INSIGHT REPORT July 2020

This confidential report covers the British Screen Forum Insight Event which took place via video conference on 2nd July 2020. It is for British Screen Forum Members and Associate Members only - not for wider circulation. 2 STRICTLY CONFIDENTIAL

CONTENTS

Executive Summary ……………………………………………… 2

Full Transcript ……..……………………………………………… 6

Welcome ………………………………………………….. 6 Jon Gisby, Chair, British Screen Forum

Addressable TV Advertising ……………………………… 7 Ben Keen, Consultant, British Screen Forum

Screen Sector Recovery 5 Point Plan …………………… 16 Neil Peplow, Director of International Affairs, BFI

The Future of Entertainment – And How Video Streaming is changing the Game ……………………….. 24 Professor Anita Elberse, Lincoln Filene Professor of Business Administration, Harvard Business School

Events and Policy Update ……………………………….. 25 Pete Johnson, Chief Executive, British Screen Forum

Any Other Business ……………………………………… 26 Jon Gisby, Chair, British Screen Forum

Attendees ………………………………………………… 27

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EXECUTIVE SUMMARY

WELCOME Jon Gisby, Chair, British Screen Forum

Jon Gisby welcomed attendees and outlined the agenda.

ADDRESSABLE TV ADVERTISING Ben Keen, Consultant British Screen Forum

Ben Keen outlined that traditional broadcast had performed strongly during lockdown across all age groups, but increased viewership had not translated into higher ad spend. The drive to make TV advertising addressable and data-driven was partly about levelling the playing field with online, which has overtaken TV in terms of advertising expenditure.

The addressable TV pitch from broadcasters was designed to offer some of the pros of online, but without the downsides that include concerns about supply chain transparency, data protection, fraud, and brand safety. Sky and have been pioneers of addressable TV advertising, while ITV has made it a high strategic priority. Approximately 70% of TV households in the UK could potentially receive some kind of addressable advertising on their primary TV set.

Data strategy was key and broadcasters needed to start with their own consumer data collected via registration for their video-on-demand services. TV data analytics was becoming increasingly powerful, but was always trying to prioritise protection of consumer privacy.

The pricing of addressable ads was higher than traditional broadcast commercials, which was not always well-received by advertisers. Nevertheless, spending on all addressable advertising last year exceeded

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10% of the whole TV ad market. New AVOD services would be increasingly looking at addressable platforms as part of their UK distribution strategy.

Summing up, Ben argued that addressable should be adopted as complementary to traditional broadcast and that there is a strong case for more collaboration between key broadcasters to provide a stronger alternative to online giants like Facebook and Google.

Jon Gisby asked whether consumers had a higher tolerance for targeted ads. Ben Keen responded that Sky had found that overall appreciation levels increased significantly when consumers were delivered relevant ads.

SCREEN SECTOR RECOVERY 5 POINT PLAN Neil Peplow, Director of International Affairs, BFI

Neil Peplow outlined that there was a total projected loss of around £2.2 billion in HETV and £2 billion in film over the next two years as a consequence of COVID-19. The impact on cinemas was roughly £6 million per day.

The Screen Sector Task Force was coordinating a longer-term recovery response and six outcomes from the groups were: • Health and safety production guidance; • Suggestions around a guaranteed fund for production insurance; • Time limited uplift to tax relief; • Quarantine exemption for cast and crew; • A global screen fund; • Financial support for the distribution and exhibition sector.

The BFI also wanted to examine longer-term workforce issues around diversity and freelance work in light of The Film and TV Charity’s hardship fund.

Neil Peplow understood that the plan accommodated a second spike in the COVID pandemic. Jon Gisby asked how a £17 million screen fund compared with the value received from Creative Europe. Neil Peplow replied that the screen fund would be approximately 10% larger, although it would have global ambitions. Tim Johnson asked how long the quarantine exemption and insurance guarantee would take to be delivered. Neil Peplow responded that he could not be specific, but there should be a response in the short term rather than medium term.

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THE FUTURE OF ENTERTAINMENT - AND HOW VIDEO STREAMING IS CHANGING THE GAME Professor Anita Elberse, Lincoln Filene Professor of Business Administration, Harvard Business School

In her presentation, Prof. Elberse drew on her extensive research, including case studies on dozens of entertainment companies (among them, Hulu, Marvel Enterprises, NBCUniversal and The Walt Disney Studios), to explore the content strategies that work best and how video streaming is changing the game. In doing so, she illuminated and developed the insights contained in her bestselling first book, ‘Blockbusters: Hit-making, Risk- taking, and the Big Business of Entertainment’ and in her recently updated papers ‘The Video Streaming Wars – Can Disney Catch ’ and ‘Jason Blum’s Blumhouse Productions’. Following her presentation, Prof. Elberse took questions from British Screen Forum Members and Future Leaders.

EVENTS AND POLICY UPDATE Pete Johnson, Chief Executive, British Screen Forum

Pete Johnson highlighted that two upcoming events were roundtables with Rupert Daniels from DIT and Susannah Storey from DCMS on 8 July and 3 September respectively. The full draft of the potential submission to the BEIS Select Committee inquiry on post-pandemic growth would be circulated for comment.

