For Immediate Release MEDIA MAVEN A SNAPSHOT OF VIDEO VIEWING TRENDS April 2015 Volume 18 We achieved several major milestones in : surpassing 40 million members in the US; 20 million internationally; and 60 million in total. Our original series, documentaries and comedy specials are being enthusiastically received, and member engagement is at an all-time high. Members streamed 10 billion hours in, more evidence that consumers around the world are embracing the Internet TV revolution. Reed Hastings, CEO, Netflix, Letter to Shareholders April 15, 2015 The 10 billion hours of streamed video in one quarter marks a significant shift in how consumers watch video, and Netflix is only part of a new dynamic of change in the TV industry, driven by consumers who now can control when, where and on which device to watch their favorite programming. The growing penetration of new portable devices and subscription-based streaming services, and over-the-top viewing are fundamentally changing the TV industry. Rapid consumer adoption of new ways to consume media appears to have resulted in an accelerated rate of change in viewing behavior. Consumers Continue to Carve Out More Time for Media Last month, Nielsen released its quarterly total audience report, in which the media measurement company compiled its latest data pertaining to consumer consumption of media. As usual, the data demonstrates that among persons aged 2+, time spent watching TV in the home dominated consumers time spent with media. On average, consumers aged 2+ spent 149 hours and 14 minutes per month watching TV in the home, more than 2.5x the 58 hours and 36 minutes consumers spend per month listening to AM/FM radio, and more than 14x larger than the 10 hours and 29 minutes that consumers spend watching video on the internet. Monthly Time Spent by Medium (Users 2+ in Hours: Minutes) Q4 Q4 % Change On Traditional TV 149:14 155:32 (4.1)% Listening to AM/FM Radio 58:36 60:16 (2.8)% Using an App/Web on a Smartphone 43:14 34:03 27.0% Using the Internet on a Computer 29:44 27:44 7.2% Watching Time Shifted TV 15:26 14:40 5.2% Watching Video on Internet 10:29 7:34 38.5% Using a Game Console 8:19 7:54 5.3% Using a DVR/Blu-Ray Device 5:22 5:21 0.3% Using a Multimedia Device 3:38 1:59 83.2% Watching Video on a Smartphone 1:42 1:23 22.9% Time Spent - All Media 325:44 316:26 2.9% Source: Nielsen, Total Audience Report Q4 (March 2015)
Media Maven: A Snapshot of Video Viewing Trends Page 2 Yes, time spent watching traditional TV fell by 4.1% in the fourth quarter of relative to the fourth quarter of, while time spent watching video on the internet increased by 38.5% year over year. There is no question that as consumers are offered new platforms that provide flexibility, convenience, and lower costs, they will take advantage of these opportunities. In fact, as shown in the chart above, consumers chose to spend an additional 9 hours and 18 minutes per month consuming media in Q4 vs. Q4, an increase of 2.9%, suggesting that the more ways consumers are provided to consume media, the more time consumers will find in their busy lives to accommodate an increase in media consumption. Over the Long Term Traditional TV Viewing Has Held Its Own We have been tracking Nielsen s time spent with media over the last seven years. Over that time, Nielsen has changed, renamed or added several types of media consumption. Nielsen has been fairly consistent in tracking time spent with four separate categories: 1) Watching TV in the home (or traditional TV ); 2) Using the internet on a computer; 3) Watching Time Shifted TV; and 4) Watching Video on the Internet. Over the last seven years, time spent watching TV has decreased at a compound annual growth rate (CAGR) of 0.1%, while using the internet on a computer has grown at a CAGR of 0.9%. Watching time shifted TV has grown by a CAGR of 14.8%, while watching video on the internet has grown at a CAGR of 27.2%. While the growth in watching video on the internet is impressive, compared to TV viewing, it remains nascent: consumers watch nearly 5 hours of TV per day (4 hours and 54 minutes) while they watch video on the internet for 20 minutes