Tivo Q3 2016 Video Trends Report

VIDEO TRENDS REPORT

Q3 2016 Video Trends Report: Consumer Behavior Across Pay-TV, VOD, PPV, OTT, TVE, Connected Devices, and Content Discovery Introduction

TiVo is a global leader in entertainment technology innovations and insights. TiVo’s combined portfolio, including Digitalsmiths’ industry-leading content discovery products and services, will be marketed under the TiVo name SURVEY going forward. DEMOGRAPHICS TiVo enables pay-TV providers, digital publishers and consumer electronics (CE) manufacturers to power personalized search, recommendations, carousels, social and sports discovery, and gain invaluable insights • Q3 2016 Survey Size: 3,140 through analytics. TiVo’s customers include Charter Communications, DISH Network, DIRECTV, FOX Sports, • Geographic Regions: United States, Moviefone, Sharp Electronics, Sling TV, Sony PlayStationVue, The CW Network and Time Warner Cable. Canada Each quarter, TiVo seeks real consumer opinions to uncover key trends relevant to pay-TV providers, digital • Age of Respondents: 18+ Years of Age publishers and CE manufacturers. Consumers’ genuine, unbiased perspectives and feedback drive continuous ® improvements to TiVo’s Seamless Discovery , the industry’s leading personalized content discovery platform, and ® This survey was conducted in Q3 2016 by a Seamless Insight , which delivers the reporting and analytics necessary to optimize content discovery. TiVo shares leading third-party survey service; TiVo analyzed these findings for the same reason it uses them—in hopes that video service providers leverage the information to the results. TiVo conducts this survey on a improve and develop applications and features that will enhance the overall TV viewing experience offered today. quarterly basis and publishes a report evaluating This survey has been conducted every quarter since 2012, enabling the company to monitor, track and identify key and analyzing key trends across the pay-TV trends in consumers’ viewing habits, as well as their opinions of pay-TV providers, emerging technologies, connected industry. The purpose of this survey is to track devices, TV Everywhere (TVE) apps and content discovery features, such as personalized recommendations. consumer trends over time, offering pay-TV In addition to key quarter-over-quarter (q/q) and providers real, unbiased feedback regarding year-over-year (y/y) trends, TiVo’s Q3 2016 Video PAY-TV PROVIDERS consumer behaviors, industry perceptions, and Trends Report covers many new topics, including: Who is your current cable/satellite service provider? opinions of new technology hitting the market. • A breakdown of content types viewed daily, as well as respondent sentiment on whether there is ample BELL time to view all available content. DISH NETWORK MEDIACOM • A breakdown of the top channels respondents desire VERIZON VIDEOTRON TELUS in an à la carte pay-TV package, as well as their ideal SASKTEL MTS ROGERS price for each channel. COMCAST • A detailed analysis of respondents who would like a SUDDENLINK CHARTER CABLEVISION COX BRIGHT HOUSE NETWORKS skinny bundle paired with a free streaming service TIME WARNER CABLE that features commercials—which could potentially GOOGLETV be the solution to churn. AT&T U-VERSE SHAW DIRECTV COGECO CABLE

2 The State of Pay-TV

While the majority of this report examines how those with a pay-TV provider interact CUTTING PAY-TV SERVICE with their TV offerings, TiVo first sought to understand the audience without a pay- Did you cut cable/satellite service in the last 12 months? (Only answered by respondents who do not have a Pay-TV provider) TV provider. In Q3 2016, 82.4% of respondents have a pay-TV provider. However, of respondents without a pay-TV provider, 17.9% cut cable/satellite service in the last 12 YES, I cut cable/satellite months. TiVo believes understanding why respondents cut cable/satellite service can service in the last 12 months 17.9% help with marketing efforts focused on subscriber acquisition. Therefore, new to the Q3 2016 Video Trends Report is a question that asked what factors influenced a NO, it has been longer than 12 months since I had cable/ 47.8% respondent’s decision to cut cable. The top three factors were: satellite service • “Price – too expensive” – 82.9% NO, I never had cable/ 34.3% • “I use an internet streaming service, such as Netflix, Hulu, Amazon Video, etc.” - satellite service 59.5% 0 10% 20% 30% 40% 50% • “I use an antenna to get the basic channels on my TV.” - 28.1%

While it may come as no surprise that price is the top factor, TiVo interprets the data to mean that pay-TV providers should get creative with not only their packages, but also TOP FACTORS FOR CUTTING PAY-TV SERVICE their strategies for marketing these offerings. After identifying subscribers at risk for What factors influenced your decision to cut off your cable/satellite service?(Choose all that apply) cutting service, pay-TV providers must ensure that packages targeted to this group are enticing, and strong enough to combat the option of using an antenna to receive TV. Price – Too expensive 82.9% Lastly, it’s no secret over-the-top (OTT) services are a major factor, but pay-TV providers I use an internet streaming service, such as Netflix, 59.5% have the upper hand due to depth and breadth of content, such as sports, live events, Hulu, Amazon Video, etc. award shows, etc. It is imperative to emphasize key market strengths to these value- sensitive customers. I use an antenna to get the basic channels on my TV 28.1%

I like to binge watch an entire season of a TV series 24.8% through my streaming service

Moved/Relocated, and I do not plan to sign-up for 16.0% cable/satellite service again The bulk of my TV viewing was the original series on streaming services, such as “Orange is the New 14.0% Black” or “House of Cards” I share a friend/family member’s login to watch 3.0% shows on their cable/satellite provider’s app

Moved in with a new roommate who already 1.1% subscribes to cable/satellite service

N/A, it was not my decision to cut off cable/satellite service, and I’m not sure why this decision was made 2.8%

0 20% 40% 60% 80% 100%

3 The State of Pay-TV

POTENTIAL CHURN SWITCHED PROVIDERS Have you switched cable/satellite providers in the last three months? In order to construct an accurate picture of the current state of pay-TV, TiVo examines the topic of churn across several categories, including those who YES 9.1% recently switched pay-TV providers and those who have future plans to switch or cut service altogether, as well as what factors could influence these audiences to NO 90.9% stay. Here is a breakdown of the current state of pay-TV as it relates to churn: 0 20% 40% 60% 80% 100% • Of the respondents who have cable/satellite service, 9.1% answered they have switched pay-TV providers in the past three months.

—— Unfortunately for pay-TV providers, this audience is up slightly q/q and y/y, PLANNING TO SWITCH PROVIDERS and Q3 2016 marks the highest this result has been since this question was Do you plan to change cable/satellite providers in the next six months? added to the survey in 2013. Q3 2016 Q2 2016

• When asked if they plan to change pay-TV providers in the next six months, 60% respondents answered: 55.1% —— 5.6% plan to cut their pay-TV service. 50% 50.3% —— 7.1% plan to change to another pay-TV provider. 40% -4.8% q/q —— 2.5% plan to switch to an online service or app.

30% 31.8% —— 29.7% are on the fence, answering “maybe.” 29.7% —— These figures total 44.9% of respondents—meaning just under half of 20% respondents could potentially leave their current pay-TV provider in the next

six months. While this is a large portion of the respondents, the positive news 10% 3.7% for pay-TV providers is that this group of “at risk” respondents decreased 2.5% 5.6% 7.2% 7.1% 7.0% 4.8% q/q. 0 YES, I am planning YES, I am planning YES, I am planning MAYBE NO, I plan to stay to CUT cable/ to CHANGE to to SWITCH to an with my current satellite service another cable/ online app or rental cable/satellite altogether satellite service service provider provider

4 The State of Pay-TV

POTENTIAL CHURN CONT’D PLANNING TO SWITCH PROVIDERS? IF YES... Would you consider keeping your existing cable/satellite service provider if they allowed you To better understand those who plan to change, switch or cut pay-TV providers to do the following? (Choose all that apply) in the next six months as well as determine what would keep this group from churning, TiVo took the survey a step further by introducing a new question Choose and pay for only the channels I to the Q3 2016 Video Trends Report. Respondents were asked to choose from 65.0% typically watch a list of several factors that would cause them to reconsider leaving their pay- TV provider. The clear winners, chosen by the bulk of respondents, are:

• Flexible Package Structure: “Choose and pay for only the channels I typically Combine all of my TV providers (such as Netflix, Hulu, Amazon Video)into one place so I can find 43.5% watch.” - 65.0% something to watch, regardless of the service • More Integrated Video Solution: “Combine all of my TV providers (such as Netflix, Hulu, Amazon Video) into one place so I can find something to watch, regardless of Make it easier to find something to watch on TV: the service.” - 43.5% for example, recommend shows to you based on 16.1% your interests so it is easier to find something These two reasons mirror the factors—price and OTT service usage—discussed in the you “want” to watch on TV previous section on why respondents actually cut their pay-TV service. To address this, pay-TV providers should consider incorporating access to OTT offerings directly through the set-top box (STB), rather than the viewer leaving to switch to a streaming Other 14.8% device. Providing an easier access point to OTT services not only satisfies the viewer, but also increases the perceived value of pay-TV service. 0 20% 40% 60% 80%

5 The State of Pay-TV

RESPONDENTS’ SENTIMENTS TOWARD THEIR PAY-TV PROVIDERS

In Q3 2016, 79.0% of respondents are “very satisfied” or “satisfied” with their pay- Of those respondents who were dissatisfied, the top three reasons were: TV service, an increase of 1.8% q/q, 3.0% y/y and 3.6% over two years. The “very • “Too expensive/Increasing fees for cable/satellite service” – 82.0% satisfied” category increased 3.1% q/q, 2.9% y/y and 3.5% over two years, which is • “Poor customer service” – 32.9% positive news for pay-TV providers. Still, understanding why respondents are dissatisfied remains important. • “Poor cable/satellite service” – 29.4% Of note, the answer choice “Too expensive/Increasing fees for cable/satellite service” increased 2.4% q/q, 13.6% y/y, 12.5% over two years.

