TV Industry Trends - 2019 Survey

January 2019 TV Industry Trends - 2019 Survey Survey Background

The 3Vision annual Trends Survey collates feedback from senior media executives. Respondents are from global markets, and are asked to share their views on key areas. Respondents include content owners, Pay TV platforms, distributors, and tech vendors. Topics included major industry areas such as content licensing, drama production, pay TV initiatives and direct to consumer services. Survey responses were captured from mid- December to mid-January.

2 3Vision Trends Survey 2019 TV Industry Trends - 2019 Survey Overview

2018 saw more rapid developments in the television industry. Pay TV continues to innovate at pace, shifting their spend from linear channels to and other initiatives as they fight to grow. SVOD continues to grow and drive change in the content market whilst broadcasters respond by improving their offer for consumers (and advertisers) with in-season stacking, digital exclusives and box-set premieres to mention a few. Consolidation, direct-to-consumer, AVOD, social video, telco VOD and the increasing amount of value in the first window for content were just some of this year’s themes. We asked our global network of industry executives for their thoughts on what we can expect from the market over the next 12 months.

3 3Vision Trends Survey 2019 TV Industry Trends - 2019 Survey Video Market Potential

59% Video markets with most growth potential 2019 Respondents ranked Asia as the #1 market for growth in 2019

Asia topped the rankings again and was the top 14% 8% pick for more respondents this year. Europe is the only other region with a year-on-year increase. 4% 59% The outlook for the African market is less positive 10% than last year (dropping down from #2), perhaps 6% reflecting discontent following the closure of Kwese’s DTH platform and the lack of any major competition in the anglophone market for DStv. The Middle East continues for all to be a market % % of respondents selecting the market as their #1 pick that is challenged by geo-political issues.

4 Q. Please rank the following regions in the order you expect to see most growth in Video market value over the next three years (1 = most growth, 6 = least) TV Industry Trends - 2019 Survey Pay TV Initiatives

Pay TV Operator Feature Set Importance ‘18 Integrating 86% 86% 71% SVOD services Believe that Pay TV operators should be TV 78% 48% Everywhere focused on integrating with SVOD players Home gateway/ 39% 33% multi-room/screen Perhaps mirroring ’s recent launch on Start 34% 17% Movistar (Spain) and Sky (UK and Germany), Over and the increased activity by Amazon, the Network 32% 33% PVR importance of SVOD to Pay TV subscribers 4k /UHD 8% 33% Content was the leading issue for respondents. Voice 5% n/a Control Fewer respondents rated the importance of 4K (perhaps reflecting the lack of content), Electronic 3% 12% Sell Through and new innovations such as voice control Virtual Reality 2% 7% Content and virtual reality remain a low priority. % of respondents choosing the named feature

5 Q.Which of the following do you think are the most important features of Pay TV? (please select up to three) TV Industry Trends - 2019 Survey Pay TV Initiatives Comment - Sky and Netflix Q4 2018 Integration

In Q4 Sky launched Ultimate On Demand - adding Netflix to their platform like many other operators - but going a step further, offering it bundled with their own content product at a discounted rate. The Ultimate On Demand package costs £10 per month, and is added to a subscription, giving access to Netflix Standard worth £7.99 and Sky Box Sets worth £5 for a bundled cost of £10, a saving of £2.99. Viewers wanting to access Netflix in UHD can subscribe to Netflix’s Premium plan (an additional £2), and subscribe to the ‘Sky Q Experience’, Sky’s new name for Multiscreen which costs £12 p/m.

Old New Entertainment TV Pack & Box Sets Entertainment TV Pack & Ultimate On Demand

Sky Box Sets £5.00 Sky Box Sets £5.00

Netflix (Standard) £7.99 Netflix (Standard) £7.99

Unbundled Cost £12.99 Ultimate bundle £10.00 Saving £2.99 (23%)

6 Source: Sky Releases TV Industry Trends - 2019 Survey Virtual Pay TV (VPTV) Developments

57% Expectations for the Virtual Pay TV Market in 2019 ‘18 Believe there will be growth in the Virtual Pay TV market in 2019 The Virtual Pay TV model will grow 57% 25% Unlike last year respondents feel growth will not be globally limited to the US and the opportunity is global. Virtual Pay TV will continue to grow but 9% 28% VPTV services outside the US have so far tended only in the US to be skinny Pay TV offers from existing operators such as Canal Start (France), WAVO (UAE), Growth will be small in both the US and 35% 40% Magenta TV (Germany), and TV (UK). worldwide 2019 may see growth of standalone full VPTV in global markets - with challenges securing rights There will be either no growth in the 0% n/a and feature sets (especially with Free TV), but market or a decline channels may start to view them in a more favourable light as they look for growth.

