always on personal video v3 (2)

DRAFT – Video Market Trends

Video, the Essential Ingredient 2010 marked an inflection point for video. Dollars began moving online meaningful numbers; awakening premium content owners are awakening to the opportunities presented by new distribution channels. These emerging video opportunities however are inextricably intertwined with mobile and social. Quite frankly, discussing mobile and social opportunities and strategies without a solution for video doesn’t make any sense at all. Video is the “what” that animates mobile, local and social. And as the data show, video is the must see experience that drives the entertainment and advertising business

- Video is where the money is. Of the $1.4 trillion global media & entertainment market, video represents the largest and growing percentage of the market. Globally video is expected to grow from 37% to 40% of all media & entertainment revenue. According to PWC video and games are the only media content categories expected to grow over the next 5 years. Looking a bit closer to home, the US online video market is among the fastest growing categories, with revenues project to grow ~4X over the next few years.

- Video is where users spend their time. If time spent correlates with dollars, then clearly consumers around the globe are increasingly video centric when it comes to media consumption. US trends highlight another interesting fact. Unlike other media experiences, as video moves online consumers have actually decreased both online and offline consumption. The data shows that time spent with online video consumption grew 45% YoY and consumers TV consumption is approaching an average of 4 hours each day.

- Video is mobile. Cisco estimates there will be 5.6 billion Internet-enabled devices in market by 2101 and video will be responsible for 66% of that mobile traffic

- Video drives the conversation. The recent Oscar’s broadcast provides an important example. During the broadcast 1.26M tweets were generated, with a staggering potential reach of 1.7 trillion impressions. Further making the point, Facebook is now one of the top sources for video referrals and is a top 10 destination for sharing and consuming video.

Key Trends in VideoThe developments of 2010 and the emerging trends change our view on the video opportunity. Historically the opportunity has been framed as a shift from offline to online. The emergence of Netflix and runaway popularity of mobile and in-home connected devices forces us to reconsider our definition of online. The development of the year point toward three key insights

1) Video content owners are likely to play an more pivotal role in defining the future 2) The PC internet experiences is unlikely to disrupt existing consumption experiences3) Mixed monetization models will prevail with pay-for-play generating the lion share of dollars

Content owners take control Three key themes highlight how content owners are taking control of the future and value of their content assets

- Take control of packaging and pricing online video o VEVO pulled back on distribution of its content across the web and quickly consolidated its

position as the number #3 destination for video online o NFL, Turner, CBS among others make online video an extension of TV ad sales

- Expanded distribution increases value of content libraries o Netflix becomes second largest subscription service for video content (after Comcast)

representing >20% of bandwidth in prime time hours

1Yahoo! Proprietary & Confidential Mar 2, 2011


o Nexflix Starz deal signed for $30M in 2008 now valued at $250M – motivating more content to come online

- Expanded Audience Reacho India Premier League generated 55M from more than 250 countries -- based on this success

Google looking toward similar deals with the NHL, NBA amongst a raft of others including the European Soccer league

Growth moves beyond the PC Within relatively short order, video has become an essential part of the online experience. Moreover, video is a clear engagement growth for time spent online, with time spent growing 45% YoY in 2010. That said, the future of video isn’t likely to happen on the PC for the following reasons

- Uptake is reaching the saturation point (~70% consume video) which will limit growth - The wildly successful online experiences YouTube and Hulu represent a small fraction of the time spent

consuming video – on average users consume 120 hours of TV vidoe per month, users spend an average of 4.7 and 3.9 hours on YouTube and Hulu respective

- New connected experiences are rapidly becoming available to users which will compete with time spent on the PC

. While the internet signaled the demise of the print industry the same dynamics do not appear to be playing out for video. Video content owners have been vigilant in protecting their content assets; this is only part of the story. Another important part of the story is that video on the TV is just a better experience and video on the PC. Data recently released by Netflix drives this point home – streams for its Watch Instantly service on the recently released AppleTV eclipsed streams on the IPad despite a roughly 15-1 difference in users. According to GigaOm fully 20% of Internet bandwidth during the prime time hours is accounted for by Netflix.

