7 predictions about the future of media

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BI Intelligence
7 PREDICTIONS ABOUT
THE FUTURE OF MEDIA

1. DIGITAL WILL INHERIT THE EARTH

DIGITAL MEDIA CONSUMPTION IS GROWING,
EVERYTHING ELSE IS SHRINKING
US Consumer Media Consumption Share
Source: eMarketer
43.2%
40.9%
14.0%
6.6% 5.8%
35.2%
12.0%
2.9% 3.3%
TV Radio Print Other
2011 2012 2013 2014 2015
Desktop/laptop
Digital
30.0%
Mobile

And averages do not tell
the whole story…

THE SHIFT IS GENERATIONAL
Top 5 Media Mentions Among All Adults, 2013
Source: Ofcom
0 20 40 60 80 100
Total
Aged 16-24
Aged 25-34
Aged 35-44
Aged 45-54
Aged 55-64
Aged 65-74
Aged 75+ Watch TV
Read newspapers/
magazines
Listen to the radio
Go online on a computer/
laptop/netbook/tablet
Use a smartphone

GENERATIONS HAVE A PREDICTABLE LIFE CYCLE…
Source: Goldman Sachs

•  First digital native generation(s)
•  Already 45% of population and largest share of earners
•  Profoundly different media habits
MILLENNIALS AND GEN Z

26
16
0
5
10
15
20
25
30
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Q2
2014
Q3
2014
Q4
2014
Q1
2015
Q2
2015
Hours spent
18-24 TV VIEWING DOWN ~30% IN 4 YEARS
Traditional TV* Viewing Trends Among 18-24 Year-Olds
Weekly time spent in hours, based on total 18-24 population
*Traditional TV refers to all live + DVR/time-shifted TV viewing during the quarter.
Source: Nielsen

DIGITAL MEDIA CONSUMPTION GROWING EVERY
YEAR, ESPECIALLY MOBILE
Source: comScore Media Metrix Multi-Platform & Mobile Metrix;
US, Total Audience
476,553 480,967 550,522
409,847
621,410
778,954 77,081
97,440
118,299
Jan-13 Jan-14 Jan-15
Total minutes (MM)
Desktop Mobile App Mobile Browser
MOBILE TIME SPENT
Growth In US Digital Media Time Spent

MILLENNIALS CHECK THEIR PHONES
EVERY 10 MINUTES
Source: Kana Software

Source: Zogby Analytics, cited by KPCB (Mary Meeker – LinkedIn slideshare)
THEY KEEP THEM IN
REACH 24 HOURS A
DAY
My smartphone never leaves my side,
night or day
87.0%
12.0%
2.0%
Agree Disagree Not sure

Source: Zogby Analytics, cited by KPCB (Mary Meeker – LinkedIn slideshare)
THEY CHECK THEM
FIRST THING IN THE
MORNING
When I wake up, the ﬁrst thing I do is reach for
my smartphone
80.0%
18.0%
2.0%
Agree Disagree Not sure

So here’s a glimpse at the past,
present, and future of media…

THE PAST (~2000): 3% DIGITAL
Source: Ofcom
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Smartphone
Computer/laptop/tablet
Radio
Print
TV

THE PRESENT (~2015): 40% DIGITAL
Source: Ofcom
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Smartphone
Radio
Print
TV

THE FUTURE (~2030): 80%+ DIGITAL
Source: Ofcom
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Smartphone
Radio
Print
TV

Remember when pundits said
digital content had to be free
because no one would ever pay?

4.0
4.8
5.8
7.3
9.2
11.5
2014 2015E 2016E 2017E 2018E 2019E
Billions USD
STREAMING VIDEO SUBS CLIMBING FAST
Streaming Video Subscription Revenue
US
Note: Includes video services that stream long-form TV and movie length content (e.g.
Netflix and Hulu). Does not include short-form video content services (e.g. YouTube).

8.7
11.4
14.0
16.5
18.7
20.6
2014E 2015E 2016E 2017E 2018E 2019E
Billions
MUSIC SUBS ARE CLIMBING FAST
Streaming Music Paid Subscribers
US
Source: BI Intelligence estimates based on historical data from the RIAA

AdverZsing
SubscripZons
$-
$20
$40
$60
$80
$100
$120
Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14
Millions
EVEN “PRINT” SUBS ARE CLIMBING FAST
New York Times Digital Revenue
Global
Source: The New York Times

The new pundit story is that there’s
one right model — subs or ads

The truth is that both work,
as do a la carte sales.

