScore, Data Gem, MobiLens

171 http://www.icopartners.com/blog/archives/2887

Figure 28 Long-form video viewing by device, Q2 2013, USA172

Long-form video viewing by device, Q2 2013, USA

30.0%

25.0%

20.0% 15.0% 10.0%

5.0%

0.0% Desktop Mobile Tablet Connected TV

10-30 min 30-60 min >60 min

Source: Ooyala Q2 Video Index report173, Business Insider, November 2013

Regarding usage on connected devices, figure 29 shows that the major VoD services, be it Apple, Amazon or Netflix, as well as pay-TV channels and networks, have adapted to this trend. The only method of access that is still out of reach for SVoD services are the managed TV platforms, although Netflix has concluded a deal with Virgin Media in the United Kingdom174, Com Hem in Sweden175 and Waoo! in Denmark176 for inclusion on TiVO and set-top boxes. This could be a major disruption as it would mean that SVoD can coexist with pay-TV and enter the walled garden of managed TV platforms.

Figure 29 Multiscreen of US on-demand services

Managed TV Internet PC Smart TV Tablets Smartphones Amazon - X X X X Apple iTunes - X X X X Hulu - X X X X Netflix starting X X X X

Comcast X X X X X AT&T X X X X X HBO Go X X X X X

172 http://www.businessinsider.com/video-consumption-mobile-tablets-tvs-2013-11 173 http://go.ooyala.com/wf-video-index-q2-2013.html 174 http://variety.com/2013/digital/news/netflix-virgin-media-stock-reed-hastings-cable-1200609377/ 175 http://www.telecompaper.com/news/com-hem-to-offer-netflix-through-tivo-service--976750 176 http://www.hollywoodreporter.com/news/netflix-strikes-third-pay-tv-652479

Looking at the devices used to access Netflix, Hulu and the iPlayer in 2011, we can see that the dominant device was the PC, even though for Netflix it already represented not even half of all streams (42%). Netflix has been investing heavily in app development to permit the best viewing experience. Added to this, Netflix has offered a prize to developers for an algorithm which could improve movie recommendations by 10%177178. It has also hired an army of developers to program apps for Smart TV platforms and connected devices (over 800 platforms179) to improve the user’s experience. The R&D costs are prohibitive for smaller players.

Figure 30 Device mix of Netflix, Hulu, iPlayer, March 2011

Device mix Netflix, Hulu & iPlayer, March 2011 As % of total streams 100% 89% 90% Netflix 80% 70% Hulu 70% iPlayer 60% 50% 42% Connected TV 40% 25% 30% 20% 16% 20% 14% 13% 12% 11% 3% 5% 10% 3% 2% 6% 5% 3% 3% 3% 2% 2% 2% 3% 2% 1% 2% 2% 0% 0%

For Netflix & Hulu > 100% due to usage of multiple devices by respective users. Note: game console usage on iPlayer (6%) was allocated 50/50 to PS3 and XBox 360.

Source: Nielsen 2011, BBC, Netflix, Arthur D. Little analysis The development of dedicated apps for each connected-device platform and optimising the viewer experience has worked for Netflix when we look at how subscribers access the service (figures 31 and 32). The PC is still the most used device, but games consoles connected to TVs, tablets and Blu- ray/DVD players already make up almost 30% each. Smartphone and connected boxes are also devices of choice for Netflix subscribers.

177 http://www.wired.com/business/2009/09/bellkors-pragmatic-chaos-wins-1-million-netflix-prize/ 178 http://mashable.com/2009/06/26/netflix-prize/ 179 http://gigaom.com/2013/08/01/making-tvs-smart-part-two/

Figure 31 Devices Netflix and Hulu subscribers stream 2012 – 2013

Figure 32 Devices used by US subscribers to access Netflix’s streaming service

Devices that US Netflix streaming subscribers use to access Netflix streaming service, June 2013, % of respondents

Other 6% TV via another device 12% TV via an Apple TV or Roku Box 23% Smartphone 26% TV via Blu-Ray/DVD 29% Tablet 37% TV via video game console 38% PC 53%

0% 10% 20% 30% 40% 50% 60%

Note: ages 18+; Netflix streaming was accessed via 2.2 devices on average

Source: Cowen and Company, “Original Content Survey II: Arrested Development”, July 2013 as cited by eMarketer 2013

Finally, the “any device” and “anywhere” possibilities of SVoD services have a brilliant future ahead of them as devices continue their rapid adoption rate (figure 32) and global sales for Internet devices are expected to continue their steep rise.

Binge viewing – anytime

Binge viewing is defined as watching several episodes of TV shows (or other content) in a single session. As TV shows are serialised with the plot continuing over several episodes or even the entire season, TV viewers in the traditional broadcasting model had to wait one week after another in order to follow the action. This model is/was, as Netflix’s CEO Hastings has said, based on “managed dissatisfaction”, i.e. making consumers artificially wait (and therefore become frustrated). This in order to secure audience ratings, which constitute the basis of negotiations with advertisers (in the case of free-to-air TV). To escape this model, an interested viewer had to buy a DVD box set of the season or record and watch their TV show later. As they often have several seasons of a TV show, SVoD services allow subscribers to watch as many as they want at the time they decide. This has brought about a new phenomenon known as “binge watching”. Table 10 and figure 33 lead us to conclude that this way of consuming TV series is most widespread among younger age groups, with 78% of 18-29- year-olds and 73% of 30-39-year-olds having already binge-watched series. By releasing its original series a season at a time, Netflix is targeting those TV viewers who want to find a model convenient for them. As the Netflix business is not based on advertising and therefore on securing an audience appealing to advertisers, this release model makes sense and could signal profound changes in consumers’ expectations over the next few years.

Table 10 US: time-shifted TV viewers who have binge-viewed TV series, by demographics, Feb 2013 Gender Age Female Male 18-29 30-39 40-54 55+ Total YES 63% 60% 78% 73% 58% 48% 62% - Yes for older shows or past 23% 20% 24% 26% 19% 20% 22% seasons of current shows

- Yes, for current seasons of shows 12% 12% 12% 12% 13% 10% 12%

- Yes to both 28% 28% 41% 35% 26% 18% 28% NO 37% 40% 22% 27% 42% 52% 38%

Note: ages 18+ Source: Harris Interactive, “The Harris Poll” as cited in press release, April 8 2013 & eMarketer 2013

Figure 33 Binge viewing in the US by age groups Binge viewing most common among Gen Y Aware of Term 77-79% of 18 to 29 year old shave binge-viewed Have Binge-Viewed 90% 79% 77% 80% 67% 67% 70% 70% 56% 60% 52% 50% 40% 40% 34% 36% 28% 30% 22% 22% 18% 20% 10% 0% All 13 to 17 18 to 24 25 to 29 30 to 34 35 to 39 40 to 49

Source: MarketCast as cited by Researchscape.com

Table 11 Ways US Internet users have watched time-shifted TV series, Feb 2013 Ways that US Internet users have watched time-shifted TV series by Demographic, Feb 2013 % of respondents in each group Gender Age Male Female 18-29 30-39 40-54 55+ Total On-demand 42% 40% 47% 45% 41% 35% 41% -On-demand service through a 34% 33% 40% 38% 33% 29% 34% cable TV provider -On-demand service through a 9% 9% 12% 9% 10% 7% 9% satellite TV provider Hulu/Hulu Plus/Netflix 41% 39% 71% 60% 33% 19% 40% streaming

-Netflix 29% 31% 60% 47% 24% 12% 30% -Hulu or Hulu + 23% 21% 44% 30% 17% 11% 22% TiVo or other recording 37% 37% 27% 46% 40% 36% 37% device

Purchasing, renting or 33% 26% 46% 36% 28% 19% 29% borrowing episodes on DVD

Downloading free of charge 18% 17% 27% 24% 16% 10% 17% Other paid or free 14% 12% 22% 16% 12% 6% 13% streaming services - Other free streaming 13% 11% 22% 15% 11% 6% 12% services -Other paid streaming 2% 1% 2% 1% 2% 1% 1% service Amazon 11% 10% 17% 18% 8% 6% 10% -Amazon Prime free 9% 8% 14% 15% 6% 4% 8% streaming content -Amazon video on demand 5% 5% 8% 8% 4% 3% 5% (not free) iTunes 9% 8% 17% 12% 7% 4% 8% Other 5% 3% 4% 4% 4% 4% 4% None of these 19% 24% 11% 10% 22% 33% 22% Any of these 81% 76% 89% 90% 78% 67% 78%

Note: n= 2496 ages 18+ / Source: Harris Interactive, “The Harris Poll” as cited in press release, April 8 2013 & eMarketer 2013

Finally, table 11 indicates that SVoD streaming services were on track to surpass on-demand on managed platforms (cable or satellite) in the US in 2013. 41% access-on-demand TV series on a managed platform while 30% already use Netflix and 22% Hulu. It is interesting to note that various forms of time-shifted viewing co-exist and consumers settle for the method convenient for them.

Broadband connections as a growth driver for SVoD services

Up-to-date Internet infrastructures are a prerequisite for online video watching. Video is data-heavy, needing high connection speeds in order to permit a normal viewing experience. We think that SVoD providers select the markets they wish to enter on the basis of various factors (GDP, affluence, usage of connected devices, Internet usage) and that the Internet infrastructure and broadband speed are part of the selection variables. Netflix even publishes on its website a ranking of ISPs (Internet Service Providers) based on their connection speeds180 stating that “We use the data associated with the streaming experience to compare ISPs and give you monthly insight into which ISPs deliver the best Netflix experience.” This is why we thought it was necessary to include in the factors of growth and the international expansion of SVoD services a section on broadband speed. If we look at figure 34, we see that Netflix’s expansion in Europe corresponds with the countries in the Top15 worldwide based on connection speed (the UK, Scandinavia, and the Netherlands).

Figure 34 Top 15 countries by average broadband connection speed, Q2 2013 Average broadband speed, Q2 2013 in Mb/s

Italie 4.9 Portugal 5.4 France 5.7 Spain 5.9 Poland 6.3 Slovak Republic 6.4 Hungary 6.5 Germany 7.3 Norway 7.4 Romania 7.5 Ireland 8 Denmark 8.1 Austria 8.1 Finland 8.1 Belgium 8.4 United-Kingdom 8.4 Sweden 8.4 Czech Republic 9.8 Netherlands 10.1 Switzerland 11

0 2 4 6 8 10 12

Source: Akamai, State of the Internet Report 2013181

Taking a closer look at the Nordics, we see that for the bulk of Scandinavian households the number of homes with broadband is high enough to permit a satisfying viewer experience when video content is accessed online (figure 48). This may also explain the large number of SVoD providers in the Nordic countries compared to other countries and why Netflix and HBO chose to enter the market

180 http://ispspeedindex.netflix.com/ 181 http://www.akamai.com/dl/akamai/akamai_soti_q213_fr.pdf?WT.mc_id=soti_Q213_fr

where LOVEFiLM and local SVoD providers were already established. In conclusion, the success and growth of SVoD services can be explained by various factors, both from the demand side, with changing viewing patterns and more mobility, and from the supply side, with exclusive licences and original programming and the continuous adaption to user expectations (ATAWAD). However, not only: efficient Internet infrastructures are crucial to the success of SVoD services, because without a satisfactory speed users would not be able to enjoy viewing their content.

Figure 35 Number of broadband households in the Nordics 2012

For copyright reasons this figure cannot be reproduced in the public version of this report

Source: IHS/Screen Digest

The final point we wish to make in this section on the “any time, anywhere and on any device” philosophy is that it costs money to adapt and to be at the cutting edge. Netflix’s R&D expenses, which mostly relate to programming, the recommendation system and infrastructure, reflect this capital-intensive industry.

Figure 36 Netflix’s R&D expenditure182 Netflix's R&D expenditure, in USD million 350

300

250

200

150

100

50

0 2007 2008 2009 2010 2011 2012

Source: Netflix annual accounts App development, in particular for smart TVs, requires teams of programmers to ensure that the subscriber will enjoy a satisfying viewing experience across every device. The fact that SVoD services will represent 32% of the video market on smart TVs by 2016 is certainly encouraging Netflix to carefully prepare for this future183 by updating and enhancing the user experience on these TVs.

182 http://blog.idate.fr/tag/vod/ 183 http://allthingsd.com/20131112/netflix-gives-most-but-not-all-of-its-tv-viewers-a-new-look/

Figure 37 Connected TV turnover by service 2012

11%

20% 37% VoD Ad Premium

SVoD Ad short clips

32%

Source: IDATE, World Connected TV Market, February 2012

Figure 38 Development of market for video services on connected TVs 2011-2016184

184 http://blog.idate.fr/le-marche-mondial-de-la-tv-connectee-2/

Figure 39 Breakdown of video services on connected TVs by 2016185

27% 31% Ad premium Ad short clips

SVoD VoD

10%

32%

Source: IDATE, Service de veille TV conectée, Juillet 2012

Figure 40 Breakdown of the connected TV video market by territories in 2016186 8%

3%

28%

Europe North America

Asia Pacific Latin America

61%

Source: IDATE, Service de veille TV conectée, juillet 2012

North America and Europe (figure 40) will constitute the major revenue generators for connected TV video services in 2016 and this suggests there will be a more forceful entry of the main SVoD service providers on European markets. Broadband speed, GDP and usage of connected devices and online video consumption make Europe a target of choice in the battle for new subscribers. However, providing an appealing service with premium content and a satisfying user experience on every device and platform is a costly undertaking, which is why the players that are already well placed today and generating income through high subscription fees will continue to play the primary role in the short and medium term.

185 idem 186 http://blog.idate.fr/le-marche-mondial-de-la-tv-connectee-2/

Importance of release windows

Release windows are of major importance for SVoD services as they dictate how much recent content (movie release windows do not apply to TV shows) can be in the catalogues, content which in turn is a commercial argument for customers to subscribe to the service. The place of SVoD in the release window of films is therefore a variable that can explain the success or otherwise of SVoD services in Europe. The example of France, where SVoD services can only license movies three years after their theatrical release, is one of the most restrictive in Europe. Recent discussions187188189 about the possible reduction to 18 months after the theatrical release of SVoD release windows in order to enhance the SVoD offering and stimulate demand demonstrate the importance of release windows.

Figure 41 Release windows for films in the UK, Germany, USA and France

187 http://lexpansion.lexpress.fr/high-tech/comment-le-rapport-bonnell-veut-relancer-la-vod-en-france_423031.html 188 http://www.youscribe.com/catalogue/tous/ressources-professionnelles/analyses-et-etudes-sectorielles/le-rapport-bonnell-le- financement-de-la-production-et-de-la-2380086 189 http://www.lesechos.fr/entreprises-secteurs/tech-medias/actu/0203226003962-trois-propositions-qui-risquent-de-faire-couler- beaucoup-d-encre-641213.php

11 Examples of the strategies of the main players - Netflix

11.1 Netflix

[Report written in March 2013]

Netflix was the “world’s leading Internet television network with more than 33 million members in over 40 countries” in 2012. The company provides for a flat subscription rate of $7.99 (€6.99/€7.99 in Europe) an unlimited (streamed) amount of films and TV shows and, in the US, a rental service for DVDs and Blu-ray discs. This was the situation in 2012 but Netflix’s core business model has shifted since its foundation and adapted to the technological developments of our time. We propose to describe the background of Netflix’s initial business model first of all and then analyse in more detail the actual subscription video-on-demand (SVoD) service it offers its members. As Netflix only expanded its business to Europe in 2012, the United Kingdom and Ireland being the first countries on 9 January, followed by the Nordic states Denmark, Finland, Sweden and Norway in October, scarce data is currently available, so we will explain the general business model and financial figures before giving a short overview of the business conducted in Europe.

11.1.1 Netflix’s background190

[The report was written in early 2013 and therefore does not take into account all the important developments of 2013 – international expansion and original content]

Netflix Inc. was founded in 1997. In the beginning, its core business was the online rental of DVDs in the USA. In fact, at that time, videos (mostly on VHS, it was the beginning of the DVD era) were almost only rented in shops, the leading video rental company being Blockbuster in the USA.

The founder of Netflix, Reed Hastings, had considered that the increasing number of Internet- connected homes and the rising number of DVD players in US households meant it was possible to introduce an innovation in the video rental system that involved renting movies online, the DVDs being mailed to the subscribers’ homes. The initial business model was that of a flat subscription fee ($19.95 per month, 3 DVDs out at the same time), customers could rent unlimited numbers of DVDs a month, without due dates, late fees, shipping and handling fees. This business model was patented by Netflix (the firm sued Blockbuster in 2006 for copying this model and settled out of court in 2007). The company went public on May 29, 2002 by making an initial public offering and has since then been quoted on the stock market (NASDAQ-NFLX). This is why figures have only been available since 2002.

