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SAMPLE PAGES: OTT Video in Emerging Markets: Monetization Strategies and Five-Year Revenue Opportunity

Summary

‘OTT Video in Emerging Markets: Monetization Strategies and 5-Year Revenue Opportunity,’ a Research Report by Pyramid Research, analyzes the revenue potential of the OTT video services across emerging markets in Africa and the Middle East, Asia Pacific, Central and Eastern Europe, and Latin America, identifying and mapping key OTT video players from local telcos and payTV providers to pure-play OTTs, and best practices for differentiation and OTT video monetization. The report provides 5-year projections for SVoD and TVoD accounts and revenue by region and for key countries including Brazil, China, Mexico, Russia, Saudi Arabia and South Africa. The analysis is built upon in-depth case studies of Netflix Latin America, Clarovideo, OSN Go, iRokoTV, Ivi Russia and LeTV. The report is structured as follows: • Section 1: OTT Video Market Trends and Monetization Strategies in Emerging Markets ̶ Challenges and opportunities for OTT service providers, positioning strategies for pay-TV operators and effective business models for OTT video provisioning. • Section 2: SVoD and TVoD Demand and Revenue Outlook Across Emerging Markets ̶ Overview of forecast assumptions and covered countries and regions, review of SVoD accounts and paid OTT video revenue per region. • Section 3: OTT Video Opportunity, Competitive Landscape and Keys to Success in Latin America; including region-level market overview and trends as well as deep-dive analysis of the region’s largest markets Brazil and Mexico and key players Netflix Latin America and Clarovideo. • Section 4: OTT Video Opportunity, Competitive Landscape and Keys to Success in Africa and the Middle East; including region- level market overview and trends as well as deep-dive analysis of Saudi Arabia and South Africa and key players OSN Go and iRokoTV. • Section 5: OTT Video Opportunity, Competitive Landscape and Keys to Success in Central and Eastern Europe; including region- level market overview and trends as well as deep-dive analysis of the region’s largest market Russia and a key player Ivi Russia. • Section 6: OTT Video Opportunity, Competitive Landscape and Keys to Success in Emerging Asia Pacific; including region-level market overview and trends as well as deep-dive analysis of the region’s largest market China and a key player LeTV. • Section 7: Key Takeaways and Strategic Recommendations for OTT Video Service Providers.

• The growing investment in broadband infrastructure, with • The opportunity to position SVoD and TVoD services the improvement in network speed and performance, has successfully is stronger for local companies, provided that opened up new opportunities to provide video over IP, not they have enough funding to invest in attractive content, and only in more advanced, developed economies but also in that they can deploy sustainable business models for paid emerging markets. content. • OTT video is mostly advertising-funded across emerging • In spite of the growing importance of mobile, with markets, but paid models are gaining traction within hybrid increasing 4G take up, the bulk of OTT video usage will business models, whereby services offer free content to remain over fixed broadband networks, with WiFi expand the user base, but at the same time position representing a key enabler technology for nomadic usage on premium transactional video on demand (TVoD) and secondary screens. subscription video on demand (SVoD) content to generate • In order to reinforce their market position, all pay-TV additional revenue. In recent years, OTT business models operators should consider aggregating third-party OTT entirely relying on advertising revenue streams have become services within the main service portfolio in addition to difficult to sustain, given the high cost of content. standalone OTT propositions. • Across emerging markets, we expect SVoD accounts will increase more than five-fold between 2014 and 2019; the proliferation in China of hybrid models combining AVoD and SVoD will be a major driver for growth. The cumulative paid OTT revenue from SVoD and TVoD services is projected to be as much as US$18.8bn for the 2015-2019 period, over 80% of which will come from the emerging markets in Asia Pacific and Latin America. Among all emerging markets examined, China, Russia, Brazil and Mexico offer the most scale and growth potential over the next five years.

