Providing in-depth insight, data, and analysis of everything digital.BI Intelligence

The next big thing

DIGITAL IS INHERITING 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

IT’S A GENERATIONAL SHIFT

Top 5 Media Mentions Among All Adults, 2016

Source: Ofcom

0 20 40 60 80 100

Alladults

Aged16-24

Aged25-34

Aged35-44

Aged45-54

Aged55-64

Aged65-74

Aged75+ Useasmartphone

Goonlineonacomputer/laptop/netbook/tabletWatchTV

Readnewspapers/magazines

Listentotheradio

$0

$20

$40

$60

$80

$100

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

DIGITAL ADS GROWING, ALL ELSE FLAT

US Advertising Revenue

Source: ZenithOptimedia, BI Intelligence Estimates

Billions($)

Digital

TV

RadioPrintOutdoor

Google

Facebook

YahooAOL Twitter

$0

$5

$10

$15

$20

$25

$30

$35

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

Millions($)

IT’S GOOGLE, FACEBOOK, AND “OTHER”

Global Digital Ad Revenue

Source: Company Filings, BI Intelligence Estimates

IN 1H 2016, GOOGLE AND FACEBOOK GREW, EVERYONE ELSE SHRANK

US Digital Ad Revenue, Billions ($)

$27.5

$14.2

$3.4$9.9

$32.8

$17.4

$5.7$9.7

USDigitalAdRevenue Google Facebook EveryoneElse

1H2015 1H2016

+19%

+23%

+68%-2%

Source: IAB, Facebook, Google, Digital Content Next

THE BELL TOLLS FOR LEGACY TV

For the last 20 years, digital has disrupted print. For the next 20, it

will disrupt TV.

TRADITIONAL TV HAS PASSED ITS PEAK

Households With Pay TV Vs. Subscription OTT, % Of US Homes

Source: Nielsen, Leichtman Research Group

86%82%

41%

53%

Q414 Q115 Q215 Q315 Q415 Q116 Q216

Pay-TV SubscriptionOTT

TRADITIONAL TV VIEWERSHIP IS FALLING

Average Time Spent Per Day Watching Traditional TV, HH:MM

Source: Nielsen

4:43

4:19

4:114:09

Q22013 Q22014 Q22015 Q22016

YOUNGER TV VIEWERSHIP IS COLLAPSING

Source: Matthew Ball, REDEF, Nielsen

Meanwhile…

MODERN TV NETWORKS ARE EXPLODING

0

50

100

Q32012 Q32013 Q32014 Q32015 Q32016

Domestic International

Amazon Prime Subscribers

0

20

40

60

80

2012 2013 2014 2015 2016 2017E

0

5

10

15

2011 2012 2013 2014 2015 2016

Netflix Subscribers

Apple TV Installed Base Hulu Subscribers

0

50

2012 2013 2014 2015 2016 2017

Millions

Global US

Millions

Millions

Millions

ITUNES, NETFLIX DWARF CABLE NETWORKS

Source: News Reports, Company Filings

$20

$7

$3 $-

$5

$10

$15

$20

$25

2007 2008 2009 2010 2011 2012 2013 2014 2015

Billion

s($)

iTunes

AMC

Netflix

Cable Network Vs. Digital Content Revenue

YOUTUBE NOW BIGGER THAN CBS

Modern Digital Ad Revenue Vs. Traditional TV Revenue

Source: Company Reports, UBS

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

2007 2008 2009 2010 2011 2012 2013 2014 2015

Millions($)

CBSAdRevenue

YouTubeAdRevenue

AMCNetworks

NETFLIX SAW MORE HOURS PER MONTH THAN ANY OTHER TV NETWORK

Total Hours Of Viewing, Per Month, Per Network

Matthew Ball, MEDIA REDEF

We can watch what we want to, when we want to —

anywhere, on any screen.

MODERN TV NETWORKS ARE JUST BETTER

So what’s going to happen?

First, TV won’t “die.”

