THE QUARTERLY BAROMETER OF THE INDUSTRY

Q3 2016

#FreeWheelVMR Q3 2016 FREEWHEEL VMR REPORT 3

EXECUTIVE SUMMARY

There is no denying that 2016 was a unique year. One-off global and national events piqued public interest, driving compelling content and media consumption.

One of the few constants in this tumultuous year was the continued trend of shifting viewing patterns, as consumers looked to the best screen available to watch news, sports and entertainment content. The interest in both the U.S. election and the Olympics made the third quarter of 2016 a particularly unique time, and our data illustrates the impact that major televised events have on the way people consume video.

Some key findings:

• Ad views grew 28% year over year (YOY) while video views grew 37% YOY, mostly driven by a relatively higher consumption of short-form content in Q3 due to the Olympics and the U.S. election.

• More audiences are sitting down in front of the TV screen with over-the-top (OTT) and set-top box video on demand (STB VOD) viewing continuing to grow in share (38% combined versus desktop at 36%) outpacing growth on other platforms.

• Programmers are transacting with more automation (92% YOY growth) as they are becoming more comfortable with programmatic trading, but it is still a small part of their overall monetization strategy (7.3% of ad views).

• Authentication rates in Q3 were back up to their highest levels (72%), in part driven by the Olympics. It will be interesting to see if these are new users who have been exposed to TV Everywhere (TVE) Services or if this is a one-off increase due to a major event and we are reaching an equilibrium.

The following pages explore these and many more key findings from our robust data set.

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Q3 2016 CORE OBSERVATIONS THE MOST DEFINITIVE DATA

AVAILABLE ON PREMIUM VIDEO

CONTINUED VIDEO GROWTH, BOOSTED BY SHORT-FORM AND LIVE

We continue to see significant growth in video content consumption and the advertising that supports that content.

In previous quarters we have reported relatively consistent increases between those two metrics, with the amount of ad views growing in proportion to the amount of video views. This quarter represents a departure from that trend with video view growth exceeding ad view growth, at 37% and 28% YOY respectively. With such a major increase in content viewership, we’d expect ad views to grow at a similar rate. So why did we see more content viewed but relatively fewer ads delivered against each video?

There was a major viewing increase in short-form content (31%) in Q3 as the constant coverage of the U.S. election drove additional consumption of news clips on all screens. The Olympics also had a major impact across all forms of content as the public sought out clips and live streams of their favorite athletes, events and nations. Short-form content naturally is monetized with fewer ads than long-form content, which explains the disparity in growth between content and ads.

The growth of short-form content was only eclipsed by the major increase in live viewing, which grew 60% YOY, again driven largely by Olympics and news coverage. While these tent-pole events and unique content opportunities amplified the growth

CHART 1

TOTAL VIDEO AND AD VIEW GROWTHQ3 2015 vs Q3 2016

28% YEAR-OVER-YEAR AD VIEWS

37% YEAR-OVER-YEAR

VIDEO VIEWS

of premium video consumption, it is worth noting that in Q3 there was continued organic growth of non-linear viewing. Long-form content, which has shown double-digit growth since we started producing the VMR in 2010, continued to increase (18% YOY) as more consumers chose to watch their favorite shows in non-linear environments.

The diversity and nuance of content lengths and formats illustrate the growing complexity of premium video providers’ businesses. Employing different monetization and user experience strategies for short-form, long-form and live programming is essential.

CORE OBSERVATIONS

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CHART 2

AD VIEW GROWTH BY CONTENT DURATIONQ3 2015 vs Q3 2016

SHORT-FORM ON DEMAND

(<5 MIN.)

LIVE CONTENT

LONG-FORM ON DEMAND

(20+ MIN.)

+31%YOY

+18%YOY

+60%YOY

LIVE TENT-POLE EVENTS PLAYED AN IMPORTANT ROLE IN DRIVING VIEWERSHIP TO PREMIUM VIDEO PLATFORMS, CONTRIBUTING TO SIGNIFICANT INCREASES FOR LONG-FORM AND LIVE THIS QUARTER

8 FREEWHEEL VMR REPORT Q3 2016 #FreeWheelVMR

LONG-FORM CONTENT REMAINS DOMINANT DESPITE SHORT-FORM AND LIVE GAINS

Looking at content duration a little more closely, in Q3 U.S. Programmers saw 54% of ads coming from the combination of short-form

and live content. But long-form continues to be the dominant driver of ad views with a 41% share. The U.S. fall TV season was just starting towards the end of the quarter, so we would expect that growth to continue strongly into Q4 as end-of-year finales and holiday specials hit the airwaves.