ANY OTHER BUSINESS Jon Gisby, Chair, British Screen Forum

Jon Gisby welcomed William Sayers as a new member of the British Screen Forum events team, thanked attendees and closed the meeting.

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FULL TRANSCRIPT

WELCOME Jon Gisby, Chair, British Screen Forum

Welcome one and all. The interesting thing about moving this type of event to this time of day is it is peak contention on domestic broadband, at least in this household, so if for any reason you cannot hear me at any point, then do feel free to just leave a message in the chat and will switch broadband or Wi-Fi connections or something and hopefully it will be better.

We have a very packed agenda. There are only three topics, but we are going to try to cram quite a lot into the next two hours, so I am going to move pretty rapidly on. For those of you who have not been to one of our virtual events, this is our second virtual Insight Event. There are two presentations up front. We will, of course, have questions along the way. If you want to raise a question, the easiest way of doing it is either to message me privately or just put your hand up, or put a message in the chat and I will call you into the conversation. In the meantime, if you can just stay on mute, as it will obviously make it a lot easier for everybody to hear.

This is one of the few times that I see my backdrop in the way that you guys actually see it. I may move that small half bottle of champagne in a second.

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ADDRESSABLE TV ADVERTISING Ben Keen, Consultant British Screen Forum

Jon Gisby (Chair): We are starting today with Ben, a long-time adviser, consultant and expert witness to these meetings. I am going to hand straight over to Ben, who has a packed half hour on addressable TV advertising. Ben, the floor is yours.

Ben Keen: Thank you very much, Jon. First of all, traditional broadcast has proven to be a pretty strong performer in many ways during this very difficult period during the lockdown. You can see that compared with similar times last year viewing has done extraordinarily well, really across every age group, even those younger age groups, but unfortunately that did not really translate into improved performance on ad spend. Viewing is up; ad spend is not.

In this fragmented media landscape we have, you are well aware that there are lots of other things taking up viewer time. For adults, broadcast still has a pretty strong share of time, as you can see here, compared with all the other attention takers that are in our lives. For younger people that is not quite as true, although broadcast is still holding a reasonable share, but all the different forms of online media have collectively usurped and overtaken that TV viewing time. Still, TV is pretty unrivalled in delivering a mass market commercial audience. You only have to look at examples like I’m a Celebrity delivering over 13 million viewers in November of last year.

That classic form of broadcast advertising is perhaps unfairly called by some a “spray and pray” advertising strategy, but it is incredibly effective. One of the most quoted quotes in advertising of all time is this one from John Wanamaker, where he said, ‘Half the money I spend on advertising is wasted. The trouble is I don’t know which half that is’. That really sums up that conundrum of efficiency in advertising and how you deliver the right ads to the right people at the right time. That was, of course, the potential that was offered and promised by online advertising, and so TV has always been somewhat envious of that potential and that possibility.

The drive to make TV addressable and data-driven is really partly about levelling the playing field with online. There are four elements to it. One is instead of broadcasting the same ad to all viewers, it gives the option of delivering ads to chosen viewers. Number two, it offers the possibility of targeting audiences based on specific profiles and it enables real-time interaction with viewers and insights on who has viewed which ad. Lastly, it

8 STRICTLY CONFIDENTIAL offers or at least promises a more efficient means of planning and buying those ads in the first place.

If we look at TV revenues versus online advertising revenues, you can see that those perceived benefits of efficiency, etc. have enabled the spend on online to rapidly overtake that of commercial TV. The blue line there is flying away up. If we split out the online piece into the search element and the display element separately, you can see that the search element, dominated by Google of course, overtook the spend on its own about three years ago and even the display element here in red overtook TV as well, albeit more recently.

Google and Facebook alone generated more than double all the ad revenue of TV last year and accounted for about 75% of all online spend. That extraordinarily strong market position has not gone unnoticed by the Competition and Markets Authority, which yesterday proposed a new Digital Markets Unit to enforce a stronger regulatory regime, particularly aimed at Google and Facebook. They also formally launched a so-called digital markets taskforce, alongside and the ICO, which will ‘advise government on how a new regulatory regime for digital markets should be designed’. Those are interesting developments.

Online ad growth has really been driven by an awful lot of complex tech that is abbreviated in this concept ‘ad tech’. This is a famous chart that LUMA Partners have been generating for many years now and it shows this very complex tech landscape. There are lots of abbreviations and acronyms all over this chart and that represents this very complex ecosystem of ad tech.

This is a simplified look at the main supply chain, but it is a supply chain that has become ever more automated or so-called ‘programmatic’ in the way that it is run and I stress this, although it looks relatively complex, is actually a pretty simplified look at what is going on.

A recent study by PwC for the ISBA found that the 15 advertisers they looked at in this study had no less than 300 distinct supply chains involved in reaching 12 different publishers or outlets for their advertising, so a very complex set of relationships. They found that when they looked into the economics of this that some of the money effectively goes missing in this supply chain. You can see here all the different spends, percentages and margins taken off by a variety of ad tech players in the supply chain, a variety of agencies, etc, but they also have found an unknown delta here of 15% that they could not actually trace. The receiver, the media company or

9 STRICTLY CONFIDENTIAL the publisher, only ended up with a little over 50% of that revenue. Transparency is a major issue in ad tech.