Old media don’t die. They get niche-ified. (See radio and print.)

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

1. Modern digital TV networks will continue to thrive.

2. Access providers will continue to thrive.

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

THERE ARE TOO MANY LEGACY NETWORKS

Channels Receivable And Watched, Per US TV Household

Source: Nielsen

151.4168.5

179.1 189.1 197.4208 205.9

17.8 17.5 17.8 17.5 20.9 19.9 19.8

2010 2011 2012 2013 2014 2015 2016

Avg.TVChannelsReceived Avg.TVChannelsWatched

THERE AREN’T ENOUGH (GREAT) SHOWSAverage Original TV Series Each Year Vs. Survival Rate

Source: Matthew Ball, MEDIA REDEF

EVEN TRADITIONAL STRONGHOLDS LIKE SPORTS ARE STARTING TO SEE DECLINES

Households With ESPN, Millions

Source: Nielsen, WSJ

NFL Football RatingsThrough first 4 weeks, 2015 vs. 2016

96.17

94.4

92.94

90.99

89.01 88.78

Jul'14 Feb'15 Jul'15 Feb'16 Jul'16 Aug'16

Lost7.4Mhouseholds in2

years

NBCSundayNightFootball: -13%

FoxSunday:-3%

CBSSunday:-3%

CBSThursdayNight:-15%

ESPNMondayNight:-17%

FORTUNATELY, TV IS AWASH IN MONEY

US Revenue, Billions ($)

Source: Media Partners Asia, 2016

PayTVSubscriptions,

145.6

TVAdvertising,72.32017E 217.9B

Total

So TV networks will suffer in style.

THE NEXT BIG THING

NOT SMARTWATCHES OR GLASSES — THESE AREN’T MEDIA CONSUMPTION DEVICES

Why Apple Watch Owners Wouldn’t Buy Another Apple Watch

Source: Fluent

34%

31%

16%

12%

4%

3%

Tooexpensive

Notuseful

Ugly

Waitingforabetterversion

Featuresduplicatedbysmartphone

Requiressmartphone

VR/AR HAS POTENTIAL, BUT IT’S STILLTOO EARLY…

Global VR Headset Shipments Forecast, Millions

Source: BI Intelligence Estimates

0.78.2

12.017.3

24.4

33.0

42.6

55.1

2015 2016 2017 2018 2019 2020 2021 2022

Wearehere

THE NEXT BIG THING: SOCIAL VIDEO

45

6

8

10

Q2'15 Q3'15 Q4'15 Q1'16 Q2'16

4

6

8

10

12

Q1'15 Q2'15 Q3'15 Q4'15 Q1'16

6.0 6.3 6.5 7.08.0

Q2'14 Q3'14 Q4'14 Q2'15 Q4'15

Daily Video Views, By Platform, Billions

+200%

+150%+33%

Source: Facebook, Snapchat, KPCB, Bloomberg, Activate, BI Intelligence Estimates

THIS IS A NEW KIND OF STORY

• “Thumb stopper”

• Sound optional

• Intimate and conversational

• (Often) square or vertical

• Shareable

SOCIAL VIDEOS TRAVEL ACROSS PLATFORMS

THE OPPORTUNITY IS MASSIVE

0

500

1000

1500

2000

2500

3000

Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16

Business Insider Monthly Video Streams, Millions

Social videos can be evocative, entertaining, and effective.

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Social videos can change behavior and compel action.

THE RAINBOW BAGEL

“We got slammed like you couldn’t believe. I haven’t slept in weeks. It’s been crazy since Christmas, but Business Insider really put us over the top.”

-Francine LaBarbara, Marketing Coordinator, The Bagel Shop

TUBING IN THE HAWAIIAN WILDERNESS

• 30+ million views

• “I don’t know how it happened but WOW”

• Phone’s ringing off the hook and reservations booked

THE SPIDER CATCHER

• 110+ million views

• Sales skyrocketed 500% on Amazon

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