TAKING ONLINE VIDEO TO THE NEXT LEVEL

Transcription

1 For Immediate Release MEDIA MAVEN TAKING ONLINE VIDEO TO THE NEXT LEVEL July 2013 Volume 15 Online Video Viewing Will Eclipse Traditional Linear TV Viewing by 2020 John Farrell, Director of Latin America, YouTube February 2013 This bold statement is understandable coming from a company that is enjoying tremendous growth in online viewing (according to Mr. Farrell, the percent of time that consumers spent watching YouTube videos online grew by 150% in 2012). There is no question that consumers are increasingly enjoying the freedom of watching content wherever they want on whatever device. While online video audiences continue to grow and advertising dollars follow, the $2-$3 billion in online video advertising in 2012 (per the IAB), pales in comparison to the roughly $70+ billion that the broadcast and cable TV industries pocketed in Short form videos represent the overwhelming majority of online video content. According to FreeWheel s 1Q 2013 video monetization report, short-form videos represented 87% of total video views. comscore data supports this contention. As shown in the chart below, Google/YouTube has 2.5x more unique viewers (154M) than the next largest site (Facebook); Google/YouTube delivers 16.6x more videos (13.9 billion) than the next largest site (AOL), and Google s audience watches for 5.5x more minutes (436.7) than the next largest site (NDN). Google s metrics, driven mostly by video viewing at YouTube, suggest that short-form videos, including user-generated content, remain the dominant form of viewing online. The short-form videos consumers watch are usually music videos, news and celebrity entertainment. Top U.S. Online Video Content Properties Ranked by Unique Video Viewers - May 2013 Total U.S. Home and Work Locations Content Videos Only (Ad Videos Not Included) Property Total Unique Viewers (000) Videos (000)* Minutes per Viewer Google Sites 154,537 13,958, Facebook 60, , AOL, Inc. 53, , VEVO 52, , NDN 46, , Microsoft Sites 45, , Viacom Digital 43, , Yahoo! Sites 43, , Amazon Sites 33, , Turner Digital 32, , Source: comscore

2 Media Maven: Taking Online Video to the Next Level Page 2 Unfortunately for Google, user-generated content is difficult to monetize, primarily because advertisers don t perceive this content to be brand safe. In an effort to improve the quality of its content, Google stepped up its original programming lineup in late 2011 by announcing that it would fund and launch 100 new channels, and in late 2012, the company unveiled 60 additional new channels. Other companies, such as Maker Studios, FullScreen and Google-backed Machinima have gotten in the game by creating professionally produced longer-form content creating, in effect, next generation cable networks. In an effort to create awareness or buzz, and better monetize this content, several companies, including AOL, Digitas, Google, Hulu, Microsoft and Yahoo! created the Digital Content Newfronts. The May 2013 Newfronts were designed to show off new original content, and several new media companies participated, including the founding partners, as well as Alloy Digital, Blip, Crackle, Vevo and Zynga. Traditional media companies were also well represented at the Newfronts, including CBS Interactive, Conde Nast Entertainment, Disney Interactive, The Wall Street Journal, The Weather Company, and Univision Communications. Roughly 75 new shows were unveiled at the Newfronts. Online Video s Reach Continues Its Upward Trajectory While the growth in online video is impressive, it is also important to keep it in perspective. In other words, it is a long way from becoming the preferred method of viewing video content. As shown in the chart below, online video usage (in red) is clearly on an upward trajectory. In Q1 2013, million people in the U.S. watched video online each month, an 18% or 24 million person increase over Q levels, when million watched video online. Demonstrating even faster growth is the growth in video watched on mobile phones. In the latest quarter, 45.3 million consumers watched video on a mobile phone, a 238% or a 32 million increase from four years ago. Online video viewing is not just watched via desktop computers, tablets or smartphones. According to research from NPD Group, in the U.S., TVs have overtaken PCs as the primary screen for home viewing of online video. Overall Usage by Medium - Number of 2+ (in millions) - Monthly Reach Watching TV in the home Watching Video on Internet Q Q Q Q Q Mobile Subscribers Watching Video on a Mobile Phone Source: Nielsen CrossPlatform Report, June 2013