Netflix dominated the online video rental market throughout the 2000s, having 7.5 million subscribers in 2007 with an annual revenue of $1 205.3 million and a net income of $67 million. It also mailed its billionth DVD to customers that year. As we can see from the graph below, customers found the business model appealing as subscription rates rose between 88% and 51% throughout those years.

190 (The sources of the financial data are Netflix’s annual reports, which can be found at: http://ir.netflix.com/annuals.cfm, and Netflix’s press releases, which can be found at: https://signup.netflix.com/MediaCenter/Press)

Table 1 Netflix subscribers 2001 – 2007

Table 2 Netflix Revenue and Income 2001-2007

As we can see, in the beginning of Netflix’s operations the company did not manage to realise profits (losses of $39 million and $20.9 million in 2001 and 2002). This is explained by the fact that Netflix had to acquire heavily DVD content and also invest in marketing to gain new subscribers (Marketing expenditure of $21 and $35.7 million in 2001 and 2002, 27.6% and 23.3% of total revenue respectively). However, in 2003, the company reached critical mass by having over a million subscribers and a significant DVD library. It was able to lower the importance of marketing in respect to revenue and at the same time acquire more content, thus seeming more appealing to new customers. 2003 marked breakeven year of with a net income of $4.4 million, rising revenues and a cash-flow situation that permitted ongoing expansion.

The rise in the number of customers allowed Netflix to accumulate cash in order to acquire more content for its DVD rental business. The amount of cash available rose at a steady level until 2007, with a maximum of $400 million in 2006. This cash was invested each year in DVDs and, as we can see, the gross DVD library (not taking in account the net DVD library which includes amortisation) rose from $35 million in 2001 to $698.7 million in 2007.

Figure 1 Netflix key figures 2001-2007

Source: Netflix Annual reports 2002-2007

One of the success factors, besides the large choice of DVD titles and the flat fee (without late fees) and the one-business-day delivery, was also Netflix’s proprietary recommendation system, which proposed to customers, in the light of their viewing history and that of similar viewers, other titles that could be of interest to them. In 2006, the company launched the Netflix prize, promising $1 million to the person/team that could achieve certain accuracy goals in recommending movies based on personal preferences. in order to achieve that, Netflix released 100 million anonymous movie ratings (the contest attracted more than 40,000 teams from 186 countries and the prize was finally awarded in 2009 to a team of seven researchers).

In 2007, Netflix had more than 90,000 DVD titles in its library and already offered 6,000 for streaming. At that time, it had no issues with agreements or contracting deals with studios as it simply acted as a rental business like others. It had to buy the DVDs from the studios and networks like every other video rental business. As we will see in the next section, once it changed to streaming video content, deals and agreements were much harder to reach as the studios and networks either had their own services or contracted with other parties.

As the subscriber growth rate shows it grew at least 50% a year throughout 2001-2006, but in 2007 the growth rate and, therefore number new subscribers drop radically, being only at 19% whereas the year before it was at 50%. Netflix realised that its online DVD rental business was becoming “outdated” as viewers were changing their consumption style, which was becoming increasingly digital. This drop in new subscribers must have been the “wake-up call” for Netflix to adapt to the new methods of content consumption and provide digital content.

The importance of Internet usage among the American population, the growth in network capacities with DSL coupled with the emergence of smartphones allowing for more mobility led to a shift in Netflix’s business strategy in 2007. This is why in 2007, from when we will start to analyse Netflix in more detail, the major shift in its business model occurred, namely the move from online rentals of DVDs to video streaming for a subscription fee (subscription video on demand, SVoD).

11.1.2 Change of paradigm in Netflix’s strategy: The beginning of streaming video content, the years 2008-2010

In its 2005 annual report, Netflix already thought about alternative video delivery, and the company realised that the future lay in video downloading, similar to Apple’s iTunes. However, in 2007, with increased network capabilities and a majority of US households connected to broadband Internet, the decision was taken to offer its members video content through streaming, the service being named “Watch Instantly”, for a flat-fee subscription - of $7.99 (at the beginning of streaming, the initial plan was to offer one hour of streaming for each dollar spent per month but this billing model was quickly dropped in order to acquire subscribers who were only interested in the streaming option).

In 2007, Netflix still offered more than 90,000 titles for its DVD online rental business compared to only 6,000 titles available through streaming. The next year, the number of titles available for streaming doubled to 12,000 (unfortunately, Netflix stopped communicating the figures after 2008).

The main differences in regard to content acquisition between a DVD rental business and a streaming business are that DVDs are acquired through direct purchases and revenue sharing agreements whereas streaming content requires Netflix to reach licence agreements with the studios or networks for a defined period of time. Thus, negotiations can be more difficult as copyright holders may have other licence agreements or exploit their content themselves through VoD services. It is therefore important to reach a significant size (subscribers, revenues, market share) to be able to negotiate exclusive content rights and licence agreements. Netflix only entered the SVoD market in 2007 so the first years of negotiation proved difficult.

We choose to focus on the years 2008-2010 because at that time Netflix was only conducting its business in the USA before expanding internationally with its streaming offer. The first country was Canada in September 2010, followed by Latin America and the Caribbean in September 2011.

It was also not until 2011 that Netflix started to make a distinction and split streaming (available in all countries where it is present) and online DVD rentals (only in the USA) into separate plans, so it seems to us that, as far as video-on-demand services are concerned, the years of interest are 2011 and 2012, in respect of which we are at least able to provide international figures for Netflix’s streaming SVoD services.

Main financial figures and ratios

Table 3 Netflix P&L 2007-2010

Table 4 Netflix main financial ratios 2007-2010

Table 5 Netflix Balance sheet 2007-2010

Table 6 Netflix’s Content library

Figure 2 Netflix’s subscribers 2007-2010

The first effect in the paradigm shift – as we can see in the numbers above – was the rise in of subscribers. Netflix managed by offering video content via two different delivery methods, streaming and DVDs, to distinguish itself from competitors, such as:

 DVD rental outlets: Blockbuster, Movie Gallery, Redbox  Internet movie and TV content providers: iTunes, Hulu, Amazon.com  Video package providers with pay-per-view and VoD content: Time Warner, ComCast, Direct TV, At&T, Verizon  Entertainment video retail stores: Best Buy, Walmart, Amazon.com

The mix of streaming content and online DVD rentals delivered by mail proved to be an appealing service for Netflix members. Also, in 2008 and 2009 Netflix managed to sign major partnership deals with consumer electronics producers to allow their devices to stream Netflix videos, in addition to computers, such as:

 Blu-ray players, home theatre systems and HDTVs : LG, Panasonic, Philips, Samsung, Sony, Yamaha  Games consoles: PlayStation 3 (Sony), Xbox 360 (Microsoft), Wii (Nintendo)  Internet media players: Apple TV, Philips HD Media Player, Western Digital TV Live  Smartphones and tablets: Apple, Android, Windows mobile

Those partnerships added more value and convenience for Netflix’s customers as it became easier to watch videos increased. This also explains the major rise in subscribers between 2008 and 2010, when the number of members more than doubled.

The next fact is that between 2007 and 2008, that is to say the time when Netflix changed its business model, the company did not invest much in content acquisition as it had to prepare its capabilities for the delivery of streamed video content. Revenue did not rise at the levels of the years before or after and assets even shrank, whereas the company reduced its equity through stock

repurchase programmes, which was allowed by the Board of Directors until 2010 (a technique often used to increase stock prices) and financed itself more through liabilities by issuing notes and by incurring debt.

Also, Netflix had to sign licence agreements with studios and networks to offer its members video content that they really wanted. The breakthrough for exclusive film rights for first-run video content was finally reached in October 2008 when Netflix signed a deal with Starz Entertainment for over 2,500 titles for five years. This increase in the number of films to be streamed exclusively on Netflix (after theatre and Pay-tv releases) came at no extra charge for members and also explains the increase in subscribers in 2009 to 2010. Moreover, between 2009 and 2010 streaming content rose from $104 million to $441 million while DVD content fell from $638 million to $627 million. This shows Netflix’s shift of focus in order to be able to provide more streaming content to its members as DVD rentals fell. In the year 2010, Netflix states that 85% of its 20 million subscribers had chosen the flat- rate of $7.99 for unlimited, commercial free streamed video content.

Figure 3 Netflix key figures 2007-2010

Source: Netflix Annual reports 2007-2010

As we can see in the above graph, revenues, the cost of revenues and the content library increased significantly from 2008. By offering more and more streaming content Netflix almost tripled its subscriber base in four years (from 7.4 million in 2007 to 20 million in 2010). Facing increased competition, both from multichannel video programming distributors with free TV Everywhere and VoD content (TimeWarner, ComCast) and Internet movie and TV content providers (iTunes, Hulu, Amazon,

Google), Netflix had to improve business model to retain members and expand its customer base. This was achieved, as we will see in the next section, by expanding its business internationally and by being the first pure video-on-demand provider to produce its own exclusive content, acting as a pay- per-view or TV channel.

Before expanding to Europe, Netflix installed its streaming services in a country which used the same language and was close, i.e. Canada. However, as different licensing agreements governed the content distribution in Canada (revenue for 2010 $3.6 million with 509,000 subscribers), Netflix could not offer the same video content as in the US.

The main studios and TV Networks which agreed a licence deal with Netflix in order to stream their video content are:

 Lionsgate  MGM Studios  Paramount Pictures  Sony Pictures Entertainment  Twentieth Century Fox  Universal Pictures,  Alliance Films  Maple Pictures  eOne  Mongrel Global TV  CBC  FremantleMedia Enterprises  CBS Corporation – SHOWTIME  Ultimate Fighting Championship  Gaumont International Television  Warner Bros. International Television Distribution

Netflix’s strategy to include films and TV shows from national broadcasters and film studios, as it did for its debut in Canada, will be repeated in all the other countries to which it expanded its business.

11.1.3 Netflix 2011-2012: international expansion and original programming

International expansion and licence agreements

Netflix, after having expanded to Canada, launched its streaming services in Central and South America (segment Latin America for Netflix) and the Caribbean. Revenues in the international segment (comprising Canada) rose to $82.8 million with a total of 1.4 million paying subscribers at the end of 2011 in the international streaming business (compared to a revenue of $2 162.6 million in the US) for a loss of $103.1 million. Netflix only started its European business in 2012, so it is still a little too early to get pertinent data and a true business analysis. This is why we will only state the main facts and figures.

 Licence agreements were signed with the following film studios and TV networks: – Walt Disney Studios – Paramount Studios – Sony Pictures Television – NBCUniversal International Television – CBS Television – MGM – Lionsgate – Summit – Relativity – BBC Worldwide – TV Bandeirantes – Televisa – Telemundo – TV Azteca – TV Globo – Caracol – Telefe – RCTV

 The United Kingdom and Ireland The expansion to Europe began in 2012. On 9 January 2012 Netflix launched in the United Kingdom and in Ireland. The subscription price was £5.99 in the UK and €6.99 in Ireland. It managed to make deals with the following studios and TV networks for streaming their content:

– All3Media – The BBC – CBS – Channels 4’s 4oD – Disney UK and Ireland – iTV – Lionsgate UK – MGM – Miramax – Momentum Pictures

– NBC Universal – Paramount – Sony Pictures Entertainment – Twentieth Century Fox – Viacom International Media Networks – RTE Digital – Element Picture Distribution – Warner Bros International Television Distribution

In March 2012, Netflix made “Just for Kids” available to households in the UK and Ireland.

On August 20 2012, Netflix announced that it had already one million members in the UK and Ireland, stating that they were the fastest growing countries in its international expansion. In January 2013, Oric191 produced a study comparing the offering of Netflix and LOVEFiLM. This states that Netflix offered 1,668 films in the UK and Ireland (compared to 9,153 in the US) and 925 TV seasons (compared to 4,989 in the US), making a total of 2,593 titles (14,142 titles in the US).

 The Nordic countries: Sweden, Denmark, Norway, Finland In October, Netflix opened its services to the Nordic European countries, starting with Sweden on the 15th and followed by Denmark on the 16th, and Norway and Finland on the 17th. It made various deals with TV and film studios from those countries. The list of Netflix partners in the Nordic countries is as follows: – Warner Bros – Twentieth Century Fox – Disney – Sony Pictures Entertainment – BBC Worldwide – CBS Corporation – ITV Studios Global Entertainment – Shine International – Nordisk Film Distribution – AB Svensk Filmindustri – Scanbox Entertainment – Norsk Filmdistribujon

The subscription price is 79kr in Sweden, Denmark and Norway and €7.99 in Finland.

As we can see, Netflix adapted to national markets by bringing to its members video content from their national studios as well as American video shows and films. However, as the example of the UK and Ireland shows, making streaming agreements with producers and rightholders is difficult as their strategies and distributors differ from one national market to another. Netflix managed, however, to get major players on the market to join its streaming services.

At the end of 2012, international subscriptions were up 238% to 6.1 million members (note that this number takes both Europe and South America and Canada into account). Revenues rose by 247% to $287 million and losses were $389.3 million (compared to losses of $103.1 million in 2011 in the

191 http://oric.com/blog/posts/netflix-uk-lovefilm-instant-content-comparison

international streaming segment). There is no separation of either revenues or subscribers for Europe, so a more precise assessment of Netflix’s members or turnover in Europe is not possible.

Netflix announced that it would not continue its international expansion any further as long as the international streaming segment was making losses. Therefore, entry into the Spanish market (which was long rumoured to be the first target market of Netflix’s European expansion) or France is not planned for the near future.

In section 2.3 we will set out in more detail the financial consequences of the international expansion for Netflix’s revenues, profits and main financial ratios. Netflix has chosen Luxembourg to establish its European headquarters, as have Apple and Microsoft. As the European businesses only launched in 2012, the only financial information available is that in Netflix’s preliminary annual report at EDGAR online.

However, we have the annual accounts of Netflix Luxembourg S.à.r.l. for 2011 (before the European business was launched) from the Registre de Commerce et des Sociétés. As the European business is conducted form Luxembourg, we can give “scarce” information. The assets for Netflix Luxembourg S.à.r.l. were €7,701,126.40, consisting mainly of prepayments (€6,796,009.26), intangible assets (€842,245.74) and cash at the bank (€62,072.94) financed through non-subordinated debts payable after less than one year (€7,941,996.76). Losses for 2011 were €252,592.79. These figures do not mean much as Netflix did not operate at that time and merely show the preparation of the business to be conducted in the UK, Ireland and the Nordics.

Original programming and US market share in 2011/2012

Original programming In addition to the international expansion of Netflix, the main “game changer” was the production of original content, a first for a VoD service. By taking this step Netflix had to make big investments, which were unprecedented for a pure VoD player, but by producing its own original content the company acted like traditional pay-TV networks such as HBO or Showtime.

The first TV show to be produced by Netflix was Lilyhammer, which aired on NRK1 (Norway) in January 2012 and was a huge success, with a record audience of 995,000 viewers (a fifth of Norway’s population). The show was then made available on Netflix US in February 2012. All eight episodes of the first season were available, thus breaking with the traditional TV show schedule where you have to wait a week (or more) for the next episode. CEO Reed Hastings refers to this as ”breaking up with the system of managed dissatisfaction”. “The traditional entertainment ecosystem is built on it, and it's a totally artificial concept," he says. "The point of managed dissatisfaction is waiting. You're supposed to wait for your show that comes on Wednesday at 8 p.m., wait for the new season, see all the ads everywhere for the new season, talk to your friends at the office about how excited you are if it's a movie, you wait till the night it opens, you wait for the pay-channel window, you wait for it to come to cable. Waiting means pent-up demand, millions of people watching the same thing at the same time, preferably at night, when they're pliant with exhaustion and ready to believe they need the stuff being hawked in all those commercials. Waiting is dead.”192

This statement shows what Netflix’s change of paradigm and strategy is really about: to change who, what, when, where, why and how we watch video content. We think that it is very important to underline this fact as Netflix really positions itself as a market disruptor, willing to challenge the big TV networks and studios on their own turf by innovating and turning the linear TV model into an innovative non-linear model. Before producing its own content, Netflix naturally made many changes, be they in the online DVD rental business or the streaming business, but by offering its own content that people want to watch it could really change the face of television as we know it.

192 GQ, February 2013, “And the Award for the Next HBO Goes to…, http://www.gq.com/entertainment/movies-and- tv/201302/netflix-founder-reed-hastings-house-of-cards-arrested-development#ixzz2OZDxINjS

It was the next show that really showed the strength of this new model: in February 2013, Netflix made available “House of Cards”, starring Hollywood actors Kevin Spacey and Robin Wright, directed by David Fincher and produced at a cost $100 million for two seasons of 13 episodes each. The first season of the show was also released in its entirety on one day, thus changing the traditional TV show schedule once again. The show was produced exclusively for Netflix by Media Rights Capital.