a day. This disparity is depicted graphically in the chart below. Monthly Time Spent with TV and Internet - Persons 2+ 168:00 144:00 120:00 96:00 72:00 48:00 24:00 0:00 Watching TV in the home Watching Timeshifted TV (all TV homes) Using the internet on a computer Watching Video on the Internet Source: Nielsen Total Audience Report An Accelerated Rate of Change in Traditional TV Viewing Last week, Accenture released a study of 24,000 consumers worldwide and found that the television was the only device that experienced double digit usage declines. According to the study, viewership of movies and TV shows on TV screens fell by 13% worldwide and by 11% in the U.S. over the last year, as consumers are increasingly watching TV programming on smartphones, tablets, and laptops. Returning to the Nielsen numbers, a deeper look suggests that TV viewing is becoming more challenged among the younger demos, particularly the 18-24 demo and the 12-17 demo. As shown in the chart
Media Maven: A Snapshot of Video Viewing Trends Page 3 below, persons in the 18-24 age demo watch just 95 hours and 1 minute of TV per month (or roughly 3 hours and 7 minutes per day). As shown in the first column, this means that this age demo spends just 64% of its time watching TV relative to the overall population (Persons 2+). In 2008, the 18-24 demo spent 78% of its time watching TV relative to the broader population. What is most interesting about this first column is that while persons in the 18-24 demo watch a lot less TV than the average person, they watch only 9% more video on the internet per month than the average person (15 hours and 58 minutes vs. 15 hours and 26 minutes for Persons 2+). The last column shows that time spent watching TV among the persons 18-24 demo has fallen at a compound annual growth rate of 3.6% over the last 6 years. The middle column is an area of concern: TV viewing among persons 18-24 watched 16.1% less TV in Q4 than they did in Q4. It is interesting to note that the 18 minute decline in TV viewing was only offset by a 3 minute increase in using the internet on a computer, and a 2 and a half minute increase in watching video on the internet. Monthly Time Spent in hours: Minutes - Per User Ages 18-24 Time Spent vs. CAGR Persons 2+ 4Q 4Q % Change 4Q 2008 2008- Watching TV in the home 64% 95:01 113:14 (16.1)% 118:24 (3.6)% Using the internet on a computer 109% 32:32 29:24 10.7% 13:00 16.5% Watching Video on the Internet 103% 15:58 13:14 20.7% 5:03 21.1% Watching Timeshifted TV 83% 8:42 9:03 (3.9)% 5:01 9.6% Source: Nielsen data, 2008- The teen demo (ages 12-17) shows similar trends. Teens consume a lot less media relative to the average consumer (i.e., teens consume only 56% of the amount of TV consumption per month (84 hours and 17 minutes; or 2 hours and 46 minutes per day) than the average consumers viewing of 149 hours and 14 minutes. While growth in other mediums is growing (between 9% and 12% per year as shown in the last column), overall usage relative to persons 2+ is dramatically smaller. For example, time spent using the internet on the computer among teens 12-17 is only one-quarter (25%) of the time spent for the average Person 2+. Monthly Time Spent in hours: Minutes - Per User Ages 12-17 Time Spent vs. CAGR Persons 2+ 4Q 4Q % Change 4Q 2008 2008- Watching TV in the home 56% 84:17 93:53 (10.2)% 103:48 (3.4)% Using the internet on a computer 25% 7:21 6:44 9.2% 4:24 8.9% Watching Video on the Internet 37% 5:38 4:31 24.7% 2:49 12.2% Watching Timeshifted TV 80% 8:23 8:26 (0.6)% 4:24 11.3% Source: Nielsen data, 2008- There are those who look at the teen demo most, because there is concern that this demo will never pay to watch TV the way most consumers have chosen to do over the last 3 decades: via cable, satellite or broadband. There is a concern that this group has grown up to be digitally connected more than any other generation, and that they will be price-sensitive consumers with little provider loyalty. This demo is seen as looking for individualized, snackable and interactive experiences, and as a consequence will want increased content personalization, self-curation and real-time sharing.
