q3 2014 free_wheel_video_monetization_report

VIDEO MONETIZATION REPORT Q3 2014

Ready for its Close-UpThe paramount importance of digital video to the future of TV and entertainment has become indisputable. New digital-only offerings by TV networks, a dramatic increase of streaming device sales, ever-expanding screen sizes, media conglomerates purchasing digital-first Publishers, and a new generation of platform-agnostic millennial viewers coming of age - all continue to drive advertising dollars to digital channels.

Meanwhile, digital video Publishers have matured. They are refining their offerings, developing scalable capabilities, and demonstrating premium value propositions. After having been touted as an integral part of TV’s future for some time, it is clear from the behavior of consumers, publishers, advertisers, and investors that digital television’s time is now.

Executive Summary

“The paramount importance of digital video to the future of TV and entertaiment has become indisputable.”

FreeWheel Video Monetization Report Q3 2014 1

The diverse array of viewing platforms evolved significantly this quarter. Video ad views on smartphones and over-the-top (OTT) devices increased 77% and 208% respectively year-over-year. Whereas desktop and laptop computers accounted for 86% of video ad views last year, we now see 27% of monetization coming from smartphone, tablet and OTT environments.

The remarkable growth of OTT devices is particularly critical when one considers that these devices are overwhelmingly likely to be used by younger

Since last year...

Over-the-Top (OTT) device viewinghas grown 208%

Mid-roll ad break durations are up to an average of 101 seconds per break

Authenticated ad views have grown 368% accounting for 46% of all

long-form ad views

“Wherever you look in digital video, there is overwhelming evidence that it is rapidly maturing and growing into its long-awaited role as the future of television.”

FreeWheel Video Monetization Report Q3 20142

1 Ad and Video View Growth Q3 2013 vs. Q3 2014

Ad Views Video Views

+23%+30%

consumers for watching longer, “TV-style” content: 87% of video ad views on OTT devices came on long-form and live content.

Elsewhere, rumors of TV Everywhere’s imminent demise have proved to be greatly exaggerated. As Programmers put more content behind authentication walls, viewers are following in droves: 46% of long-form and live video ad views now come from authenticated users, up 368% year-over-year. Authenticated viewing has grown in lock-step with both the rise in live viewing and OTT devices, now accounting for 56% and 22% of all authenticated ad views respectively.

The advertising landscape for digital video continues to converge with that of linear TV. Mid-roll breaks on long-form content averaged 101 seconds in duration and 4 ads, up from 87 seconds and 3.5 ads in Q3 2013. Publishers are also working to make the adoption of digital advertising as seamless as possible for ad buyers by supporting measurement currencies, with 79% of leading Programmer networks using either Nielsen’s Online Campaign Ratings (OCR) or comScore’s Validated Campaign Essentials (vCE).

While a 30% growth in video ad views is nothing to sneeze at [see chart 1], what was truly remarkable about this quarter was the consistency of message: wherever you look in digital video, there is overwhelming evidence that it is rapidly maturing and growing into its long-awaited role in the future of television.


37%

+41%

+33% YoY

-1% YoY

Short-form Long-formand Live

Mid-form

2 Ad View Growth by Content Duration Q3 2013 vs. Q3 2014

ContentBuilding industry scale in premium digital video inventory ultimately depends on cultivating a diverse content mix between:

■ Short-form (0-5 min.) | video clips, music videos, made-for-web content ■ Mid-form (5-20 min.) | web series, extended clips, interviews ■ Long-form (20+ min.) | linear TV shows, live streams, feature films, sporting events

Dual ApproachVideo ad views on long-form content grew 41% year-over-year in Q3 2014 [see chart 2]. This strong growth continues a trend we have observed over multiple quarters as viewers replicate the TV experience in the new digital living room. At the other end of the spectrum, Publishers are successfully packaging bite-sized clips for digital platforms as video ad views grew 33% on short-form content. Publishers continue to grapple with the value proposition of mid-form video, with monetization declining 1% year-over-year.