The other original content produced that year by Netflix and that will be made available to subscribers is Arrested Development (three seasons existed on Fox Network before the show was cancelled; Netflix produced the fourth season), Bad Samaritans (original content produced by Fox Digital Studios and distributed exclusively by Netflix), Derek (Channel 4/Netflix), Hemlock Grove (Gaumont International Television), Narcos (Gaumont International Television), Orange is the new Black (Lionsgate Television) and Turbo: F.A.S.T. (DreamWorks Animation/20th Century Fox). On 27 March 2013, Netflix announced that it had bought another show, Sense8, a sci-fi series produced by Georgeville Television and the studio JMS and to be available in 2014193.

Netflix will be the first to “air” these shows as it has exclusive distribution deals with the studios. Normally, such high value shows are produced for pay-TV channels (HBO or Showtime, for instance) or major television networks and then aired on other networks or made available on DVD or VoD services. The fact that you have to be a member of Netflix if you want to watch them on their first “airing” is increasing the fear of people “cutting the cord” (the cable subscription cord) as exclusive content is no longer the “apanage” of expensive pay-TV channels.

Netflix also struck a major deal with the Walt Disney Company in 2012. Starting in 2016, the Walt Disney Company will make available its theatrically released feature films in the pay-TV windows. This deal will make available to Netflix members films produced by Disney, Walt Disney Animation Studios, Pixar Animation Studios, Marvel Studios and Disneynature. It shows how important Netflix has become by outbidding pay TV channels for the first run of films (the financial terms and conditions of this deal were not released). The deal also included a multi-year catalogue agreement and Disney direct-to-video releases starting in 2013. As of 2012, Netflix had made exclusive pay-TV deals with the following studios:

– Relativity Media (and Rogue Pictures) – DreamWorks Animation (in 2013, after the expiration of its deal with HBO) – Open Road Films – Film District – The Weinstein Company – Walt Disney Studios Motion Pictures (Walt Disney Pictures, Walt Disney Animation Studios, Disneynature, Pixar, Lucasfilm, Marvel Studios)

Netflix made distribution deals (non-exclusive) to stream content with the following other companies:

– Universal Studios – Time Warner (Turner Broadcasting Systems, Warner Bros Television – Cartoon Network, Warner Bros Animation, Adult Swim) – Disney’s ABC Television Group – DreamWorks Classics – Kino International – CBS Television Distribution

Even though these deals are of major importance, Netflix suffered a setback when the Starz

193 http://www.prnewswire.com/news-releases/only-on-netflix-sci-fi-giants-the-wachowskis-and-j-michael-straczynski-team-up- to-create-sense8-200215501.html

Network did not renew its deal with it in 2012 and took some high-value content in the Netflix catalogue. Another setback was when Epix signed a deal with Amazon, Netflix’s direct competitor, in September 2012, having previously signed a 5-year deal with Netflix under which content was exclusive to Netflix for a period of two years (Epix films, including films from Paramount Pictures, MGM and Lionsgate, came to Netflix 90 days after their premiere on Epix).

By entering into exclusive distribution contracts, and even duplicating pay-TV networks on shows, Netflix radically changed the existing original-content distribution system and attacked the cable and pay-TV networks on their own turf (bringing exclusive content to their customers). As CEO Hastings sees it, cable TV companies are his “biggest worry”, which is quite surprising for an all-online VoD service. This partly explains the huge investments made in original content. However, as we will show in the financial part of this section, Netflix had to make tremendous investments and enter into commitments with content producers, thus obliging the company to attract more members in order to break even and then make a profit. The objective of its international expansion is clear: to broaden the customer base in order to amortise heavy investments, even though the international business segment is not yet profitable.

Market share in the US Netflix’s market share is not yet available for Europe, which is no surprise as business only started in 2012, but in the US Netflix has, since its streaming debut in 2007, made a major leap forward and dominate the market, be it for SVoD or VoD in general.

Figure 4 Netflix traffic in the USA 2010-2012

194 Source: Sandvine

194 http://www.sandvine.com/downloads/documents/Phenomena_1H_2012/Sandvine_Global_Internet_Phenomena_Report_1H _2012.pdf page 22

A study by Sandvine shows that Netflix accounts for almost a third (32%)of all peak downstream traffic (and 28% of aggregated traffic) in the United States, thus making Netflix the largest single source of traffic on fixed-access networks by far. This percentage is very large, but with 25 million streaming members it demonstrates the importance and success of the service in the US considering that YouTube accounts for 14.8% of peak downstream traffic. Another fact shown is that in order to be able to expand its streaming services throughout the world Netflix needs one prerequisite: bandwidth. Streaming content consumes a lot of bandwidth, and in high definition even more, which is why Netflix also has to adapt to national Internet infrastructure. The Nordics, with a large proportion of households connected to broadband, are ideal countries to which to expand. The table below shows the importance of Netflix for downstream traffic, ranking even before YouTube, normal web-browsing or BitTorrent traffic (Torrent applications are largely used for file transfer, with mostly illegal video content being exchanged). iTunes, a direct competitor, accounts for only 3.92% compared to Netflix’s 33%.

Table 7 Top 10 peak period applications in North America – Fixed access

195 196 Source: Sandvine, 2012 and GigaOM

195 http://www.sandvine.com/downloads/documents/Phenomena_2H_2012/Sandvine_Global_Internet_Phenomena_Report_2H _2012.pdf 196 http://gigaom.com/2012/11/07/based-on-network-traffic-alone-netflix-handily-beats-amazon-hbo-hulu/

Figure 5 Revenue share in the US online movie market in %

For copyright reasons this figure cannot be reproduced in the public version of this report

Source: IHS Screen Digest June 2012

Table 8 Online movie market share in the US in 2011

For copyright reasons this figure cannot be reproduced in the public version of this report

Looking at Netflix’s revenue share on the US online movie market, it appears that from, only 0.5% in 2010 compared to 60.8% for iTunes at that same time, it rose to 44% while that of iTunes fell to 32.3% in 2012. This big rise is proof of the success and appeal to its members of Netflix’s streaming service (in 2009, Netflix did not offer a separate streaming service as it was coupled with movie DVD rentals, which is why the market share for that year was 0%). The flat fee of $7.99 for unlimited video content compared to iTunes’ $1.99 to $5.99 for movie rentals seems for VoD to be customers the better deal as Netflix also offers exclusive content that people want to see. Relying on those figures for market share and downstream traffic, it appears to us that up now the shift in Netflix’s business strategy from online DVD rentals to offering streaming content has been a highly tactical move, and for the moment Netflix has taken the lead. As its members pay a flat fee, it can count on a steady cash flow, which allows it to make further investments in the decisive area of the exclusive content, which people want to view.

Financial figures

Netflix’s revenues rose between 2010 and 2011 by almost 50%, which is not surprising when we look at the company’s market share in 2011 and its aggressive entry into the VoD market through heavy investments (the cost of revenues rose by 50% and the net content library rose from $181 million in 2010 to $919 million in 2011, and the non-current library rose even more spectacularly from $180 million to $1,046 million in 2011). The profit margin remained stable between 2010 and 2011 at around 7% but fell heavily in 2012, the year Netflix really expanded internationally, to 0.48%. Net profits fell from $226.1 million in 2011 to just under $17.2 million in 2012. look at the ratios and their variation between 2011 and 2012, se see that, while the gross margin shrank by 10 points (36.3% in 2011 to 27.2% in 2012) the operating margin fell from 11.7% to 1.3% in 2012, thus reflecting higher revenue costs ($2,039.9 million in 2011, $2,625.9 million in 2012) and lower revenue growth, which amounted to only 12.6% from 2011 to 2012 ($3,204.6 million in 2011, $3,609.3 million in 2012). Those figures evidence the heavy content investments and deals made by Netflix, as well as the cost of its international expansion. The licensing deals and investments in original content made (such as House of Cards for more than $100 million for two seasons of 13 episodes) are reflected in the increase in the gross content library (not taking amortisation into account) by 58% between 2011 and 2012 (from $3.1 billion to $5 billion). These continuous investments are also reflected in the return on assets and equity, which fell from 16.3% in 2010 to 0.43% in 2012 for the ROA and from 55.3% in 2010 to 2.3% for the ROE.

Table 9 Netflix’s revenues and net Income 2010-2012

(Gross profit for 2012 calculated by the OBS)

Table 10 Netflix’s main financial ratios

Even though the financial ratios shrank dramatically, the satisfaction for Netflix, and confirmation that its investments are for the long term, can be seen in the increase in the number of subscribers, which went from 20 million members in 2010 to 35.48 million in 2012, rising by 63.11% in 2010, 31.2% in 2011 and 35% in 2012. Netflix’s content and business model are convincing more and more customers at the international level. Moreover, the number of international subscribers rose from 1.4 million at the end of 2011 to 6.1 million in 2012, an increase of 335%, which shows that the service offered appeals to potential customers in many countries.

Table 11 Netflix’s subscribers 2010-2012

Table 12 Netflix’s balance sheet 2010-2012

Regarding the deals Netflix has signed with various content producers, we can see that the company has invested a huge amount of money (around $5.6 billion, with $2.2 billion for 2013 and $2.7 billion for the period of 2013 to 2015) to secure exclusive content over the next five years. This puts Netflix under pressure to monetise those investments and gain more and more customers as it needs to broaden its customer base to be sure to earn enough from subscriptions. The total streaming fees for content can be gathered from the total amount of content liabilities –$1.6 billion in 2011 and $2.4 billion in 2012, an increase of 45%.

Table 13 Streaming content obligations in 2012

Source: Netflix Annual report 2012

Table 14 Netflix content library 2011-2012

Table 15 Netflix segment information 2012

In regard to the separation of Netflix’s three business segments of (Netflix has only undertaken this separation of these segments since 2012) we can see that the international business streaming segment ,while only accounting for 7.9% of total revenues, represents 18.1% of revenue costs and 41.5% of marketing costs. The profit of the US streaming segment ($349 million) is offset by the loss of $389 million in the international streaming segment, while the DVD rental business is still making about 31% of consolidated revenues. However, as Netflix states in its 2012 annual report, “As technology has changed and consumer preference has shifted, we have seen subscribers move away from DVD rental and toward streaming their video content”. This shows that the DVD rental segment, while still profitable, is in the long term condemned to a slow demise. (However, members are still attached to this service, as the Qwikster episode showed in 2011, when Netflix announced that it would separate its streaming business, which would continue under the name of Netflix, and its DVD rental business, renamed Qwikster. Members who wanted both services were to pay more. Following the announcement in September 2011, many members cancelled their subscription and the Netflix share price fell from an all-time high of $299 to $74.88197198. Netflix had to cancel its plans and

197 http://investorplace.com/2011/10/netflix-stock-nflx-qwikster-subscribers/

Qwikster was aborted in October 2011before it had even seen the light of day).

The marketing costs at that high level for the international business segment might seem abnormal but as Netflix is entering new markets where established competitors like iTunes or LOVEFiLM are already present, it has to market and promote its services strongly, which explains the high marketing expenses for 2012. The company’s marketing campaign proved to be efficient as it managed to add around 5 million new subscribers to its international business and, as the example of the UK and Ireland shows, it appeals to its customers (1 million members in less than four months after the initial launch). The investments made and to come are heavy and Netflix must expand and gain new customers to increase its profits. As we have seen, profits fell heavily due to the company’s international expansion and acquisition of new content. Having secured these deals and established business in new countries, Netflix must now capitalise on those investments. As the US market data shows, Netflix has managed in only two years to take a decisive lead (for now) in the online movie market. In Europe, the company will face more competition, where national markets are fragmented and also have different cultures and languages to which Netflix has to adapt. The UK and Ireland proved to be the experimental stage as Netflix did not have to adapt to a different language, and its first real test was the Nordic countries. By offering content from national producers and film studios, Netflix showed that it is well aware of the challenge that lies ahead. New expansions are not planned, as its objective is to break even in the international segment before making new investments and expanding to other countries. To compete with a highly international firm such as Apple whose iTunes Store offers films from national producers in many European countries (in Europe, Apple only sells TV shows in Germany, France and the UK), Netflix will have to expand further.

198 http://www.huffingtonpost.com/2011/10/10/qwikster-netflix-mistake_n_1003367.html

Summary of Netflix’s main data 2007-2012

Figure 6 Netflix’s main financial data 2007-2012

Netflix financial in USD million

6 000,0

5 000,0

4 000,0 Revenues Total cost of revenues Gross profit 3 000,0 Operating income Net Income 2 000,0 Content library, gross

1 000,0

0,0 2007 2008 2009 2010 2011 2012

Figure 7 Netflix’s main financial data 2007-2012

Netflix financial data in USD million

6 000,0

5 000,0

4 000,0 Revenues Total cost of revenues Gross profit 3 000,0 Operating income Net Income 2 000,0 Content library, gross

1 000,0

0,0 2007 2008 2009 2010 2011 2012

Figure 8 Netflix subscribers 2007-2012

Netflix - Subscribers (in thousands)

40 000

35 000

30 000

25 000

20 000 Subscribers

15 000

10 000

5 000

0 2007 2008 2009 2010 2011 2012

As the charts visually confirm, the real surge in Netflix’s business was between 2010 and 2012, confirming the market share from IHS Screen Digest. Revenues, gross content library value and subscriber numbers rose strongly while profitability on all levels (gross profit; net income and operating income) fell. This, once again, demonstrates the company’s long-term vision. By carrying out heavy investments it is preparing for the battles yet to come. As its initial DVD rental business is in decline and has only a few years left before it is wound down, Netflix is seeking growth in the SVoD market. For the moment, the investments have been made and the future has been prepared through long- term deals such as those made with Walt Disney and through its own exclusive content production. We now have to see how the competition will react and try to counter the rise of Netflix. It is still too early to analyse Netflix’s position in the European VoD market. Its success in the US shows that the company is definitely a major player in the VoD market, even more so after having made major deals for exclusive content. The company is positioning itself more and more as a pay-TV network, offering exclusive content and making deals with film producers for the first broadcast window, which was normally reserved for pay-TV networks. However, we have seen that this shift in its strategy has a high cost associated with a high risk. Netflix has now entered into taken medium- and long-term commitments with content producers, which are forcing the firm to expand and sign up more and more members to comply with the terms of the deals and find the level of profitability it was used to in the past. The VoD market is more and more competitive and occupied by competitors like Apple, Amazon or Google, which have much higher spending power, but Netflix has taken the lead for now. It is the undisputed leader on the US online film market, but will it be able to maintain this lead internationally? For now, it has put a stop on more international expansion as it first wants to break even in the newly entered markets before thinking about the next countries to invest in. 2013 will no doubt be a good indication for Netflix of how its streaming services position themselves in Europe, where it faces competition from national and international players.

On-Demand audiovisual services of public broadcasters

12 Services financed by public funds

In addition to the on-demand services financed by payments or by advertising there are also services financed by public funds or by public organisations. The MAVISE database identified at 15 March 2015 525 on-demand audiovisual services provided by public organisations, 494 of them established in the EU.

Table 1 On-demand audiovisual services provided by public bodies established in the EU (December 2013) Branded channels 268

Catch-up TV 153

Archives 19

VoD generalist 11

Video news page 9

VoD documentary 9

VoD fiction 7

VoD films 5

VoD children 3

VoD music 3

VoD short movies 1

Others 7

Source European Audiovisual Observatory from MAVISE database

Services provided by public bodies are not necessarily free of charge and funded by public funds: some public telecommunications operators provide pay-VoD services on their IPTV system, while some of the VoD services provided by broadcasters or public video libraries may be subject to payment or partly financed by advertising.

The possibility for public bodies, especially public broadcasters, to provide paid services or services financed by advertising or other forms of commercial communication has been a matter of debate for several years and has been treated in different ways by regulators and courts.199 For example, in France, public broadcasters are authorised to provide pay-VoD services and to include advertising in their catch-up TV services. In Germany, by contrast, public broadcasters cannot provide pay-VoD services and cannot post advertising on their websites, including catch-up TV services. In the UK, Channel 4 is authorised to provide a pay-VoD service, while access to the BBC iPlayer is free in the UK, although the global version of the service is accessible by subscription.

The possibility of providing free-of-charge on-demand services financed by broadcasters’ public revenues may also be matter for discussion, in particular with reference to the European

199 See, for example, Nikoltchev S. (ed.), The New Public Service Remit, IRIS plus 2009-6, European Audiovisual Observatory, Strasbourg, 2009

Commission’s Communication on state aid. In some countries, the creation of these types of service may be submitted to the value-test procedure.