Mobile devices will also emerge as an important distribution vehicle for video content further shifting usage away from the PC. Cisco estimates there will be 5.6 billion Internet-enabled mobile devices in market worldwide by 2015. Video will be responsible for 66% of that mobile traffic

Mixed monetization models prevailAs distribution of video moves beyond the PC monetization models will evolve. The key trends are as follows: models Money goes where the eyeballs are – it was true when the Internet revolution began and is true today. The implication is clear mobile and connected experiences will profoundly change the monetization landscape

- Mobile and connected devices will drive growth in pay for play experiences o IDC estimates that by 2013 revenues attributed to subscription, rental, a la carte purchase

models will be 2X the size of the online advertising -- Netflix at ~$2B in revenue is already as big as the entire online video advertising market

o Forrester projects the app economy to reach $38B dollars by 2015 – an attractive opportunity content creators will find hard to ignore

- Online video advertising is also expected grow from ~$2B in 2010 to $5B by 2013, but will remain supply constrained and fragmented. Against this backdrop, ad networks will continue to play an important role in the space.

- The convergence of devices present an opportunity for online providers to capture value by improving audience addressability and creative more rich interactive companion content and advertising experiences

o A large percentage of users are multi-tasking online and TV experiences



o Mobile will be a key focus among advertisers – driven by growing user adoption. Like online ad inventory is likely to be supply constrained and fragmented

o Opportunity exists to extend ad targeting and interactivity from web to companion experiences

Competitive Trends The various participants within the space compete across a variety of dimensions including: aggregation/distribution, pricing and packaging,

Catch-up TV Content owners and access providers w Hulu launches Hulu+ subscription service –restricts availability of ad supported content

provides expanded content access and ability to stream to TV Comcast purchases NBC gaining a influence over the direction of Hulu and deploys

Xfinity solution – TV Everywhere Original Content Aggregators focus on bespoke and evergreen content -- bolster margins relative and hedge

against increasing content syndication costs AOL buys content production house and 5min Hulu and YouTube signal intent to move into branded entertainment space – competing

with Yahoo! Streaming Services Based on the success of Netflix there has been a lot activity in the streaming space.

Netflix continues to expand its content catalog, most recently signing a deal with CBS for its back catalog

Amazon launched its streaming service and RedBox as key partner Rovi acquired Sonic store front for Roxio and other white label store fronts Google announced intention to launch a streaming service through YouTube

Content Discovery Consensus emerging social will drive content discovery and recommendation Google fFLick social video referral service Twitter signals intent to focus on TV content discovery Facebook positioning against content discovery – leverage scale through integration into

every content recommendation tool -- to broker audience CBS buys Clicker – online video directory

The Future of Video -- Always On Personal Video Video is undergoing a fundamental transformation. Content availability, discovery, distribution & monetization models are all changing. Connected devices phones, tablets, games consoles, and TVs make video portable and enable new distribution models. Like music a decade ago, the stage is set for the unbundling and personalization of the video experience.

The emerging landscape is one where consumers have more choice and exercise greater control over what they watch, as well as when and where they watch it. But choice and control has a price. This price will be measured in real dollars paid for content as well as added complexity. History suggests this is a bargain consumers will gladly make. As a future of Always on Personal Video emerges, value is distributed across industry participants will be impacted

Buy:



- Premium Content: New distribution models and partners combined with the addressability of IP based delivery make under-utilized libraries and assets increasingly valuable

- App Market Makers: the big growth in audience engagement over the next five years is happening on connected devices. Market makers like Apple will extract rents from the burgeoning app economy

- Social Discovery: Facebook and Twitter are already driving forces in content discovery. As complexity increases, social discovery becomes increasingly important for both consumers and content creators. Unlike search, social solves the awareness and reputation problem and will play a pivotal role in driving audience engagement video experiences

- Audience Targeting Technologies: The holy grail of combining the audience addressability and interactivity of the Internet with the TV experience is now possible. Companies like Yahoo! with large audience scale and expertise audience targeting, ad technologies and rich content experiences are well positioned to capitalize on this emerging opportunity

Hold- Access Providers: Cable TV is not going away. Online distribution is unlikely to match the economics for

the core TV experience – first run shows, catch-up TV and live sporting events. Seeking leverage, content owners and networks will actively cultivate new distribution limiting the upside opportunities for access providers participate. Cord-cutting

- Ad Networks: Video ad networks will continue to solve the supply fragmentation problem but miss the larger opportunity

Sell: - Content Aggregators: Competition for content assets and placement in app marketplaces squeeze

margins aggregators like Netflix. Ultimately, the companies with the lowest content delivery cost will prevail

- Search: Within the context of video, search will play a limited role in solving the content discovery problem. Social discovery and

- Online Content: The problem of connecting with audiences and meaningful scale becomes more difficult. The reasons are as follows:

o Increased availability of premium content crowds consumer attention o The cost of establishing coverage across distribution platforms is prohibitive


always on personal video v3 (2)

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