3 Media Maven: Taking Online Video to the Next Level Page 3 Time Spent Watching Online Video Growing Even Faster While the growth in reach of online video is remarkable, the growth in time spent watching online video is even more so. Time spent watching online video increased by 178% to 8 hours and 20 minutes in Q from 3 hours in Q for a total increase of 5 hours and 20 minutes per month. The second fastest growth in time spent came from watching video on mobile phones, where viewing increased by 52% to 5 hours and 29 minutes from 3 hours and 37 minutes, an increase of 1 hour and 52 minutes since Q Monthly Time Spent (in hours:minutes) - Per User :00 144:00 153:27 158:25 158:47 155:46 157:32 120:00 96:00 72:00 48:00 24:00 0:00 8:20 3:00 3:23 4:33 5:24 3:37 3:37 4:20 5:01 5:29 1Q Q Q Q Q 2013 Watching TV in the home Watching Video on the Internet Mobile Subscribers Watching Video on a Mobile Phone Source: Nielsen CrossPlatform Report, June 2013 Don t Count Out Traditional TV Viewing Just Yet While watching TV was the slowest growing medium, growing just 3% to 157 hours and 32 minutes a month, we would note that: 1. Watching TV continues to dominate the way people watch video content. In fact, when shown visually in the chart above, time spent watching TV dwarfs time spent watching video online or watching video on mobile phones. Time spent watching TV is nearly 20 times larger than watching TV on the internet, and is nearly 30 times larger than watching TV on mobile phones. Nothing explains better the discrepancy in advertising dollars between the two mediums than this chart. 2. The increase in time spent watching TV was greater than the time spent watching video on a mobile phone, and the increase in time spent watching TV was nearly as great as the increase in time spent watching video on the internet. Time spent watching TV increased by 4 hours and 5 minutes, 2.2 times the increase in time spent watching video on mobile phones (1 hour and 52 minutes). The 4 hour and 5 minute increase was three-quarters of the increase in time spent watching video online (which increased by 5 hours and 20 minutes). It would appear that the more ways in which consumers have to watch video, the more video they will consume. All boats are rising; some faster than others. As always, as audiences move to new forms of programming on new devices, advertisers will follow.

4 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 2/29/2013 Mar-13 Apr-13 May-13 Media Maven: Taking Online Video to the Next Level Page 4 Online Video Ad Networks In May, Americans viewed 15.8 billion online video ads according to comscore. This is 57% larger than the number of online video ads viewed a year ago, and 264% more than the number of ads viewed nearly three years ago (June 2010). The companies that deliver the largest number of online video ads per month are typically video ad networks. As shown in the chart below, Brightroll delivered over 2.6 billion video ads viewed in May 2013, followed by Google/YouTube with nearly 2.6 billion video ads viewed. In our analysis of the top video ad networks based on ads viewed, only three companies have been a top 10 player in each and every month over the last three years: Hulu, Tremor Video (which just priced its IPO), and Brightroll. Top 10 Video Ad Properties by Video Ads Viewed (000) 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 0 Brightroll Google LIVERAIL.COM Adap.tv Hulu Specific Media/BBE TubeMogul Tremor Media Auditude Source: comscore What is equally interesting is how many companies are no longer top 10 companies based on number of ads viewed. For example, companies such as CBS, ESPN, Viacom and Microsoft were regularly in the top 10. However, Microsoft hasn t finished in the top 10 since February 2012; Viacom last finished in the top 10 in January 2012; ESPN last finished in the top 10 in July 2012; and CBS finished in the top 10 in March 2013, and on only three occasions in the last twelve months finished as a top 10 player. Our takeaway: as more and more sites incorporate video into their content, video ad networks, which aggregate the delivery of video ads across multiple sites, have delivered the most growth in the sector. In May 2013, only four of the top 10 video ad networks were also top 10 video ad networks nearly three years ago. Google/YouTube has demonstrated the most remarkable growth, with total number of ads viewed increasing by 1,177% over this period, followed by Brightroll, with a 687% increase. These two companies significantly outgrew the overall market, which grew by 265% for a compound annual growth rate of 54%.