Table 2 Provision of on-demand audiovisual services by public broadcasters in the EU (March 2014)

Apps in Branded online Internet VoD channel Own stores website(s) Archives catalogue Game (Youtube, VoD DTT Satellite Cable IPTV (Google with website on iTunes console Dailymotion service Play, videos Store ) iTunes Store) AT ORF Yes x X X Dailymotion, BE RTBF Yes X X X Sony PSP X Youtube BE VRT Yes Youtube X X X BE BRF Yes Youtube BG BNT Yes Youtube CY CyBC Yes Youtube CZ CT Yes Youtube X DE ARD Yes Youtube X X DK DR Yes X X X X DK TV2 Yes Youtube X X X EE ERR Yes X Youtube X X X ES TVE Yes X Youtube X FI YLE Yes Youtube X France - Dailymotion, FR Yes X X X X X Télévisions Youtube Dailymotion, FR INA Yes X X X x X Youtube FR ARTE France Yes Youtube X X Youtube XboX, GB BBC Yes X (around 100 X X X X X PSP, Wii channels) XboX, GB Channel 4 Yes Youtube X X X PSP, Wii X GR HPRT/NERIT No HR HRT Yes Youtube X HU MTVA Yes Youtube X IE RTE Yes X Youtube X Xbox, PSP X IT RAI Yes Youtube LT LRT Yes Youtube LV LTV Yes Youtube X _ MT PBS Yes Youtube NL NPO Yes Youtube X X PL TVP Yes Youtube X x X PT RTP Yes Youtube X X X (on RO TVR Yes Youtube X Youtube) SE SVT Yes Youtube X X X SI RTVSLO Yes Youtube X SK STV Yes Youtube X Source: European Audiovisual Observatory / MAVISE database

Catch-up TV services provided by public broadcasters on their own websites

All public broadcasters in the EU (with the exception of the Greece’s HPRT created in 2013 after the closure of ERT) provide at least one website with videos. Most of these videos are recently broadcast programmes but they may also be promotional material for programmes to be broadcast in the coming days. In a sense, all public broadcasters provide an on-line catch-up TV service, the scope and volume of which may, however, vary from one or two of videos disseminated on the website to a full-blown system such as the BBC iPlayer.

It should be noted that in most cases public broadcasters’ catch-up TV services are not geolocated, except when they provide programmes with commercial potential on the international market (which is the case, in particular of the BBC programmes).

Public broadcasters’ archive websites

The number of broadcasters providing a website with video archives of old programmes is much smaller. We have identified the Estonian ERR, the Spanish RTVE, the BBC and the Irish RTÉ.

In France, the archiving function is operated by the Institut national de l’audiovisuel (INA), which operates on its own website both a free and a paid service, as well as 14 different branded channels on YouTube, one branded channel on Dailymotion, an SVoD service accessible on cable and IPTV distribution platforms and a branded catalogue on iTunes Store.

In Belgium’s French Community, RTBF has delegated to a private company (SONEMA) the operation of a open-access archive website.

In Romania, TVR provides a branded archive channel on YouTube.

Branded channels on open platforms (YouTube, Dailymotion, etc)

The other most common kinds of on-demand audiovisual services provided by public broadcasters are branded channels on YouTube and Dailymotion. Almost all public broadcasters (with the exception of Austria’s ORF, Greece’s HPRT and Denmark’s DR) have at least one branded channel on YouTube. The BBC has more than a hundred of these channels. France Télévisions, ARTE and RTBF also operate branded channels on Dailymotion.

As public broadcasters are in general not fighting for advertising on their own website, they are less subject than private broadcasters to the “own platform vs. YouTube” dilemma. Uploading part of their content on YouTube is a way of attracting a large proportion of the public, in particular young people.

RAI was probably the first European public broadcaster to make systematic use of YouTube, and the comScore data for 2013 illustrate the crucial importance of the open platform for the broadcasters’ own platforms.

In the UK, the BBC provides around 60 branded channels on YouTube, but the audience on the open platform is much smaller than that using the BBC iPlayer or the videos on the various BBC websites.

Broadcasters’ catch-up TV services on TV distribution platforms

In addition to their own websites and branded channels on YouTube, a large number of public broadcasters provide catch-up TV services through TV distribution platforms. We have identified 13 broadcasters providing catch-up TV services through IPTV platforms and 12 broadcasters providing catch-up services on cable. Catch-up TV services of the French public TV channels are provided to Canalsat subscribers through a hybrid set-top box, while in UK the catch-up TV services of the BBC and Channel 4 are delivered via the Freesat platform. The possibility of using DTT platforms for on- demand catch-up TV services is used by DR in Denmark and by SVT in Sweden, through the operator Boxer. Very few public broadcasters provide their catch-up service through video games consoles: the BBC iPlayer and 4oD are accessible on the Xbox 360, the Sony PSPs and Nintendo Wii. The RTÉ catch-up TV services are accessible on Xbox 360 and .PSP, while the RTBF service is accessible only on the Sony PSP.

Almost all public broadcasters provide Apps that allow access to their catch-up TV services on tablets and mobiles (through the iTunes Store, Google Play Store or, less frequently, through the Windows Store). A number of public broadcasters have also developed applications for Smart TV stores.

Public broadcasters’ commercial VoD services

Only the French public broadcasters (France Télévisions and ARTE France) provide their own pay- VoD website in the country. The ARTE VoD service provided by ARTE France is not geolocated and is therefore accessible worldwide. However, access to individual programmes of the services is geolocated in accordance with the rights obtained by the broadcasters.

Two public broadcasters operate pay-VoD services accessible only outside the country: the BBC operates the BBC iPlayer Global and TV5 Monde operates two different VoD services, one with French-speaking films, the other with documentaries.

Various public broadcasters operate branded catalogues through the iTunes Store: ORF, ARD, the BBC, Channel 4 and France Télévisions.

On-demand audiovisual services provided by public bodies that are broadcasters

The public broadcasters are not the only public bodies providing on-demand audiovisual services. With the roll-out of video online, various categories of public bodies have created on-demand audiovisual services financed by their own budgets:

 Film archives: various national film agencies have created open-access websites that provide access to part of the national film heritage. They do this on their own website (like the Polish Filmoteka Museum or the Czech or Swedish Film Institute) or through a branded channel on YouTube (as is the case with the British Film Institute or the association of various public film archives co-ordinated by the Deutsches Filminstitut under the label film archives online).

 Cultural organisations: some important cultural organisations (such as la Cité de la Musique in France), public libraries in the Netherlands.  Universities: some universities have set up web-TV channels, which include video news on their activities or scientific documentaries.

Sample study on the presence of selected European works in VoD providers catalogues

13 Sample study

13.1 Introduction

Methodology and Limits of the survey

The aim of this note is to analyse the catalogues of the main VoD service providers in EU 27 regarding the presence of European films. As an exhaustive catalogue analysis demanded an extensive investment of time and manpower, we decided to do the analysis through a sample of 50 movie titles. We tested therefore the VoD catalogues on the availability of the 50 selected movies. The sample in itself is not statistically significant (VoD providers have between 2000 and 50 000 movies in their catalogues therefore our sample represents only 0.1% to 2.5% of the entire catalogues). Therefore all assumptions, hypotheses and analysis made in this note are only valid within the limits of our sample and cannot be generalized or extrapolated with regard to the strategies of VoD providers concerning European movies and license agreements. The findings of our analysis should rather be seen as indications and assumptions that need to be verified in an exhaustive catalogue analysis. Furthermore, the results are only valid for the considered time period (July to September 2013).

The movie titles were selected on the basis of two criteria; critically acclaimed films (“quality“) and films successful at the box office200 (commercial success). The sample can be considered as “valuable“ video content in the eyes of the customers (box-office success of European blockbusters) and critics (European Film Award). For the critically acclaimed film sample, we choose the last 25 European Film Awards201 in the category “Winner – European Film” since the creation of this Award (1988). For the most successful films in the box office, we choose to select the Top 25 European Blockbusters by admissions since 1996 through the LUMIERE database202, data which we completed by adding the gross box office, when available, as stated by IMDb203. Three of the films in the EFA Award list (The Full Monty, Le fabuleux destin d’Amélie Poulain, La vita è bella) were also among the Top 25 European Blockbusters therefore we decided to replace them in the European blockbuster list with the following three European blockbusters on the list as given by LUMIERE (Le diner de cons, (T)raumschiff Surprise – Periode 1, Taken 2). The selection of titles is listed in table 1 (European blockbusters) and 2 (EFA Winners) (pages 6 and 7).

We carried out the research204 of the titles that was possible to do from France for pan-European players: Apple’s iTunes movies stores205 (Electronic sell-through – EST/TVoD) and Microsoft’s Xbox video marketplaces206 (EST/TVoD) and 4 different VoD service providers in France:

 1 Subscription Video on-Demand provider (SVoD), Canal Play Infinity, available on multiple platforms (owned by French pay-TV broadcaster Canal +)  1 Transactional Video on-Demand provider (TVoD) on IPTV, Orange VoD (owned by French telecommunications company Orange-France Télécom)  1 TVoD on the Open Internet, Univers Ciné (independent)  1 Global VoD service provider, Sony Entertainment Network (owned by Sony)

We also searched for means of prominence for European works. As Article 13 of the Audiovisual

200 Measured by admissions in EU27 as given by Lumiere 201 http://www.europeanfilmawards.eu/en_EN/archive 202 http://lumiere.obs.coe.int/web/search/ 203 http://www.imdb.com/ 204 Research carried out in July and August 2013, results only valid for this time period 205 26 movie stores in EU 27, no iTunes movie store available in Romania 206 12 Xbox video marketplaces in EU 27 (AT, BE, DE, DK, ES, FI, FR, GB, IE, IT, NL and SE)

Media Service Directive, AVMSD, does not stipulate any, 6 means of prominence were selected by us and searched for on the different VoD services. Those means of prominence are:  European films on homepage  European/National film section  Search function for European films  Recommendation for European films  Special offers on European films  Presence of trailers presenting European films

Due to geo-localization restrictions and closed platforms, researching the sample in European VoD providers’ catalogues was “outsourced“. A questionnaire was made in Excel comprising our sample titles (original and in English) and asking the respondents to check for the presence of the films in the selected VoD providers catalogues, prices (rent or purchase for EST/TVoD service providers, monthly subscription fee for SVoD providers), language versions (original version, dubbed version, subtitled version) and means of prominence for European works. The questionnaire was sent out to the European Film Agency Research Network (EFARN), on a voluntary basis, in all member states with the request to check the availability of the 50 selected movie titles in the catalogues of the main 6 VoD service providers in their countries (and, if possible, on different platforms such as IPTV, Open Internet, cable and satellite and of different business models – SVoD, EST/TVoD).

At the end of September 2013, 6 answers were received. The EFARN members who responded are those of Belgium (French and Flemish communities), Germany, Denmark, Italy, the Netherlands and Poland. The research in the catalogues of national VoD providers was carried out between the 15th of August and the 25th of September 2013. Three out of the six answers we received were those of the VoD providers themselves (in Belgium, Denmark and the Netherlands) and means of prominence were searched for in 3 countries (Denmark, France and Italy).

Extent of analysis

The results can be analysed in order to draw assumptions on the respective market power of the players involved with regard to movie licensing and content deal negotiations. As those deals are confidential, no confirmation of assumptions can be made. Also, with respect to national transpositions of Article 13 of the Audiovisual Media Services Directive, the findings should only be seen as indicative and should not be generalized. Our analysis is only valid for the chosen sample and no definite conclusion with regard to the presence of European movies in VoD catalogues can be made based on our analysis (our sample represents only between 0.1% and 2.5% of the total of movies that can be found in the catalogues of VoD providers).

Also, as we only received 6 answers to the questionnaire, the analysis is very limited. We need more answers (especially from more important markets like the United-Kingdom and Spain) in order to confirm our first assumptions and to improve the analysis. A next step would be to compare the findings with an equivalent sample of American films (like the last 25 Oscar winners and the Top 25 blockbusters for the same time period) in order to assess if there are significant differences in the respective catalogues of national and pan-European players. Another interesting correlation would be to see the “life“ of the movies from their cinema release to DVD to pay-TV by the numbers (admissions which we have through LUMIERE, sales of DVD/VHS for older movies, audiences on pay- TV/advertising financed TV) and to search for correlations between the presence of titles in catalogues and their commercial success. Therefore, this note serves only as an indication through the findings, observations and an assumption made and not as a general assessment of the presence of European movies in VoD catalogues.

The 50 Movies sample

Table 1 The 25 European blockbusters Admissions1 Gross3 in Year Production Original Movie title Total EU 27 national $ MIL 2012 GB / US SKYFALL 44 464 388 15 945 446 1 109 2011 FR INTOUCHABLES 39 775 583 21 414 629 351 2001 GB / US BRIDGET JONES'S DIARY 29 029 836 9 723 791 172 (7) 1999 GB / US NOTTING HILL 28 206 327 7 419 281 363 2008 FR BIENVENUE CHEZ LES CH'TIS 25 511 247 20 488 339 164 (8) 1997 GB / US BEAN: THE ULTIMATE DISASTER MOVIE 24 610 209 4 588 253 232 2002 FR / DE ASTÉRIX & OBÉLIX : MISSION CLÉOPÂTRE 21 568 619 14 313 876 111 1999 FR / DE / IT ASTÉRIX ET OBÉLIX CONTRE CÉSAR 20 735 290 8 745 213 n.a. 1997 FR LE CINQUIÈME ÉLÉMENT 20 658 138 7 696 617 264 GB/US/FR/D 2004 BRIDGET JONES: THE EDGE OF REASON 19 560 087 7 943 695 110 (7) E/IE 2008 GB SLUMDOG MILLIONAIRE 16 667 974 5 820 652 191 (5) 2003 GB / US LOVE ACTUALLY 15 460 165 7 543 045 245 GB/FR/DE/U MR. BEAN'S HOLIDAY 2007 S 14 727 660 4 378 026 217 2001 ES / US THE OTHERS 14 395 223 6 356 779 210 2001 DE DER SCHUH DES MANITU 13 905 986 11 719 160 81 2003 GB / US JOHNNY ENGLISH 13 778 649 4 041 542 157 FR / DE / ES ASTÉRIX AUX JEUX OLYMPIQUES 2008 / IT 13 502 542 6 812 378 83 (10) 2000 GB / FR BILLY ELLIOT 12 433 972 3 893 407 109 2000 FR TAXI 2 12 214 697 10 239 220 n.a. 2004 FR / CH LES CHORISTES 11 917 515 8 356 492 n.a.

2006 DE / ES / FR PERFUME: THE STORY OF A MURDERER 11 047 765 5 589 217 132 2006 FR LES BRONZÉS 3: AMIS POUR LA VIE 10 797 463 10 223 008 n.a. 1998 FR LE DINER DE CONS 10 716 740 9 238 220 n.a. 2012 FR TAKEN 2 10 440 956 2 904 902 376 2004 DE (T)RAUMSCHIFF SURPRISE - PERIODE 1 10 372 090 9 150 736 80 (12)

1: Source - LUMIERE database lumiere.obs.coe.int 2: Also part of the Top 25 Box-office ranking 3: Source - IMDb http://www.imdb.com (4): Only USA, NL & IT available (5) (6): Only USA & GB (7): Only USA, GB, IT & ES available (8): FR, CH, BE (9): ES & USA (10): FR & IT (11): DE, ES & USA (12): DE

Please note that Le Diner de Cons, Taken 2 and (T)raumschiff Surprise – Periode 1 are respectively number 26, 27 and 28 on the Top European blockbusters list by admissions in EU27. However, as The Full Monty, Le destin fabuleux d’Amélie Poulain and La vita é bella were both part of the EFA and European blockbusters list, we decided to integrate them in our sample in order to have 50 different movie titles.