Long-form content continues to account for a majority of all video ad views for Programmers [see chart 3]. While Digital Pure-Play volume is still very much driven by video clips and music videos (short-form content accounts for 83% of their video ad views), long- and mid-form content is poised to increase share as digital-first Publishers announce plans to use ad-supported models for original content.


4 Live Ad Views as Share of All Ad Views Programmers | Q3 2013 vs. Q3 2014

Q32014

Q22014

Q32013

Q42013

Q12014

+214%

8.6%

21.0%18.3%14.4%

9.9%

3 Ad Views by Content Duration Q3 2014

ProgrammerDigital

Pure-Play

Short-form Long-formMid-form

12%

51%

6%83%37%

11%

Live and KickingThis was a yet another huge quarter for live viewing. We saw 214% growth in live video ad views year-over-year, with live accounting for 21% of all video ad views for Programmers [see chart 4]. Given the cornucopia of athletic events this quarter, including the tail end of the World Cup and the early weeks of the NFL season, it comes as no surprise that sports accounted for the vast majority of live viewing [see chart 5].

5 Ad View Share by Content Type | Live/Simulcast Q3 2014

Sports82%

Doc/Reality

1%

News11%

Comedy/Variety3%

ScriptedDrama

3%

TASTTLIVE/SIMULCALIVE/SIMULCAST


6 Ad View Share by Content Type | On-Demand Q3 2014

DEMON-D NDMANDOON-DEMAND

Sports15%

Doc/Reality12%

Music/Trailer17%

Comedy/Variety

9%

ScriptedDrama

13%News

27% Games3%

Kids4%

As live events continue to become synonymous with digital, we expect Publishers to deploy live offerings as an entry point for new adopters and as a testing environment for digital viewing; e.g. firing up new devices and using authentication credentials. With highlights such as the MLB Playoffs, NCAA Bowl Season, NBA regular season, and mid-term elections still to come in Q4, we only expect live growth to continue.

Breaking VODOn-demand viewing was relatively evenly split across content categories this quarter, with five separate categories each accounting for over 10% of video ad views [see chart 6]. Seasonality patterns in on-demand viewing appear to mirror those of linear TV, as Scripted Drama and Comedy/Variety had soft Q3s, accounting for 13% and 9% of video ad views respectively. Help is on the way, however, in the form of the Fall TV season. Indeed, in 2013, each of the year’s five highest-rated linear Dramas and Comedies premiered in the last week of September, and the two categories went on to account for 20 and 12% of video ad views in Q4.

“Digital-first networks... see a compelling value proposition around digital viewing

of ‘TV-Style’ content and are successfully building out their capabilities.”


+64%

Documentary/RealityComedy/VarietyScripted Drama

Q32014

Q32013

12%

5%

2%16%

6%

6%

7 Ad View Share by Content Type | Digital Pure-Play Q3 2013 vs. Q3 2014

Further buoying the outlook for “TV-style” content on digital channels is the trend of Digital Pure-Play Publishers emulating traditional TV programming strategies. This quarter, 28% of Digital Pure-Play video ad views came in Scripted Drama, Comedy/Variety, or Documentary/Reality content categories [see chart 7], an increase of 64% year-over-year. While digital-first networks do not enjoy the built-in brands, audiences, and libraries that a linear presence can provide, they see a compelling value proposition around digital viewing of “TV-style” content and are successfully building out their capabilities.

DeviceYou Down with OTT?Over a quarter of monetization in Q3 2014 came outside of desktop and laptop environments [see chart 8]. While all devices saw double-digit growth, monetization on smartphones and OTT devices exploded, growing 77% and 208% year-over-year.

The breakdown of video ad views by device is staggering when compared to a year ago. In Q3 2013, 8% of monetization came on smartphones, compared to 14% in 2014. OTT devices were little more than a glimmer in the eyes of Publishers at 2% of monetization in Q3 2013, growing to 6% this year. The growth of OTT devices marks a new trend in consumer behavior as shoppers purchase economically-priced devices with the sole purpose of watching digital video.

