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Strategy Update May 2018 STV in 2020

• A truly multi-platform media company with a balanced profit base across broadcast, production and digital

o Expect around 1/3rd of profit from sources other than linear spot advertising (vs 17% today)

• A magnet for the best creative talent from Scotland and beyond

• A brand famous for a range of high quality programming and accessible by all Scots wherever they are in the world via the STV app

• One of the UK’s leading producers, making world class returning series for a range of domestic and international players

• Working in partnership with creative talent, advertisers, businesses and Government to drive the Scottish economy and showcase Scotland to the world

Scotland’s home of news and entertainment 2 We have a number of strengths and areas of competitive advantage

Strong, trusted brand Unrivalled Talented, connection with committed people Scottish viewers and advertisers

Robust balance sheet and growing Scotland’s most returns to powerful marketing shareholders platform

Settled A production relationship with business well ITV which placed for incentivises STV Profitable, growing “nations and to go digital digital business regions” growth holding valuable data

3 However, there is also significant potential for improvement

•STV not famous for enough new programming beyond news •STV brand perceived as ageing and safe BROADCAST •STV2 not cutting through •News very broadcast-centric and does not embrace digital

•STV Player user experience lags competition •Limited two-way relationship with our audience •VOD content proposition not broad enough

•Sub-scale and no strong USP •Needs to be more of a magnet for creative talent •Doesn’t make the best of the STV “shop window”

•Insufficient organisational focus on growth areas •Risk averse and lack of leadership in places •Culture is corporate not creative

4 We have developed a clear vision for the kind of business STV needs to become Agile, creative, fun place to work A magnet for Giving back creative talent to Scotland

Connecting Making a with audiences Scotland’s home of news range of great and advertisers and entertainment content

Embracing the personalised Clear and future of TV committed Digital front and branding centre

5 To implement the vision we will focus on 3 strategic objectives

Maximise the value of our broadcast business by delivering high quality, 1. cost-effective news and entertainment

2. Drive digital growth by creating an STV for everyone

3. Build a world class independent production business

6 Objective 1 Maximise the value of our broadcast business by delivering high quality, cost-effective news and entertainment •Create single, integrated news gathering function across broadcast & digital Create a distinctive, cost effective, •Invest in technology and multi-skilling to improve on-screen output future-facing news organisation •Deliver cost savings of £1m p.a. and a headcount reduction of 34

Invest in a wider range of new, original •Close STV2 in summer 2018, saving £1m p.a. and reducing headcount by 25 content for our main channel and STV •Invest in new original programming for STV and STV Player, focusing on formats Player, replacing STV2 and returnable series

Make the most of our unique •Pilot new in-house formats on STV main channel Channel 3 marketing shop window •Refocus marketing spend on STV original programming and the Player

Maximise our share of the advertising •Launch STV Growth Fund, investing £5m of airtime to support Scottish businesses market •Improve addressable advertising capability

Work in partnership with the TV •Strategic partnership with a platform platforms to drive more value •Launch STV Player on Sky and Virgin

7 BROADCAST

Overall, television viewing is highly resilient, with STV protected from any market volatility by a favourable deal with ITV

Live TV TV Playback Broadcaster VOD Subscription VOD ITV/STV deal

•Programming and advertising agreements provide significant protection to STV’s Broadcast business

•Only 40% of any fall in national airtime or sponsorship revenues flows through to STV

•If ITV increases programming spend, STV’s costs only increase if our advertising and sponsorship revenues increase •On screen, STV has had the strongest start to the year since 2009, with share of viewing +8% so far in 2018

This means that STV’s Broadcast business is likely to outperform the ITV Network and that STV is incentivised to push VOD viewing 8 BROADCAST

Our main channel consistently outperforms ITV driven by the soaps and anything Scottish

STV peaktime share STV STV local programming vs. ITV Share vs. Share vs. network Network Soaps +2 Elaine C Smith’s +7 Burdz Eye View The Loch +6