VALUE How would you rate the level of value you are receiving from your cable/satellite service provider? IF UNSATISFIED... Q3 2016 Q2 2016 Q3 2015 Q3 2014 Why do you feel you’re not getting enough value from your provider? (choose all that apply)

60% Q3 2016 Q2 2016 Q3 2015 Q3 2014

50% “Too expensive/Increasing fees for cable/satellite service”

56.3% +2.4% q/q, +13.6% y/y, +12.5% over two years 40% 55.0% 54.9% 54.9%

30% Too expensive/ 82.0% Increasing fees for 20% cable/satellite service 24.6% 24.0% 24.0% 22.8%

10% 20.9% Poor customer 21.1% 21.0% 20.5% 32.9% service 0 Poor cable/ Very Satisfied Satisfied Unsatisfied 29.4% satellite service

79.0% are “Very Satisfied” or “Satisfied” “Very Satisfied” Bad channel 28.7% +1.8% q/q, +3.0% y/y, and +3.6% over two years +3.1% q/q, +2.9% y/y, +3.5% over two years selection

Other 11.6%

0 10% 20% 30% 40% 50% 60% 70% 80% 90%

6 The State of Pay-TV

PAY-TV SERVICE-LEVEL ADJUSTMENTS BILL AMOUNT How much is your monthly bill from your cable/satellite provider for TV services only? (Not including Since price has been noted already in this report as a pain point among respondents, video-on-demand/movie purchases, phone, or internet) TiVo wanted to know how much respondents are paying, on average each month, for 30% pay-TV service. In Q3 2016, 34.9% of respondents indicated that they paid $101 or 25% 25.7% 23.6% 34.9% pay over $100 per month more per month for cable/satellite services. 20%

15% In Q3 2016, pay-TV service-level adjustments, both adding and cutting services, are 15.8% 15.0% 10% flat. Specifically, 17.3% of respondents selected “Increased/Added Services” and 17.5% 11.1% 8.8% answered “Decreased/Removed Services.” Here is a breakdown of these results: 5% 0 Top Services Added: For the second quarter in a row, the top three services added were: Less than $50 $51 - $75 $76 - $100 $101 - $125 $126 - $150 $151+ • “Added new channels” – 47.4% • “High Definition (HD)” – 25.4% • “Premium Channels” – 22.9% SERVICES ADDED If increased, what service(s) did you add through your cable/satellite provider? (choose all that apply) “Premium Channels” continues to struggle as an added service with decreases of 6.7% Q3 2016 Q2 2016 Q3 2015 Q3 2014 q/q, 12.4% y/y, and 18.0% over two years. Also, Premium Channels were added at a much lower rate (22.9%), than they were cut (41.2%). However, the category “Premium Added new channels 47.4% Sports Package(s)” is up 4.0% q/q, and 3.6% y/y—an increase that most likely reflects High Definition (HD) 25.4% time of year, as many major sports kick off their seasons in Q3. “Premium Channels” -6.7% q/q, -12.4% y/y, Premium Channels 22.9% -18.0% over two years (e.g. HBO, Cinemax, etc.)

SERVICE ADJUSTMENT DVR 20.3% Have you adjusted your level of cable/satellite service in the last 12 months? New/Upgraded equipment 16.7% (for example, DIRECTV Genie Increased/ 9.1%17.3% or DISH Hopper) Added Services 15.4% “Premium Sports Package(s)” Premium Sports Package(s) +4.0% q/q, +3.6% y/y Decreased/ Removed Services 17.5% Other 12.7% Stayed the same 65.2%

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

7 The State of Pay-TV

Top Services Cut: For the sixth quarter in a row, the top three services cut were: RESPONDENTS’ SENTIMENTS ON À LA CARTE • “Reduced level of cable/satellite service” – 46.9% PAY-TV PACKAGES • “Premium Channels (for example, HBO, Cinemax, etc.)” – 41.2% In Q3 2016, 78.0% of respondents would like to pay for only the channels they watch— • “Premium Sports Package(s)” – 17.0% and this response is up 1.2% q/q and 1.3% y/y. The top five most desired channels among Note: “Cut cable/satellite service totally” is up 3.4% q/q. all respondents were: ABC, CBS, Discovery Channel, NBC and History. On average, respondents chose 18 channels to compose their ideal line-up. Premium Channels: In Q3 2016, 40.0% of all respondents pay for premium channels, which is down slightly q/q. The top three channels are HBO (24.0%), Showtime (15.1%) Additionally, the average price respondents want to pay for self-selected channels is and The Movie Channel/Network (13.1%). Growth and/or decline in adoption of $29.46 per month, or $1.84 per channel, per month. See pages 9-11 for more on premium channels was relatively flat for all channels listed, so there’s no notable news to à la carte pay-TV packages. report for this category.

SERVICES CUT PREMIUM CHANNELS If decreased, what service(s) provided through your cable/satellite provider did you cut? (choose all Do you pay for any of the following premium channels through your cable/satellite provider? (choose that apply) all that apply) Q3 2016 Q2 2016 60% 60.0% 46.9% Reduced level of cable/satellite service 50% Premium Channels (for example, HBO, 41.2% 40% Cinemax, etc.) 40.0% pay for premium channels 17.0% 50% Premium Sports Package(s) 30% 12.2% Returned cable/satellite box(es) 20% 24.0% 10.4% “Cut cable/satellite service totally” Cut cable/satellite service totally +3.4% q/q 15.1% 10% 13.1% 12.9% 9.1% 11.1% 10.0% DVR 2.8% 0 New/Upgraded equipment (for example, 5.5% HBO Showtime The Movie Sports Starz Cinemax No, I do Other DIRECTV Genie or DISH Hopper) Channel/ Package(s) not pay for 6.2% Network access to any Other premium channels 0 10% 20% 30% 40% 50%

8 Analytical Commentary ANALYSIS OF DESIRED CHANNELS IN AN À LA CARTE PAY-TV PACKAGE BY COUNTRY

New to the Q3 2016 Video Trends Report is a question format in which $54.95, plus, an over-the-air antenna would still need to be purchased to respondents selected their ideal channels and were then asked how much they view ABC, NBC and CBS. PlayStation Vue had a similar lack of coverage. would pay for each one—this format allowed TiVo to measure respondents’ The video industry knows that consumers are willing to pay roughly $80 per month perceived value of networks offered to them by both popularity and desired for TV service. Skinny bundles give consumers a larger percentage of content they price. View the complete breakdown of channels and cost on pages 10-11. desire for a lower price, but add up the cost of a skinny bundle, subscription video This insight provides valuable information to pay-TV providers. For instance, on-demand (SVOD) service and a streaming device like Google Chromecast—and the if a provider is offering a 10-channel package, what are the most desired total is essentially back to the cost of a traditional pay-TV package. Thus, the question channels, and what price do consumers want to pay? Because the report remains: will consumers catch on that skinny bundles aren’t really skinny? Though surveys respondents in both the United States and Canada, much of the a true à la carte offering is unavailable today, consumers still have multiple ways to video content is the same in both countries, but some Canadian content is consume content, and at the end of the day, these options benefit consumers. unavailable in the U.S. Therefore, information is displayed by country. Will asking consumers to pay the same price for less video content be the In the U.S., respondents’ average price for the top 10 channels would be future of television? TiVo believes a huge opportunity remains for an enticing $15.30; for 20 channels, it would be $32.92. In Canada, respondents’ average offering that delivers great value to consumers, and is economical for providers price for the top 10 channels would be $16.38; for 20 channels, it would as well. Though TiVo believes the dollar amounts for each channel listed on be $32.00. See the charts on pages 10 -11 for a breakdown of the most pages 10-11 are accurate, it only captures what respondents claim they will desired channels by country, as well as by top 10 and top 20 channels. pay, not what they might pay if extra value were present. In an effort to fight churn within the existing subscriber base as well as competition from emerging Several networks now offer a direct-to-consumer app. For example, CBS services, pay-TV providers must offer compelling à la carte, or skinny bundle, launched CBS All Access, which allows subscribers to watch live content, catch- packages that include key channels unavailable in competitive offerings. up content and bonus content. CBS All Access costs $5.99 a month, or $9.99 a month for a commercial-free option. The service also offers a one-week free trial, and subscribers can easily cancel because there is no contract. INTEREST IN AN À LA CARTE PAY-TV PACKAGE When purchasing cable/satellite service you often choose from pre-set channel packages. Would So, if a consumer values the 20-channel package at, on average, $1.65 per channel, you like the ability to make your own package by selecting ONLY the channels you WANT to watch? will he or she experience sticker shock paying $5.99 per channel while attempting to bypass the pay-TV provider through an app? And, will the consumer be willing to add 10 to 20 apps to his or her preferred streaming device and pay a monthly fee for each? 22.0%