Media Maven: A Snapshot of Video Viewing Trends Page 4 For All the Talk of Cord-Cutting, Pay TV Holding Up Well While the 12-17 age demo is considered the potential cord-nevers, it is also important to note that overall cord-cutting fell by just 0.1% in. This means that out of a universe of 95+ million connected TV homes, only a net of 125,000 homes cut the cord in, as shown in the chart below. More than 1.1 million homes dropped their cable provider, but nearly a like amount (1.0 million) signed up for TV packages from telephone companies such as AT&T (U-Verse) or Verizon (FiOS). Pay-TV Providers Subscribers at Net Adds % Increase/ the end of in (Decrease) Cable Companies Comcast 22,383,000 (194,000) (0.9)% Time Warner 10,992,000 (401,000) (3.6)% Charter 4,293,000 (49,000) (1.1)% Cablevision 2,681,000 (132,000) (4.9)% Suddenlink 1,138,400 (49,100) (4.3)% Mediacom 890,000 (55,000) (6.2)% Cable ONE 451,217 (87,677) (19.4)% Other Major Private Cable Companies 6,450,000 (225,000) (3.5)% Total Top Cable 49,278,617 (1,192,777) (2.4)% Satellite TV Companies (DBS) DirecTV 20,352,000 99,000 0.5% DISH 13,978,000 (79,000) (0.6)% Total DBS 34,330,000 20,000 0.1% Telephone Companies AT&T U-verse 5,943,000 660,000 11.1% Verizon FiOS 5,649,000 387,000 6.9% Total Top Phone 11,592,000 1,047,000 9.0% Total Top Pay-TV Providers 95,200,617 (125,777) (0.1)% Source: Leichtman Research Group, March 2015 Streaming Video Subscriber Penetration Grows Over the top TV ( OTT ) refers to the delivery of video over the internet without the involvement of a multiple system operator (MSO, typically a cable MSO) in the control or distribution of content. Netflix, Amazon and Hulu are generally considered the largest of the OTT service providers. According to Nielsen s total audience report, two in five American households now subscribe to a video streaming service like Netflix, Amazon Prime, or Hulu Plus. Nielsen does not measure audiences for shows streamed on Netflix or Amazon. Roughly 36% of households subscribe to Netflix, while 13% subscribe to Amazon Prime and 6.5% subscribe to Hulu. Consumers in households with streaming video services spend significantly more time watching video programming than those without these services. Homes with subscription video services spend 2 hours and 45 minutes per day watching time-shifted TV via video game consoles, multimedia devices and DVD or Blu-Ray players. Homes without a video streaming service subscription spend 1 hour and 57 minutes. Nevertheless, just because consumers have a subscription streaming video service does not mean they are
Media Maven: A Snapshot of Video Viewing Trends Page 5 cutting the cord. As evidence, homes with subscription streaming services spend 66 minutes a day watching time shifted television, while homes without subscriptions spend 56 minutes a day. Netflix The 800-lb Gorilla of Internet TV On April 15, Netflix released the company s latest numbers which showed that total subscribers had increased to 62.3 million worldwide, as shown in the chart below, with domestic subscribers increasing by 6% sequentially to 41.4 million up from 39.1 million in Q4, and by 16% year over year from 35.7 million in 1Q. According to Sandvine, Netflix now accounts for 35% of downstream internet traffic during peak evening hours. Netflix - Domestic and International Streaming Subscribers (mm) 70.0 62.3 60.0 50.0 44.4 48.4 50.0 53.1 57.4 40.0 30.0 26.5 27.6 29.4 33.3 36.3 37.3 40.3 20.0 10.0 0.0 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 2015 Domestic International Source: Netflix company reports Netflix s streaming video services generated $1.4 billion in revenues in the first quarter of 2015. At these levels, Netflix is able to spend more money on better content. Better content begets more subscribers, which enables Netflix to invest in more/better programming. This is the same model that cable networks rode to prominence over the last 30 years. TV Programmers Begin to Offer Paid Apps Most major linear TV networks provide access to their content through a TV Everywhere strategy such that as long as a consumer can demonstrate they subscribe to a multi-channel service provider (a process known as authentication ), they are free to watch the programming free of charge. With the media landscape becoming more and more fragmented and with consumers demonstrating a desire to watch
Media Maven: A Snapshot of Video Viewing Trends Page 6 programming when they want to and on the device of their choosing, TV programmers have begun to distribute their programming via apps for phones and tablets. Linear TV networks such as HBO, CBS, ESPN, Canal+ and BBC (to name a few) have moved into the internet TV ecosystem by charging consumers, even those that cannot authenticate that they have a subscription to a pay TV service. In October, CBS launched its All Access app, charging $5.99 per month for access to over 6,500 episodes of CBS content. New episodes of CBS shows are available for viewing the day after they have aired on broadcast TV. In February 2010, HBO launched HBO GO, a TV Everywhere app in which HBO subscribers were provided with access to streaming video on demand of HBO content, including current and past series, films, and specials