7 Q. In 2018 Virtual Pay TV (Virtual MVPDs) grew mostly in the US. What are your market expectations for 2019? TV Industry Trends - 2019 Survey Virtual Pay TV Comment

Virtual Pay TV has seen growth in the US, but for existing AT&T Video Net Adds (000s) 600 operators launching their own virtual services on top of DirecTV Now traditional offers comes with challenges - AT&T’s issues U-verse 267 450 DirecTV with DirecTV Now are apparent in their numbers. 368 342 342 328 323 300 296 312 235 214 150 152

72 26 1 24 491349 13 0 -156 -251 -147 -188 -286 -359 -92

-240 -262 -233 -150 -326 -382 -391 -60 -195 -300 -134

Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18

8 Source: AT&T Quarterly Report Q3 2018 TV Industry Trends - 2019 Survey Content Owner Direct-to-Consumer (D2C)

“Most large content 68% owners will launch their 17% 15% 43% 25% Believe the majority of large content owners own D2C service in 2019” will launch D2C services in 2019 “More content owners will go D2C through platforms 13% 13% 52% 18% 70% like Amazon Channels” Strongly Disagree Slightly Disagree Neither Agree/Disagree Believe more content owners will launch Slightly Agree Strongly Agree D2C services through Amazon Channels

The majority agree D2C activity will increase Amazon Channels Growth (currently in US, UK, Germany & Japan) this year with an expectation that many of these US Market International content owners will use Amazon Channels. 160 2017 2018 Amazon Channels is set to launch in more 120 80 72 countries with channel numbers growing. How 52 50 40 it grows as an aggregator of the future will be a 40 30 No. of Channels of No. key area to follow. 0 Q4'15 Q2'16 Q4'16 Q2'17 Q4'17 Q2'18 Q4'18 UK GER JAP

9 Source: 3Vision Analysis of Amazon Services, November 2018 TV Industry Trends - 2019 Survey Global SVOD Co-Productions 77% “Global SVODs will increase co- Agree that Netflix and Amazon will 13% 8% 42% 35% productions with increase co-productions with local players local broadcasters” The majority felt that local co-productions

Strongly Disagree Slightly Disagree Neither Agree/Disagree with Netflix and Amazon will continue to Slightly Agree Strongly Agree grow across global markets.

10 3Vision Trends Survey 2019 TV Industry Trends - 2019 Survey Local Collaboration

“There will be an 68% increase in local Expect more local collaborations to increase local collaboration as they 10% 18% 50% 18% combine strengths leverage against Global SVOD players OTT” Although prospects vary, there is an expectation

Strongly Disagree Slightly Disagree Neither Agree/Disagree that following on from more announcements in Slightly Agree Strongly Agree 2018 there will be more local collaboration in 2019.

11 3Vision Trends Survey 2019 TV Industry Trends - 2019 Survey Drama Production

Expectations for Drama Production 52% Inner ring (2018) 5% Believe that drama production will grow in 2019 7% Outer ring (2019) Up from 43% last year, respondents expect 13% drama production levels to continue to grow. 10% 43% Pessimism is also on the decline, with only 7% 52% believing production levels have now peaked 37% versus 10% of respondents last year. 35% Whilst US data shows the ongoing domestic growth caused by SVOD, there are clearly also Production levels will continue to grow in 2019 numerous European and global initiatives Production levels will be similar to previous years fuelling the global production market. Production levels have now peaked and may fall Not sure

12 Q. What will happen to the volume of drama production in 2019? TV Industry Trends - 2019 Survey Drama Production

US Scripted Original Series Volume of Productions Certified for High-end Tax relief in the UK 200 110 e 103 160 83 120 Broadcast 81* Basic Cable 58 80 Pay Cable 44 SVOD 40 5

2010 2011 2012 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018

SVOD influence on US scripted series growth is huge. Globally Since 2013 high-end UK TV projects there is also growth in local originals with Sky, Movistar, Liberty (>£1M p/hr) have been able to apply for and Nordic Entertainment Group (NENT) all spending more - tax relief, contributing to the rise in the NENT expecting 15-20 original series per year from 2019. level of production projects.