OTT Device6%

+208% YoY

Tablet7%+34% YoY

Desktop/Laptop73%

+20% YoY

Smartphone14%

+77% YoY

8 Ad Views by Device Q3 2014



TV viewing habits continue to be most closely replicated on tablet and OTT devices, where 57% and 87% of video ad views come from long-form and live content. Desktop computers, laptops, and smartphones are used for viewing shorter content: 70% of desktop computer and laptop video ad views and 71% of smartphone video ad views are on content under 20 minutes in duration [see chart 9]. While these devices vary in size and portability, their similar viewing habits can be explained by the fact that computers and smartphones are used to “snack” on content throughout the workday while tablets and OTT devices tend to live in the home and are “binge viewing” portals.

9 Ad View Share by Content Duration Q3 2014

30%

Desktop/Laptop

Smartphone Tablet OTT Device

29% 57% 87%

70% 71%

43%

13%

< 20 min. 20+ min. and Live

“TV viewing habits continue to be most closelyreplicated on tablet and OTT devices.”


DistributionTesting the WatersVideo syndication (defined as viewing that occurs outside of a Publisher’s Owned and Operated properties) has grown in popularity for Programmers, accounting for 12% of Programmer video ad views this quarter compared to 10% a year ago [see chart 10]. Just as Digital Pure-Play Publishers have long leveraged third-party platforms to reach new audiences (with syndication rates between 45 and 55% in each quarter of 2014), Programmers are dipping their toes in the digital waters in hopes of capturing additional eyeballs.

Interestingly, Programmers have remained reticent to push their contentto well-known portals: combined, they accounted for 3% of Programmer video ad views this quarter. Instead, there was tremendous growth in the usage of MVPD and OTT apps, accounting for 5% of Programmer monetization this quarter compared to just 2% a year ago.

}}3%

5%

2%

90%

4%

3%

5%

88%

10 Share of Ad Views by Distribution Platform Programmers | Q3 2013 vs. Q3 2014

Q32013

Q32014

MVPD/OTT Owned & OperatedPortalsSyndication Network/Other Web

“Just as Digital Pure-Play Publishers have long leveraged third-party platforms to reach new

audiences... Programmers are dipping their toes in the digital waters in hopes of capturing

additional eyeballs.”

10%of all

ad views12%of all ad views


A Less Imposing WallMonetization via authenticated viewing (defined as viewing that occurs after viewers enter their MVPD subscription credentials) grew 368% year-over-year in Q3. The expanded role of authenticated viewing has proved remarkably consistent, maintaining a growth rate above 200% in each quarter since we began reporting on this metric in Q3 2013. This is reflected in the fact that 46% of long-form and live monetization came from behind an authentication wall in Q3 2014 [see chart 11], up from just 14% last year.

This quarter marks the first time that we have analyzed the devices that viewers are using to authenticate and watch digital video. We found that the makeup of devices varied significantly from digital viewing as a whole; OTT devices accounted for a greater share of authenticated video ad views at 22%, while desktop and laptop computers (64%) and smartphones (7%) saw lower shares [see chart 12].

11 Authenticated Ad View Rate and Growth Q3 2013 vs. Q3 2014

+368%Authenticated

Ad View Growth

46%Authenticated

Long-formAd View Rate

12 Authenticated Ad Views by Device Q3 2014

Smartphone

7%

OTT Device

22%

Desktop/Laptop

64%

Tablet

7%


Much of the success that OTT devices have had with authenticated viewing can be explained by their user experience as well as their customer base. Most OTT apps require a one-time authentication, often during the registration phase, and the devices are quite popular with younger, more tech-savvy consumers. A 2013 NPD Group study noted that 68% of 18- to 34-year-olds with connected TV sets or devices use them to watch programming from an MVPD*.