Broadchurch +3 Thingummyjig +7 Ceilidh The Voice +2 Scotland’s +3 Ross Kemp: Barlinnie +6 Scammers

Source: BARB 2007-2018, share for STV is STV/HD/+1 individuals Billy Connolly and Me +3 People’s History +3

Scotland vs England football +34 Animal 999 0

9 BROADCAST We deliver high quality, popular news, but our STV2 news is not building an audience

News at Six on STV: Share by region STV2 Bulletins (Average Audience)

ITV Border 40 Mon – Fri ITV Ulster 38 STV 26 10:00 - 10:05 STV News 549 ITV North West 24 ITV 22 13:00 - 13:30 STV News at One (Scotland) 1,846 ITV Wales 21 UK Terrestrial Network 21 14:00 -14:05 STV News (Ayr) 2,392 ITV North East 20 16:00 - 16:05 STV News () 1,881 ITV East 19 ITV South, S.East & Channel Isl. 19 17:00 - 17:05 STV News (Ayr) 1,145 ITV 18 ITV South West 17 19:00 - 19:30 STV News Tonight (Scotland) 4,121 ITV 16 ITV West 16 21:00 - 21:05 STV News () 6,471

Source: BARB 2017, All ITV Regions, Mon –Fri, 18:00 -18:28, Share. 22:00 - 22:30 STV News at Ten (Scotland) 3,001

Competition in news will get even tougher when the BBC Scotland channel launches, featuring a Scottish news hour at 9pm 10 BROADCAST

STV2 as a whole is struggling to cut through

STV2's regular programming in 2017 (average audience across the year) STV’s local TV channels 4 years old 9,475 Peter and Roughie's Football Show 7,982 Low brand awareness and poor audiences despite prominent EPG slot Medics of the Glen 5,644

Edinburgh Festival Live 4,222 Onerous programming obligations Murder at 9 4,010 3,868 “Filling the schedule” requires focus on volume 3,038 over quality The People's History Show 2,899 Live at 5 2,601 Advertiser demand and premium remains low

The Late Show 2,581 Will be significantly impacted by launch of BBC Scotland channel (with 15 x STV2’s budget)

Audience uplift required vs. 2017 for STV2 to break even = 5.2X

11 BROADCAST This reflects the wider market, where the big channels and the new VOD players continue to prosper at the expense of the digital “long tail”

The PSBs still account for 70% ...while smaller digital channels are in ...and VOD viewing continues to grow. of TV set viewing decline... Share change Rank Weeks 1-12 2018 (% points) 1. Drama -0.28 2. 5USA -0.23 3. Main -0.19 Event 4. -0.16 5. Star Plus -0.15 6. Sky Sports Cricket -0.13 7. Tru TV -0.12 8. Sky 1 -0.12 Change in “unmatched” VOD viewing on TV set, 2014-17 (mins per day) Weeks 1-12 2018 9. Disney Junior -0.11 10. ITVBe -0.11 Top 20 digital channels by share loss

Source: Enders Analysis: BARB/AdvantEdge 12 BROADCAST Our advertising rates tell the same story – STV main channel remains robust but we have a strong incentive to invest in STV Player over STV2

Player

Selling to advertisers at

£4.50 CPT (average) £1.50-2.00 CPT £15-20 CPT

20 billion impressions 340 million impressions 400 million impressions

£90m revenue £1m revenue £7m revenue

We are selling STV Player impressions at 10x the value of STV2 so we could deliver a significantly lower audience to the Player and still make more money 13 BROADCAST We will invest in a range of new, original programming for STV and STV Player, funded by savings in news and the closure of STV2

Key Elements Strategic benefits • New content will be windowed across STV main channel and STV Player, similar to BBC3 model Focuses on quality - fewer, bigger, better

• A range of entertainment, factual and reality targeting Much better use of opt out slots and spend