Most media companies
have dual revenue streams.

“FREEMIUM” IS OFTEN THE BEST APPROACH
Paid Digital Subscribers As % Of Total Digital Users
Source: BI Intelligence estimates
25%
22% 21%
5% 5%
3% 2%
0%
5%
10%
15%
20%
25%
30%
SpoZfy Hulu WhatsApp Pandora Match Group NYT LinkedIn

3. (NATIVE) DIGITAL ADVERTISING
WILL CONTINUE TO THRIVE

The best definition of “native ads”…

Ads that fit the way content and stories
in the medium are consumed.
“NATIVE ADS”

In digital, “search” and “scroll” are the
dominant ways content is consumed.

BEHOLD THE POWER OF NATIVE DIGITAL ADS
Note: Based on GAAP revenue.
Source: Company Filings, BI Intelligence estimates
Google
Facebook Yahoo
AOL Twiber
$0
$5
$10
$15
$20
$25
Billions
Digital Advertising Revenues
Global

“Read, watch, and listen”
are also digital formats.

But the experience is different
than in legacy media.

Native digital brand ads will increasingly
take advantage of the digital difference.

4. THE EXISTENTIAL CRISIS
OF AD BLOCKING WILL RESOLVE ITSELF —
BUT CAREFUL WHAT YOU WISH FOR

AD BLOCK USAGE IS RISING
Source: Adobe, PageFair
21 30 39
54
121
144
181
198
Jan 10 Jun 10 Jan 11 Jun 11 Jan 12 Jun 12 Jan 13 Jun 13 Jan 14 Jun 14 Jan 15 Jun 15
Adblock Monthly Active Users
In Millions

ESPECIALLY AMONG MILLENNIALS…
Share Of Global Internet Users Who Have Blocked Ads In The Past Month, By Age
Source: GlobalWebIndex
35%
31%
24%
22%
17%
0% 5% 10% 15% 20% 25% 30% 35% 40%
16-24
25-34
35-44
45-54
55-64
urce: GlobalWebIndex

AND TECHIES
Note: Estimated to nearest 5% increment
Source: PageFair
30%
25%
25%
20%
20%
20%
15%
15%
10%
10%
10%
5%
Games
Technology
Comics
Adult
Entertainment
Sports
News
Business
Lifestyle
Local
Finance
Travel
Ad-Block Usage Rates, By Vertical
Global

There is a lot of self-interested
finger-pointing, moralizing,
and rationalizing going on —
from all parties.

If all ads are blocked, most free
content will cease to exist.
ONE THING IS CLEAR…

Publishers, platforms,
and advertisers will focus more
on user experience and choice.

People will choose to view ads
from, and/or subscribe to,
publishers and platforms they like.

These decisions will not all
be voluntary.

5. THE NEXT BIG PLATFORM IS…

As smartphones get boring,
everyone is hunting
for the next big platform.

Many candidates have been suggested —
glasses, watches, cars, virtual reality…

None of these
will be the next big platform.

Smartwatches haven’t entirely flopped,
but no one will be reading, watching,
or listening to media on them
anytime soon.

Cars won’t become media
and communications platforms —
other platforms will be used inside them.

VR is promising,
but it’s still too early.

VR INSTALLED BASE STILL SMALL
Estimated Global Virtual Reality Headset Shipments
Source: BI Intelligence estimates, 2015
-
5
10
15
20
25
30
2015E 2016E 2017E 2018E 2019E 2020E
Shipments (Millions)

•  Complicated to use
•  Screen resolution low
•  Display often nausea-inducing
•  Prices steep
AND EXPERIENCE
STILL LEAVES MUCH
TO BE DESIRED

Messaging apps!
SO THE NEXT BIG PLATFORM WILL BE…

Source: Salesforce
MESSAGING
IS AT THE
HEART OF
THE MOBILE
EXPERIENCE
Smartphone Activities Performed At Least Once Each Day
24%
30%
43%
46%
57%
62%
75%
76%
90%
91%
Gecng direcZons
Watching videos or movies
Reading
Listening to music
Playing games
Gecng news alerts
Social networking
Searching on the internet
Text messaging
Accessing email

SOCIAL NETWORKS ARE BIG…
Source: Companies, BI Intelligence estimates
Monthly Active Users

Global
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15
Millions
Top 4 Social Networking Apps

BUT MESSAGING APPS ARE ALREADY BIGGER
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Millions
Top 4 Social Networking Apps
Top 4 Messaging Apps