We see the same trend in Europe, where long-form accounted for 88% of ad views this quarter. This distribution of content duration has been holding

steady in the region over the last few quarters, and there is still an opportunity for more short-form and live content to be made available for viewership and monetization.

U.S. Digital Pure-Plays continue to see their monetization driven by short-form content, representing 75% of their ad views. We will be watching these numbers over time as digital players continue to invest more in original and distributed content.

CORE OBSERVATIONS

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CHART 3

AD VIEW COMPOSITION BY CONTENT DURATION, U.S. vs EUROPEQ3 2016

Short-form (0-5 min.)

Live

Long-form (20+ min.)

Mid-form (5-20 min.)

U.S. PROGRAMMERS

U.S. DIGITAL PURE-PLAYS

EUROPEAN PROGRAMMERS

32%

75%

6%

22%

1%

2%

41%

15%

88%

5%

9%

4%

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CHART 4

AD VIEW COMPOSITION AND GROWTH BY CONTENT VERTICAL, U.S. vs EUROPEQ3 2016

U.S.

EUROPE

93%

NEWS

SPORTS

MUSIC

ENTERTAINMENT4%

2%

1%

44%

12%31%

ENTERTAINMENT

+11% YOY

SPORTS

+76% YOY

NEWS

+45% YOY

MUSIC

-1% YOY 9%

KIDS

+30% YOY 4%

SPORTS AND NEWS SAW THE HIGHEST GROWTH OF ANY GENRE

CORE OBSERVATIONS

In terms of content categories, Q3 unsurprisingly saw sports and news ad views grow significantly. Together those two categories represented

almost as much volume as entertainment, which has historically dominated the ad view share. News grew 45% YOY, while sports grew 76% YOY. This phenomenal increase brought news up to a 12% share of all ad views and sports up to 31% of all ad views (up from 10% and 24% in Q2 respectively). Live news ad views, fueled by U.S. election coverage, grew at 145% and we expect to see that number continue to climb into Q4 as the election came to its conclusion in November. Short-form clips were one of the main drivers for the sports category’s growth, increasing by 107% relative to the same quarter last year.

In Europe, entertainment is still the definitive content category with 93% of all ad views. Sports, especially live sports, has plenty of opportunity for growth. The lower volume may be due to the content rights restrictions associated with sports programming across European countries (e.g. BBC covers the Olympics in the U.K. and is not permitted to sell ads).

Entertainment remains the dominant category in both U.S. and European markets, but the share is twice as high in Europe

SPORTS AND NEWS RISE BUT ENTERTAINMENT IS STILL KING

12 Q3 2016 FREEWHEEL VMR REPORT #FreeWheelVMR

BIG SCREEN GROWTH: THE NEW DYNAMIC LIVING ROOM

O ur view of premium video consumption across devices is always of great interest to regular readers of the VMR. It is a

reliable benchmark for viewers’ screen preferences as they seek new and familiar content. This quarter illustrates YOY growth across all platforms, particularly the TV screen.

Brand new this quarter is the introduction of STB VOD growth data in our analysis. Growth in STB VOD ad views, for Programmers who have enabled dynamic ad insertion (DAI), is still incredibly strong (103%) and OTT device volume is 63% higher than a year ago. More expansive content libraries, familiarity with TVE services and general device adoption all drive the growth of content consumption within the new dynamic living room. In contrast, desktop ad views

continue to plateau, leveling out at around 35% over the last two quarters. However, measurement and tracking challenges remain in OTT and STB VOD, which inhibits demand and advertisers’ ability to take advantage of these growing, engaging environments. This growth only highlights the need to quickly resolve these challenges as an industry.

In Europe, we are now seeing a distribution of platforms similar to the U.S. OTT devices, as they continue to gain content and become more widely adopted, are taking more ad view share share from desktop. A year ago, desktop accounted for 54% of all ad views in Europe. This quarter, desktop accounted for only 35% of all ad views in Europe, with OTT and STB VOD taking a 30% combined share.