Report methodology

The ‘OTT Video in Emerging Markets: Monetization Strategies and Five-Year Revenue Opportunity’ report comprises market sizing and demand analysis and trend analysis for OTT video services across emerging markets as well as detailed case studies. Insights and data are derived through a mix of desk-based secondary research, primary research as well as quantitative modeling for sizing market opportunity.

Pyramid’s methodology for OTT video market sizing and demand analysis combines secondary and primary research, with international benchmarking and quantitative modeling in order to present a complete picture of the socio-demographic, competitive and demand trends affecting the adoption of OTT video services across emerging markets. Primary research involves in-depth interviews with market players, and the secondary research effort includes obtaining relevant data and intelligence through publicly available sources, regulatory authority publications, trade associations, specialist databases and company financial reports, presentations and press releases.

• The “OTT Video in Emerging Markets: Monetization Strategies and Five-Year Revenue Opportunity” report provides a comprehensive examination the nascent OTT video market opportunity to help executives make informed investment decisions, develop effective partnerships and optimize return on investment.

• This report provides a five-year forecast of SVoD accounts and SVoD and TVoD revenues by region and for key countries across emerging regions to enable executives effectively position their companies for emerging trends in demand for OTT video and growth opportunities.

• The report incorporates in-depth overview of key challenges and business model trends in the OTT video market across emerging markets and best practices for monetizing OTT video for stakeholders to develop competitive strategies as well as differentiation.

Table of contents 2 Mexico: Key Market Trends Table of exhibits 4 Brazil: OTT Video Market Overview Paid OTT Video Accounts and Revenue Forecast Executive summary 6 Brazil: Key Market Trends Section 1: OTT Video Market Trends and Monetization Strategies in Case studies: Emerging Markets 10 Netflix LATAM: Content and Partnerships and Business Outlook Definitions: OTT video pricing models Clarovideo: Content and Partnerships and Business Outlook Definitions: OTT service providers Section 4: OTT Video Market Opportunity, Competitive Landscape and Definitions: Content provision in the connected era Keys to Success in Africa and the Middle East 47 Challenges and Opportunities for OTT Service Providers OTT Video Market Overview Content Procurement SVoD Accounts Forecast Piracy and Payments Paid OTT Video Revenue Forecast The Role of Legacy Broadband and the Mobile Opportunity Key Market Trends Positioning Strategies for Pay-TV Operators South Africa: OTT Video Market Overview Monetizing OTT Video Paid OTT Video Accounts and Revenue Forecast Section 2: SVoD and TVoD Demand and Revenue Outlook Across Emerging Key Market Trends Markets 23 Saudi Arabia: OTT Video Market Overview Key Forecast Assumptions Paid OTT Video Accounts and Revenue Forecast Regions and Countries Covered Key Market Trends Emerging Markets: SVoD Accounts by Region Case studies: SVoD Penetration of Households OSN Go: Content and Partnerships and Business Outlook Paid OTT Video Revenue Forecast by Region iRokoTV: Content and Partnerships and Business Outlook Comparative Review of Paid OTT Video Revenue and Pay-TV Revenue Section 5: OTT Video Market Opportunity, Competitive Landscape and Section 3: OTT Video Market Opportunity, Competitive Landscape and Keys to Success in Central and Eastern Europe 64 Keys to Success in Latin America 30 OTT Video Market Overview OTT Video Market Overview SVoD Accounts Forecast SVoD Accounts Forecast Paid OTT Video Revenue Forecast Paid OTT Video Revenue Forecast Key Market Trends Key Market Trends South Africa: OTT Video Market Overview Mexico: OTT Video Market Overview Paid OTT Video Accounts and Revenue Forecast Mexico: Paid OTT Video Accounts and Revenue Forecast Russia: OTT Video Market Overview