Across the industry, TiVo examined the skinny bundle offerings currently YES, I would like Q3 2016 NO,I am not to choose only interested in available and learned that none of the current offerings include all top 20 78.0% channels. If consumers attempted to build this package themselves, Sling TV’s the channels I this capability. want to watch. “All Channels” package costs $40.00 and HBO is $14.95. Together, they total

9 Analytical Commentary ANALYSIS OF DESIRED CHANNELS IN AN À LA CARTE PAY-TV PACKAGE BY COUNTRY

IDEAL CHANNELS IN AN À LA CARTE PAY-TV PACKAGE - U.S. If YES, which channels would you be interested in including in your TV package? (choose all that apply)

80% Top 10 Channels Popularity Price Per Top 20 Channels Popularity Price Per Among U.S. Among U.S. Channel Among U.S. Among U.S. Channel Respondents Respondents Respondents Respondents ABC 70.7% $1.52 ABC 70.7% $1.52 CBS 70.1% $1.55 CBS 70.1% $1.55 70% NBC 65.5% $1.54 NBC 65.5% $1.54 Discovery Channel 62.1% $1.53 Discovery Channel 62.1% $1.53 History 59.7% $1.54 History 59.7% $1.54 FOX 56.0% $1.47 FOX 56.0% $1.47 60% A&E 50.8% $1.49 A&E 50.8% $1.49 PBS 49.3% $1.74 PBS 49.3% $1.74 TNT 49.1% $1.51 TNT 49.1% $1.51 TBS 48.2% $1.41 TBS 48.2% $1.41 50% Total $15.30 USA Network 47.7% $1.46 FX 47.2% $1.59 National Geographic 46.1% $1.57 HBO 45.2% $3.13 40% AMC 44.0% $1.64 ESPN 44.0% $1.95 Food Network 43.9% $1.60 Comedy Central 43.8% $1.62 30% The Weather Channel 42.4% $1.36 HGTV 42.0% $1.70 Total $32.92

20%

10%

0 E! FX FYI IFC CW TLC TBS PBS BET ION CBS Syfy TNT A&E FOX ABC VH1 Fuse HSN NBC QVC TCM MTV CNN HBO AMC Spike Reelz ESPN Bravo TruTV HGTV Fusion Sprout Disney WE TV Encore Nick Jr. Esquire Oxygen History Velocity MSNBC Lifetime TV Land TeenNick Univision Disney Jr. Disney Showtime CBC News Telemundo Adult Swim Ovation TV FOX Sports FOX NBC Sports Nickelodeon Golf Channel Music Choice NFL Network FOX Business FOX USA Network Animal Planet MLB Network Food Network Food WGN America Travel Channel Travel Tennis Channel Tennis Comedy Central (renamed Freeform) Cartoon Network Comedy Network Hallmark Channel Discovery Channel Discovery FOX News Channel FOX Sportsman Channel National Geographic The Weather Channel The Weather (Oprah Winfrey Network) Winfrey (Oprah (Country Music Television) (Country CMT OWN (Canadian Broadcasting Company) (Canadian 10 ABC Family CBC Analytical Commentary ANALYSIS OF DESIRED CHANNELS IN AN À LA CARTE PAY-TV PACKAGE BY COUNTRY

IDEAL CHANNELS IN AN À LA CARTE PAY-TV PACKAGE - CANADA If YES, which channels would you be interested in including in your TV package? (choose all that apply)

50% Top 10 Channels Among Popularity Price Per Top 20 Channels Among Popularity Price Per Canadians Among Channel Canadians Among Channel Canadians Canadians HBO 44.8% $2.59 HBO 44.8% $2.59 A&E 43.9% $1.68 A&E 43.9% $1.68 Discovery Channel 42.1% $1.79 Discovery Channel 42.1% $1.79 CTV 40.1% $1.42 CTV 40.1% $1.42 40% CBC 39.8% $1.42 CBC 39.8% $1.42 History 39.3% $1.69 History 39.3% $1.69 ABC 38.4% $1.53 ABC 38.4% $1.53 Global Television Network 36.4% $1.47 Global Television Network 36.4% $1.47 FOX 35.8% $1.44 FOX 35.8% $1.44 CityTV 35.0% $1.35 City TV 35.0% $1.35 Total $16.38 Food Network 34.9% $1.61 30% CBC News 33.8% $1.45 CBS 32.3% $1.41 NBC 32.1% $1.37 The Weather Channel 30.1% $1.35 Showtime 29.8% $1.78 National Geographic 29.8% $1.79 20% TLC 29.4% $1.52 AMC 29.3% $1.82 HGTV 29.3% $1.50 Total $32.00

10%

0 E! FX FYI IFC TLC TBS PBS BET ION CBS TSN Syfy YTV TNT CTV A&E FOX ABC VH1 Fuse HSN NBC QVC TCM MTV CMT CNN HBO AMC Spike Reelz ESPN Bravo Space CP 24 TruTV HGTV Fusion Sprout Disney WE TV Encore Nick Jr. City TV History Esquire Oxygen Velocity MSNBC The CW Lifetime TV Land Hallmark Univision Disney Jr. Disney Teen Nick Teen Sportsnet Showtime Treehouse CTV News FOX News FOX CBC News OvationTV Telemundo Adult Swim FOX Sports FOX NBC Sports Nickelodeon Golf Channel NFL Network FOX Business FOX USA Network Animal Planet MLB Network Food Network Food WGN America (Music Channels) Travel Channel Travel Tennis Channel Tennis The W Network Comedy Central (renamed Freeform) Cartoon Network Comedy Network Discovery Channel Discovery Sportsman Channel National Geographic The Weather Channel The Weather (Oprah Winfrey Network) Winfrey (Oprah Global Television Network Global Television OWN Music Choice ABC Family 11 Broadcasting Company) (Canadian CBC TV Viewing Habits

While the bulk of the survey aims to understand respondent sentiment toward pay-TV TV VIEWING TIME providers, as well as identify emerging features and services, tracking high-level, overall On average, how much of your daily TV viewing time is spent watching the following types of TV? (provide an answer to all 3 categories listed below) TV viewing behaviors is also important. Therefore, this quarter, the question format changed to focus more on types of content viewed, as well as daily content consumption. Live TV accessed from Previously recorded/DVR’d OTT/streaming shows from your channel guide. TV shows/movies. services such as Netflix, According to the Q3 2016 survey results, respondents’ TV viewing behavior, per day, is Hulu, Amazon Video, etc. as follows (see chart to the right for a breakdown of daily content viewing): 40% • 85.7% watch live TV from their channel guide. 35%

• 69.5% watch previously recorded/DVR’d TV. 38.9%

• 61.1% watch OTT/SVOD content. 30% 85.7% watch 69.5% watch recorded/ 61.1% watch OTT/ live TV daily DVR’d TV daily SVOD content daily In addition to the type of content viewed, TiVo was interested in understanding whether 25% 30.5% respondents feel they have “too much” to watch, or are pleased with their ability to fit in all of their favorite shows on a weekly basis. In order to track this, TiVo added a new 20% 22.0% question, which produced the following results: 22.5% 15% • Only 45.2% of respondents feel they have enough time to watch their shows. 17.3% 10% 15.7% 14.8%

• Another 26.5% only have time if they record/DVR shows and then skip commercials. 14.3% 6.6% 13.1% 12.8% 12.8% 12.0% 4.6% 11.6% 5% 11.2% 3.8% • 28.3% typically run out of time. 9.6% 2.7% 2.5% 8.8% 2.0% 5.8%

TiVo will continue to collect and monitor the data, but with 28.3% of respondents 0 4.0% running out of time, content discovery becomes even more crucial in improving the overall pay-TV experience. Plus, content discovery functionality saves consumers’ time, Less than 30 min. - 1-2 hours 2-3 hours 3-4 hours 4-5 hours 5+ hours I don’t only showing them programs they want to watch, due to personalization based on 30 min. 1 hour watch this on a regular previous viewing habits. basis

TIME FOR FAVORITE TV SHOWS On average each week, do you feel you have enough time to watch all your favorite TV shows?

YES, I find time each week to watch all the shows I want to watch. 28.3% YES, but only if I DVR them so I can skip Q3 2016 45.2% the commercials.