Desktop volume has levelled out at just above a third of ad views, while the TV screen is seeing significant growth from non-linear platforms

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CHART 5

AD VIEW COMPOSITION AND GROWTH BY DEVICE, U.S. vs EUROPEQ3 2016

U.S.

EUROPE

16%

22%

9%

36%

17%

DESKTOP/LAPTOP

+11% YOY

SMARTPHONE

+39% YOY

OTT DEVICE

+63% YOY

STB VOD*

+103% YOY

6%STB VOD*

SMARTPHONE15%

TABLET20%

DESKTOP/LAPTOP35%

OTT DEVICE 24%

TABLET

+15% YOY

*FourFronts STB VOD and Canoe Phase III Integrations. Please note that these charts are the only analyses in this report that contain STB VOD data.

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ADS PER BREAK

93SECONDS

ON DEMAND

3.8

105SECONDS

4.8

LIVE

BALANCING THE AD LOAD ACROSS DIFFERENT CONTENT TYPES

As discussed at length in our Q2 report, user experience should be at the core of premium video providers’ strategies as they aim to

attract and retain audiences across the fragmented media ecosystem. The user experience upon visiting a publisher’s properties is key to leaving that viewer with positive perceptions of both the content and the advertisers that support that content.

Part of the complex ad experience equation is managing the length of ad breaks based on content

and platform. Our analysis shows that mid-roll ad breaks are, on average, 96 seconds long and contain 4.1 ads per break. In live content, mid-roll breaks are 105 seconds long and contain 4.8 ads per break (naturally closer to, but still less than linear), while on-demand mid-rolls are shorter at 93 seconds with 3.8 ads on average. These ad load numbers have hit a plateau, but publishers continue to test and evaluate different ad models to balance monetization with audience retention.

CHART 6

ADS PER MID-ROLL BREAK, ON DEMAND vs LIVEQ3 2016

CORE OBSERVATIONS

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DISTRIBUTION: A BALANCE OF CONTROL AND QUALITY

Premium video publishers drive additional audience scale through distribution of their content outside of their own properties.

Syndicated platforms represent this consumption of content and take a number of forms:

Syndication networks are typically smaller scale, niche content aggregators, and only represented 2.4% of total ad views.

Portals, which tend to focus on short-form content aggregation, continued to grow YOY (+77%) and made up 4.4% of total ad impressions.

MVPDs, the largest syndication network segment, was slightly higher than last year at 6.8% of ad views.

The growth of MVPDs slowed this quarter, as the majority of MVPD distribution volume is typically driven by new content from their publishing partners. Looking forward to Q4, when fall season programming is in full swing, it will be interesting to see whether there is enhanced growth in this distribution channel.

Key takeaway: premium video publishers continue to distribute their content in more trusted, professional environments and pull back from more long-tail partners in the syndication network category (-38% YOY). This comes down to scale and control, where content is delivered to larger audiences in high quality environments.

CHART 7

PERCENT OF AD VIEWS BY SYNDICATION PLATFORMQ3 2015 vs Q3 2016

Syndication Network/Long-Tail

Portals

MVPD

+11% YOY13.6% SYNDICATED

TOTAL VOLUME OF U.S.

AD VIEWS

2.4% –38% YOY

4.4% +77% YOY

6.8% +8% YOY20162015

PUBLISHERS ARE SHIFTING AWAY FROM SYNDICATION NETWORKS/ LONG-TAIL ENVIRONMENTS AND TOWARDS TRUSTED PORTALS AND DISTRIBUTOR PLATFORMS

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PROGRAMMERS EMBRACING AUTOMATION AT DIFFERENT RATES

Another example of premium video Programmers looking for control and quality is in the programmatic arena.

Automated Transaction Models continued to grow at a significant rate (+64% YOY) but still remain a relatively low percentage of overall premium video ad sales in the U.S. (11.4%). Some of the factors that keep this number down include strong direct sales across the premium video economy, restrictions on targeting and tracking in certain environments like OTT, as well as risk factors related to managing user experience from Automated Transaction Models. In Q3, 7.3% of Programmer ad views were delivered through Automated

Transaction Models. While this represents a 92% YOY increase, that was off a low base of 5.5% of ad views a year ago. So while Programmers are utilizing automated trading channels like private marketplaces more, risk and control remain drivers of their programmatic strategies.