Russia: Key Market Trends Case study: IVI Russia: Content and partnerships and business outlook Section 6: OTT Video Market Opportunity, Competitive Landscape and Keys to Success in Emerging Asia Pacific 75 OTT Video Market Overview SVoD Accounts Forecast Paid OTT Video Revenue Forecast Key Market Trends South Africa: OTT Video Market Overview Paid OTT Video Accounts and Revenue Forecast Key Market Trends China: OTT Video Market Overview Paid OTT Video Accounts and Revenue Forecast Key Market Trends Case study: LeTV: Content and Partnerships and Business Outlook Section 7: Key Takeaways and Strategic Recommendations for OTT Video Service Providers 86

Appendices 91 Companies mentioned Definitions Sources and related research About Pyramid Research

Ex 1: OTT Video Business Models 11 Ex 25: Main OTT Video Service Providers in Mexico 35 Ex 2: OTT Content Providers 12 Ex 26: Share of Paid OTT by Accounts 35 Ex 3: OTT Content Provision for the Connected Household 13 Ex 27: Mexico Paid OTT Accounts 36 Ex 4: OTT Video Challenges and Opportunities In Emerging Markets 14 Ex 28: Mexico OTT Revenue Opportunity 36 Ex 5: OTT Video, Cost and Revenue Scenario (MGs) 15 Ex 29: Cinepolis and Vudu Prepaid Cards in Mexico 37 Ex 6: Cost & Revenue Scenario (MGs Diluted, CPS) 15 Ex 30: Main OTT Video Service Providers in Brazil 38 Ex 7: Converging Content Propositions 16 Ex 31: Broadband Video Opportunity in Brazil 38 Ex 8: Major Types of Streaming Content on Netflix 16 Ex 32: Brazil Paid OTT Accounts 39 Ex 9: Home Video Content, Legal and Illegal in Emerging Markets 17 Ex 33: Brazil OTT Revenue Opportunity 39 Ex 10: Broadband Penetration in Emerging Market Regions 18 Ex 34: 4G Opportunity in Brazil 40 Ex 11: Applications and Bandwidth Requirements 18 Ex 35: Netflix SVoD Service Pricing Across Markets, December 2014 41 Ex 12: Key LTE Services for the Consumer Segment 19 Ex 36: Netflix Marketing Spend As % of Revenue 41 Ex 13: LTE Subscribers by Region, 2013-2019 19 Ex 37: Netflix Partnership with Antel Uruguay 42 Ex 14: OTT/VoD Growing Usage, UK Benchmark 20 Ex 38: Netflix Prepaid Card in the US 42 Ex 15: Telefonica, Unified Multi-Technology Global Video Delivery Ex 39: Netflix Subscribers by Region 2014 43 Platform (GVP) 20 Ex 40: Broadband Penetration of Households, 2013-2019 43 Ex 16: OTT Strategic Options for Pay-TV Operators 21 Ex 41: Clarovideo, Monthly Subscription Pricing 44 Ex 17: SVoD Accounts by Region 26 Ex 42: Clarovideo Footprint, December 2014 44 Ex 18: SVoD Penetration of Households by Region 27 Ex 43: Clarovideo Smart TV Advertising 45 Ex 19: Paid OTT Video Revenue (SVoD and TVoD) By Region 28 Ex 44: Clarovideo Colombia Discount Offer 45 Ex 20: Paid OTT Revenue (SVoD and TVoD) As a Percentage of Pay-TV Ex 45: Clarovideo Telmex Promotion, 2012 46 Revenue 29 Ex 46: AME, Selected OTT/SVoDs 48 Ex 21: LATAM, Selected OTT Services 31 Ex 47: SVoD Growth in AME 49 Ex 22: SVoD Growth in LATAM 32 Ex 48: OTT Revenue Opportunity in AME 50 Ex 23: OTT Revenue Opportunity in LATAM 33 Ex 49: AME OTT Market Potential, 2014 & 2019 51 Ex 24: Share of Paid OTT SVoD/TVoD Revenue, Brazil, Mexico and Ex 50: South Africa OTT Video Service Providers 52 Rest of LATAM 34