Table 2 The 25 European Film Award winners Admissions1 Gross3 in Year Production Original Movie title Total EU 27 national $ MIL 1997 GB THE FULL MONTY2 24 550 188 11 096 718 244 2001 FR / DE LE FABULEUX DESTIN D’AMELIE POULAIN2 19 999 974 8 516 391 57,7 (7) 1997 IT LA VITA E BELLA2 19 612 396 5 726 295 229 2003 DE GOOD BYE, LENIN! 10 632 563 6 574 961 77 1999 ES / FR TODO SOBRE MI MADRE 7 703 145 2 581 391 22 (9) 2006 DE DAS LEBEN DER ANDEREN 7 218 804 2 371 327 77 2002 ES HABLE CON ELLA 6 763 943 1 364 009 50 FR / DE / THE GHOST WRITER 2010 GB 4 580 560 1 048 701 74

2000 DK/FR/SE/D DANCER IN THE DARK 3 403 709 202 782 40 E/NO/NL/IS 2008 IT GOMORRA 3 358 122 1 747 859 35 DE / AT / FR DAS WEISSE BAND 2009 / IT 2 337 311 668 825 2,4 (6) FR / AT / DE CACHÉ 2005 / IT 1 681 765 517 258 n.a. DK/SE/FR/D MELANCHOLIA 2011 E/IT 1 481 055 56 687 n.a. AMOUR 2012 FR / DE / AT 1 440 481 619 650 9,5 (4) 2007 RO 4 LUNI, 3 SAPTAMANI SI 2 ZILE 1 064 364 89 339 n.a. 2004 DE/TR GEGEN DIE WAND 791 141 1 619 814 n.a. DK/SE/FR/N BREAKING THE WAVES 1996 L 298 608 2 980 848 7 (11) 1998 FR TOPIO STIN OMICHLI n.a. n.a. n.a. GB / ES / LAND AND FREEDOM 1995 DE n.a. n.a. n.a. 1994 IT / FR / CH LAMERICA n.a. n.a. 5 1992 IT / CH / FR IL LADRO DI BAMBINI n.a. n.a. n.a. 1991 FR/RU УРГА n.a. n.a. n.a. 1990 IT PORTE APERTE n.a. n.a. n.a. 1990 GB RIFF-RAFF n.a. n.a. n.a. 1988 PL KROTKI FILM O ZABIJANIU n.a. n.a. n.a.

1: Source - LUMIERE database lumiere.obs.coe.int 2: Also part of the Top 25 Box-office ranking 3: Source - IMDb http://www.imdb.com (4): Only USA, NL & IT available (5) (6): Only USA & GB (7): Only USA, GB, IT & ES available (8): FR, CH, BE (9): ES & USA (10): FR & IT (11): DE, ES & USA (12): DE

Please note that the following movies are also considered as Top 25 European blockbusters: The Full Monty, Le fabuleux destin d’Amélie Poulain and La vita é bella.

13.2 European movies in VoD catalogues: Sample results & Analysis

13.2.1 Overview of results

Table 3 Sample movie titles found by numbers in VoD providers catalogues

Table 4 Percentage of sample movies found in VoD providers catalogues

Table 5 National VoD providers by country

The national VoD providers are ranked by numbers of sample movies in their catalogues. Figures in red show national “high score” for each category (Total sample, EFA movie sample & blockbuster sample).

Looking at the above results, several observations can be made.

Observations on the general availability of our sample: – Out of the 35 national VoD providers surveyed, only 4 (or 11.4%) have more than 40% of our sample movies (DE: Videoload & Maxdome, DK: TDC, FR: Orange VoD - 3 services owned by a telecommunications company and one by an audiovisual group, Maxdome belonging to the ProSieben group). – 4 countries (BE, IT, NL and PL) do not have a national VoD provider which has at least 33% of our sample. The first national VoD provider in BE, Univers Ciné (independent), has 18% of our sample titles, the first one in IT, Chili TV (independent), has 16%, the first in NL, Ximon (independent), has 22% and in PL the first national VoD catalogue, vod.pl (Axel Springer Group/Onet – media group), has 26% of our sample in its catalogue. – Apple’s iTunes movie stores have a larger percentage of our sample than the first national VoD provider in 5 countries (BE, DE, FR, IT, NL). With regard to those findings, chapters 2.2 and 3.1

assess this situation. – Only in two countries, Denmark and Poland, the first national VoD provider has a higher percentage of our sample than iTunes – The ranking by country of national VoD providers with the highest percentage of the sample is the following: 4. Germany with Videoload and 58% of the sample (28% EFA & 88% European blockbusters) 5. Denmark with TDC and 48% of the sample (44% EFA & 52% European blockbusters) 6. France with Orange VoD and 42% of the sample (44% EFA & 40% European blockbusters) 7. Poland with vod.pl and 26% of the sample (24% EFA & 28% European blockbusters) 8. The Netherlands with Ximon and 22% of the sample (28% EFA & 16% European blockbusters) 9. Belgium with Univers Ciné and 18% of the sample (32% EFA & 4% European blockbusters) 10. Italy with Chili TV and 16% of the sample (24% EFA & 16% European blockbusters)

– The ranking by country with regard to the highest percentage of the sample in national iTunes catalogues is: 1. Germany with 72% (56% EFA & 88% European blockbusters) 2. France with 60% (44% EFA & 76% European blockbusters) 3. Italy with 40% (48% EFA & 32% European blockbusters) 4. Belgium with 34% (28% EFA & 40% European blockbusters) 5. The Netherlands with 28% (28% EFA & 28% European blockbusters) 6. Denmark with 22% (20% EFA & 24% European blockbusters) 7. Poland with 10% (4% EFA & 16% European blockbusters)

– Microsoft’s Xbox movies marketplaces207 have a small percentage of our sample (between 6% and 10%) with European blockbusters being more represented than EFA films (only 1 film, also considered an European blockbuster The Full Monty)

Observations on the availability of European Film Awards movies: – EFA films are more often found than European blockbusters in the catalogues of the first national VoD provider in 4 countries: BE, FR, IT and NL – On the other side, EFA films outweigh European blockbusters in only one national iTunes catalogue, Italy (and are as often found as European blockbusters in the Netherlands with 7 titles for each category) – No national VoD provider has at least 50% of our EFA sample titles (and only iTunes Germany has above 50% of the EFA sample) – Independent VoD providers as the Belgian Univers Ciné, the Dutch Ximon and the Italian Chili TV have a much larger part of EFA films than other VoD providers (owned by a telecom company/broadcaster; Orange VoD also has a more EFA films, 11, than European blockbusters, 10)

Observations on the availability of European blockbuster movies: – Apple’s iTunes movie stores have a larger part of blockbusters in their catalogues than EFA movies (with the exception of IT) as does Xbox – The European blockbusters sample outweighs the EFA sample in the catalogues of the first national VoD provider only in Germany, Denmark and Poland – National VoD providers in Italy have a very small percentage of the European blockbusters

207 Microsoft being considered as an electronic distribution platform by the Luxembourg’s authorities for mainly US studios this is in line with our findings. For a more precise analysis of Xbox videos please refer to Chapter III.2

sample (0%-8%) and seem to favor EFA films. – German, Polish and Danish national VoD providers have a larger sample of European blockbusters than EFA films for the first two national VoD providers

Means of prominence used by national VoD services

Means of prominence were only searched for in 3 countries, Denmark, France and Italy. We searched for six means of prominence for European works which are:

 European films on homepage  European/National film section  Search function for European films  Recommendation for European films  Special offers on European films  Presence of trailers presenting European films

The mean of prominence for European works most often found on VoD services is the presence of European films on homepages. Regarding the national transposition of Article 13 of the AVMS Directive, only the French transposition requires specific means of prominence: European films on homepage and the presence of European film trailers. All 4 VoD service providers (and iTunes as Chapter 3.1 shows it) respect this requirement.

When observing the national transpositions of Article 13 of the AVMS Directive, the situation in the 3 countries is the following:

 Denmark208: Obligation to promote by appropriate means the production of and access to European works. Report to the national regulator. No share or means of prominence requirements.

 France209: Prominence through a presence on homepage and trailers of European and French works. Financial contribution. A minimum share of 60% for European works and 40% for French works in catalogues.

 Italy210: Either a share of at least 20% for European works in catalogue or a financial contribution of 5% of the turn-over generated by on-demand audiovisual content. Obligation to gradually promote the production of and access to European works.

Another mean of prominence often found in VoD services (at least for Denmark and France) is a National/European film section. From Table 6 we can observe that Italian VoD providers only put European films on their homepage as unique mean of prominence (except Rai Cinema).

A recommendation system and search function for European works and special offers on European works are the means found the least in the 3 countries. As only France specifies means of prominence for European works (and those obligations are respected by the national VoD providers), we cannot draw more assumptions or observations with regard to the results. Here again, more answers from different countries are needed in order to extent the analysis and look for the impact of the national transpositions of Article 13 of the AVMS Directive.

As homepages change often, the results of this survey are only valid for the considered time period. Also, as the answers of Denmark are those of the VoD service providers themselves, the findings should be considered carefully (inflation of positive answers?).

208 Order 100 of 28/01/2010, as last amended on 23/08/2012 on registration-based broadcasting activities and on-demand audiovisual broadcasting activities. 209 Décret n° 2010-1379 du 12 novembre 2010 relatif aux services de médias audiovisuels à la demande . 210 Decreto Legislativo n°44 Article 16 and Allegato A alla Delibera n. 188/11/CONS 6 April 2011.

Denmark

Table 6 Means of prominence - Denmark

Means of prominence Denmark Netflix HBO Nordic TV2 Play Viaplay TDC European films on homepage YES YES YES YES YES European/National film section NO YES YES YES YES Search function for European films NO NO YES NO YES Recommandation for European films YES NO YES YES NO Special offers on European films NO NO YES NO NO Presence of European film trailers YES NO NO NO NO

The answers received from Denmark are those of the VoD providers.

France

Table 7 Means of prominence - France Means of prominence France Orange VoD Sony Enter. Univers Ciné Canal Play European films on homepage YES YES YES YES European/National film section YES YES YES NO Search function for European films NO NO YES NO Recommandation for European films NO NO YES NO Special offers on European films NO NO NO NO Presence of European film trailers YES YES YES YES

Italy

Table 8 Means of prominence - Italy

Means of prominence Italy Chili TV Cubovision Sky on demand Mediaset Premium My Movies Rai Cinema European films on homepage YES YES YES YES YES NO European/National film section NO NO NO NO NO NO Search function for European films NO NO NO NO NO NO Recommandation for European films NO NO NO NO NO NO Special offers on European films NO NO NO NO NO NO Presence of European film trailers NO NO NO NO NO NO

After having briefly exposed our main findings, the next section tries to analyse the findings. Analysis can be made on various grounds. We chose to analyse the results with regard to market forces by grouping the surveyed countries in 3 categories in order to assess the competition of national VoD providers with, what seems to be a dominant market player, iTunes.

13.2.2 Analysis of results

Looking at the general results and observations made above, we decided to divide countries surveyed in three categories based on the availability of the sample in the catalogues of national VoD providers and of national iTunes movie stores in order to assess the relative market forces of national VoD providers regarding their competition with iTunes. Of course, multiple methods of analysis are possible; we choose what seemed to us being a relevant point of view, assessing market forces in license negotiations. As Figure 1 demonstrates, Apple is the dominant global player when it comes to TVoD services world-wide through the presence of the company in over 100 countries. Therefore, analysing our findings in European markets through the competition between Apple and national VoD providers seems relevant as Apple is in a position to negotiate global deals for movie licensing. Also, Microsoft being an important global player (of less importance than Apple with regard to the presence of the service by number of countries) we analysed the findings in Chapter III.2 (in the annexes). A short summary of the national transpositions of Article 13 of the AVMS Directive is inserted with the aim of observing any correlation between national regulations and findings (the sample and the findings are inconclusive in this regard).

Figure 1 Big 4 TVoD services available world-wide by number of countries

For copyright reasons this figure cannot be reproduced in the public version of this report

Category 1 – Catalogues of national VoD providers and iTunes have above 40% of the sample movies

Figure 2 Number of sample titles found in VoD Catalogues in Germany

DE - Titles found in catalogue per VoD provider

40 36 35

30 29

25 24

20

15

12 Number of titles Number found of titles 10 7

5 4 1 0 0 iTunes Xbox Videoload Maxdome Watchever LOVEFiLM Sky Unitymedia VoD provider

Figure 3 Number of sample titles found in VoD Catalogues in France

FR - Titles found in catalogue per VoD provider

35

30 30

25 21 20

15

10

Number of titles Number found of titles 10 6 5 5 2

0 iTunes Xbox Orange VoD Sony Enter. Univers Ciné Canal Play VoD provider

In this category, national VoD providers (for the first ranked) have more than 40% of our sample and iTunes as well. In France this is the case of Orange VoD with 42% (21 titles) of our sample. In Germany, two national VoD providers are in this case, Videoload owned by Deutsche Telekom (with 58% of the sample, 29 titles) and Maxdome (with 48% of the sample, 24 titles) owned by ProSiebenSat.1 Media. Apple is in both markets confronted with competition for customers by big

players (telecom companies and broadcasting groups) for valuable European content. Those companies can match Apple’s financial resources in order to license valuable European movies. As those markets are among the most important VoD markets in Europe, it is no surprise that the players try to have a competitive advantage through video content (in our case movies).

When looking at the other national players, in France Sony has a faire share of our sample with 10 titles (Sony is not a national player per se but also a pan-European player like Apple) but Univers Ciné, an independent TVoD provider, and Canal Play Infinity, the SVoD service of the Canal Plus Group, one can observe that those services do not have many of our sample movies, 12% (6 titles) for Univers Ciné and only 4% (2 titles) for Canal Play Infinity. The lack of financial resources for Univers Ciné as an independent to compete with the other players for highly valuable content can be assumed. For Canal Play Infinity, as it is a SVoD service, the accent is less on valuable content but rather on a large library. Also, release windows in France (3 years after the cinema release for SVoD) might play a role in this issue. Canal Plus group has a TVoD service, Canal Play, which has more European blockbusters than the SVoD service but we wanted to analyse the offer on a French SVoD service and with over 200 000 subscribers Canal Play Infinity is the most used in France.

In Germany, the two TVoD players Videoload and Maxdome (which proposes also a SVoD service for 7.99€/month), are operated by important groups with the financial resources to acquire highly valued titles by the customers. Two SVoD services, LOVEFiLM (6.99€/month) with 14% of the sample and Watchever (8.99€/month) with 24% of the sample have an equilibrium between EFA films and European blockbusters and have a fair share of the sample compared to other national players in surveyed countries.

The national transpositions of Article 13 of the AVMS Directive are very different in the two countries. Germany does not yet have any concreted measures implemented whereas France has a large arsenal of regulatory transpositions. In fact, France requires211:

– Requirement in share in catalogues: 60% European works and 40% of French works – Financial contribution (in percentage of turnover): o SVoD between 12%-26% of turnover (depending on number of films in catalogues with regard to the cinema release) o TVoD: 15% of turnover – Prominence: Substantial share on homepage and trailers for European and French works

The 2 transpositions being completely different, the findings are inconclusive regarding the impact of regulatory methods for European works and national transposition of Article 13 of the AVMS Directive.

211 Décret n° 2010-1379 du 12 novembre 2010 relatif aux services de médias audiovisuels à la demande.

Category 2 – Catalogues of national VoD providers have under 25% and iTunes above 25% of the sample movies

Figure 4 Number of sample titles found in VoD Catalogues in Belgium

BE - Titles found in catalogue per VoD provider

18 17

16

14

12

10 9 8 8

6

Number of titles Number found of titles 4 4 4 3

2

0 iTunes Xbox Univers Ciné Telenet Belgacom VOO VoD provider

Figure 5 Number of sample titles found in VoD Catalogues in Italy

IT - Titles found in catalogue per VoD provider

25

20 20

15

10 8

6 Number of titles Number found of titles 5 3 3 2 2 1

0 iTunes Xbox Chili TV Cubovision Sky on demand Mediaset My Movies Rai Cinema Premium VoD provider

Figure 6 Number of sample titles found in VoD Catalogues in the Netherlands

NL - Titles found in catalogue per VoD provider

16 14 14

12 11

10 9 9

8 7

6 Number of titles Number found of titles 4 3

2

0 iTunes Xbox Ximon Videolandondemand Moviemaxonline KPN VoD provider

In this category, iTunes has more sample movies in the respective national catalogues than the first national player which all have fewer than 25% of our sample movies.

– BE: iTunes 34% of sample (28% EFA, 40% European Blockbusters) and Univers Ciné 18% of sample (32% EFA and 4% European blockbusters) – IT: iTunes 40% of sample (48% EFA, 32% European Blockbusters) and Chili TV 16% of sample (24% EFA and 8% European blockbusters) – NL: iTunes 28% of sample (28% EFA, 28% European Blockbusters) and Ximon 22% of sample (28% EFA and 16% European blockbusters)

All three first national players share the fact that they are independent VoD providers. Univers Ciné is a joint-operation by European producers, Ximon is partly owned by the EYE and Film Institute and Chili TV is a joint-stock company with 41% of the stock owned by Fastweb. The findings also show that those national players have a larger proportion of the EFA movies sample than of the European blockbusters sample. Assuming that demand for European blockbusters is higher from a consumer point of view than for EFA films and that therefore licensing European blockbuster is more expensive than for EFA films, an assumption could be that those independent player lack the financial resources to match Apple for highly valued European content.