On the other hand, Digital Pure-Plays have embraced automation more significantly (28% of ad views). This acceptance is driven in part by the predominance of short-form content, which inherently has less risks associated with managing multiple sales channels than live or long-form content.

CORE OBSERVATIONS

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PROGRAMMERS

7.3%

28%

DIGITAL PURE-PLAYS

CHART 8

GROWTH AND SHARE OF PAID AD VIEWS VIA AUTOMATED TRANSACTION MODELSQ3 2016

+64% YOY

AD VIEW SHARE OF AUTOMATED TRANSACTION MODELS

AD VIEW GROWTH OF AUTOMATED TRANSACTION MODELS

20162015

PROGRAMMERS ARE SELECTIVELY INCREASING INVESTMENT IN SAFE AUTOMATED TRANSACTION MODELS

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30%

22%

13%

13%

12%10%

DIGITAL VIDEO INVESTMENT MIRRORING TV INVESTMENT

In terms of U.S. Advertiser categories*, CPG, retail and automotive make up half of the total ad impressions, with financial services and

entertainment advertisers also investing heavily in

premium video. The dominance of these categories mirrors linear TV investment strategies, where brands look to premium video for engaged audiences in quality environments.

CHART 9

AD VIEW SHARE BY INDUSTRY, U.S. PROGRAMERSQ3 2016

CONSUMER PACKAGED GOODS

RETAIL

AUTO

ENTERTAINMENT & MEDIA FINANCIAL &

BUSINESS SERVICES

TELECOM

COMPUTING PRODUCTS

QUICK SERVICE RESTAURANTS

TRAVEL & LEISURE

HEALTHCARE & PHARMA

ENERGY, MANUF., UTILITY & INDUSTRIALS

GOVERMENT & NON-PROFIT

EDUCATION

7%

7%

6%

4%

3%

2%

1%

.2%

*In previous reports, we grouped auto/manufacturing utility together and included QSR in the retail category. Going forward, we will break out auto and QSR into their own categories.

CORE OBSERVATIONS

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AUTHENTICATION BACK TO ITS PEAK

The Olympics in August 2016 was an amazing example of how technology and media are giving more control to the viewer, enabling

them to curate their own experiences on the screen of their choice. Authentication levels through TVE have often seen step changes of adoption with large sporting events such as the 2016 Olympics and 2014 World Cup, as consumers familiarize themselves with the technology (and their login

information) in order to access essential viewing. The Olympics brought share of authenticated ad views back up to its peak of 72% in Q3 (previously at this level in Q1 2016). As viewers become ever more accustomed to viewing content behind the authentication wall, it will be interesting to see where that number is in Q4 and beyond. Tune in here in early 2017 for those results.

CHART 10

SHARE OF AD VIEWS FROM AUTHENTICATED VIEWING, LONG-FORM AND LIVE CONTENT, U.S. PROGRAMMERSQ1 2013 – Q3 2016

2013 2014 2015 2016Q1

72% 72%

Q2

68%

Q4

65%

Q3

65%

Q2

60%

Q1

57%

Q4

56%

Q3

46%

Q2

38%

Q1

29%

Q4

13%

Q3

14%

Q2

8%

Q1

7%

2014 WINTER

OLYMPICS

2014 FOOTBALL

WORLD CUP

2016 SUMMER

OLYMPICS

LIVE SPORTS TENT-POLES CONTINUE TO CONTRIBUTE TO HIGH AUTHENTICATED VIEWING GROWTH

Q3

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Q3 2016 was a unique quarter in a unique year, but the overarching trends continue within the premium video space.

Content consumption in non-linear environments is growing significantly

More of that consumption is taking place on bigger screens

Programmatic is still nascent as a sales channel

Authenticated viewing continues to be a dominant way to consume long-form and live content

Major events of national and global interest that occur every four years may super-charge viewership across these dynamic screens,

but they also highlight the consumer’s ever-growing desire to watch premium content on the screen of their choice. The premium

video ecosystem needs to continue to adapt to this reality.

Q3 2016 CONCLUSION

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AUTHOR BIOS

YING WANGAs Director of Advisory Services at FreeWheel, Ying Wang leads the company’s Business Advisory Practice. In this role, she partners with enterprise and emerging media companies to develop and execute strategies for digital video that improve viewer experience, maximize yield, and grow revenue. Prior to FreeWheel, Ying advised media and retail companies as part of Oliver Wyman, a global management consultancy, and worked in Digital Distribution for the international division of Warner Bros. Home Entertainment.