13 Source: 3Vision market analysis and estimates based on data from FX Networks Research (Dec 2018) and the BFI (Oct 2018) * Represents certified productions up to and including Sep 27th 2018 TV Industry Trends - 2019 Survey Content Licensing by SVOD

“SVODs will 73% become more 8% 17% 44% 29% active in buying first windows” Believe that SVOD will acquire more first Strongly Disagree Slightly Disagree window product in 2019 Neither Agree/Disagree Slightly Agree Strongly Agree 73% of respondents agree that SVOD will acquire more first windows in 2019.

Global Distribution of 1st Window Scripted Series In addition to growing production activity, data from 11 key global markets shows that season- on-season SVOD is taking a greater share of 65% 59% 56% first window acquisitions - with many individual territories finding the marketplace even more 35% 41% 44% dominated by SVOD. In Sweden where SVOD 2016/17 2017/18 2018/19 has had huge success 80% of 2017/18 season SVOD Free/Pay TV shows went to SVOD in the first window.

14 Source: 3Vision Show Tracker (December 2018) TV Industry Trends - 2019 Survey Content Licensing by Broadcast Channels

“Broadcasters will offer more 81% 66% in-season stacking and/or 7%10% 47% 34% Box Sets with first windows” There will be more Channels will offer more stacking and Box Sets on digital exclusively “Broadcasters will release more content exclusively 8% 20% 56% 10% There is strong agreement from within the industry online” that broadcasters will have more enhanced content Strongly Disagree Slightly Disagree Neither Slightly Agree Strongly Agree propositions in 2019.

Selected Examples of Broadcaster Releases in 2018 (UK) SVT Play (SWE) ABC iView (AUS) Canal+ (FRA) Sky (UK) CMore (Nordics) BBC (UK) Search Party The Bold Type Killing Eve Hard Sun Get Shorty Sweetbitter Killing Eve Box Set released Box Set released Box Set released 2 Box Set released Box Set released Box Set released Box Set released exclusively online exclusively online months pre-linear with linear with linear with linear with linear

15 Source: 3Vision Show Tracker (December 2018) TV Industry Trends - 2019 Survey Content Licensing by Broadcast Channels - Box Set Examples

Broadcasters are innovating by premiering with Box Sets - with varied examples from the second half of 2018

Market Show Exhibition Lead Service Local Premiere Castle Rock Pay TV & Box Set 12-Nov-18 Snowfall Pay TV & Box Set 04-Jul-18 FOX Showcase Succession Pay TV & Box Set 06-Dec-18 Trust Pay TV & Box Set 07-Oct-18 Australia Counterpart Free TV & Box Set 08-Aug-18 Son, The Free TV & Box Set SBS 07-Aug-18 Waco Free TV & Box Set 15-Nov-18 Orville, The Free TV & Box Set SBS Viceland 24-Sep-18 Deception Free TV & Box Set 22-Aug-18 Seven Life Sentence Free TV & Box Set 27-Aug-18 My Brilliant Friend Pay TV & Box Set Canal+ 13-Dec-18 France Bisexual, The Pay TV & Box Set Canal+ Series 23-Dec-18 First, The Pay TV & Box Set OCS Max 09-Oct-18 Kidding Pay TV & Box Set 03-Dec-18 Germany Sky Atlantic Sharp Objects Pay TV & Box Set 30-Aug-18 Italy Mayans MC Pay TV & Box Set FOX 06-Dec-18 Informer Free TV & Box Set 16-Oct-18 BBC One Killing Eve Free TV & Box Set 15-Sep-18 Trust Free TV & Box Set BBC Two 12-Sep-18 UK Bisexual, The Free TV & Box Set Channel 4 10-Oct-18 Escape at Dannemora Pay TV & Box Set 01-Jan-19 Kidding Pay TV & Box Set Sky Atlantic 29-Nov-18 Succession Pay TV & Box Set 02-Aug-18