Also, the second VoD providers in those countries (by the presence of our sample in their respective catalogues) are operated by larger groups. In Belgium, Telenet is owned by a telecom group (Telenet), the Italian Cubovision is operated by Telecom Italia and the Dutch VoD services Videolandondemand and Moviemaxonline are operated by The Entertainment Group which was recently acquired by the RTL Group (65% of shares). These players have the financial resources to be in competition for valuable European content but as we have found they are, at least for our sample, not into a bidding contest with Apple. Is there a lack of commercial interest of those VoD providers for our sample or are they more interested by assumingly “cheaper” (less demand from consumers, less box office success, less critically acclaimed) European content? The small representativity of our sample does not allow drawing any assumptions here. Another assumption could be that Apple has managed to have exclusive deals for some of the movie titles, assumptions which cannot be validated in this survey.

With regard to national transpositions of Article 13 of the AVMS Directive, we did not find any correlations. In fact the 3 transpositions are here again different.

In Belgium:

- Prominence requirements in the French community (attractive presentation of European works and Belgian French works)212

- General requirements to promote the production of and access to European work (Flemish and German)213

- No share requirements of European works

- Report all 4 years of the promotion of European works to national authority (German community)

In Italy214:

– A share of 20% for European works in catalogue or a financial contribution of 5% of turnover215 – Non-linear audiovisual services shall gradually promote the production of and access to European works

In the Netherlands216:

– On-demand services should promote the production of and the access to European works

Regarding national regulation of on-demand services, the findings are inconclusive and do not let us draw any assumptions on the impact of national regulations on the presence of European works in VoD catalogues.

212 Recommandation du CSA du 24 juin 2010 relative à la mise en valeur des œuvres européennes et de la Communauté française de Belgique dans les services de vidéo à la demande - Art. 46. (136). 213 Décret du 27 mars 2009 relatif à la radiodiffusion et à la télévision. 214 Decreto Legislativo n°44 Article 16 European audiovisual production. 215 Allegato A alla Delibera n. 188/11/CONS of 6 April 2011 - Art. 1 (3) 1. 216 Mediawet 2008 - Artikel 3.29c.

Category 3 – Catalogues of national VoD providers have more sample movies than iTunes

Figure 7 Number of sample titles found in VoD Catalogues in Denmark

DK - Titles found in catalogue per VoD provider

30

25 24

20 17

15 11 10

Number of titles Number found of titles 7 5 5 3

0 0 iTunes Xbox TDC Viaplay TV2 Play Netflix HBO Nordic VoD provider

Figure 8 Number of sample titles found in VoD Catalogues in Poland

PL - Titles found in catalogue per VoD provider

14 13

12 11

10

8

6 5

Number of titles found titles of Number 4

2 2

0 0 0 0 iTunes vod.pl ipla.tv iplex.pl tvnplayer.pl vod.tvp kinoplex VoD provider

The two countries constitute, for now, an exception in our analysis217. Apple’s iTunes has less of our sample than the first two national players. When looking at the players involved, some explanation can be given.

In Denmark, the first VoD provider, TDC is owned by a telecommunications company (TDC) and Viaplay is operated by The Modern Time Group AB. Both players have the financial resources to acquire valuable European content as the findings show. TDC has 48% of our sample with a higher percentage of the European blockbusters sample (44% EFA and 52% European blockbusters) and Viaplay has 34% of the sample (here again, a small advantage to European blockbusters with 36% of the sample and EFA films 32%). Apple’s Danish iTunes on the other hand has only 22% of our sample (second lowest in the 7 countries surveyed, the lowest being the Polish iTunes with 10%) with 20% of

217 Chapter III.1 gives assumptions on this particular market situation.

the EFA sample and 24% of the European blockbusters sample.

In Poland, the first national VoD provider, vod.pl, is owned by the Axel Springer Group which acquired Onet and the second VoD provider, ipla.tv, is owned by CyFrowy Polsat. Vod.pl has 26% of our sample (24% of EFA and 28% of European blockbusters) and Ipla.tv has 22% of the sample (12% EFA and 32% European blockbusters) compared to iTunes’ 10% (4% of EFA 16% of blockbusters).

The findings let us draw two assumptions. The first is that there is an on-going competition for valuable European content by the national players (at least the first two) in each country which have the financial resources (or their parent company) to acquire valuable European content. The second assumption one might draw is that maybe Apple does not see these markets as “essential’ in their content licensing strategy. [This assumption is more exposed in Chapter 3]. The limitations of our small sample does not let us verify or prove those assumptions, they are just a lead that would need further investigation if of relevance.

With regard to national on-demand regulation, in this case again as before, the results are not conclusive as both countries have different requirements.

In Denmark218:

– On-demand audiovisual services shall use appropriate means to promote the production of and access to European works – Report for compliance to national regulator

In Poland219:

– Promote European programmes and works produced in the Polish language – Prominence: Identifying origin of programmes in the catalogue appropriately and provide the possibility to search European and Polish works – Provide information and materials promoting European programmes – A share of 20% in the catalogue for European works and Polish works (but not for programmes providing only non-European works)

The findings, in the limits of the sample, with regard to national regulation of on-demand audiovisual services are here inconclusive.

218 Order 100 of 28/01/2010, as last amended on 23/08/2012 on registration-based broadcasting activities and on-demand audiovisual broadcasting activities - Section 10 219 Broadcasting Act - Article 47f

Connected TVs and connected devices

14 Smart TV and Apps

Smart TVs are becoming more and more popular world-wide as constructors market aggressively those devices. Smart TVs are TV sets with in-build Internet connectivity (Wi-Fi and/or Ethernet cable). Almost every TV constructors markets them since 2012 under the general branding “Smart TV” (before they were named “Connected TVs” or “Internet TVs”). The first constructor who named its Internet connected TV as Smart TV was Samsung when it became clear that the 3D function of TVs were not appealing to customers220. The Smart TV branding was applied to identify premium TV sets in order to have a new marketing strategy and to gain markets shares, surfing on the positive word association customers had with their smartphones. It proved to be an effective strategy for Samsung as the firm is still the market leader on Smart TVs world-wide with 26% as Strategy Analytics221 found for the first quarter 2013 and 44,1% in Europe for the first semester 2013 as GfK222 states it.

But are Smart TVs really smart? This is a question that remains unanswered until now as customers are not seeking primarily Internet connectivity when they decide to buy a new TV (but rather decide on screen size, price and picture quality as the three main factors as the IHS Screen Digest TV Smart TV Survey found out223) and even do not access content224 on their Smart TV preferring tablets, internet set-top boxes or the computer as main means of access to online content.

Smart TVs are set to rise and will equip more and more households globally in the coming years as the transition to more evolved TV sets takes place as we will see in the following section.

14.1 The Global Smart TV market

Accounting for 35% of all TV sets shipped in 2013, Smart TVs are set to rise to around 65% of TV shipments by 2016 as Screen Digest Research Bulletin of February and March 2013 states (Figure 1 and 2). The yearly increase of shipments of Smart TVs according to those figures has been 15% world-wide. As customers begin to replace their TV sets, which have an average replacement cycle of 7 years (Figure 3), Smart TVs find increasingly their ways into households. The actual up-take of Smart TVs in 2012 is mainly driven by customers in China and Western Europe (Figure 5). Chinese customers find much more free content on the Internet than European or American customers and tend to buy Smart TVs where they are in control of the web browser as opposed to Europe where most of the content comes from apps produced by VoD providers and broadcasters225. Western Europeans therefore adopt much more than the rest of the world Smart TVs with Set Maker controlled browsers226 (Figure 5). In North America, the situation is different. Even if customers consume a lot of on-demand content, this content is mostly paid for and provided through set-top boxes of cable companies or by third-party hardware companies like Apple, Roku and TiVo (and soon Amazon and maybe Intel). American customers therefore tend to less convinced by the necessity of buying a new

220 Informa statistics on Smart TV's, Blu-Ray Players, Game Consoles 2012 , “Smart rebranding of connected devices slows ubiquity”, Informa 2012. 221 “Samsung Leads with 26 Percent of Global Smart TV Market Share in Q1 2013”, Press release 24th of July 2013, http://www.strategyanalytics.com/default.aspx?mod=pressreleaseviewer&a0=5400 222 “Samsung maintains top spot in Europe's flat TV market”, Global Post, 19/08/2013, http://www.globalpost.com/dispatch/news/yonhap-news-agency/130819/samsung-maintains-top-spot-europes-flat-tv-market 223 IHS Screen Digest TV Systems Service, report quoted in Report: Internet, 3-D Increasingly Important to U.S. TV Buyers 224 “Lack of 'conscious desire' holds back Smart TV use”, YouGov Connected TV Tracker 2013, http://yougov.co.uk/news/2013/05/21/lack-conscious-desire-holds-back-smart-tv-use/ 225 “Smart TV Shipments Grow 15% Worldwide in 2012, According to NPD DisplaySearch”, http://www.displaysearch.com/cps/rde/xchg/displaysearch/hs.xsl/121017_smart_tv_shipments_grow_worldwide_in_2012.as p 226 “Smart TV Growth For 2012 Pegged At 15%, But North Americans Still Slow To Adopt”, Tech Crunch 17th of October 2012 based on NPD Display Search Quarterly Smart TV Shipment and Forecast Report

TV for its Internet connection capabilities than other customers world-wide. It is also interesting to notice that Smart TV penetration is the highest in Japan (Figure 5), just above 55% making Japan the country where Smart TV penetration is the highest.

Figure 1 Worldwide Smart TV shipments 2010 – 2013

For copyright reasons this figure cannot be reproduced in the public version of this report

Source: Screen Digest, Research Bulletin February 2013

Figure 2 Worldwide Smart TV shipments 2010 - 2016

For copyright reasons this figure cannot be reproduced in the public version of this report

Source: Screen Digest, Research Bulletin March 2013

As Figure 2 shows it, the tipping point where Smart TVs shipments outweigh other TV sets is projected to be in 2014 after Screen Digest’s predictions. For applications and in particular video apps this means a wider presence on Smart TV platforms, especially if the industry effort to uniformed software for App platforms in order to reduce platform fragmentation continues (section 1.2).

Figure 3 Average Age of TVs Replaced/To Be Replaced (in Years)

Brazil

China-Urban

China-Rural

UK

US

0 1 2 3 4 5 6 7 8

Average Age of TVs replaced a year ago Average Age of TVs in HH planning to replace in 12 months

Source: NPD DisplaySearch Global TV Replacement Study , 2012

Figure 3 shows the average age of TVs to be replaced and replaced in 2011. The interesting fact to notice is that customers anticipate replacing their TVs earlier than before. The cycle of replacement of TVs was, according to NPD Display Research227, 8.4 years and has been reduced nowadays (2012) to 6.9 years on average (Table 1 elaborated by Gartner also shows this tendency). But this time reduction in the replacement cycle is not due to Smart TVs but rather to the fact that customers are increasingly replacing their old CRT TVs with newer flat-panel TVs. The study found out that the main drivers for customers to replace their TV or buy a new one are is the desire to have a bigger screen

227 http://www.displaysearch.com/cps/rde/xchg/displaysearch/hs.xsl/120529_global_tv_replacement_cycle_falls_below_7_year s_as_households_continue_to_replace.asp

size and improved picture quality (HD). TV prizes, although not in the top 3 drivers of buying a new TV, remains important. The TV industry operates with laser sharp margins and therefore premium features such as Internet connectivity is seen by the industry as an accelerator of replacement. But as the study indicates, customers see those premium features not so important in their buying decision and it remains questionable if Internet connectivity can be a real commercial argument for customers (as the 3D feature demonstrated it to the industry before).

Figure 4 TV Purchase Drivers

For copyright reasons this figure cannot be reproduced in the public version of this report

Source: IHS Smart TV Consumer Survey, July 2012

The survey done by IHS on the purchase drivers of consumers who planned to buy a new TV in 2012 over the next years also shows that the purchase decision is mainly driven by price and the wish of a larger TV. In this survey, the “Smart” feature of the TV only comes in the third place. But with the eroding price of new technologies in TV sets (e.g. Smart TV) as Figure 5 and 6 shows it, more and more consumers will opt for a Smart TV world-wide.

Figure 5 New TV tech life cycle

Source: Idate, “Les défis de l'électronique grand public, de l'entertainment et de la domotique”, July 2013228

228 http://blog.idate.fr/tag/connected-tv/

Table 1 Gartner TV Market Replacement Mode

Source: http://info.arteris.com/blog/bid/85488/

Figure 6 Global Smart TV shipment 2011-20717 Smart TV Segment - Unit Shipment and ASP Forecast 300 $2,500.00

250 $2,000.00 200 $1,500.00 150

$1,000.00 100

50 $500.00

0 $0.00 2011 2012 2013 2014 2015 2016 2017

Unit Shipment (million) Average Selling Price (USD)

Note: All figures are rounded. The base year is 2012.

Source: Frost & Sullivan

As Figure 6 demonstrates it, from another source (Frost & Sullivan), Smart TV shipment are expected to rise over the coming years and as always with a “new” technology, the average selling price will continuously decrease.

Figure 7 Q2’12 Smart TV Shipments by Region (000s)

Q2 2012 Tv shipments in million & Smart TV penetration in % 4.5 70.00% 4 60.00% 3.5 50.00% 3 2.5 40.00%

2 30.00%

1.5 20.00% 1 10.00% 0.5 0 0.00% China Western Eastern North Latin Asia Pacific Middle East Japan Europe Europe America America & Africa

Basic Connected TV Smart TV - Set Maker Controlled Smart TV - Consumer Controlled Penetration

Source: NPD DisplaySearch Quarterly Smart TV Shipment and Forecast Report

Figure 8 Smart TV Shipment Forecast 2011-2016

Worldwide Smart TV shipments (millions) 2011-2016 160 140 120 100 80 60 40 20 0 2011 2012 2013 2014 2015 2016

Basic Connected TV Smart TV - Set Maker Controlled Smart TV - Consumer Controlled

Source: NPD DisplaySearch Quarterly Smart TV Shipment and Forecast Report

Figures 7 and 8 give an overview of how the internet connectivity of Smart TVs is controlled. The clear tendency is towards Smart TVs with user controlled browsers. In fact, consumers want to be able to browse freely the web in order to find content (mainly video content) that suites their tastes. “Consumer Controlled” Smart TVs allow this as opposed to “Set Maker controlled” TV sets where the

consumer has to evolve on the platforms designed by the constructor.

Figure 9 Q1 2012 Global Smart TV Shipments by Brand

Q1 2012 Global Smart TV Shipments by Brand 60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%

Source: NPD DisplaySearch Quarterly Smart TV Shipment and Forecast Report

Figure 9 gives an overview of the actual percentage of Smart TVs shipped by brand in regard to overall TV shipment. Sony appears to be the brand which ships 50% of all its TV sets under the “Smart TV” label. Decrease in production cost and the appearance of a new technology, the 4K TV set, will certainly increase the percentage of Smart TVs shipped in regard to total TV shipment for each brand.

14.2 The European Smart TV market

Trying to find precise and up-to-date Smart TV ownership figures for Europe is hard. The sources are either contradictory, either not up-to-date. We only managed to find free published figures for 2011 and 2012, mostly of OFCOM’s Communications Report 2012 and from the YouGov Smart TV study of 2011 (Figure 13 and 14). While OFCOM finds an ownership of around 15% of Smart TVs in the UK and France and 10% in Germany in 2012, a Concentra Marketing Research229 for GFU finds higher adoption rates for 2013. Although we find the discrepancy between the figures high, as all those statistics are produced through consumer survey, we find in necessary to communicate them.

Figures 10, 11 and 12 are extracted from OFCOM’s International Communications Report 2012230.

Figure 10 Claimed take-up of connected TVs and 3D-ready TVs 2012 Claimed take-up of connected televisions and 3D-reday TVs, Oct 2012 Take-up (%) 30% 28%

25%

20% 18% 15% 15% 15% 13% 12% 12%11% 9% 10% 9% 10% 10%9% 10% 8% 8% 5% 5% 3%

0%

Connected or Smart TV 3d-ready TV

Source: Ofcom consumer research October 2012. Base: Total sample size UK=1065, France=1016, Germany=1024, Italy=1015, US=1010, Japan=1004, Spain=1001, China=1010. Q: Which of the following devices do you own and personally use?

As those figures are produced through surveys and not actual sales or shipment figures, those figures should be interpreted with care. But as the UK figures (Figure 15) shows, the take up of Smart TVs in Europe is growing. In the first quarter 2011, Smart TVs in the UK only had a market share of 17% and in the first quarter 2013, the market share had already risen to 28%. As the price of Smart TVs decreases, the take-up and therefore the rise of Smart TV market share in European countries will continue.