ZHUOLI XU

Zhuoli Xu is an Associate in Freewheel’s Business Advisory Practice. He works with clients to grow business and improve viewer experience through various engagements including A/B testing, benchmarking analysis and yield management. Zhuoli is particularly passionate about empowering clients with the insights, tools and processes they need to achieve business goals. Prior to Freewheel, he worked at FreshDirect, where he applied analytics to address business and operational problems.

JAMES ROTHWELL As VP, Agency & Brand Relations and lead of the FreeWheel Council for Premium Video, James Rothwell engages with buyers, advertisers and industry bodies to help further the premium video economy through advocacy, research and partnership. Prior to FreeWheel, James worked in a number of advertising roles for TV providers, digital publishers and aggregators.

With Special thanks to: Alexa Atamanchuk, Dasha Pryamitsyna, Steven Rosenblum, Xu Yao

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GLOSSARY

Ad Load Average number of ads in a content stream

Ad Networks Aggregate inventory across many Publishers and sells that inventory as a bulk package

Ad View An impression that is accrued after the first frame of an ad is displayed

Authenticated Viewing Viewing that occurs after entering MVPD subscription credentials to access content aired on Broadcast, Cable, or Satellite TV

Content Vertical Content genre

Demand-Side Platform (DSP) Technology used to connect Advertisers (buyers) into exchanges

Digital Pure-Plays Publishers that generate the majority of their revenue from digital environments. Aggregate third-party content and/or develop original content

Direct-sold Advertising deals made directly between a publisher and an advertiser

Direct Traffic Users who reach content through a bookmark, app, or direct entry of a URL

Dynamic Ad Insertion (DAI) Process of dynamically inserting ads into a content stream, such that different ads can be inserted into the same ad break

Exchanges Open and private markets for buyers and sellers to trade across with varying degrees of automation

Interactive Advertising Bureau (IAB) Sets commercial standards and accreditations for the industry

Impression Occurs each time an ad is displayed

Inventory An ad opportunity. A piece of inventory is filled by an ad impression

Linear Traditional Broadcast, Cable, or Satellite TV

Mid-roll An ad break that occurs in the middle of content

Multichannel Video Programming Distributor (MVPD) Provides pay TV services delivered either through Broadcast Satellite or Cable TV. Examples include Comcast and DirectTV

New Living Room The same high-quality TV content that was traditionally consumed in the living room is experienced today by the same audience through a multitude of screens and locations

Over-the-top (OTT) Viewing content delivered over an internet connection. Typically seen as OTT Device, which includes devices like Roku, Apple TV, etc.

Portals High-traffic content aggregators, ex: AOL and HuffPo

Pre-roll An ad break that occurs before content starts

Premium Video Video content that is professionally produced, rights managed, limited in supply, and with partially direct-sold inventory

Pre-stitching Occurs when ads are pre-selected and inserted into the content beforehand

Programmer Publishers that generate the majority of their advertising revenue from linear TV services. Offer diverse content mix in digital environments as well

Publisher Producers or syndicators of content. Can be Programmers or Digital Pure-Plays

Set-top-box (STB) Accompanies a Cable/Broadcast/Satellite setup. Contains a cable input and outputs to a TV

Simulcast A digital stream of a live event also broadcast on linear TV simultaneously

Supply-Side Platform (SSP) Technology used to connect Publishers (sellers) into exchanges

Syndication Viewing that occurs outside of a Publisher’s Owned and Operated properties or primary platforms

Syndication Networks/Long-Tail Small scale/niche content aggregators

TV Everywhere (TVE) Apps that allow viewers to access content over the internet by logging in with their subscription credentials

Video View Accrued after the first frame of video content is displayed

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The FreeWheel Video Monetization Report is released quarterly and highlights the

changing dynamics of how enterprise-class content owners and distributors are

monetizing premium digital video content.

The data set 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

160 billion video views in 2015 and 47 billion video views for Q3 2016.

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MEDIA INQUIRIES

Laura ColonaDirector, Public Relations and Corporate Communicationslcolona@freewheel.tv

FOR MORE INFORMATION

Mike LawlorSVP, Client Servicesmlawlor@freewheel.tv

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Q3 2016

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