NO, I typically run out of time on a weekly basis 26.5% and do not get to watch all my favorite shows.

12 TV Viewing Habits

In addition to finding time to watch TV shows/movies through cable/satellite, it’s OVERWHELMED BY CHANNELS important to understand how respondents feel about their service. TiVo’s survey Do you feel overwhelmed by the number of channels available to you, and listed in your guide? not only tracks engagement with channels watched, but also respondent sentiment Q3 2016 Q2 2016 toward the pay-TV experience. Here is a breakdown of results for Q3 2016: 70% • 34.4% of respondents feel overwhelmed by the number of channels available to 60% 65.6% 67.7% them, an increase of 2.1% q/q. “Yes” 50% +2.1% q/q • The bulk of respondents (79.2%) watch 10 channels or less. 40% 30% —— The good news for pay-TV providers is that respondents are watching more 34.4% 32.3% channels than previously since 11 to 20+ channels saw increases of 3.9% q/q 20% and 3.3% y/y. 10% 0 • 58.3% of respondents are happy with their ability to find something to watch within their cable/satellite service. YES, I feel overwhelmed NO, I don’t feel overwhelmed —— However, positive feelings toward finding something to watch remain relatively flat q/q and y/y. In order to retain subscribers over time and NUMBER OF CHANNELS WATCHED improve perceived value of the service as a whole, this critical metric needs to Of the channels offered to you, how many channels do you typically watch, on average? experience positive growth. 10 or fewer channels 11-20+ channels • Over half (55.8%) of respondents would like their channel guide to categorize content into groups/lists of TV shows/movies—or display what TiVo refers 90% 80% 83.1% to as carousels. 79.2% 82.5% 70% 60% 11-20+ 50% channels CHANNEL GUIDE OR CAROUSELS 40% +3.9% q/q, +3.3% y/y Would you like your channel guide to be changed, so that it’s sorted or categorized into groups/lists 30% of TV shows or movies? For example, “What is on Now”, “Because You Watched This,” “Live Sports On Now.”? 20% 20.8% 10% 16.9% 17.5% YES, I would like my guide to be changed. 0 18.9% Q3 2016 Q2 2016 Q3 2015

YES, but I would like access to both types of Q3 2016 guides (channel guide like I have today AND EASY TO DISCOVER CONTENT 44.2% groups/categories of shows). Do you feel it is easy to find something you “want” to watch on TV?

36.9% NO, I am not interested in my guide changing. YES 58.3%

0 10% 20% 30% 40% 50% 60% 13 Revenue-Generating Pay-TV Content

PAID VIDEO-ON-DEMAND (PVOD) OFFERINGS PVOD PURCHASES PER MONTH On average, how many video-on-demand (movies offered through your provider) purchases does In Q3 2016, 42.2% of respondents make one or more PVOD purchases from your household make each month? (Movies purchased from on-demand stations provided by your cable/ their pay-TV provider, and of this group, 30.1% do so on a monthly basis. satellite provider. Does NOT include Netflix, Redbox, iTunes, etc.)

Overall PVOD purchases increased 13.0% y/y, 14.7% over two years and 15.1% 60% over three years. What is driving this growth? TiVo believes one fundamental 57.8% factor in this growth is more enticing user interfaces (UIs) which incorporate 50% recommendations, and a better content discovery experience overall.

With that said, it’s important to measure how respondents feel about the 40% experience of navigating their pay-TV providers’ PVOD catalog. In Q3 2016, 63.9% 30% of respondents who purchase PVOD feel it is easy to find a movie to watch. +13.0% y/y, +14.7% over two years, +15.1% over three years

20% PVOD CATALOG DISCOVERY 19.8% Do you feel it’s easy to find a movie you will enjoy in the video-on-demand catalog provided by your 10% 12.1% cable/satellite provider? (accessed from your guide) 6.3% 4.0% 0 0 rentals 1-2 rentals 3-4 rentals 5+ rentals <1 rental YES 63.9% per month

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

14 Over-the-Top Trends and Cord-Cheating

Cord-cheating, a trend TiVo began tracking in Q2 2013, refers to cable/satellite In Q3 2016, 66.8% of respondents with pay-TV service fall into the category that TiVo subscribers who seek on-demand video content from third-party and OTT services coined as “cord-cheaters.” Specifically, of respondents who are cord-cheaters: in addition to pay-TV providers’ offerings. Cord-cheating spans a variety of delivery • 90.7% use a SVOD service. models, including streaming SVOD, such as Netflix and Hulu, as well as transactional • 53.2% use a TVOD service. video-on-demand (TVOD), such as Redbox kiosks and iTunes. • 44.0% use both SVOD and TVOD services.

Below is a chart that illustrates a breakdown of the adoption of SVOD services by all respondents. Additional adoption and market share trends continue on pages 16-17. MONTHLY SUBSCRIPTION OTT/SVOD SERVICES Do you use any of these monthly subscription services for movies or TV shows? (choose all that apply)

61.9% Use SVOD Services: +5.6% y/y, +9.2% over two years, +13.7% over three years

5.2% 3.1% 2.7% 2.1% 1.7% 1.6% 1.0% 1.8% Netflix Amazon Prime Video (free movies) Q3 2016 51.8% 24.8% 9.9% 38.1% Hulu HBO NOW (a different service from HBO Go) YouTube Red 5.6% 3.0% 3.7% 1.7% 1.5% 1.4% 0.7% 2.3% Shomi CBS All Access Q2 2016 53.7% 24.0% 11.8% 36.1% Sling TV PlayStation Vue Blockbuster 4.3% 2.1% 1.0% 1.3% 1.0% 1.7% I do not use any of these services Other Q3 2015 49.0% 19.9% 12.1% 43.7%

1.2% 1.4%

Q3 2014 46.4% 17.9% 9.6% 47.3%

1.8% 1.5%

51.8% Q3 2013 41.7% 12.9% 9.4%

15 Over-the-Top Trends and Cord-Cheating

State of Adoption and Market Share of SVOD Services: SVOD BILL AMOUNT How much do you spend each month on subscription services (combined spend on Netflix, Hulu, etc)? • In Q3 2016, 61.9% of respondents use a monthly SVOD service. —— SVOD growth was down 2.0% q/q, but over time, it’s been trending up with Q3 2016 Q3 2014

increases of 5.6% y/y, 9.2% over two years and 13.7% over three years. 35%

• The top three SVOD services used are Netflix, Amazon Prime Video and Hulu. Below 30%

are a few q/q and y/y growth numbers to note for SVOD services: 33.4% 25% —— Amazon Prime Video was up slightly q/q and 4.9% y/y. 30.1% $15-$30+: 20% +5.7% over two years —— Hulu saw negative growth of 1.9% q/q and 2.2% y/y. 15% 21.7% —— Netflix was down 1.9% q/q, but saw positive growth of 2.8% y/y. 16.5% 10% 15.8% —— CBS All Access, PlayStation Vue, and Sling TV were relatively flat q/q and y/y. 14.0% 10.7% 3.6% 11.1%

5% 10.0% 10.1% 3.2% 2.6% 2.3% 8.1%

• 56.6% spend between $6 and $14 a month on SVOD services. 6.8% 0 —— Respondents are spending more than they were previously since $15-$30+ I do not pay for these services increased slightly y/y and 5.7% over two years—this could be partially related because I have $1 - $2 $3 - $5 $6 - $8 $9 - $11 $12 - $14 $15 - $20 $21 - $30+ access through to Netflix’s recent price increases. another person’s —— For the second quarter in a row, 10.0% of respondents say they share an account SVOD account and do not pay to do so. VIEW TIME FOR SVOD SVOD CONTENT DISCOVERY On average per day, how many hours do you Do you feel it is easy to find something One other note, Shomi, a Canadian SVOD service, recently announced it will shut watch content on these subscription services? you “want” to watch on these down just two years after its launch.1 In the Q3 2016 survey, conducted before this subscription services? announcement, 2.7% of respondents subscribe to Shomi. TiVo will continue to monitor 35% SVOD services to identify the percentage of market share necessary to stay in business. 30% 19.0% 34.3%

25% State of Engagement With SVOD Services: YES Q3 2016 NO 20% 24.9% 81.0% • 92.3% of respondents who have an SVOD account watch it on a daily basis. 15% —— The bulk of those (59.2%) do so for two hours or less per day. 15.9% • 81.0% of respondents are pleased with their ability to find something to watch on 10% 6.6% 4.3% SVOD services, which is up slightly y/y. 5% 4.0% 8.9%

1.1% 0

1 Frankel, Daniel. “Rogers and Shaw Shutter Canadian SVOD Start-up Shomi.” FierceCable. N.p., 27 Sept. 2016. Web. . Never Rarely <1 hour 5+ hours 1-2 hours 2-3 hours 3-4 hours 4-5 hours 16 Over-the-Top Trends and Cord-Cheating