229 http://www.digitaltveurope.net/77992/european-smart-tv-adoption-rates-compared/ 230 OFCOM International Communications Report 2012, http://stakeholders.ofcom.org.uk/binaries/research/cmr/cmr12/icmr/ICMR-2012.pdf

Figure 11 Accessing TV content over the internet, by connected TV ownership

Accessing TV content over the internet, by connected TV ownership Proportion of respondents that access online TV (%) 60% 57%

50% 44% 39% 40% 37% 31% 27% 30% 24% 23% 21% 20% 15% 17% 16% 13% 12% 12% 9% 11% 10% 3% 0%

Those who own a connected TV All respondents

Source: Ofcom consumer research October 2012. Base: Total sample size UK=1065, France=1016, Germany=1024, Italy=1015, US=1010, Japan=1004, Spain=1001, China=1010. Q: Which of the following activities do you use your home internet connection for?

Figure 12 Take-up of DVR, connected TVs and 3D-ready TVs

Take-up of digital video recorders, connected TVs and 3D-ready TVs Take-up (%) 45% 39% 40% 35% 32% 29% 30% 27%28% 24% 25% 21% 22% 18% 19% 18% 20% 15% 15% 12% 13% 12% 15% 10% 10% 10% 11% 8% 9% 9% 8% 9% 10% 5% 5% 3% 0%

DVR Connected or smart TV 3D-ready TV

Source: Ofcom consumer research October 2012. Base: Total sample size UK=1065, France=1016, Germany=1024, Italy=1015, US=1010, Japan=1004, Spain=1001, China=1010. Q: Which of the following devices do you own and personally use?

Figure 13 Smart TV Owners November 2011

Smart TV Owners in Selected Countries, Nov 2011 % of respondents

US 9%

UK 10%

Germany 11%

Finland 12%

UAE/Saudi Arabia 13%

Sweden 13%

Denmark 15%

France 18%

0% 5% 10% 15% 20%

Note: TV that is able to be connected directly via Ethernet, cable or Wi-Fi.

Source: YouGov as cited in press release, Dec 14, 2011. Retrieved from eMarketer

Figure 14 Smart TV ownership in 2011 in Europe – YouGov study231

100%

90%

80%

70%

60% 40% 67% 57% 59% 56% 50% 69% 64% 64% 40%

30% 24% 6% 20% 10% 8% 7% 8% 8% 10% 5% 15% 18% 10% 9% 11% 12% 13% 13% 0% UK USA Germany Finland UAE & KOS Sweden Denmark France

Own Smart TV / Internet connected TV Intend to purchase next 12 months Not sure/no intention to purchase

Which, if any, of the following devices do you own or intend to purchase in the next 12 months? – Smart TV/Internet connected television. Base % owners of Smart TV (n=991 – 4 457) Source: YouGov

231 http://www.theguardian.com/media-network/media-network-blog/2012/feb/15/smart-tv-take-up

Figure 15 Smart TV sales and market share in the UK 2011-2013

Smart TV sales and market share in the UK

30% 28% 700

600 25% 23% 22% 21% 20% 500 20% 18% 17% 17% 15% 400 15% 300 10% 200

5% 100

0% 0 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013

Market share (%) Sales Units (000s)

Source: GfK

The findings of the 2013 Concentra Marketing Research232 (the only 2013 survey we found including the most of European larger countries).

“Germany trails behind other European countries in flat screen adoption but the UK is a laggard among advanced markets in smart TV penetration, according to a survey of consumers.

According to the survey by Concentra Marketing Research for German consumer electronics trade association the GFU, over a third of Germans, or 34%, have smart TVs, a higher proportion than the UK, where only 21% have smart TVs. Higher proportions have smart TVs in France, with 42%, Turkey, with 40% and Poland, with 36%. Other laggards include the Netherlands, with 26%, Spain, with 26% and Italy, with 28%.

UK consumers that do have smart TVs are however more likely to connect them to the internet, with 86% hooking up. This compares with 79% of French smart TV owners, 76% of the Dutch and 73% of Turks. Fifty-eight per cent of Germans with smart TVs connect them to the internet.

Smart TV functionality has a significant impact on decisions to purchase TVs in Turkey, Spain and the UK. Price was a significant factor particularly in the Netherlands, Belgium and France, with fewer Germans citing price as a significant factor.

Germany is trailing other countries in Europe when it comes to flat screen TV adoption, with 80% of Germans now having a flat screen device in their homes compared with 91% of Britons.

Concentra Marketing Research surveyed 1,000 households in Germany and 7,000 in eight other countries.”

As the sample surveyed by the Concentra Marketing Research is rather small (1000 households for Germany) and was commissioned by a business association, those figures should be interpreted with care.

232 http://www.digitaltveurope.net/77992/european-smart-tv-adoption-rates-compared/

14.2.2 The differences in statistics: Connected TV vs. Smart TV

As Smart TVs were named so in late 2011 and 2012, certain confusion still reigns between the 2 significations. This section is only to show that while the two terms design a TV set that can access the web, either through an in-built Internet connection (Smart TV), either through a connected device (internet Set-Top box, game console, dongles etc…), a difference exists in the equipment of households in those two devices. We managed only to find statistics of this difference in the US through eMarketer. While the US Connected TV households represented 29.3% of total households in 2013, those equipped with a Smart TV represented 18.8% in 2013. The difference projected for the two terms for the years 2011 to 2016 is around 10 percentage points of total households and reflects the choice of the customer: buy a Smart TV or render a TV smart through a connected device.

Figure 16 US Connected TV Households 2011-2016233 US Connected TV Households, 2011-2016 60 50.0% 43.1% 50 38.7% 34.2% 40.0% 31.0% 52.7 40 30.8% 47 24.2% 30.0% 30 41.3 29.3% 17.5% 20.0% 20 22.5% 13.9% 18.2% 35.1 12.1% 10 21.6 26.8 10.0% 0 0.0% 2011 2012 2013 2014 2015 2016

Connected TV households (millions) % change % of total households

Note: households with at least one connected TV set, where at least one person of any age uses the internet through a connected TV at least once per month.

Source: eMarketer, January 2013

Figure 17 US Smart TV households 2011-2016234 US Smart TV Households, 2011-2016 50 90.5% 100.0% 40 80.0% 40.2 80.7% 49.3% 35.9 30 60.0% 29.2 20 28.8% 29.5% 40.0% 18.8%22.6 8 12.7%15.2 32.8% 10 6.7% 20.0% 24.1% 23.2% 0 11.9% 0.0% 2011 2012 2013 2014 2015 2016

Connected TV households (millions) % change % of total households

Note: households with at least one smart TV set, where at least one person of any age uses the internet through a smart TV at least once per month

Source: January 2013

233 http://www.emarketer.com/newsroom/index.php/emarketer-quarter-households-tv-connected-internet/ 234 http://www.emarketer.com/newsroom/index.php/emarketer-quarter-households-tv-connected-internet/

14.2.3 The global on-demand video market for connected TVs

Finding definitive numbers for the Smart TV on-demand video market was not possible. Idate published projected figures for the global video service market on Connected TVs (difference between Connected TV and Smart TV as stated in the section before). The global video service market is set to rise to 2.5 billion euro in 2016 (Figure 18), with SVoD service taken nearly 1/3 of this market (32%), followed by AVoD services (premium, e.g. long format) at 31%. VoD service (Transactional VoD) is taken up 27% of this 2.5 billion € market and advertising financed short clips 10% (Figure 19).

Figure 18 Global Evolution of the video service market on Connected TVS 2011-2016235

Figure 19 Ventilation of the global video service market on Connected TVs 2016236

27% 31% Ad premium Ad short clips

SVoD VoD

10%

32%

Source: IDATE, Service de veille TV conectée, Juillet 2012

North America will represent the main source of revenue unsurprisingly in 2016 with 61%, followed

235 http://blog.idate.fr/le-marche-mondial-de-la-tv-connectee/ 236 idem

by Europe with 28% and Asia Pacific at 8%. This is in line with the actual situation on on-demand video markets where US consumers are generating the most revenue for VoD service providers, be it AVoD (YouTube, Hulu), TVoD (iTunes, Xbox, Vudu) or SVoD (Netflix, Amazon, Hulu Plus).

Figure 20 Ventilation of the global video service market in 2016 by geography237 8%

3%

28%

Europe North America

Asia Pacific Latin America

61%

Source: IDATE, Service de veille TV conectée, juillet 2012

The global video service market is set to dramatically increase over the next 4 years if the projection by Idate is right. As consumers equip themselves more and more with Smart TVs as the section before has shown, VoD providers are taken advantage of this trend by proposing their services, through an application on Smart TVs. This is a future source of revenue for VoD service providers and leads towards the concept of TV as an app. But the prerequisite for this future to materialize is to have widespread platforms for TV apps, the main obstacle being the cost of development and updating of those apps. The fragmentation of Smart TV app platforms seems to be one of the major obstacles yet to be overcome. The industry is making alliances in order to promote a common programming standard (Smart TV Alliance, the European HbbTV standard, Android TV, Chinese Smart TV platforms). This issue must be further analysed.

237 http://blog.idate.fr/le-marche-mondial-de-la-tv-connectee/

Table of tables

(December 2013) 29

Introduction Table 9 EU – Number of services by distribution mode 30 1 Definitions 9 Table 10 EU – Number of services by distribution mode (OTT only, TV Table 1 On-demand audiovisual services - platforms, multiplatform) 31 Classification of on-demand Advertising-financed on-demand audiovisual services 11 audiovisual services Table 2 Technical arrangements for the transmission of on-demand audiovisual services 14 3 The online advertising market 37 Table 3 Availability of the main on-demand Table 1 Digital Ad Spending in Western audiovisual services through Europe, by country, 2011-2017 40 platforms in Europe (January 2014) 16 Table 2 Digital Ad Spending Share in Western Europe, by country, 2011-

2017 41 2 THE MAVISE DATABASE AND THE CENSUS OF ON-DEMAND Table 3 Digital ad spending in Central & AUDIOVISUAL SERVICES 18 Eastern Europe, by country, 2011- 2017 42 Table 1 Comparison between the number of Table 4 Internet User Penetration in Central on-demand audiovisual services & Eastern Europe, by Country, identified by the national regulatory 2011-2017 42 authorities and the MAVISE database (2013) 19 Table 5 Internet user penetration in Western Europe, by country, 2012- Table 2 Services from non-European 2017 42 countries targeting Europe 20 Table 6 Net digital ad revenue share Table 3 Number of on-demand audiovisual worldwide, by company, 2011-2013 45 services by country of establishment and by genre Table 7 Net Mobile Internet Ad Revenue (February 2014) 21 Share Worldwide, by Company, 2011-2013 45 Table 4 Number of VoD services available (all genres except Adult) in the EU Table 8 US TV* vs. digital video** ad by country of establishment spending, 2011-2017 48 (February 2014) 22 Table 9 US TV* vs. digital** ad spending, Table 5 Ownership of VoD services 2011-2017, in USD billions 48 available in the EU by country and Table 10 Ad tactics in which US agency by origin of parent (controlling) executives expect to see the company 24 highest and lowest growth, March Table 6 Ownership of VoD services 2013 49 available in the EU by country and Table 11 Mobile Internet ad spending in by origin of parent (controlling) Western Europe, by country, 2011- company, in % 26 2017 52 Table 7 Number of legal VoD services Table 12 Mobile phone Internet user available by country in Europe penetration in Western Europe, by (December 2013) 27 country, 2012-2017 53 Table 8 Other types of on-demand Table 13 Tablet user penetration in the EU-5, audiovisual services in Europe

by country, 2010-2016 53 2016 in % change 86 Table 14 Tablet user growth in the EU-5, by Table 33 Online video ad spend in the United country, 2011-2016 53 Kingdom (2011-2012) 88 Table 15 Smartphone video/TV viewers in Table 34 US online video ad CPM by the EU-5, by country, June 2013 % inventory tier 2010-2017 89 of change versus same period in previous year 54 Table 16 Social network user penetration in 4 Types of advertising-supported on- Western Europe, by country, 2011- demand audiovisual services 93 2017 56

Table 17 Social network user growth in Western Europe, by country, 2011- 5 Audience data: comScore’s Video 2017 56 Metrix 94 Table 18 Facebook users in Western Table 1 GB – Summary key statistics 2013 Europe, by country, 2011-2017 57 (first 9 months) 96 Table 19 Social network ad spending per Table 2 GB – Annual monthly average social network user worldwide, by 2008-2013 96 region, 2012-2015 57 Table 3 United Kingdom – Top 20 by Table 20 Programmatic digital video ad visitors - September 2013 96 spending in the EU-5, 2012-2017 58 Table 4 United Kingdom - Top 20 by Table 21 Programmatic video ad spending minutes - September 2013 96 share in the EU-5, 2012-2017 58 Table 5 DE – Summary key statistics 2013 Table 22 US and worldwide* programmatic (first 9 months) 97 display ad spending, 2011-2017 59 Table 6 DE - Annual monthly average 2008- Table 23 Top 10 country rankings in 2012 in 2013 97 Europe by online advertising ad Table 7 FR – Summary key statistics 2013 spend 70 (first 9 months) 98 Table 24 Online ad spend compared to total Table 8 FR – Annual monthly average ad spend 2008 -2014 France 71 2008-2013 98 Table 25 Online ad spend compared to total Table 9 France – Top 20 by visitors - ad spend 2008 -2014 Germany 72 September 2013 98 Table 26 Online ad spend compared to total Table 10 France – Top 20 by minutes - ad spend 2008 -2014 United September 2013 98 Kingdom 73 Table 11 ES – Summary key statistics 2013 Table 27 Online ad spend compared to total (first 9 months) 99 ad spend 2008 -2014 Italy 74 Table 12 ES – Annual monthly average Table 28 USA – Net Online display ad 2010-2013 99 revenue of Top 5 ad-selling companies 82 Table 13 Spain – Top 20 by visitors - September 2013 99 Table 29 USA – Top online video content properties ranked by unique video Table 14 Spain – Top 20 by minutes - viewers 82 September 2013 99 Table 30 Top online video ad properties Table 15 IT – Summary Key statistics 2013 ranked by unique video viewers 83 (first 9 months) 100 Table 31 Online display ad spending in Table 16 IT – Annual monthly average 2010- Western Europe by format 2011- 2013 100 2016 in € millions 85 Table 17 Italy – Top 20 by visitors - Table 32 Online display ad spending in September 2013 100 Western Europe by format 2011- Table 18 Italy – Top 20 by minutes -

September 2013 100 Table 14 Poland - Consumer level digital video and TV VoD, 2007-2012 124 Table 19 Netherlands – Top 20 by visitors - September 2013 101 Table 15 Portugal - – Consumer level digital video and TV VoD, 2007-2012 124 Table 20 Netherlands – Top 20 by minutes - September 2013 101 Table 16 Spain - Consumer level digital video and TV VoD, 2007-2012 125 Table 17 Sweden - Consumer level digital Transactional video on-demand video and TV VoD, 2007-2012 125 services Table 18 United Kingdom - Consumer level digital video and TV VoD, 2007- 6 Types of transactional VoD service 104 2012 125 Table 19 United Kingdom digital retail market shares 2012 in % value, 2012 (total 7 Strategies of selected international value £96 million) 127 players 105 Table 20 GB - Digital retail market shares 2012, in % volume 128

Table 21 GB- Digital rental market shares 8 VoD market statistics 117 2012 by volume – Total VoD 129 Table 1 Consumer level digital video and Table 22 GB - Digital rental market shares by TV VoD 2010- 2012 IVF Yearbook volume 2012 - iVoD 130 in EUR million 117 Table 23 GB - Digital rental market shares by Table 2 Europe – IVF Video Yearbook 2013 volume 2012 – SvoD 131 - Consumer level digital video and Table 24 GB - Digital rental market shares TV VoD, 2007-2012 120 2012 in Volume – TV VoD 132 Table 3 United States – IVF Video Table 25 France - Ranking of VoD services Yearbook 2013 - Consumer level by % of customers 2011-2012 135 digital video and TV VoD, 2007- 2012 120 Table 26 French VoD market, in EUR million 136 Table 4 Belgium - Consumer level digital video and TV VoD, 2007-2012 121 Subscription on-demand audiovisual Table 5 Denmark - Consumer level digital services video and TV VoD, 2007-2012 121 Table 6 Finland - Consumer level digital video and TV VoD, 2007-2012 121 9 Types of services 141 Table 7 France - Consumer level digital video and TV VoD, 2007-2012 122 10 Subscription video on demand Table 8 Germany - Consumer level digital (SVoD) 142 video and TV VoD, 2007-2012 122 Table 1 Main SVoD services in EU-5 and Table 9 Hungary - Consumer level digital Nordics 143 video and TV VoD, 2007-2012 122 Table 2 Main US SVoD services and Table 10 Ireland - Consumer level digital catalogues 2012 145 video and TV VoD, 2007-2012 123 Table 3 Main subscription online movie Table 11 Italy - Consumer level digital video services in the Nordic region 2012 146 and TV VoD, 2007-2012 123 Table 4 Main SVoD services in Germany 146 Table 12 Netherlands - Consumer level digital video and TV VoD, 2007- Table 5 MRG,- Research and Markets OTT 2012 123 SVoD market study 2012 151 Table 13 Norway - Consumer level digital Table 6 Exclusive content deals Modern video and TV VoD. 2007-2012 124 Times Group Scandinavia and CEE