through the HBO website, mobile device apps, video game consoles, and digital media players. On April 9, 2015, HBO launched HBO Now, an over-the-top (OTT) subscription video on demand service that allows subscribers, who pay $14.99 per month, to on-demand access to HBO s library of content. HBO Now is a standalone service and does not require a television subscription to use. The service is designed to reach cord-cutters or cord-nevers. HBO Now must be purchased through authorized partners such as Apple Inc., which has exclusivity for the first three months, or participating ISPs. Sony and Dish Launch Internet MVPDs Earlier this year Sony and Dish launched internet MVPD offerings. In February, Dish Networks launched Sling TV, an internet delivered alternative to cable and satellite TV, which allows consumers to enjoy a core 12-channel package of programming for $20 per month. The core channel package includes ESPN, ESPN2, TNT, TBS, Food Network, HGTV, Travel Channel, Adult Swim, Cartoon Network, Disney Channel, ABC Family and CNN. Sling works anywhere in the U.S. with a broadband internet connection and is also available on streaming media devices such as Roku, Amazon Fire TV, Andriod, ios, and Mac and PC computers. On March 18, 2015, Sony launched PlayStation Vue. With 20 million PlayStation 4 consoles sold to date and 80 million PlayStation 3s in homes worldwide, Sony is well positioned to launch its new $50 per month streaming service. Vue carries programming from broadcast and cable networks, including CBS, NBCUniversal, Fox, Turner, Viacom, Scripps and Discovery. Vue offers a mixture of live and ondemand content, and thanks to cloud storage, the service also features what Sony describes as a virtually unlimited DVR. Finally, Apple is rumored to be mulling the launch of its own internet TV service. Final Thoughts For years, traditional TV viewing has held steady in the face of considerable media fragmentation. However, cracks in the armor began to appear in the -2015 television season. Through February, broadcast TV C3 ratings (live commercial viewing plus 3 days) were down 8% season to date, while cable TV ratings were down 12% season to date. In previous years, we might attribute this to weak programming. Today, with the plethora of new platforms, devices and apps with which to watch quality programming, we believe the recent decline in Nielsen s traditional TV viewing bears watching. For programmers, these new outlets provide additional monetization opportunities. Networks need to find a balance between growing these additional revenue streams while ensuring they don t kill the golden goose (i.e., their traditional business model). As viewers shift their viewing from TV to new
Media Maven: A Snapshot of Video Viewing Trends Page 7 devices, programmers will have to identify new ways to package content and distribute it across multiple screens. For distributors such as cable MSOs, these trends likely mean its time to make tough decision about which channels are worth keeping (presumably at higher prices, particularly the broadcast networks) and which channels should be dropped. Whether programmers or distributors, adding digital or mobile distribution capabilities creates opportunities to customize content and provide an avenue for feedback from consumers who are willing share their thoughts. Developing a direct relationship with consumers will enable programmers to develop in depth analysis of consumer behavior and preferences. Mining this data could become essential to making better programming decisions, which should result in greater consumer attention or engagement, which should in turn lead to greater dollars. Coady Diemar continues to meet and work with some of the most innovative digital media companies in the sector. We welcome the opportunity to share our ideas and relationships to help companies turn their challenges into opportunities. Sincerely, Chris Ensley (212) 901-4160 chrise@coadydiemar.com About Coady Diemar Partners Coady Diemar is a boutique investment banking firm providing mergers and acquisitions, private capital markets and strategic advisory services to growth companies in digital media, mobile and other industries. We offer a breadth of transaction experience and expertise, industry knowledge and institutional relationships and provide clients creative solutions and unparalleled access to ideas and capital. We are acutely sensitive to the specific and unique requirements of each client and opportunity. Visit our website www.coadydiemar.com to learn more about Coady Diemar Partners and to download presentations on digital and traditional media and the M & A and private capital markets. Contact Colin Knudsen at colin@coadydiemar.com or Chris Ensley at chrise@coadydiemar.com for additional information or to arrange a meeting. If you would like to be added to our email distribution list for periodic industry and market commentary, please contact Arian Omid at arian@coadydiemar.com. Independent Advice. Seamless Execution. This announcement is neither an offer to sell nor a solicitation to buy securities. This announcement appears as a matter of record only. Copyright (C) 2015 Coady Diemar Partners, LLC. All rights reserved.