It’s important to compare the large number of respondents (81.0%) who are happy with NETFLIX’S APPEALING FEATURES their ability to find something to watch on SVOD services to respondent satisfaction If you are a Netflix subscriber, which of the below features of Netflix’s service do you find appealing? (choose all that apply) (58.3%) with finding something to watch on pay-TV services, or on pay-TV providers’ PVOD offerings (63.9%). Why is Netflix, the market leader, so appealing to respondents? Q3 2016 Q2 2016 Similar to Q2 2016 results, the top three most appealing Netflix features are:

• “Price (the cost of Netflix plays a key role in why I use the service)” – 56.6% PRICE The cost of Netflix plays a key role 56.6% • “All members of your household can create their own profile” – 52.0% in why I use the service • “Search (the ability to search for a piece of content to watch)” – 51.2% CUSTOM PROFILES The fact that “search” was among the top three reasons why Netflix is appealing—and All members of your household 52.0% can create their own selection of this answer has increased 2.2% q/q—indicates respondents care about quickly and easily finding something to watch. Later in the survey, reasons for not using SEARCH 51.2% +2.2% q/q search functionality will be discussed. Pay-TV providers should note these reasons, and The ability to search for a strive to innovate and compete with emerging video offerings. piece of content to watch 49.0%

AUTO-PLAY TO THE NEXT EPISODE 47.7% Next show comes on automatically

RECOMMENDATIONS Shows to watch that are 40.1% personalized to you based on what you have previously watched

PRE-MADE LISTS OF SHOWS Such as “Because You Watched,” 31.3% “Kids Movies,” etc

I have a Netflix account, but do not find any of 3.8% these features valuable

I do not have a 11.8% Netflix account

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

17 Over-the-Top Trends and Cord-Cheating

Additionally, price increases for Netflix and related services have been featured in FREE SERVICE the news frequently. In order to better understand this, TiVo began monitoring how If Netflix or Hulu offered a FREE TV service, but you were required to watch commercials, would you consider using it? respondents feel about the cost of Netflix, as well as what is the highest price at which they value this service. In Q3 2016, for the second quarter in a row, the largest group (39.4%) selected the $12 to $15 range as the most they would pay for Netflix service. 30.6% Same as last quarter, the second largest group (30.4%) will not pay any more than they currently do. YES, I will watch Q3 2016 NO, I will not use it commercials if because I don’t want It’s no secret that the video industry is evolving, with new services emerging and existing the service is free 69.4% to watch commercials services continuously innovating and marketing new packages, price structures and offerings. Therefore, TiVo wanted to engage with respondents to determine how far these services could go to gain adoption. New to TiVo’s Q3 2016 Video Trends Report is a question that asks: If Netflix or Hulu offered a free TV service requiring viewers to watch commercials, would the respondent consider using it? Sixty-nine percent of IF YES... IF NO... respondents answered yes, with the bulk of respondents (83.3%) willing to watch one How many commercials per 30 Would you tolerate commercials if they to four commercials in a 30-minute period. Of those uninterested in a free service with minutes would you tolerate? were personalized to you based on your interests and/or viewing preferences? commercials, it is interesting to note that 14.3% are open to commercials if content is personalized to their interests and/or viewing preferences. 1 100% commercial 12.6% TiVo’s data supports Hulu’s decision to sunset its free version, which relied on commercial revenue. Because the vast majority of respondents are only willing to view 80% 2 85.7% one to four commercials, it would be very difficult for a SVOD to be successful with this commercials 31.8% limited number of revenue-driving commercials. 60% 3 commercials 26.3% THE COST OF NETFLIX If Netflix were to increase the monthly price for its service, what is the most you would pay each 40% month for your Netflix account? 4 commercials 12.6% 40% 20%

5 30% 7.2% 14.3% 39.4% commercials 0 20% 30.4% 10.6% 10% 8.9% 6-10 9.5%

5.6% commercials YES, I would NO, I am not 2.5% 1.2% 1.4% tolerate interested in 0 0 10% 20% 30% 40% commercials if commercials $0 N/A they were more on streaming I will not I do not have relevant to me services pay more a Netflix $12 - $15 $16 - $19 $20- $23 $24 - $27 $28 - $31 $32+ Account 18 Over-the-Top Trends and Cord-Cheating

TVOD SERVICES MONTHLY SPEND ON TVOD SERVICES How much do you spend per month renting movies from these pay-per-rental services? Below is a breakdown of the state of adoption, market share trends and overall engagement with TVOD services. In Q3 2016: Q3 2016 Q3 2015 • 36.3% of all respondents use pay-per-rental or third-party TVOD services, but 30% 47.8% spend $1-$8 per month: growth is flat for these services both q/q and y/y. +2.0% y/y 25% 28.2% • The top three TVOD services used are Amazon Video, Redbox kiosks (at stores), 27.8% 20% and iTunes. 22.3% 15%

—— Redbox Kiosks was the only service to experience notable declines, with 19.4%

usage down 2.2% q/q and 3.0% y/y. 10% 13.8% 12.9% 13.5%

• 47.8% of respondents spend $1 to $8 per month renting from TVOD services, an 11.7% 10.6%

5% 8.9% 9.0% increase of 2.0% y/y. 8.7% 6.6% 0.7% 5.4% 0.5% • 70.3% of respondents using TVOD services watch content on a weekly basis, which 0 I use these decreased 3.6% q/q (see chart on page 20). services occasionally, $1 - $2 $3 - $5 $6 - $8 $9- $11 $12 - $14 $15 - $30 $30+ but not on a —— The bulk of this group (54.1%) watch five hours or less. monthly basis

TVOD SERVICES Do you rent, or purchase movies from services like Amazon, CinemaNow, iTunes, Redbox kiosks, Vudu, etc.? (choose all that apply)

36.3% use TVOD services

2.3% 2.2% 1.6% 1.2% 2.2%

Amazon Video Q3 2016 17.1% 12.8% 8.4% 5.6% 63.7% Redbox Kiosks (at stores) iTunes Google Play 2.5% 2.1% 1.3% 0.9% 1.9% YouTube Movies (paid movies) Vudu Q2 2016 16.3% 15.0% 8.3% 5.6% 63.6% CinemaNow Flixster I do not use these services 2.3% 1.6% 0.8% 1.0% 1.5% Other (please specify)

Q3 2015 15.4% 15.8% 7.7% 4.7% 63.9%

19 Over-the-Top Trends and Cord-Cheating

The Enticement to Cord-Cheaters and Cord-Cutters WHY USE OTT SERVICES Why do you use these third-party rental and/or monthly subscription services like Amazon, iTunes, Why are both categories, SVOD and TVOD, so appealing to consumers? For the second Netflix, Vudu, CinemaNow, Blockbuster, Redbox, YouTube?(choose all that apply) quarter in a row, the top five reasons for using these services are: • “Convenience” – 52.9% CONVENIENCE 52.9% • “It’s cheaper” – 43.0% • “No commercials or ads” – 42.9% IT’S CHEAPER 43.0% • “Ability to watch certain TV shows and whole seasons (or binge viewing)” – 39.0%

• “Better selection” – 31.4% NO COMMERCIALS OR ADS 42.9%

Ability to watch CERTAIN TV SHOWS & 39.0% ENTIRE SEASONS VIEW TIME FOR TVOD SERVICES BETTER SELECTION On average per week, how many hours do you watch content on these pay-per-rental services? 31.4%

Q3 2016 Q2 2016 Ability to watch TV/MOVIES ON 30.0% YOUR COMPUTER 40% 70.3% watch content on a weekly basis: -3.6% q/q

EASIER TO FIND 35% 26.7% what you’re looking for 30% 35.7% I ENJOY THE 25%

32.3% ORIGINAL CONTENT 23.8% offered by these services 20%

23.6% Ability to watch 15% 23.0% 21.8% TV/MOVIES ON 22.3% 20.8% YOUR IPAD/TABLET 10% 8.0% Ability to watch 3.3% 5% 3.3% TV/MOVIES ON 18.1% 3.0% 2.5% 2.4% 2.0% 1.9% YOUR SMARTPHONE 6.1% 0 5.3% I rent from these services because 10.6% I DO NOT HAVE CABLE/ Rarely Less than 1-5 5-10 10-15 15-20 20+ Never SATELLITE SERVICE 1hr. hours hours hours hours hours 0 10% 20% 30% 40% 50% 60%

20 Analytical Commentary À LA CARTE AND FREE OTT - IS IT THE FUTURE OF PAY-TV?

After a deeper analysis of the Q3 2016 survey results, TiVo’s Data Science TiVo believes this relationship between à la carte and free OTT is interesting. While Team discovered a strong correlation between those who want an à la carte the industry has talked at length about how cutting pay-TV service in order to bundle pay-TV offering, and those who would like a free OTT streaming service (with various video services can often cost more than a pay-TV package, TiVo’s survey reveals commercials) such as those offered by Netflix or Hulu. While it was apparent that this may actually be what consumers want. Is the winning combination an à la carte that a large population (78.0%) of respondents desire à la carte pay-TV, what package of about 18 channels for $29.46/per month, plus a free OTT streaming service? the Data Science Team found striking was that of those respondents who want à la carte, 75.8% would also use a free OTT streaming service.