Ex 51: South Africa Paid OTT Accounts 53 Ex 76: The OTT/Telco Partnership Value 71 Ex 52: South Africa OTT Revenue Opportunity 53 Ex 77: Ivi Unique Monthly Viewers by Platform 72 Ex 53: Fixed and Mobile Broadband Opportunity In South Africa Ex 78: Ivi TVoD Vs SVoD Pricing 72 Ex 54: Saudi Arabia OTT Video Service Providers 55 Ex 79: Ivi’s Main Content Partners 73 Ex 55: Saudi Arabia Paid OTT Accounts 56 Ex 80: Smartphone Shipments in Russia, 2010-2014 74 Ex 56: Saudi Arabia OTT Revenue Opportunity 56 Ex 81: Monthly Views on Non-Pc Devices, 2011-2013 74 Ex 57: Piracy Workarounds by Expat Segments 57 Ex 82: Emerging APAC, Selected OTT/SVoDs 76 Ex 58: Wherever TV Channel Line Up 57 Ex 83: SVoD Growth in Emerging APAC 77 Ex 59: OSN Go by OSN Market, 2014 58 Ex 84: OTT Revenue Opportunity in Emerging APAC 78 Ex 60: Promotional Material, OSN Go Partnership with Vodafone Ex 85: LTE in Emerging APAC 79 Qatar 4G 59 Ex 86: China, Content Partnerships of Top 5 OTT Video Service Ex 61: AME Smartphone Sales, 2014-2019 60 Providers 80 Ex 62: Film Production by Content Hub In 2013 61 Ex 87: China Paid OTT Accounts 81 Ex 63: iRokoTV Pricing (US$) 61 Ex 88: China OTT Revenue Opportunity 81 Ex 64: Nollywood Content on iRokoTV 62 Ex 89: Challenges and Opportunities for Paid OTT Video in China 82 Ex 65: Nigeria Android Smartphone Sales, 2014-2019 63 Ex 90: LeTV Subscription Pricing 83 Ex 66: CEE, Selected OTTs 65 Ex 91: Hours of Video Viewed, Jul-Aug 2014 83 Ex 67: SVoD Growth in CEE 66 Ex 92: NBA on LeTV 84 Ex 68: OTT Revenue Opportunity in CEE 67 Ex 93: LeTV SmarTV 84 Ex 69: Fiber Broadband in CEE 68 Ex 94: LeTV Profit & Revenue, 2012-2013 85 Ex 70: Fixed Broadband Download Speed, CEE Global Rankings 68 Ex 95: LeTV Month-End Stock Price, 2014 Ex 71: Russia OTT Video Service Providers 69 Ex 72: 2014 Share of Registered OTT Accounts 69 Ex 73: Russia Paid OTT Accounts 70 Ex 74: Russia OTT Revenue Opportunity 70 Ex 75: ARPU of Paid OTT Services 71

© 2015 Pyramid Research | OTT Video in Emerging Markets 9 Challenges and Opportunities for OTT Service Providers in Emerging Markets There are plenty of opportunities in the OTT video space for emerging market providers, but success will depend primarily on the right mix of content and user experience.

The strength of the OTT video opportunity varies across markets depending on many factors, such as broadband networks, online and offline windowing systems, regulatory frameworks and other local factors, such as the extent of piracy and credit card penetration. However, an attractive and relevant content offer is a prerequisite to any successful paid video service, either delivered via established pay-TV platforms or OTT: The potential to derive value from locally relevant VoD , as well as from linear content, alongside the potential to provide superior user experience across multiple devices, are the critical factors to the success of OTT video. Given the abundance of free content on the Internet, the monetization of OTT video, either via subscription or transactional models, is a major challenge across all markets. It is an even greater challenge in emerging markets where consumers’ disposable income for entertainment services is lower.