25-45 year olds Breaks STV out of Scotland

• Programming will be made in-house by STV Productions Develops new STV talent and a new digital content team Sold at the same premium as VOD • Permanent home on STV Player STV Productions can pilot ideas • All episodes available immediately (boxsets) New digital unit will focus on younger formats • Accessible throughout the UK (and globally) and series

We will update on our new content plans later this year

14 BROADCAST Our news modernisation plan will invest in people and technology, reinforce our on-screen advantages, and save us money overall

Scotland at Simplified, leaner structure

Rooted in Scotland's Equal emphasis on broadcast and digital

communities All our journalists to be multi-skilled

Investment in technology and connectivity Original stories across sites

More details in Committed to localness – no changes to DMA’s attached licence requirements in STV North First and STV Central report Headcount to reduce by 34, cost savings Truly multi-platform of £1m p.a.

the home of Scottish news 15 BROADCAST In partnership with advertisers we are also launching the STV Growth Fund, investing £5m of airtime to support Scottish businesses Launch advertisers Objectives Partners

Nurture the next generation of Entrepreneurial Scotland Scottish House Move Scottish businesses 5pm.co.uk Position STV as a long term partner Scottish Council for Development and Industry McTear’s Airtime offered on flexible basis: Argyle Holidays free, match funding or rev share Advertising Association Private Hire Lead generation and pipeline to Cooke + Indi STVgrow futurebenefits advertising include: budgets

Strategic use of existing assets at minimal cost to STV + many more

There will be a launch marketing campaign for the Growth Fund across TV, social and email at the end of May. We have already secured significant incremental revenue from new advertising partners 16 BROADCAST Our charity initiatives further underscore our commitment to Scotland and strengthen the STV brand

• Launched October 2016 £16.3m • Launched 2011 155k customers • 155K registered customers raised • Raised over £16.3m • Over 46,000 unique players every week • Supports projects across all 32 local authorities • 60% of sales from Direct Debit subscriptions • Partners with some of Scotland’s biggest • Weekly revenue now £130k brands e.g. RBS 67,000 £2.1m • Breakeven position £170k per week, expected Q3 children to charity • 113 grants made across 28 local authority areas supported

Sales since launch

We are focused on accelerating the Lottery breakeven point so that STV’s £9m investment is repaid as quickly as possible 17 Objective 2 Drive digital growth by creating an “STV for everyone”

Place digital front and centre in the •Create a single digital business with its own P&L, dedicated team and KPIs organisation •Recruit a new Digital Managing Director to drive STV Player growth

Upgrade the STV Player to deliver a •3 month intensive “bug-fix” programme across all platforms “TV-like” experience •Launch HD version of STV Player ahead of World Cup

Move to a culture of continuous improvement and personalisation of •Introduce new features to increase ‘dwell time’ and improve VOD vs PVR the user experience •Use data to drive recommendations, enhanced advertising and marketing

•More boxsets Deliver significantly improved •Introduce STV exclusives to the Player content proposition •Aggregate third party content

•Target Sky, Virgin, Apple TV, X Box One Expand distribution and access new •Launch ad-free subscription version of STV Player revenues

18 DIGITAL STV Player is the fastest growing PSB VOD service, and has the largest registered user base Stream growth 2015-17 65% of STV’s addressable market are signed up as registered users = 2.8m people

= 39%

= 31%

19 DIGITAL We also have a simple business model, unlike ITV and C4

more usage = more inventory = more revenue

No conflict with broadcast Linear first strategy VOD sold on its own merits Online as an add-on Data enhancement to improve yield Creates a “ceiling” for their digital growth

20 DIGITAL However, we have some catching up to do in terms of product features

Recommendations

Autoplay next episode

Watch offline

Favourites

Personalisation

21 DIGITAL The immediate focus for STV Player is on new features, improving the VOD content offer, and using our data to offer increased personalisation

2018 2019

HD for the World Sign-in Personalised Recommendations Personalisation Addressable Cup everywhere homepage advertising