TABLET & SMARTPHONE OWNERS Connected Devices Do you own an iPad/tablet or a Smartphone? (choose all that apply)

Q3 2016 Q2 2016 Q3 2015 Q3 2014 Q3 2013 With the incredible growth of mobile viewing devices (tablets, laptops, phones), households have essentially added multiple TVs to their homes, an opportunity which pay-TV providers, content owners and CE manufacturers can capitalize on. TiVo believes 55.1% +2.6% y/y, +4.5% over two years, +11.5% over three years improvements could be made in personalization of recommendations and advertising. 54.1% More so than any other device, mobile phones tend to be personalized and used by only one person. In addition, the type of content consumed on a mobile device tends to be 52.5% different than the type of content that same viewer watches from a set-top box. YES, I own an iPad/Tablet 50.6% Therefore, it’s important to keep track of the size of the connected device audience as a 43.6% whole to know the potential reach of these efforts.

-2.7 q/q,+4.4% y/y, +8.6% over two years, TABLETS AND SMARTPHONES 73.7% +11.0% over three years In Q3 2016, 86.1% of respondents own an iPad/tablet and/or a smartphone. A further 76.4% breakdown shows: • 55.1% own an iPad/tablet, a slight increase q/q, 2.6% y/y, 4.5% over two years and 69.3%

11.5% over three years. YES, I own a 65.1% Smartphone • 73.7% own a smartphone, which decreased q/q, but the data shows a more positive 62.7% outlook long-term with increases of 4.4% y/y, 8.6% over two years and 11.0% over three years. 0 10% 20% 30% 40% 50% 60% 70% 80%

21 Connected Devices

TV-ORIENTED DEVICES In Q3 2016, 63.3% of respondents own a Wi-Fi enabled device—a 2.8% increase y/y. For the sixth quarter in a row, the top devices owned are: • “Computer/laptop” – 37.1% • “Smart TV” – 18.7% (increased 4.8% y/y) • “Wi-Fi-enabled Blu-ray Player” – 11.9% (increased slightly y/y) • “Apple TV” – 10.8% (increased slightly q/q and 2.2% y/y) • “Google Chromecast” – 9.1% (increased 1.3% y/y)

While the Amazon Fire TV Stick did not appear in the five top devices owned, it did experience positive growth of 2.5% y/y.

TV-ORIENTED DEVICES Do you have any of the following connected devices (Wi-Fi enabled devices)(this question excludes gaming devices, smartphones and tablets)? (choose all that apply)

63.3% own a Wi-Fi enabled device: +2.8 y/y Smart TV: +4.8% y/y; Apple TV: +2.2% y/y; Google Chromecast : +1.3% y/y; Amazon Fire TV Stick: +2.5% y/y Computer/Laptop Smart TV Wi-Fi-enabled Blu-ray Player 5.5% 3.6% 1.8% 1.2% 1.7% Apple TV Google Chromecast Q3 2016 37.1% 18.7% 11.9% 10.8% 9.1% 7.2% 36.7% Roku Streaming Player Amazon Fire TV Stick Roku Streaming Stick 3.0% 2.2% 1.6% 1.2% 1.8% TiVo Bolt/TiVo Roamio/TiVo Roamio Plus/TiVo Roamio OTA Boxee TV Q3 2015 38.0% 13.9% 11.0% 8.6% 7.8% 7.1% 39.5% I do not own any of these Wi-Fi enabled device Other

0 Pay-TV Providers’ TV Everywhere Offerings

State of Awareness: In Q3 2016, 47.1% of respondents are aware their TV EVERYWHERE: AWARENESS pay-TV provider offers an app that allows them to watch TV/movies on devices Does your cable/satellite provider offer an app(s) that allows you to watch TV/movies on devices such as a smartphone, iPad/tablet, or a computer/laptop? such as a smartphone, iPad/tablet and/or computer/laptop. TVE awareness increased 4.0% y/y, 5.5% over two years and 12.5% over three years. +4.0% y/y, +5.5% over two years, +12.5% over three years

State of Adoption: 28.1% of respondents use their pay-TV provider’s TVE app, an increase of 1.9% q/q, 4.2% y/y, 4.4% over two years and 8.5% over three years. Q3 2016 47.1%

State of Viewing and Engagement: Of those respondents, 58.4% use Q3 2015 43.1% their TVE app on a weekly basis, a slight increase q/q, and 16.6% y/y. The category “Four days a week” increased 1.8% q/q, 2.4% y/y and 3.1% over two years. Q3 2014 41.6% YES

Q3 2013 34.6%

0 10% 20% 30% 40% 50%

TV EVERYWHERE: ADOPTION TV EVERYWHERE: WEEKLY USAGE Do you access your cable/satellite provider’s TV offering on your iPad/tablet, smartphone, and/or If yes, how often do you use your cable/satellite provider’s app, or TV everywhere offering, on a computer/laptop? weekly basis?

Q3 2016 Q2 2016 Q3 2015 +1.9% q/q, +4.2% y/y, +4.4% over two years, +8.5% over three years

+16.6% y/y

Q3 2016 28.1% 60% 58.4% 57.6% 50% Q2 2016 26.2% 40% 41.8% 42.3% Q3 2015 23.9% 30% YES 28.7% 28.1% Q3 2014 23.7% 20%

15.9% 10% 14.3% Q3 2013 19.6% 12.9% 0 10% 15% 20% 25% 30% 0 5% WEEKLY RARELY NEVER (1-7 days) (<1 day)

23 Pay-TV Providers’ TV Everywhere Offerings

In addition to actual usage, TiVo tracks respondent engagement with functionality TVE: CONTENT DISCOVERY USAGE created by pay-TV providers to ease content discovery on TVE apps. In Q3 2016, 57.0% Do you leverage any of the following features in your cable/satellite provider’s app? (choose all that apply) of respondents are engaged with the search and/or recommendations provided in their TVE app. Engagement saw positive growth overall of 2.3% q/q and 6.5% y/y. Below is a Q3 2016 Q2 2016 Q3 2015 breakdown of overall engagement with content discovery functionality: 57.0% use Search and/or Recommendations: +2.3% q/q, +6.5% y/y • “Search (you type in a title or topic to search for)” – 46.1% (increased slightly q/q and 7.5% y/y) 50% +7.5% y/y • “Recommendations (Similar Titles, Suggested for You, Because You Watched)” – 26.9% (increased 2.2% q/q and 2.6% y/y) 40% -1.8% q/q ,-7.2% y/y 46.1%

It is worth noting that the answer choice “No, these are offered, but I do not use 44.9% +2.2% q/q ,+2.6% y/y 39.3% these features,” which represents those who choose not to engage with the discovery 30% 38.6%

technology offered to them, decreased 1.8% q/q and 7.2% y/y. 33.9% 32.1% 20% 26.9% 24.7% 24.3%

10% 11.4% 10.9% 10.2% 0

SEARCH RECOMMENDATIONS NO NO (You type in a (Similar Titles, These are offered, These are NOT title or topic Suggested for You, but I do not use offered in my to search for) Because You these features cable/satellite Watched) provider’s app

24 TV Network Apps

In addition to pay-TV providers’ TVE offerings, TV networks continue to deploy While overall adoption (28.4%) isn’t enormous, there is positive growth in weekly usage and update enticing mobile apps that connect the viewer to their content. While by respondents who do use TV network apps. Below is a highlight of Q3 2016 usage of many of these apps require the viewer to have pay-TV service in order to view TV network apps: content, the industry is seeing a shift with networks, such as HBO and CBS, • 67.0% of respondents use these apps on a weekly basis, an increase of 1.9% q/q, launching subscription-based access without the requirement of a pay-TV login. 10.9% y/y and 15.0% over two years. In Q3 2016, 28.4% of respondents use one or more TV network apps, an increase of • Additionally, respondents are using these apps more—five to seven days a week, to be 2.6% y/y. The top TV network apps respondents use are:* specific—increased 4.1% y/y and 6.8% over two years.