Global

0
100
200
300
400
500
600
700
800
900
1000
WhatsApp Messenger WeChat Viber LINE Snapchat Tango Kik KakaoTalk
Global, Q3 2015
THE TOP 4 HAVE ALMOST 3 BILLION USERS

FACEBOOK OWNS TWO — PLUS INSTAGRAM
Facebook Messenger Monthly Active Users
Global
Source: Company, BI Intelligence estimates
0
100
200
300
400
500
600
700
800
900
Millions

SNAPCHAT HAS 200 MILLION AND COUNTING
0
50
100
150
200
250
Estimated Snapchat Monthly Active Users
Global, millions

YOU CAN DO EVERYTHING IN THESE APPS
Calls Chat GIFs
Games SZckers VoIP
Taxi E-commerce Music
Video Payments URL Bar /
Search
UZliZes QR Codes

GENERATION DIGITAL IS NUTS ABOUT THEM
% Of Smartphone Owners Who Use Messaging Apps
US
Source: Pew Research Center, March 17-April 12, 2015
49%
37%
24%
18-29
30-49
50+

6. TV NETWORKS WILL SOON FEEL
NEWSPAPERS’ PAIN

TRADITIONAL TV HAS PASSED ITS PEAK
Households With Pay TV Vs. Subscription OTT, U.S., 2010-2015E, Millions
Leichman Research Group, US Census Bureau, Activate analysis
99 100.9 100.8 99.3 98
97.1
23 28
33 38 43
50.3
0
20
40
60
80
100
120
2010 2011 2012 2013 2014 2015E
Pay TV Households Digital SubscripZon (OTT) Households

PAY TV SUBSCRIBERS ARE SHRINKING
Cable TV Subscribers (US)
Source: Leichtman Research Group
48.0
48.5
49.0
49.5
50.0
50.5
51.0
Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15
Millions

VIEWERSHIP IS FALLING…
Primetime Household TV Ratings
Source: Nielsen
4.8
5.0
5.2
5.4
5.6
5.8
6.0
6.2
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
Nielsen Household RaZng (% Of
Households With TV Sets Watching)
Big 4 US TV Networks Average

NETFLIX ~70 MILLION AND GROWING
Netﬂix Subscribers
Estimates in millions, Global
Source: Netflix
DomesZc
InternaZonal
0
10
20
30
40
50
60
70
80
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Q2
2014
Q3
2014
Q4
2014
Q1
2015
Q2
2015
Q3
2015
Millions

0
1
2
3
4
5
6
7
8
9
10
2011 2012 2013 2014 2015E
Millions
HULU ~10 MILLION AND GROWING
Hulu Subscribers
Source: Hulu, BI Intelligence estimates

AMAZON PRIME ~45 MILLION AND GROWING
Amazon Prime Members
Source: Deutsche Bank, Company reports
0
10
20
30
40
50
2011 2012 2013 2014 2015E
Millions

-
5
10
15
20
25
30
35
40
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Millions
Global US
APPLE TV 35 MILLION+ AND GROWING
Apple TV Installed Base
Source: BI Intelligence estimates

58%
73%
83%
89%
63%
68%
63%
42%
Age 18-24 Age 25-34 Age 35-54 Age 55+
Percent Reach
Four TV Networks Facebook
FACEBOOK REACHES MORE 18-24 THAN FREE TV
Source: Nielsen
Facebook vs. TV Daily Reach
US

NETFLIX IS WATCHED MORE HOURS PER MONTH
THAN ALMOST EVERY OTHER NETWORK
Total Hours Of Viewing, Per Month Per Network
Liam Boluk, MEDIA REDEF

NETFLIX HOUSEHOLDS WATCH 60 HOURS OF
NETFLIX PER MONTH, 2X ANY NETWORK GROUP
Source: Liam Boluk, MEDIA REDEF

YES, TV STILL DOMINATES VIEWING TIME
US Consumer Time Spent On Video Per Month, 2015E, Hours
Source: Digitalsmiths, eMarketer, GfK, Sandvine, Nielsen, TDG, Activate analysis
TradiZonal TV
72%
SubscripZon TV
14%
Ad-Supported
9%
Paid Downloads
5% Total: 177 hours

BUT DIGITAL VIEWING UP ~100% IN 3 YEARS
Source: Digitalsmiths, eMarketer, GfK, Sandvine, Nielsen, TDG, Activate analysis
3.5
7.5 15
Paid Downloads Ad Supported SubscripZon
2012
8
16.5
25
2015E
Monthly Consumer Time Spent On Video, U.S., 2012-2015E, Hours

And the TV audience is increasingly
a specific demographic…

MSNBC and CNN: 60
Broadcast Networks: 62-64
FOX News: 68
MEDIAN VIEWER AGE

Convenience.
WHY IS DIGITAL TV GROWING?