16 Source: 3Vision Show Tracker (December 2018) TV Industry Trends - 2019 Survey Content Licensing

“Broadcasters will be more open 55% to buying shows 15% 25% 47% 8% that have had a first window on Broadcasters will be more open to 2nd window after SVOD SVOD” Strongly Disagree Slightly Disagree Neither Agree/Disagree Slightly Agree 2nd windows post-SVOD have been one of the issues of Strongly Agree 2018. With more shows coming back to the market there have been more efforts to sell these titles. However with many varied impacts on a show’s prospects (and different opinions on whether SVOD is Netflix or someone else), it is increasingly hard to predict the value in some markets. The majority agree broadcasters will be more open to it, with more examples in 2018, but clearly the increased utilisation in the 1st window has an opportunity cost and 2019 will be an important year in terms of finding some kind of equilibrium.

17 3Vision Trends Survey 2019 TV Industry Trends - 2019 Survey Content Licensing - Second windows following after SVOD

Selected examples of second licensing window deals following an SVOD frst window.

Show Ter. 1W 2W Exhibition American Gods CAN Amazon Prime Super Channel Pay TV (Stacking) American Gods FRA Amazon Prime Canal+Fuse Series Pay TV (Rolling 5) American Gods GER Amazon Prime RTL Crime Pay TV (Rolling 5) American Gods ESP Amazon Prime XTRM Pay TV Blacklist: Redemption SWE Viaplay TV8 Free TV (Rolling 5) Britannia FRA SFR Play RMC Story Free TV Handmaid's Tale, The ESP HBO Spain Antena 3 Free TV (7 days) Handmaid's Tale, The SWE HBO Nordic SVT Free TV (Rolling 5) Imposters AUS Nine Free TV (Rolling 5) Kevin Can Wait GER Amazon Prime RTL Nitro Free TV (7 days) Liar SWE HBO Nordic SVT Free TV (Rolling 5) Riverdale FRA Netflix Warner TV Pay TV (Rolling 5) Riverdale UK Netflix 5Star Free TV (Rolling 5) S.W.A.T. SWE Viaplay TV3 Pay TV (Rolling 5) Sinner, The SWE Netflix SVT Free TV (Rolling 5) StartUp UK Amazon Prime Virgin Media Pay TV Strike Back: Retribution ESP HBO Spain UltraXTRM HD Pay TV Strike Back: Retribution SWE HBO Nordic C More Series Pay TV (Stacking) Taboo GER Amazon Prime RTL 2 Free TV (7 days) Taken UK Amazon Prime 5USA Free TV (Rolling 5)

18 Source: 3Vision Show Tracker (December 2018) TV Industry Trends - 2019 Survey Broadcaster AVOD Services

As advertising revenues have shifted online and Key Drivers for Broadcaster AVOD Growth stagnated for linear television, commercial Exclusive broadcasters are taking a bigger view of Content 30% advertising video revenues - enhancing their Content AVOD platforms to compete for their share of Premieres 20% all video advertising (online and TV). In-season 15% Respondents believe that there are multiple Stacking drivers for broadcasters who are looking to find Library Box-sets 15% AVOD revenue growth. Targeted However it was the content proposition that led, Advertising 12% with Exclusive Content (30%), followed by Personalisation 8% Content Premieres (20%) coming out on top. % of respondents ranking the feature in the top 2 most important

19 Q. Which of the following features do you believe are most likely to accelerate growth for broadcaster AVOD platforms? (1= most important, 6 = least important) Wrap Up

2018 has seen great evolution with television businesses and the general feedback from respondents reflects that the industry does not expect this to slow down at all in 2019. With so many different levers to individual businesses the capacity for innovation and change is huge. SVOD is no longer marginal to anything or anyone, and increased competition (whether it be for subscribers, viewers or content) will continue to influence decisions by stakeholders along the value chain. Although many of these areas do not directly compete (and there doesn’t need to be losers) it is inevitable that 2019 will see casualties - failing SVOD and D2C services are probable, and some high value productions will fail and scare off some new players. However respondents have been broadly positive about 2019, with no predictions of doom, and there are plenty of upcoming service launches, innovations and new programming to keep us busy.

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20 3Vision Trends Survey 2019