1. CNN – 5.6% 4. WatchESPN – 4.8% 2. ABC – 4.8% 5. CBC – 3.8% TV NETWORK APPS 3. HBOGo – 4.8% 6. CBS – 3.8% How often do you use these TV/TV Network apps? *There was a tie for fifth-most-used TV network app. Q3 2016 Q2 2016 Q3 2015 Q3 2014 TV NETWORK APPS +1.9% q/q, +10.9% y/y, +15.0% over two years Do you have any of the following TV/TV Network apps downloaded on your iPad/tablet and/or 80% Smartphone? (choose all that apply) 70% CNN 5.6% 60% +2.6% y/y ABC 4.8% 67.0%

50% 65.1% HBOGo 4.8% 40% WatchESPN 4.8% 56.1% 52.0% CBC 3.8% 30% 28.4%

CBS 40.9% 3.8% 20% NBC 3.4% 33.7% 29.1% 10.2% 27.7% Q3 2016 FOX 10% 7.1% 5.8% YES, I use 3.0% 5.3% one or more HBO NOW 2.8% 0 of these 71.6% FOX News 2.7% WEEKLY RARELY NEVER (1-7 days) (<1 day) apps BBC 2.6% A&E 2.5% NBC Sports 2.5% Showtime 2.5% 5-7 Days a Week: +4.1%y/y, +6.8% over two years Comedy Central 2.4% NO, I do not Disney 2.4% 20% use any of FOX Sports 2.4% these apps Discovery Channel 17.1% 25.8% 2.3%

History 13.8% 2.1% ABC Family (renamed to Freeform) 1.9% Q3 2015

10% 8.9% 8.8% MTV 1.8% 8.5%

PBS Kids 1.7% 6.2% Nickelodeon 1.6%

74.2% 3.7% MSNBC 1.5% The CW 1.5% 0 Turner Entertainment 1.0% 7 days 6 days 5 days 4 days 3 days 2 days 1 day (CNN, TNT, CN, TBS, etc.) a week a week a week a week a week a week a week 0 1% 2% 3% 4% 5% 6% 25 Content Discovery: Search, Recommendations, Social Discovery and Sports Discovery

In Q3 2016, 64.9% of respondents get frustrated “always” or “sometimes” when This data suggests that content owners must be cautious when implementing trying to find something to watch on TV. The positive news for pay-TV providers fragmented access and pay structures. Long-term viewership and engagement should is that the response “Never, I can always find something” increased 2.5% q/q. be considered against short-term licensing incentives which may prevent viewers from watching content in a seamless, continuous fashion. Another source of frustration when navigating the myriad of available content sources and platforms is inconsistency in content availability. As consumers become increasingly connected and mobile, many are discovering that some TROUBLE FINDING CONTENT content is only available on certain services, devices, or platforms, or that Have you ever stopped watching a show that you previously enjoyed because it became too difficult to access the content? specific episodes and seasons are trapped behind additional pay walls.

In Q3 2016, 28.2% of respondents have stopped watching a show they previously 28.2% enjoyed because it became too hard to access. Below are the primary drivers for why the respondents “show-dumped” and gave up on the content: Q3 2016 • “The content is not available on the streaming services I currently subscribe to” – YES NO 27.0% 71.8% • “New seasons and episodes were not available on a streaming service” – 24.8% • “I downgraded my TV package and no longer have access to the channel the content was on” – 21.1% IF YES... From the following list, please select the main reason the content became too difficult to access: FINDING SOMETHING TO WATCH How often do you get frustrated when trying to find something to watch on TV? The content is not available on the streaming services I currently 27.0% subscribe to (e.g. Netflix, Hulu). +2.5%q/q

New seasons and episodes were not 24.8% 10.8% 12.3% available on a streaming service. 21.8% 64.9% 24.3% “Always” or 11.3% 11.8% I downgraded my TV package and no “Sometimes” longer have access to the channel the Q3 2016 21.1% feel frustrated Q2 2016 content was on.

I cut the cord and the content is only 6.7% 53.6% 54.1% available on my Pay TV service.

Other 20.4%

Never, I can usually always I sometimes I always N/A find something feel frustrated feel frustrated 0 5% 10% 15% 20% 25% 30%

26 Content Discovery: Search, Recommendations, Social Discovery and Sports Discovery

In addition to overall frustration, TiVo seeks to understand whether respondents RECOMMENDATIONS are leveraging third-party services to find something to watch. In Q3 2016, 34.3% of Does your cable/satellite provider make recommendations of TV shows and Movies to you based on respondents consult a third-party entertainment source, such as Rotten Tomatoes, your interests, past viewing habits, etc. (personalized to you)? Moviefone, IMDb, Fan TV, etc. to assist them in finding something to watch on TV. For the second quarter in a row, the top entertainment services used by respondents are: 21.0% • “IMDb” – 14.9% YES • “TV Guide” – 14.0% 68.0% Q3 2016 11.0% • “Rotten Tomatoes” – 11.6% NO

N/A THIRD-PARTY ENTERTAINMENT SOURCES Do you use any of the following services to find something to watch on TV(not just for movie theater information)?

IMDb 14.9% IF YES... IF NO... TV Guide 14.0% Do you feel the recommendations Would you like to have TV shows and movies are accurate/relevant? recommended to you (and personalized to Rotten Tomatoes 11.6% your likings)? Moviefone 2.1% Q3 2016 Q3 2015 80% Common Sense Media 2.0%

Fan TV 1.7% 70% 15.8% +3.1% y/y I do not use any Always of these services 65.7% accurate 60% 61.5% 0 10% 20% 30% 40% 50% 60% 70% 80% 12.7% 50%

RECOMMENDATIONS 40% 78.1% In Q3 2016, 21.0% of respondents answered that their pay-TV provider makes Sometimes 38.5% 30% recommendations for relevant TV shows/movies. This remains relatively flat q/q and accurate 79.4% y/y. Of the 68.0% of respondents who do not receive recommendations, more than half 20% (38.5%) would like this functionality in order to improve the discovery of their TV shows/ movies. Pay-TV providers have made great strides in rolling out this functionality on TVE 10% 6.1% experiences, but STBs need to be expedited to keep up with the competition. Never accurate 0 Equally important to overall usage of recommendations is accuracy of recommendations. 7.9% In Q3 2016, 93.9% of respondents feel they are “always accurate” or “sometimes YES NO accurate.” Pay-TV providers will be pleased to know that the answer “always accurate” 0 20% 40% 60% 80% increased 3.1% y/y.

27 New: Quarterly Tips Series: LEVERAGING DATA IMPROVES MARKETING EFFORTS

In early October, HBO shared how the use of data has accelerated its marketing Capturing subscriber data allows video service providers to identify clusters, or campaign planning from as much as six months in advance to almost real time.2 The segments of viewers, for similar viewing interests and overlaps in viewing behavior. Streaming Media article described how after the launch of its new offering, HBO Now, Thus, video service providers can identify new content to promote as well as the network was able to interact directly with consumers for the first time. According subscribers who may be in favor of upgrading to a premium package—both of which to the article, on a daily basis, the HBO Now team reviews and leverages its subscriber should be A/B tested with each of these segments. data, and then adjusts HBO’s marketing campaign efforts as quickly as the next day.

TiVo has spent a great deal of time educating pay-TV providers, digital publishers and Examples of the Power of Data to Deliver Targeted Marketing CE manufacturers on how to utilize real subscriber data to deliver targeted content 1. Launch seasonal promotions: Fall is a great time to leverage data as new series recommendations and promotions, and struggles to understand why many providers are introduced and existing TV shows have season premieres. For example, when are slow to do so. When video service providers are asked about using data to deliver a viewer chooses to set his or her DVR to record the new “Kevin Can Wait” series targeted marketing campaigns, feedback varies and includes the following: premiere, the data can be compared to other season premieres in order to provide • It’s a challenge to get all the various data sources combined into one valuable information back to the network regarding the number of households central location. planning to watch the episode. • The BI team is overwhelmed and does not have the bandwidth to support these 2. Conduct tests based on data: The use of data enables testing, which takes the efforts within a reasonable turnaround time. analysis one step further. Not only can video providers test, but they also have enough • The resources do not exist to manage large amounts of data. data to conduct A/B tests, which ensure promotions meet internal expectations TiVo feels the video industry must tackle the obstacles holding it back from before being sent to the entire audience. By leveraging these results, personalized leveraging subscriber data. Doing so can begin with something simple; for instance, recommendations of new TV shows/series can be boosted or promoted to the correct when a pay-TV provider captures every click on the remote, that information alone is target audience. For example, TiVo recently completed a multivariate A/B test for a enough to segment a subscriber base in order to better target and test various content customer, in which the goal was for viewers to click through to the details page of a and promotions. new series premiering in the coming weeks. This multivariate A/B test ran across the provider’s set-top boxes and TVE platforms—plus it included key variables, such as time of day and favorite series. The winning test campaign had an increased click-through rate of 30.0%, as compared to the control group that did not receive the promotion.