EXHIBIT 1: OTT VIDEO CHALLENGES AND OPPORTUNITIES IN EMERGING MARKETS

Challenges Opportunities • Cost of content • Original content Content • Access to content • Linear content and catch up TV • Windowing systems • Personalization, user experience • Fiber broadband (FTTH/B) Networks • Legacy broadband networks • 4G LTE • Quality of experience • Low awareness of services among users • Presence of international /regional providers • Lack of familiarity with service benefits Market • Offline payments (prepaid cards) and online payments (operator billing) • Piracy • Penetration of connected devices (tablets, smartphones, smart TVs) • Credit card penetration

Source: Pyramid Research © 2015 Pyramid Research | OTT Video in Emerging Markets 10 Positioning Strategies for Pay-TV Operators: The Need for OTT Engagement For pay-TV operators, the OTT impact at least in revenue terms is so far limited, but a futureproofed media strategy will require OTT engagement beyond second screen/TV Everywhere. Most pay-TV operators see OTT investment as inevitable given the trend toward moving services to the cloud and the open Internet and the customer expectation to access content on any connected device. Evidence from developed markets shows that video consumption on devices other than TV sets is growing fast. At the same time, consumer habits are rapidly shifting, with the youth segment increasingly consuming more on demand content than linear TV. Rather than a competitive threat that can cannibalize pay-TV businesses, OTT is emerging as an alternative video delivery platform that allows pay-TV operators to penetrate into new segments (lower income households/ non-pay-TV households) and to deploy lighter and more flexible business models for video services. To meet the demand for multiple viewing platforms, and target “on-net” as well as “off-net” customers, pay-TV operators are increasingly complementing their pay-TV and TV Everywhere services for existing subscribers with pure OTT services open to all broadband users. OTT video has therefore become integral to the strategy of pay-TV operators and for telcos offering IPTV services. Telefonica, for example, has created a next-generation video platform, the Global Video Platform (GVP), which allows subscribers to access video content either through premium services such as managed IPTV, through hybrid DTH and cable STBs or through open OTT networks. EXHIBIT 11: OTT/VOD GROWING USAGE, UK BENCHMARK EXHIBIT 12: TELEFONICA, UNIFIED MULTI-TECHNOLOGY GLOBAL VIDEO DELIVERY PLATFORM (GVP)

38% of 18-34 years old state 17.5% of 18-34 years old are likely GVP they already watch more on- to subscribe to either Netflix or demand than linear TV Lovefilm (Amazon) in the near future The share of VoD requests coming from tablets increased from 3% to 12% PREMIUM PAY-TV HYBRID TV (DTH/CATV) OTT (PLAY) between 2011 and 2012. Over half of tablet owners use their device for (IPTV) Satellite TV meets the Telefonica's watching AV content. Best broadband brings Internet Service for the pure best TV experience OTT arena

The report covers the emerging markets across Latin America (LATAM), Africa and the Middle East* (AME); Central and Eastern Europe (CEE), and Asia Pacific (APAC)**. In-depth country level analysis and forecast is provided for the following countries: Mexico, Brazil, South Africa, Saudi Arabia, Russia and China.

Black indicates countries/regions excluded from the analysis. Red and green capture regions covered. Green indicates countries examined in detail. *For this report, Turkey and Israel have not been included in AME coverage. ** Emerging countries in APAC exclude Australia, Brunei, Hong Kong, Japan, Macau, New Zealand, Singapore, South Korea and Taiwan. © 2015 Pyramid Research | OTT Video in Emerging Markets 12 LATAM: Key Market Trends Brazil will surpass Mexico to become the largest OTT video market in 2016, and the contribution of the rest of the countries in the region will increase as the market beyond the two largest countries picks up.