2012 160 provided by public bodies established in the EU (December Table 7 Studio content rights belonging to 2013) 205 national pay-TV players, 2012 161 Table 2 Provision of on-demand audiovisual Table 8 Netflix and LOVEFiLM :catalogue services by public broadcasters in comparison in the UK 2012 165 the EU (March 2014) 206 Table 9 Original programming of Netflix,

Hulu Plus and Amazon Prime 2011- 2013 168 Table 10 US: time-shifted TV viewers who Sample study on the presence of have binge-viewed TV series, by selected European works in VoD demographics, Feb 2013 175 providers catalogues Table 11 Ways US Internet users have watched time-shifted TV series, Feb 2013 176 13 Sample study 211 Table 1 The 25 European blockbusters 213

11 Examples of the strategies of the Table 2 The 25 European Film Award main players - Netflix 182 winners 214 Table 1 Netflix subscribers 2001 – 2007 183 Table 3 Sample movie titles found by numbers in VoD providers Table 2 Netflix Revenue and Income 2001- catalogues 215 2007 183 Table 4 Percentage of sample movies Table 3 Netflix P&L 2007-2010 186 found in VoD providers catalogues 215 Table 4 Netflix main financial ratios 2007- Table 5 National VoD providers by country 215 2010 186 Table 6 Means of prominence - Denmark 218 Table 5 Netflix Balance sheet 2007-2010 186 Table 7 Means of prominence - France 218 Table 6 Netflix’s Content library 187 Table 8 Means of prominence - Italy 218 Table 7 Top 10 peak period applications in North America – Fixed access 195 Table 8 Online movie market share in the Connected TVs and connected US in 2011 196 devices Table 9 Netflix’s revenues and net Income 2010-2012 197 14 Smart TV and Apps 229 Table 10 Netflix’s main financial ratios 197 Table 1 Gartner TV Market Replacement Table 11 Netflix’s subscribers 2010-2012 198 Mode 232 Table 12 Netflix’s balance sheet 2010-2012 198

Table 13 Streaming content obligations in Table of tables 244 2012 198

Table 14 Netflix content library 2011-2012 199 Table 15 Netflix segment information 2012 199

On-Demand audiovisual services of public broadcasters

12 Services financed by public funds 205 Table 1 On-demand audiovisual services

Table of figures

Figure 10 Growth of - online display – display

Introduction excluding video ads – display excluding video and mobile Europe 2012, in % 44 1 Definitions 9 Figure 11 Size of online video advertising by country – Europe 2012 46 2 THE MAVISE DATABASE AND Figure 12 Online video share of display THE CENSUS OF ON-DEMAND advertising, Europe 2012 46 AUDIOVISUAL SERVICES 18 Figure 13 Online video growth – Europe 2012 47 Figure 1 Number of VOD services available Figure 14 Likelihood of Media Buyers shifting (all genres except Adult) in the EU more TV dollars to digital video by country of establishment 23 according to senior US executives, Figure 2 Figures for the ownership of VoD June 2013 47 services available in the EU by Figure 15 Factors that will affect the increase country and by origin of parent in digital video spending according company 25 to marketing professionals Figure 3 EU-5, ownership of available VoD worldwide, April 2013 49 services by country and by origin of Figure 16 Branded video ad views worldwide, parent company, in % 25 Q3 2012 - Q3 2013 50 Figure 17 Formats of digital video on which Advertising-financed on-demand marketing professionals worldwide plan to increase spending, April audiovisual services 2013 50 Figure 18 Ability of marketing professionals 3 The online advertising market 37 worldwide to achieve a better share of awareness and Figure 1 Total online advertising in Europe engagement with digital video than 2011-2012 38 TV*, April 2013 51 Figure 2 Format shares of online advertising Figure 19 Share of mobile display advertising Europe 2011-2012 38 of total online display advertising in Figure 3 Europe online ad format growth by Europe, 2011 & 2012 52 category 2011-2012 39 Figure 20 Social network ad spending in Figure 4 Advertising market in Europe, by Western Europe, 2012-2015 in medium 2012 39 USD billions, % change and % of digital ad spending 55 Figure 5 Online market share of ad budgets 2006-2012 Europe 40 Figure 21 Social network ad spending in Central and Eastern Europe, 2012- Figure 6 Digital Ad Spending in Western 2015 in USD millions, % change Europe, by Format, 2011-2017 in and % of digital ad spending 55 USD billions 41 Figure 22 Online advertising market Figure 7 Total online ad spend by country worldwide 2012-2016 61 2012 43 Figure 23 Online advertising’s share of total Figure 8 Share of online ad revenue by media by market 2012-2016 63 market in Europe 2012 43 Figure 24 Breakdown of online advertising Figure 9 Growth of online display ads in market by segment worldwide 2012 Europe 2012, in % 44 and 2016 64

Figure 25 Breakdown of online advertising online display, Europe 2011 91 per-user revenue per year by Figure 49 Video websites’ worldwide ranking segment 2012 and 2016 65 by unique viewers in January 2013 91 Figure 26 Economic and ad growth 2011 Figure 50 Broadband household penetration Europe 66 in USA and Western Europe 2000- Figure 27 Europe online formats 2011 and 2014 91 2012 67

Figure 28 Europe online ad growth by format 67 4 Types of advertising-supported on- Figure 29 Online ad format by share of total demand audiovisual services 93 online advertising 68

Figure 30 Top 7 online advertising markets represent a share of 75% 68 5 Audience data: comScore’s Video Figure 31 Growth in European online Metrix 94 advertising market 69 Figure 1 GB – Unique Viewers – Monthly Figure 32 USA: evolution of ad formats 2011 - data – 2008-2013 96 2012 76 Figure 2 GB – Videos per viewer – Monthly Figure 33 USA – Advertising format share data – 2008-2013 96 2006-2012 77 Figure 3 GB – Time per viewer – Monthly Figure 34 USA – Online ad revenue share by data – 2008-2013 96 number of companies 78 Figure 4 GB – Unique viewers – Annual Figure 35 USA – Pricing model rises and falls monthly average 2008 - 2013 96 2011 - 2012 79 Figure 5 GB – Videos per viewer – Annual Figure 36 USA – Internet ad revenues by monthly average 2008-2013 96 pricing model 80 Figure 6 GB – Time per viewer – Annual Figure 37 USA – advertising revenue market monthly average 2008 - 2013 96 share by media 2011 80 Figure 7 DE - Unique Viewers – Monthly Figure 38 USA – advertising revenue market data – 2008-2013 97 share by media 2005-2012 81 Figure 8 DE – Videos per viewer – Monthly Figure 39 LUMA online display advertising data – 2008-2013 97 ecosystem 84 Figure 9 DE – Time per viewer – Monthly Figure 40 Online display advertisement data – 2008-2013 97 industry structure 85 Figure 10 DE – Unique viewers – Annual Figure 41 Europe: mobile display ads as monthly average 2008 - 2013 97 share of online display 86 Figure 11 DE – Videos per viewer – Annual Figure 42 Video advertising as share of online monthly average 2008-2013 97 display ads in Europe 87 Figure 12 DE – Time per viewer – Annual Figure 43 IP-delivered net video revenue by monthly average 2008 – 2013 97 market in € million 87 Figure 13 Germany - Top 20 by minutes - Figure 44 US digital video ad spending 2011- September 2013 97 2017 88 Figure 14 Germany – Top 20 by visitors - Figure 45 USA – online video reels in ad September 2013 97 revenue 89 Figure 15 FR - Unique viewers – Monthly data Figure 46 Brand advertising as a share of – 2008-2013 98 online display, Europe 2008 90 Figure 16 FR – Videos per viewer – Monthly Figure 47 Brand advertising as a share of data – 2008-2013 98 online display, Europe 2010 90 Figure 17 FR – Time per viewer – Monthly Figure 48 Brand advertising as a share of data – 2008-2013 98

Figure 18 FR – Unique viewer – Annual 8 VoD market statistics 117 monthly average 2008 - 2013 98 Figure 1 Ranking of EU on-demand markets Figure 19 FR – Videos per viewer – Annual by size 2010-2012 in EUR million 119 monthly average 2008-2013 98 Figure 2 United Kingdom digital retail market Figure 20 FR – Time per viewer – Annual shares, 2012 in % value 127 monthly average 2008 - 2013 98 Figure 3 GB - Digital retail market shares Figure 21 ES - Unique viewers – Monthly data 2012 by volume 128 – 2010-2013 99 Figure 4 GB - Digital rental market shares Figure 22 ES – Videos per viewer – Monthly 2012 by volume - Total VoD 129 data – 2010-2013 99 Figure 5 GB - Digital rental market shares Figure 23 ES – Time per viewer – Monthly 2012 by volume - iVoD 130 data – 2010-2013 99 Figure 6 GB - Digital rental market shares Figure 24 ES – Unique viewers – Annual 2012 by volume - SVoD 131 monthly average 2010 - 2013 99 Figure 7 GB - Digital rental market shares Figure 25 ES – Videos per viewer – Annual 2012 by volume – TV VoD 132 monthly average 2010-2013 99 Figure 8 Germany - Market shares of TVoD Figure 26 ES – Time per viewer – Annual services (1 half 2012) 133 monthly average 2010 - 2013 99 Figure 9 VoD market in Germany 2007-2018 Figure 27 IT - Unique viewers – Monthly data (projection based on the – 2010-2013 100 expectation that one big SVoD Figure 28 IT – Videos per viewer – Monthly player will win/arrive on the German data – 2010-2013 100 market 134 Figure 29 IT – Time per viewer – Monthly Figure 10 France – VoD market figures 2007- data – 2010-2013 100 2011 135 Figure 30 IT – Unique viewer – Annual monthly average 2010 – 2013 100 Subscription on-demand audiovisual Figure 31 IT – Videos per viewer – Annual services monthly average 2010-2013 100 Figure 32 ES – Time per viewer – Annual monthly average 2010 - 2013 100 9 Types of services 141 Figure 33 NL - Unique viewers – Monthly data

– Aug/Sept 2013 101 10 Subscription video on demand Figure 34 NL – Videos per viewer – Monthly (SVoD) 142 data – Aug/Sept 2013 101 Figure 1 USA- Number of Channels with TV Figure 35 NL – Time per viewer – Monthly Everywhere 144 data – Aug/Sept 2013 101 Figure 2 Global presence of US players in 2012 145 Transactional video on-demand Figure 3 Online video versus TV VoD in Italy services 2007-2012 147 Figure 4 Online video markets in the US 6 Types of transactional VoD service 104 HY2 2010 - HY1 2012, in USD billion 148

Figure 5 Netflix subscribers – US streaming, 7 Strategies of selected international US DVD, inter. streaming 2010- 2013, in million 148 players 105 Figure 6 Hulu Plus subscribers 2010-2013 149 Figure 7 OTT SVoD market share for TV

shows in the US 2012-2013, in % of Figure 27 Percentage of European shows streamed 149 smartphone owners that also have a tablet, EU-5, 2012 171 Figure 8 Use of paid OTT video providers in the US 2012, in % of users of paid Figure 28 Long-form video viewing by device, OTT services 150 Q2 2013, USA 172 Figure 9 European subscribers to Netflix and Figure 29 Multiscreen of US on-demand LOVEFiLM in 2012 152 services 172 Figure 10 Online video market by business Figure 30 Device mix of Netflix, Hulu, iPlayer, model, USA 2012, in % 152 March 2011 173 Figure 11 Online video market by business Figure 31 Devices Netflix and Hulu model, international markets, 2012, subscribers stream 2012 – 2013 174 in % 153 Figure 32 Devices used by US subscribers to Figure 12 Breakdown in FR, GB and DE of access Netflix’s streaming service 174 the video-on-demand market Figure 33 Binge viewing in the US by age between managed networks and groups 175 OTT, 2012 154 Figure 34 Top 15 countries by average Figure 13 SVoD OTT movie revenues in 17 broadband connection speed, Q2 EU countries 2004-2016, in EUR 2013 177 million 155 Figure 35 Number of broadband households Figure 14 SVoD OTT movie subscribers in 17 in the Nordics 2012 178 EU countries, 2004-2016, in EUR million 155 Figure 36 Netflix’s R&D expenditure 178 Figure 15 Total subscription revenue – SVoD Figure 37 Connected TV turnover by service + pay-TV in 17 EU countries 2004- 2012 179 2016, in EUR million 156 Figure 38 Development of market for video Figure 16 Consumer revenue on paid-for- services on connected TVs 2011- movie and TV content 2007-2016 156 2016 179 Figure 17 Percentage of people in the US Figure 39 Breakdown of video services on who use or subscribe to OTT SVoD 157 connected TVs by 2016 180 Figure 18 Netflix’s revenue and subscriber Figure 40 Breakdown of the connected TV forecast 2012-2017 158 video market by territories in 2016 180 Figure 19 US content spending by pay-TV Figure 41 Release windows for films in the and SVoD services 162 UK, Germany, USA and France 181 Figure 20 Netflix’s content obligations 2010-

2012 163 11 Examples of the strategies of the Figure 21 Netflix’s 200 most watched video main players - Netflix 182 content compared to availability on Amazon, Hulu, Redbox 164 Figure 1 Netflix key figures 2001-2007 183 Figure 22 Netflix’s and Lovefilm’s movies Figure 2 Netflix’s subscribers 2007-2010 187 compared by release date 165 Figure 3 Netflix key figures 2007-2010 188 Figure 23 Importance of original programming Figure 4 Netflix traffic in the USA 2010-2012 194 when selecting an SVoD service, USA 2013 169 Figure 5 Revenue share in the US online movie market in % 196 Figure 24 Mobile Internet users and penetration in EU5 2009-2015 170 Figure 6 Netflix’s main financial data 2007- 2012 201 Figure 25 Year-on- year growth of smartphone users watching video Figure 7 Netflix’s main financial data 2007- or TV in EU-5, 2012-2013 170 2012 201 Figure 26 Tablets – installed bases in EU-5 171 Figure 8 Netflix subscribers 2007-2012 202

On-Demand audiovisual services of 2016 233 public broadcasters Figure 9 Q1 2012 Global Smart TV Shipments by Brand 234 12 Services financed by public funds 205 Figure 10 Claimed take-up of connected TVs and 3D-ready TVs 2012 235 Figure 11 Accessing TV content over the Sample study on the presence of internet, by connected TV selected European works in VoD ownership 236 providers catalogues Figure 12 Take-up of DVR, connected TVs and 3D-ready TVs 236 13 Sample study 211 Figure 13 Smart TV Owners November 2011 237 Figure 14 Smart TV ownership in 2011 in Figure 1 Big 4 TVoD services available Europe – YouGov study 237 world-wide by number of countries 219 Figure 15 Smart TV sales and market share Figure 2 Number of sample titles found in in the UK 2011-2013 238 VoD Catalogues in Germany 220 Figure 16 US Connected TV Households Figure 3 Number of sample titles found in 2011-2016 239 VoD Catalogues in France 220 Figure 17 US Smart TV households 2011- Figure 4 Number of sample titles found in 2016 239 VoD Catalogues in Belgium 222 Figure 18 Global Evolution of the video Figure 5 Number of sample titles found in service market on Connected TVS VoD Catalogues in Italy 222 2011-2016 240 Figure 6 Number of sample titles found in Figure 19 Ventilation of the global video VoD Catalogues in the Netherlands 223 service market on Connected TVs Figure 7 Number of sample titles found in 2016 240 VoD Catalogues in Denmark 225 Figure 20 Ventilation of the global video Figure 8 Number of sample titles found in service market in 2016 by VoD Catalogues in Poland 225 geography 241

Connected TVs and connected Table of tables 244 devices

Table of figures 249 14 Smart TV and Apps 229 Figure 1 Worldwide Smart TV shipments 2010 – 2013 230 Figure 2 Worldwide Smart TV shipments 2010 - 2016 230 Figure 3 Average Age of TVs Replaced/To Be Replaced (in Years) 230 Figure 4 TV Purchase Drivers 231 Figure 5 New TV tech life cycle 231 Figure 6 Global Smart TV shipment 2011- 20717 232 Figure 7 Q2’12 Smart TV Shipments by Region (000s) 233 Figure 8 Smart TV Shipment Forecast 2011-

European Commission

On-demand audiovisual markets in the European Union Luxembourg, Publications Office of the European Union

April 2014 – 253 pages

ISBN 978-92-79-38425-7 DOI 10.2759/51823

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DOI 10.2759/51823 ISBN 978-92-79-38425-7