Fix quality Series stacking Box sets STV originals Content Virtual of service partnerships channels/archive

We will measure our success through simple metrics: •Total VOD consumption •Revenue and profit

22 DIGITAL We have agreed our first partnership deal to expand the STV Player content offer, and we will launch an ad-free subscription version soon

Player +

•Innovative deal with award-winning pre school •Ad-free subscription version of STV Player kids TV app •STV content available globally for the first time •Brings hundreds of eps of premium kids content to STV Player •Subscription price TBC

•STV will promote the Hopster subscription service •Will look to bundle with other content and features in return for a share of pay revenues

23 DIGITAL We have a clear sense of where STV Player’s revenue growth will come from over the next 3 years

These priorities will determine the Player’s product and development roadmap

24 Objective 3 Build a world class independent production business

Restructure, reposition and •Recruit new Managing Director rebrand •Rebrand to shed corporate image

Focus on high value returning •All development focused on returnable series, one-offs phased out series and the “nations and •Work in partnership with BBC, C4 and ITV to meet “nations and regions” demand regions” growth opportunity

Use STV channels to pilot and •Create in-house “formats factory”, piloting new ideas on STV showcase new ideas and •New digital unit to develop formats for younger audiences formats

Expand the pipeline by placing •More umbrella deals with creative talent more creative bets •Format acquisitions, writer deals, co-production and development partnerships

Pursue a partnership strategy to •Deeper strategic partnership with international distributor/agent expand internationally •“IP swap” deals with US indies to co-produce in UK and internationally

25 PRODUCTION STV Productions’ 10-year performance has been inconsistent, reflecting a weak pipeline and a lack of returning series

£m

A profit high of £1.0m in 2010 was eroded to a low of only £0.1m in 2016 26 PRODUCTION However, the pipeline is improving and STV Productions’ addressable market is set to grow by £200m+ to £2.2bn by 2020

Forecast spend on indie content by type of broadcaster, 2016-2020

Commissioned series in 2018

The Victim (BBC) Elizabeth is Missing (BBC) Sex Tape (C4) Antiques Road Trip (BBC) Catchphrase (ITV) Scammers (STV) Central Station (BBC) Market Abroad (BBC) Super Carrier (BBC)

•Source: BBC, , ITV, Ofcom, The Telegraph, Pact UK Television Production Census, Ovum, Oliver & Ohlbaum analysis

27 PRODUCTION Spend on Scottish productions is also set to grow significantly, driven by increased “nations and regions” investment by BBC and C4

Increasing Scottish production +£250million increase in C4 regional spend over next 5 years

“...There will be an opportunity for existing indigenous indies to really join the big leagues...become far more influential...and deliver genuinely distinctive shows”

Broadcast Magazine, March 2018 28 PRODUCTION Taggart and Antiques Road Trip illustrate the value of high volume, multi- series franchises when you get them right

Antiques Road Trip

• 110 episodes By the end of 2018 • 209 Hours • 27 years (1983 – 2010) • 450 episodes of ART • Sold to more than 100 territories • 150 episodes of CART (2009-2018) • Lifetime revenue £135m • Lifetime revenue £29m • Lifetime margin £40m • Sold to 40 territories

...and it’s still selling...£0.5m revenue in 2017

29 PRODUCTION We will expand our pipeline of ideas by investing in more creative talent, focusing on people rather than companies

Other areas of focus More ‘umbrella’ deals • Innovative, low risk deal Format acquisitions already in place with the creator of Vera and Shetland Script/writer deals • Share of revenues Co-production or development Key advantages of working with STV: partnerships •Access to a channel for piloting Talent deals •Nations and regions credentials

•Flexibility Potentially taking stakes in smaller indies/start ups

There is strong competition for talent so this will take time, but we have a number of competitive advantages versus bigger production companies 30 PRODUCTION We are aiming to double the number of series over the next 3 years, with a focus on higher end returning series