Mexico and Brazil combined accounted for 53% of LATAM OTT EXHIBIT 21: SHARE OF PAID OTT SVOD/TVOD REVENUE, BRAZIL, SVoD/TVoD video revenue in 2014, in line with their share of regional pay-TV revenue (52%). However, differently from pay- MEXICO AND REST OF LATAM TV where Brazil is by far the largest market in LATAM generating almost twice the revenue of Mexico, in OTT video, Mexico leads the regional market with a 32% revenue share. Brazil Mexico Rest of LatAm The second largest broadband market in the region and the 50% closest to the U.S., Mexico is ahead of the curve in LATAM in OTT video. In the next two years, as OTT video gains traction in 45% Brazil and in the rest of the region, primarily in Colombia, Argentina and Chile, in spite of sustained OTT growth, Mexico 40% will lose its leading position. We expect Brazil to experience 35% stronger growth and surpass Mexico in revenue terms in 2016, as OTT video will complement traditional pay-TV platforms, 30% exploiting unaddressed demand for video services. 25% For the later part of the forecast (2017-2019), we expect further traction coming from markets beyond Mexico and Brazil 20% (rest of region), especially from sizeable markets, such as 2013 2014 2015 2016 2017 2018 2019 Venezuela and Peru, which have suffered from comparatively lower broadband penetration and poorer network performance to date. Source: Pyramid Research

20th Century Fox Cyfrowy Polsat MBC.net Sohu 7-eleven Digital Media Microsoft Sony Akamai Dish Miramax Spuul Al Jazeera Disney M-Net STC Algar Telecom Dom.ru Mobility Tecnocom Alibaba Group Eros International Mosfilm Telefonica Amazon First Media MTG Televisa AMC Fox MTN Telkom America Movil Foxconn MTV Tencent Antel Globo Multichoice Time Media Group Apple Google Net TRUE Baidu Grupo Carso Netflix TVE BBC GVT NetIndex Tvigle beIN Haier Oi Universal BigFlix Icflix Okko Vivo BoxTV Iqiyi Orange Vodafone Caracol iRokoTV OSN VTR CBS Ivi Paramount Walmart Changhong Konka Phillips World Bank Channel One Ledafilms Rostelecom Xiaomi China Mobile LeTV Rotana Yota Cinepolis LG Samsung Youku Cisco Maadu Skrill Youtube CME Maxcom Sky Zoomby CyberSource Maxis Sntech

OTT Video Market Attractiveness Index: Worldwide Country Rankings, Market Drivers and Positioning Strategies In order to assess the strength of the OTT video opportunity across 60+ countries worldwide, Pyramid Research has developed the proprietary OTT Video Market Attractiveness Index. The Report includes a discussion of the methodology behind the OTT Video Market Attractiveness Index, a strategic analysis of the results of the Index, a closer look at the results pertaining to emerging markets, and a section listing the key takeaways of the Index findings, including issues such as regulatory frameworks, market maturity, the role of superfast broadband and the revenue opportunity.

Fixed Communications Forecast Forecasts updated quarterly The Fixed Communications Forecast quantifies fixed voice, broadband by technology and IPTV adoption and service revenue trends, at the residential, corporate and total market levels. It tracks demand and projects future growth for 101 countries worldwide and is available at the country, regional and global levels.

Pay-TV Forecast Forecasts updated bi-annually (twice a year) The Pay-TV Forecasts are designed to provide competitive intelligence on the pay-TV and mobile TV dynamics for 60 countries as well as regionally and globally. They track demand patterns for free and pay-TV services over terrestrial, satellite and mobile platforms worldwide, providing market share information at both the technology and operator levels as well as five-year adoption and revenue projections.

LTE Business Models: Best Practices in Network Deployment, Positioning and Service Pricing Built around five detailed country case studies of markets where LTE networks have been launched, this Research Report examines LTE spectrum allocation and availability, network deployment considerations, product and pricing strategies and LTE adoption trends as well as drivers for market growth. Highlighting what works and what doesn't - based on the experience of commercial operators - this report uncovers the pain points and the keys to success for LTE service providers worldwide.

CLIENT CONFIDENTIAL © 2014 Pyramid Research. All rights reserved. No material contained in this report may be reproduced in whole or in part without the prior written permission of the publisher. Neither the information nor the opinions expressed in the report should be construed as a recommendation for the purchase or sale of any security. The information contained in this report has been obtained from sources we believe to be reliable, but neither its completeness nor accuracy can be guaranteed. Opinions expressed are based on our interpretation of the available information and are subject to change.

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