There are lots of other challenges, which have been well-publicised, of course, in the whole online advertising space, which includes things like personal data issues, fraud and, of course, brand safety, whereby big brands have found their ads appearing in parts of the online world or beside elements of the online world that they really would prefer not to be associated with.

The addressable TV pitch is really to counter all of that. It is to offer some of the pros of online, but without those cons. This happens to be a simplified version of the ITV Hub pitch and you can see really it is a listing of a number of elements that counter that perception of the downside of online advertising and the downside of so-called digital advertising.

Really there are three main elements to addressable TV advertising and you can think about some of these elements in terms of horizontal platforms and vertical platforms. You need a consumer platform of some kind, so a way of receiving the TV or video, that has a return path capability and addressability. That is, in effect, the horizontal platform element. Then a key element is data. We will talk more about data in a minute. Combining those two things with some of this ad tech we have been talking about and data management – you could think about that element as being a vertical platform.

Addressable ads can be delivered both via live linear TV, which if you think about it is a very clever thing to do indeed, and also via on-demand, which is, of course, closer to the traditional online world. How this gets done in practice can be quite complex. Inserting the ad can be done on a central basis, which is so-called server-side ad-insertion, or it can be done locally inside the memory of the consumer device itself, so inside the smart TV or inside the set-top box and so on.

The server-side ad insertion is primarily used for video on-demand, but, actually, you can also use it for live streaming, so linear simulcasts taking place over the internet. There is a little diagram here. It looks pretty complicated and it is. It is describing how you achieve that kind of server- side live insertion. Local insertion of ads involves this other means of actually pushing the ad in advance into the memory of a local device and then swapping out the ad at the right time.

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We have traditional linear broadcast television, for example delivered by Sky. The only way to make that sort of television addressable is to use that push technology to push the ads into the set-top box in advance.

Sky AdSmart is rightly considered a pioneer of all this and, as a result, their technology has been adopted by Comcast in the US market as well. They launched back in 2014, which is quite early on in this market. They are able to use this push technology to deliver addressable ads across linear broadcasts and video on-demand and their business revenue-wise is roughly equivalent on each side of that. They have done deals with Channel 5 and NBCUniversal, so they have AdSmart currently on over 100 channels. They agreed a deal with Channel 4 to do it as well, but that is not yet implemented. I expect there will be some interesting discussions with ITV as we go forward.

One of the things to point out is that AdSmart has enabled a whole bunch of new advertisers to come into the market who have never actually advertised on television before. 1,000 companies have used TV advertising for the first time by using this technology.

If you look at reach, the deal of Sky with Virgin - and when Sky actually also activates AdSmart on the Now TV platform - should give them a pretty strong base. There is also the potential for the YouView platform to be addressable, so that terrestrial platform that includes a return path, especially the part of that installed base that is BT. It is possible that that in future, once that technology is switched on, it can also align with AdSmart, but that is a matter of discussion There is also the Freeview Play platform, which includes the possibility of online functionality. That can do on- demand addressability, but not linear addressability in the same way as AdSmart. Similarly, things like the Samsung smart TV can also deliver on- demand addressability via a smart TV platform.

Overall, just simplifying that, around about 70% of TV households in the UK can potentially receive some kind of addressable advertising on their primary TV set, with a mix of linear and streaming-only kind of addressable.

Channel 4, like Sky, has been a strong innovator, including in the addressable advertising space. It was the first to roll out any kind of registration for its on-demand service, the first to do personalised ads and the first to launch interactive ads. It actually started streaming before Netflix did, which is something that many people forget. It has had a number of firsts in this space: first to have a programmatic platform for TV, first to have ad insertion in live streams and first to make all of its on- demand proposition, , 100% addressable.

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I think it is fair to say that ITV has largely been playing catch-up in this space, but recently addressable has become a very high strategic priority for the company. It just announced a state of the art so-called programmatic TV ad platform to build on some technology from a company called Amobee, which in turn got it from another defunct company called Videology. It really assembles everything that you need ‘in a box’. According to ITV, it offers that proposition on a highly transparent and secure basis, so it is an interesting proposition.

I said data is really important in this. Data strategy is key to the way this happens in future and there are really three elements. You need to start, number one, with your own consumer data, so you need some kind of registration or pay wall. The way the broadcasters have done it is to mandate registration for the on-demand service. The way a Sky or pay TV platform does it, obviously, is to have paid subscribers. You then add value to that database by means of various segmentations. You can do that in various ways, but you use marketing-driven attributes to segment that database. Thirdly, you have the potential to enable advertisers and agencies to combine their own data in the planning process.

The TV industry has built pretty valuable databases within the UK market context. ITV Hub has well over 30 million registrations now, which is an extraordinary number. All 4 is not too far behind. I have included AdSmart twice here, just in terms of number of viewers, but, of course, being pay TV, those are really households, so the more