2 Krefetz, Nadine. “How Data Is Changing HBO.” Streamingmedia.com. N.p., 4 Oct. 2016. Web. .

28 New: Quarterly Tips Series: LEVERAGING DATA IMPROVES MARKETING EFFORTS

3. Target at-risk subscribers through segmentation: Another area of The Use of Segmentation for a Targeted Content Promotion content targeting is segmenting viewers who are at high risk to churn. Usually this group consists of low-viewing/low-engagement viewers who typically watch a few hours of television per week, and often it’s the same two to four shows. Additionally, “low-engagement” means they are not leveraging VOD or TVE offerings. Rather than including this segmentation in “spray-and-pray” Segment viewers by common viewing habits. Groups close together have marketing campaigns, video service providers can target these viewers based similar viewing habits vs. those farther on content watched. apart have limited, to no similarities. Once this at-risk group is identified and segmented, providers can test various promotions. For example, if a segment of this group watches a considerable amount of “NCIS” on CBS but doesn’t watch “Bones” on FOX, boost “Bones” to that group. Another example is to segment viewers who watch “Gotham” on FOX, but do not watch the similar series “Blindspot” on NBC. This group views high amounts of NCIS When TiVo ran a similar campaign for a customer, the test results showed only, but not Bones that more than 10.0% of viewers stuck with the content, thus increasing This group views overall engagement. By leveraging this information as well as running high amounts of both NCIS univariate and multivariate A/B tests, video service providers can act on their and Bones data to drive engagement, increase viewing, and even grow ARPU (Average Revenue Per User). Non-Engaged Engaged High Viewing High Viewing

Take viewers who only watch NCIS and segment for Bones promotion. Identify viewers who are in the low engaged, low viewing group for the Bones promotion. Engaged Low Viewing Non-Engaged Low Viewing

29 Note: A dot represents a household Content Discovery: Search, Recommendations, Social Discovery and Sports Discovery

SEARCH TEXT SEARCH Do you ever type in a TV show, movie title, or topic into Search is one form of content discovery, and like the video industry as a whole, this a search box to find something to watch in your functionality has evolved over the lifetime of this report. Therefore, this report breaks cable/satellite guide?” IF YES... search functionality into three categories: lists or category searches, text search and Do you feel the search results Q3 2016 Q2 2016 Q3 2015 voice search. are accurate?

+3.1% q/q, +4.7% y/y Lists or Category Searches +3.7% q/q, +3.4% y/y 100% Many pay-TV providers offer pre-defined category lists, or genre lists, as another 49.0% 80% 88.1% method of search. Therefore, new to the Q3 2016 Video Trends Report is a question 84.4% 84.7% tracking usage of this functionality to find something to watch. Nearly 23.0% of 45.9% 60% respondents use pre-made category lists to search for a specific channel or genre to YES 44.3% 40% watch, such as “Family/Kids Shows” or “Lifestyle Channels.” 20% Text Search 49.8% 0 Additionally, 49.0% of respondents type a TV show/movie into the search box of 45.6% Q3 Q2 Q3 2106 2106 2015 their STB to find something to watch, an increase of 3.1% q/q and 4.7% y/y. Of the NO 47.8% respondents who use search to find something to watch, 88.1% feel the results are YES, I feel the results 0 10% 20% 30% 40% 50% accurate, which increased 3.7% q/q and 3.4% y/y. are accurate

Why are 49.8% of respondents not using text search? The top three reasons respondents do not leverage text search functionality are: IF NO... Why don’t you use the search functionality offered to you? (choose all that apply) • “I only watch a few channels so no need to search” – 35.2% • “It takes too much time” – 21.7% (increased 2.6% q/q) Q3 2016 Q2 2016 • “I am not interested in searching for TV shows/movies” – 21.5% I ONLY WATCH A FEW CHANNELS 35.2% so no need to search 35.7% 21.7% It takes TOO MUCH TIME +2.6% q/q LIST/CATEGORY SEARCH 19.1% Do you use the pre-made category lists to search for channels such as “Family/Kids Shows,” “Sports,” 21.5% “Lifestyle Channels?” I AM NOT INTERESTED in searching for TV Shows/Movies 21.6%

YES 22.7% I DO NOT KNOW HOW 20.4% to use the search feature 19.4% NO, I don’t use this type of search, but my cable/satellite provider does offer 40.6% SEARCH IS NOT OFFERED 16.5% this functionality by my cable/satellite provider 18.8% NO, and I don’t think my 4.0% cable/satellite provider offers 34.6% OTHER this functionality 3.9% 0 10% 20% 30% 40% 50% 0 5% 10% 15% 20% 25% 30% 35% 40%

30 Content Discovery: Search, Recommendations, Social Discovery and Sports Discovery

VOICE SEARCH VOICE SEARCH Do any of the devices you view TV and/or movies on allow you to talk into the device to search for a Voice search is the smallest of the three search categories, with 9.8% of respondents TV show/movie, or change channels, etc.? (For example, use your voice to say, “Is a scary movie on now?”) reporting the ability to talk into their device to search for a TV show/movie, a percentage Q3 2016 Q3 2015 which increased slightly q/q and 5.4% y/y. 50% Of respondents with voice search capability, 76.7% use it on a weekly basis. The largest 48.2% group (35.0%) conducts one to three searches per week, and the second-largest group 40% 42.9% (20.1%) conducts four to seven searches per week. 30% While TiVo is aware that voice search is not yet offered by the majority of pay-TV +4.0% y/y 26.0% providers, it’s important to track awareness of this functionality. In Q3 2016, those 20% 20.2% unaware of whether this functionality is available (also the second-largest group at +5.4% y/y 18.0% 16.2% 20.2%) increased 4.0% y/y. This means pay-TV providers need to continue marketing 10% 9.8% 9.1% service innovations to build awareness. 4.4% 5.2% 0

YES, YES, NO, NO, I am not sure if I can use my voice this is available to and I am not but I would like this is available to find something me, but I DO NOT interested in using the ability to use to me to watch use it my voice to find my voice to find something to watch something to watch

IF YES... How often do you use voice search?

35% 35.0% 30%

25%

20% 23.3% 20.1% 15%

10% 9.5% 5% 7.7% 4.4% 0 <1 search 1-3 searches 4-7 searches 8-11 searches 12-15 searches 16+ searches per week per week per week per week per week per week

31 Content Discovery: Search, Recommendations, Social Discovery and Sports Discovery

SOCIAL DISCOVERY SOCIAL DISCOVERY Do you post about what you’re watching on social networks such as Twitter, Facebook, etc.? Twenty-four percent of respondents post about what they’re watching on social media, up 1.8% y/y. Additionally, 38.4% of respondents choose to watch a show based on social Q3 2016 Q3 2015 buzz, an increase of 4.2% y/y.

4.1% While these numbers are promising, TiVo recommends offering an equally enticing YES, frequently 24.2% post 3.5% on social social discovery feature that leverages subscriber data and segments groups based media: on viewing habits in order to suggest content according to what’s popular among 20.1% +1.8% y/y YES, sometimes similar groups. 18.9% NO, I do not use social 56.4% networks to discuss TV shows or movies 56.7% SOCIAL BUZZ NO, I do not use 19.4% Do you ever choose to watch a TV show or movie because of all the buzz it’s getting on Facebook, social networks at all Twitter, or other social networks? 20.9% 0 10% 20% 30% 40% 50% 60% Q3 2016 Q3 2015

50% 38.4% choose to watch a show based on social buzz: 47.1% 40% +4.2% y/y 43.9%

30% 33.8% 30.5% 20% 18.7% 17.7% 10% 4.6% 3.7% 0

YES, YES, NO, NO, frequently sometimes I do not use social I am not on social networks to find a TV networks at all show or movie to watch

32 Content Discovery: Search, Recommendations, Social Discovery and Sports Discovery

SPORTS DISCOVERY SPORTS DISCOVERY Do you have trouble finding your favorite sports teams games, or do you ever miss sporting events In Q3 2016, 34.0% of respondents have trouble “always” or “sometimes” when because it’s on a channel that is far down in your channel guide? trying to find something to watch on TV. Frustration with finding sports content Q3 2016 Q2 2016 Q3 2015 Q3 2014 continues to increase, with slight growth q/q, 2.0% y/y and 3.2% over two years. 60% Pay-TV providers might feel threatened by various sports leagues going direct to the consumer, but this further proves the immediate need to solve viewers’ challenges 50% 34.0% “Always” or “Sometimes” in finding their favorite teams’ sporting event. For example, the National Hockey have trouble: 52.3% 50.6%

40% 49.7% 49.5% League (NHL) recently announced a direct-to-consumer offering, called NHL. +2.0% y/y, +3.2% over two years TV. 3 The NHL is offering two packages, one for $139.96, which allows access to all 30% games, and another for $24.99, which allows access to subscribers’ favorite team

20% 29.7% 29.0% 27.8% only. Additionally, ESPN recently announced the launch of a direct-to-consumer 27.5% 4 10% offering in 2017. While details are limited, ESPN’s CEO stated that the enormous 17.4% 17.4% 16.9% 4.2% 16.5% 3.9% 4.3% 3.3% amount of digital sports’ rights creates a “treasure trove” for monetization. 0 Always Sometimes Never N/A These two offerings demonstrate that the competition to pay-TV providers is strong and growing stronger—so again, improving content discovery of sports content and marketing these improvements to subscribers will remain essential to increasing satisfaction.

3 Umstead, R. Thomas. “NHL Looks To Score With Digital Offerings.” Multichannel News. N.p., 12 Oct. 2016. Web.

4 Farrell, Mike. Multichannel News. N.p., 21 Sept. 2016. Web. .

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