Today 2020 Focus

Drama 1 series 2 - 3 series •Build on The Victim •Target long-runner

Entertainment 2 series 4 series •Widen customer base (C4+Sky) Factual 3 series 4 series (with low (higher value, •High volume/value docs value) 6-8 eps) Daytime 1 series 2 series •Build on Antiques Road Trip

31 We are creating 3 business divisions to mirror our 3 strategic objectives, each with its own MD, P+L and KPIs

BROADCAST DIGITAL PRODUCTION

NEWS STV PLAYER OFF-STV PRODUCTION OFCOM ONLINE PRODUCT STV ORIGINALS ITV RELATIONSHIP ONLINE TECH CREATIVE PARTNERSHIPS BROADCAST OPERATIONS DIGITAL CONTENT INTERNATIONAL STRATEGY PLATFORMS AGGREGATION STRATEGY DIGITAL PRODUCTION STV CHILDREN’S APPEAL

2017 REVENUE: £91.8m 2017 REVENUE: £8.4m 2017 REVENUE: £10.4m

2017 PROFIT: £16.1m 2017 PROFIT: £2.9m 2017 PROFIT: £-m

32 We are also putting in place a new, leaner management team focused on delivering the strategy

CEO

CFO New internal governance structure

MDMD MD MD Operating boards across Broadcast, BROADCAST Digital and Productions BROADCAST DIGITAL PRODUCTIONS Chaired by CEO

HR & COMMUNICATIONS New people expected to fill 1 or 2 of the key MD roles SALES

LEGAL

33 Our future investment in content will be paid for by cost savings and by capping the existing share buyback

• The share buyback will be capped at £7.0m to provide funding for reorganisation costs • The existing progressive dividend policy will be accelerated by 2 years • 2018 full year dividend will be 20p per share • We will also consult with shareholders on options to improve the effectiveness of the remaining return

34 We have begun to develop a simplified set of corporate KPIs

Internal KPIs External KPIs Broadcast 1. Broadcast revenue • STV reach 2. Broadcast profit • News reach 3. Digital revenue Digital • STV Player consumption 4. Digital profit • Number of streams 5. Productions revenue • Reach Productions 6. Productions profit • Commissioned hours • Series • Returning series

These KPIs are not intended to be forward-looking targets, but will be reported against historically. We will share further detail at our Interims in September 35 2018 outlook

On track for a good year

H1 2018 National airtime +2% Regional airtime +20-25% Digital +20-25% Total advertising growth +6% STV Productions 30% + revenue growth

36 In summary

• Positive vision for the future to re-establish STV as a creative force

• Cash generative group with clear strategic priorities that focus the organisation on growth

• New investment in original content entirely self-funded

• Broadcast business likely to outperform ITV due to de-risked deal and cost control

• Digital growth driven by a simple business model that will reward investment in new content, distribution and personalisation

• Productions transformed by a focus on formats, returning series and the “Nations and Regions” opportunity

• £3m reorganisation costs covered by buyback funds, consultation with shareholders on options to improve effectiveness of capital return

• Further enhancing the existing progressive dividend policy

37 Appendix

Restatement of new Broadcast and Digital divisions with existing divisions (£m) H1 16 16 FY 16 H1 17 H2 17 FY 17 Revenue Broadcast 49.4 49.1 98.5 44.7 47.1 91.8

Digital 3.3 4.1 7.4 4.0 4.4 8.4

Total (Consumer) 52.7 53.2 105.9 48.7 51.5 100.2

Operating Profit Broadcast 11.2 6.4 17.6 9.3 6.8 16.1

Digital 1.1 1.2 2.3 1.2 1.7 2.9

Total (Consumer) 12.3 7.6 19.9 10.5 8.5 19.0

Productions (1.3) 1.1 (0.2) (1.3) 1.3 -

ELM ------

Group total 11.0 8.7 19.7 9.2 9.8 19.0 38