56%Live

44%On-Demand

13 Share of Authenticated Viewing Q3 2014

While in past quarters, we reported that the vast majority of authenticated viewing occurred on live content (76% of authenticated video ad views were on live content in Q4 2013), we saw that trend reverse this quarter as 44% of authenticated video ad views were during on-demand content [see chart 13]. This is additional evidence of live content’s value as an opportunity for Publishers to capture and train new viewers, reeling them in via “must-have” live events. Once authenticated, viewers enjoy access to the rich on-demand libraries that lay behind the wall.

* Source: NPD Group’s Connected Intelligence, September 2014


Viewer ExperienceFinding the Optimal Ad BreakAnother trend that we saw continue in Q3 2014 was the move towards longer, “TV-style” ad breaks on long-form content. While a year ago, we noted an average ad break of 87 seconds and 3.5 ads, the average break grew to 101 seconds and 4 ads this quarter [see chart 14]. While traditional TV Publishers may have a reputation for being risk-averse, we continue to observe experimentation and testing in the quest for digital video’s “Holy Grail”; the optimal ad experience. As Publishers continue to tinker, we expect to see the digital experience on premium content come even more closely in line with what viewers are accustomed to on linear TV.

Despite seeing more ads packed into mid-roll breaks, we continue to see healthy ad completion rates across all content durations [see chart 15]. Not surprisingly, long-form ad completion rates remain at and above 90%, as viewers are more committed to the content and tolerant of mid-roll ads. Ad completion rates on long-form content have not dipped below 90% since we began reporting this metric. 15- and 30-second spots also maintain relatively even completion rates, suggesting that viewers will tolerate all creative types when viewing premium content.

87 seconds (3.5 ads)

2014Q3

2013Q3

101 seconds (4.0 ads)

14 Mid-roll Ad Break Duration Q3 2013 vs. Q3 2014

Short-form Long-formMid-form

15 seconds 30 seconds

71%

90%

74% 76%

92%78%

15 Ad Completion Rates Q3 2014


AdvertisingKnow Your AudienceThe share of Programmer video ad views moving through ad networks and exchanges dropped this quarter to 4.6% from 4.9% last quarter, and from 4.7% in Q3 2013, bringing the five-quarter average to 5.0% [see chart 16]. While we foresee that networks and exchanges will continue to play a role in the digital video ecosystem (such as managing for unexpected sales shortages), we believe that Publishers will continue to limit the amount of inventory monetized through these channels due to conflicts with direct sales goals, inabilities to support compliance, and inconsistent fill rates. Meanwhile, marketers are cautious about buying from these channels due to fears around quality of inventory, which include content quality, viewability, traffic fraud, and brand safety on long-tail sites.

Because of the collective concerns of both marketers and publishers, we are starting to see greater movement toward programmatic reserved deals (guaranteed deals between the publisher and a brand or agency executing

directly between the DSP and sell-side ad management platform), and a departure from the use of open exchanges. Publishers, however, still wish to maintain strict control of their inventory and ensure compliance is maintained.

Another analysis that reflects digital video’s premium positioning is the adoption of measurement currencies such as Nielsen’s Online Campaign Ratings (OCR) and comScore’s Validated Campaign Essentials (vCE) by Publishers. This quarter, we found that 58% of all clients and 79% of Programmers sold inventory using measurement currencies [see chart 17].

16 Ad Network/Exchange Share of Ad Views Programmers | Q3 2013 vs. Q3 2014

Q32014

Q22014

Q32013

Q42013

Q12014

5QAverage

4.7% 5.0%6.0%

4.9% 4.6% 5.0%

17 Share of Clients Using Measurement Currency Q3 2014

All Clients Programmers

58%

79%

As digital video currency buys mimic the framework of linear TV ad sales, the adoption of these currencies only serves to underline the demand for digital video inventory amongst traditional TV advertisers. As measurement vendors develop more sophisticated, scalable offerings (such as providing ratings on OTT devices), we expect to see these buys account for a larger share of the market moving forward.