5 Media Maven: Taking Online Video to the Next Level Page 5 Growth in Video Ads Viewed - May 2013 vs. June 2010 Company Jun-10 May-13 Growth CAGR Brightroll 333,492 2,624, % 99% Google 200,011 2,553, % 134% Hulu 566,162 1,666, % 43% Tremor Media 523, ,522 68% 19% Total Internet 4,341,110 15,844, % 54% Source: comscore and Coady Diemar Partners Another factor helping in the growth of online video ads viewed is that as more professionally produced content moves online, there are greater monetization opportunities. For example, according to FreeWheel s Q video monetization report, the number of ads per long-form video increased to 9.5 in Q from 7.4 ads in Q However, despite creating more shelf space for ads, long-form videos account for just 6% of video views. The conclusion: there is an opportunity to increase monetizable inventory by bringing more long-form content into digital environments. Online Video Ad Spend Projected to Grow at a 25% CAGR As reach and time spent with online video continue to grow, emarketer projects that online video advertising is likely to become a $9 billion market by 2017, suggesting a compound annual growth rate of 25%. U.S. Digital Video Ad Spending, $ % $9.1 $ % 41.3% 38.9% $8.0 $8.0 $7.0 $7.0 $5.8 $6.0 $ % $4.1 $4.0 $ % 12.7% $3.0 $2.0 $2.0 $1.0 $ % 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Online Video Ad Spend % Growth Source: emarketer, May 2013 It is important to note that marketers are using online video to complement, rather than cannibalize TV ads. In fact, digital video growth is likely to come from display ad budgets in addition to offline budgets such as print. Perhaps the best explanation for the continued growth in online video advertising is the fact that it combines the best of TV, with sight, sound and motion, with the best of digital, with its targetability, accountability and interactivity.

6 Media Maven: Taking Online Video to the Next Level Page 6 Online Video - The Best of Traditional TV and Digital Combined Traditional TV Sight Sound Motion Source: Fuor Digital Traditional Digital Targetability Accountability Interactivity Despite benefiting from the best of both worlds, ad dollars migrating to online advertising have not moved as fast as many had expected. For example, in 2007, emarketer projected online video revenues to reach $4.3 billion in 2011, though in hindsight it only reached $2.0 billion in For online video to really go to the next level, we believe the medium needs to provide better measurement and metrics to advertisers. That is beginning to happen, thanks to companies such as Nielsen and Outrigger Media. Nielsen has announced partnerships with Tremor Video, Adap.tv, Videology and TubeMogul to integrate online campaign ratings (OCR) into these video ad networks which have developed products that bring familiarity to online video through a proven currency like GRPs. Companies like Outrigger are providing deeper measurement metrics, like engagement, so that advertisers can improve their return on investment by buying the right video sites at the right price. Making Online Video Easier to Buy Introducing GRPs to Online Video One way to speed the flow of ad dollars to online video is to make the purchasing of online video as familiar to media buyers as purchasing TV ad time. In the Fall of 2011, Nielsen announced that it would provide gross ratings points (GRPs) for online ads by granting Tremor Media s customers access to Nielsen Online Campaign Ratings data. In February, Nielsen announced partnerships with Adap.tv and Videology. Videology announced that it would offer predictive targeting solutions that enable advertisers to reach their intended audience as measured by Nielsen s OCRs. Early testing demonstrated that Videology s new tool produced a 336% lift against a targeted demo when measured by Nielsen s OCRs compared to an average lift of 116% when using site targeting. Last week, Videology announced a reengineered platform that bridges the world of TV and online video by allowing access to both programmatic guaranteed buying technology and a suite of bid management tools for open and private exchanges across screens and devices. In June 2013, TubeMogul, an online video company providing solutions for brand advertisers, launched a partnership with Nielsen that enables advertisers and agencies to plan, buy and measure online video based on GRPs. TubeMogul describes its product as breaking down the silo between agency TV and digital teams, enabling them to plan, buy and measure video across screens on a comparable basis. The use of GRPs in the digital arena has been controversial for many years and for many reasons. Online video is far more fragmented and viewed on-demand compared to TV where viewers tune in at scheduled times. As a consequence, the concepts of reach and frequency on which GRPs depend become more elusive online than in TV where everything is scheduled.