We can watch what we want to
watch when we want to watch it
— on any screen.
WHY IS DIGITAL GROWING?

First, ignore people
who say “TV will die.”

Old media don’t die. They just find
their niche(s). See radio and print.

There are three key parts of “TV” —
and two of them are thriving.

1. Digital TV networks will
continue to thrive

iTunes
Neilix
AMC
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
2007 2008 2009 2010 2011 2012 2013 2014
(Millions) ITUNES AND NETFLIX ALREADY DWARF
AVERAGE CABLE NETWORKS
Source: News Reports, Company Filings
Cable Network vs. Digital Content Revenue 2007-2014

$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
2007 2008 2009 2010 2011 2012 2013 2014
(Millions)
CBS Ad
YouTube Ad Revenue
AMC Networks Revenue
CBS Ad Revenue
YOUTUBE REVENUE CLOSING IN ON
BROADCAST NETWORKS
YouTube Ad Revenue Vs. CBS Ad Revenue And AMC Networks Revenue
Source: News Reports, Company Filings, BI Intelligence estimates, BofA Merrill
Lynch Global Research

2. Access providers will continue
to thrive — unless (until?)
real price competition

CABLE’S FUTURE IS BROADBAND
Cable Subscribers Millions By Service (US)
Note: Select major cable providers
Source: Leichtman Research Group
50 50 50 50 49 49 49 49 49 49 49 50 51 51 52 53 53 54
Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15
TV Broadband

6.9 12.3
25.5 32.3
45.5
55.6
79.6
89.8
108.4
125.0
144.2
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
WIRELESS’S FUTURE IS BROADBAND
Wireless data service spending in the US
(Billions, USD)
Source: TIA

3. Traditional TV networks will go through
~decades of pain

$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
In Millions
Print Online
WHEN EYEBALLS LEFT PRINT THIS HAPPENED
Newspaper Ad Revenue (Print vs. Online)
Source: Newspaper Association Of America, *Estimate

THERE ARE TOO MANY NETWORKS
Channels Receivable And Watched Per TV Household
US
Source: Nielsen
129.3 136.4
151.4
168.5 179.1 189.1
17.3 17.7 17.8 17.5 17.8 17.5
2008 2009 2010 2011 2012 2013
Average TV Channels Received Average TV Channels Watched

THERE ARE TOO MANY (MEDIOCRE) SHOWS
Average original TV series each year vs. survival rate
Source: Liam Boluk, MEDIA REDEF

So get ready for years of
consolidation and pain.

Pay TV SubscripZons
$103.1
TV AdverZsing
$67.0
Ad Supported
$7.7
SubscripZon
$5.5
Paid Downloads
$2.0
$185.3 B
Total
FORTUNATELY, TV IS AWASH IN MONEY
Revenues, U.S., 2015E, USD Billions
Source: BIA/Kelsey, Digital TV Research, eMarketer, Google, Hulu, Netflix, PwC,
SNL Kagan, Statista, Digital Market Outlook, TDG, Activate

7. POWER AND WEALTH WILL BE
MORE CONCENTRATED THAN EVER

$66.0
$48.8
$27.4
$13.8 $13.3 $12.5
$5.5 $4.6 $3.2 $2.5 $1.6
Google Disney Time
Warner
CBS Viacom Facebook Neilix Yahoo Ganneb AOL New York
Times
(Billions)
-8.2%
YoY
-9.7%
YoY
-4.6%
YoY
8.7%
YoY
58.4%
YoY
0.8%
YoY
-3.7%
YoY
10.3%
YoY
8.4%
YoY
25.8%
YoY
-1.3%
YoY
DIGITAL MEDIA IS THE NEW “BIG MEDIA”
2014 Revenue
Select Media Companies

And “big media” companies
are now distinctly medium-sized.

$233.7
$132.4 $127.1
$68.8 $66.0
Apple AT&T Verizon Comcast Google
Billions
27.9%
YoY
2.9%
YoY
5.4%
YoY
6.4%
YoY
10.3%
YoY
THIS IS THE NEW “BIG”
2014 Revenue
Select Media Companies

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