Discerning ClienteleThe Consumer Packaged Goods (CPG) advertiser vertical accounted for 30% of all online video views this quarter: nearly double any other vertical [see chart 18]. CPG is also the top vertical for linear TV advertising, according to research by Kantar Media.* This runs in stark contrast to the rest of the digital advertising market (e.g. search, display, social) where CPG advertisers only account for 7% of all ad revenue.** This discrepancy highlights how advertisers view usage of online video advertising differently than other formats. Brand building tends to be the central focus for video advertising, while other formats are primarily used for driving intent and consideration, and progressing consumers down themarketing funnel.

ConsumerPackagedGoods (CPG)

30%

Computing

7%

Auto/Energy/Manufacturing

11%

FinancialServices

13%

Retail

17%

Other

5%

Telecom

8%

Entertainment/Media

9%

18 Ad Views by Advertiser Vertical Q3 2014

** Source: IAB/PwC Internet Ad Revenue Report, HY2014, October 2014


* Source: Kantar Media Network TV Ad Spend by Vertical, January - May 2014


UK Market AnalysisThe Long and Short of ItA trend that has crystallized over the past few quarters is the different content strategies of Publishers in the US and the UK. As both countries see differing viewership patterns, Publishers have played to their relative strengths when monetizing content on both sides of the Atlantic.

American audiences are more accustomed to short-form viewing, and Publishers in the US monetize short-form content with pre-roll ads at a much higher rate than their UK counterparts across all devices [see chart 19]. Conversely, Publishers in the UK are far ahead when it comes to long-form content. The average mid-roll break there is 144 seconds and 5.57 ads, 45% longer than in the US [see chart 20]. Alas, Publishers in both the US and UK could look to one another for guidance on creating consumer acceptance of regular pre-rolls and “TV-style” ad breaks.

Desktop/Laptop

Smartphone Tablet

19 Pre-roll Monetization Rate by Device, UK vs. USA Short-form Content | Q3 2014

73%

58%

40%

15%

47%

19%5.57

Ads perBreak

4.00Ads perBreak

20 Mid-roll Ad Break Duration, UK vs. USA Long-form Content | Q3 2014

144 secondsAd Break Length

101 secondsAd Break Length

About this ReportFreeWheel’s platform for video ad management and monetization helps the largest players in the TV industry generate revenue from their ad-supported content on desktop, mobile, OTT, and traditional STB devices. The dataset used for this report is one of the largest available on the usage and monetization of professional, rights managed video content, and is comprised of over 50 billion video views in the first half of 2014. The FreeWheel Video Monetization Report is released quarterly and seeks to highlight the changing dynamics of how enterprise-class content owners and distributors are monetizing professional digital video content.

As part of this analysis, we group Publishers into two categories:

Programmers: ■ Includes Programmers and Multichannel Video Programming

Distributors (MVPDs) who generate the majority of their advertising revenue from linear TV services

■ Offer diverse content mix on IP-based environments

Digital Pure-Play Publishers: ■ Generate majority of revenue from IP-based environments ■ Aggregate third-party content and/or are developing

original content


SummaryQ3 2014 has marked yet another quarter of strong growth and evolution in the digital TV market, with video ad views growing 30% year-over-year.

In exploring the trends in the digital television industry, we noted the following key observations:

■ Live viewing was up 214% year-over-year, driven by significant growth in sports streaming and news simulcasts.

■ Monetization continues to move cross-platform, with 27% of video ad views coming outside desktop and laptop environments.

■ Authenticated viewing grew 368% year-over-year as 46% of all video ad views on long-form and live content now come from behind authentication walls. Authenticated viewing is relatively evenly split between live and on-demand content.

■ Viewers are seeing more TV-like ad experiences on long-form content, yet completion rates remain high.

■ 58% of all clients and 79% of Programmer clients are using measurement currencies such as OCR and vCE.

■ The UK market is more aggressive than the US with regards to monetizing long-form content and less aggressive with regards to using pre-rolls on short-form content.

For more information on this report:Brian Dutt

Director, Advisory [email protected]

Media inquiries:Laura Colona

Director, Public Relations &Corporate Communications

[email protected]

© 2014 FreeWheel. All Rights Reserved.