7 Media Maven: Taking Online Video to the Next Level Page 7 Furthermore, while GRPs tell you how much of a given audience is reached, it does not provide an indication of how effective an ad is. Online marketers are more interested in metrics like return on investment (ROI) than traditional brand advertisers who are used to metrics like reach, even though reach metrics provide no inclination about that audience s propensity to act upon or buy a good or product. While it might be comforting to know an online video reached a wide audience, online marketers would rather a video reach a smaller, but more appropriate audience that actually reacted, engaged or purchased a product. Perhaps this is why online advertising has been so instrumental to direct response advertisers but less instrumental to brand advertisers. For years analysts have been talking about brand advertising coming to the internet, which will enable display advertising to take off and outpace search advertising. We believe that the introduction of GRPs to online video could be a big step in unleashing the migration of brand advertising to online advertising. Additional Metrics Give Online Video Its Due Incorporating GRPs into online video can only speed the adoption of brand advertising to online advertising, in our opinion. However, other companies are also bringing new metrics to the space which could accelerate the speed at which dollars migrate into online video. For example, Brightroll has been at this since April 2012, when the company launched two products: 1) Inventory Planner which enabled buyers to estimate the total volume of video ad impressions available at varying prices over a specified campaign timeframe, and 2) VideoRank, a proprietary technology that scores sites based on user attention and engagement. Another company that could help speed the migration of brand advertising to online video is Outrigger Media through their product OpenSlate. Outrigger s OpenSlate platform was built to help brand advertisers with the best and most relevant content at scale. Outrigger focuses on unlocking the value of YouTube by providing quality scores on over 55,000 YouTube channels and finding undervalued inventory by combining pricing with effectiveness data. Outrigger s quality scores, known as Slate Scores are based on proprietary measures of engagement, consistency, influence and performance. The company publishes a performance report on the top 500 brands on YouTube which gives an industry overview on how brands are successful in the brand content strategy in the video space. Digitas is working with OpenSlate to create an Emerging Talent Tracker in which Digitas is applying OpenSlate algorithms to indentify up-and-coming YouTube stars. As shown in the chart below, the YouTube channel with the highest Slate Score in the month of May was the NBA channel. The Slate Score helps advertisers identify quality and value in online video content. What is interesting is that it is not necessarily the size of the audience (i.e., monthly views) that makes a channel a good advertising vehicle. For example, the fcbarcelona channel has a sizeable audience (13.2 million monthly views), but doesn t score as well on engagement or consistency than smaller channels like UFC and GoProCamera, resulting in a lower Slate Score. Similarly, monthly views on the Thrasher Magazine channel were smaller than seven other sites ranked between 11-20, but the Thrasher Magazine channel ranked 10 th thanks to strong influence score. Pricing is also a critical factor in determine each channel s ad effectiveness or Slate Score.

8 Media Maven: Taking Online Video to the Next Level Page 8 Top 10 YouTube Sports Channels by Engagement Rank Slate Score Subscribers Monthly Views Engagement Consistency Influence NBA ,963,876 63,331, Redbull ,446,521 22,100, UFC ,098,186 7,117, GoProCamera ,441 9,402, fcbarcelona ,371 13,292, ESPN ,162,055 13,898, kick ,962 3,329, Copa90football ,746 3,812, hickok ,740 6,353, ThrasherMagazine ,850 2,923, Source: Outrigger Media/OpenSlate Final Thoughts Online video viewing continues to grow at attractive rates, particularly as viewership has expanded from the desktop to the smartphone to the tablet and to internet connected TVs. The flow of advertising dollars to the online video sector has been slower to develop than many had hoped. The move to longer-form programming from short form videos will give the industry a much greater opportunity to monetize ads. Finally, the introduction of familiar metrics such as GRPs are making online video easier to buy and the launch of several new partnerships between Nielsen and leading online video ad networks are helping to break down the silos that exist within agencies between TV and digital divisions. With initiatives like the Newfronts, the introduction of GRPs, improved metrics and deeper analytics, the online video sector is poised to take off meaningfully in the coming years. 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 as well. Sincerely, Chris Ensley (212) chrise@coadydiemar.com

9 Media Maven: Taking Online Video to the Next Level Page 9 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 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 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) 2012 Coady Diemar Partners, LLC. All rights reserved.