E D BARTO N Chief Analyst, Entertainment Ovum

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August King
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1 OVUM VIEW E D BARTO N Chief Analyst, Entertainment Ovum P R E S E N TAT I O N Transformative Strategies: SuperSizing Entertainment Distribution and Competition Will M&A enable traditional media to compete against the digital giants 1

2 TV and video competition is intensifying because of the FAANGs 140, , ,000 80,000 60,000 40,000 20,000 Pay TV subscription revenue forecast $m USA World Pay TV is in secular decline in mature markets with growth slowing in many others: while still the greater part of total TV and video revenue, companies reliant on pay TV need new growth narratives 140, , ,000 80,000 60,000 40,000 20,000 OTT subscription revenue forecast $m USA World OTT subscriptions are growing strongly but market share is dominated by Amazon and Netflix, often to over 50 per cent of the market TV advertising revenue forecast $m Digital video advertising revenue forecast $m 140, , ,000 80,000 60,000 40,000 20,000 TV advertising is largely flat as audiences spend more time on nonlinear viewing 140, , ,000 80,000 60,000 40,000 20,000 Digital video advertising is growing strongly but is comprehensively dominated by Facebook and YouTube USA World USA World 2

3 Digital platform market dominance of the key growth opportunities OTT subscriptions and AVOD is expected to continue without a stepchange in competition US online video subscription revenue market share UK online video advertising revenue market share 25, % 3, % 20,000 15,000 10,000 5,000 74% 71% 68% 66% 66% 65% 64% 62% 1,254 3,657 3,834 3,343 2,694 1,933 5,981 5,230 4,638 4,692 5,671 6,621 7,557 8,488 9,150 9,875 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 3,000 2,500 2,000 1,500 1, % 67% 68% 69% 71% 73% 74% 74% ,535 1,705 1, , , % 80% 70% 60% 50% 40% 30% 20% 10% 0% Ama+Nfl revenue NonFAANG OTT sub revenue Ama+Nfl revenue market share YT + FB revenue NonFAANG AVOD revenue YT + FB revenue market share Note: Ama+Nfl = Amazon and Netflix combined; YT + FB = YouTube and Facebook combined FANG market share of the two key growth stories in video distribution, OTT subscription and digital video advertising, is very high and actually increases when isolating mobile: the supersized companies will look to compete more effectively in these revenue pools. 3

4 I don't think there's any major media company on the planet that ultimately won't have a directtoconsumer product launched in short to medium term Lachlan Murdoch, 21st Century Fox PREMERGER 2017 DIRECT TV AND VIDEO REVENUE $M POSTMERGER 2017 DIRECT TV AND VIDEO REVENUE $M A T & T C O M C A S T S K Y E U R O P E C O M C A S T S K Y A T & W 43,608 48,676 N E T F L I X D I S N E Y 2 1 S T C E N T U R Y F O X G O O G L E T I M E W A R N E R A M A Z O N F A C E B O O K H U L U D I S N E Y F O X N E T F L I X G O O G L E A M A Z O N F A C E B O O K H U L U 17,897 11,242 6,908 3,654 3,241 1,050 10,000 20,000 30,000 40,000 50,000 60,000 10,000 20,000 30,000 40,000 50,000 60,000 4

5 Supersizing content spending: more money feeding fewer platforms 2017 content spend ($m) AT&T Disney Time Warner 21st Century Fox Comcast Sky Europe Netflix Amazon Hulu Facebook Google AT&W Disney Fox Comcast Sky Netflix Amazon Hulu Facebook Google SuperSized 2017 content spend ($m)

6 Content creation and acquisition The search for growth is focused on D2C platforms: HBO NOW, Disneyflix, F1TV Directtoconsumer Digital AVOD OTT subscription Shortform, UGC BVOD SVOD SLIN TVOD Theatrical Commercial broadcast Home ent (DVD, BRD) Pay TV OTT multiscreen New release EST Bundled SVOD 6

7 Supersizing subscriptions: Netflix remains in a league of its own Selected companies, TV and video subscriptions by type (mn), Before supersizing After supersizing OTT TV OTT TV

8 5G places a personal, mobile device at the heart of the viewing ecosystem 8

9 A significant reorientation of the entertainment industry is underway 46 global video platforms Netflix, YouTube, Prime Video, Facebook Video HBO NOW? Disneyflix? iflix? DAZ N? Supersized competition Coexistence with Netflix and YouTube Content squeeze Live sports is critical Digital is winning sports rights Rightsowner D2C proliferates, strengthens 5G s comprehensive impact Placing a personal mobile device at the heart of the entertainment ecosystem Improving existing mobile video, enabling new content and business models 9

10 Thank you Ed Barton, Chief Analyst 10

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