The Changing Landscape of European TV - ITU Workshop The Future of TV for Europe 7 June 2019 Geneva, Switzerland

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The Changing Landscape of European TV
 ITU Workshop
 The Future of TV for Europe
 7 June 2019
 Geneva, Switzerland

Tom Morrod
Chief of Research, Consumer Techologies
tom.morrod@ihsmarkit.com

Confidential. © 2019 IHS MarkitTM. All Rights Reserved.
I’d like to discuss 3 big trends… very briefly

1.The rise of online video platforms

2.Consolidation of telecoms and media

3.The economics of platform companies

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The world 5 years ago…

                                                                 Connected devices were                      Online video was 3% of
                  Linear viewing
                                                                 just reaching parity with                     viewing and 3% of
                   was growing
                                                                        ‘dumb’ TVs                            entertainment spend

  250                                                     2000

  200                                                        0
         2005 2006 2007 2008 2009 2010 2011 2012                 Non-connectable TVs   Connectable devices     TV spend   Other spend   Online spend

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What about the world today…

                                                          There were slightly      Online and VOD was
                  Linear viewing
                                                            more connected      around 3% of viewing and
                   was growing
                                                          devices than ‘dumb’      3% of entertainment
                                                                  TVs                     spend

                OTT is 20% of                               Most consumer         Online is capturing all
              viewing, growing                               devices are           viewing growth and
              2% per year, and                              connected and       almost all subscriber and
                 accelerating                               media-capable            revenue growth

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Online subscription services added just under 17 million new paid accounts
in Europe in 2018

                               Europe: Pay TV and Online Subscriptions Net Additions in 2018 (000)
18,000                                                                                                                      16,969      Online Subscription:
16,000
                                                                                                                                        2018:
14,000
                                                                                             Netflix & Amazon:                          +32% growth
12,000
                                                                                           Responsible for 2/3 of                       Next 5 years:
10,000                                                                                         the growth
                                                                                                                                        +11% CAGR
  8,000

  6,000
                                                                                                                                              3,928
  4,000
                    -283
                                                          -25                            1,720
  2,000                                                                     918                                       771
                                           41                         40                            161
        0
                     WE                  CEE              WE          CEE   WE           CEE        WE                CEE    WE               CEE
-2,000
                              Cable                             DTT               IPTV                    Satellite                  Online

                                                                                                                                                  Source: IHS Markit

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The result is Netflix is the biggest video subscription platform in Europe

                                                          Europe: Video subscriptions by provider and platform (2017)
                                                                                       Subscriptions (m)
                                 0                            5               10              15                20       25                   30

                    Netflix
                        Sky
       Liberty Global
                  Tricolor
              Vodafone
          Rostelecom
                Amazon
                  Orange
                     Altice
Deutsche Telekom

                                                                     Cable             Satellite           IPTV         Online
Note: Video subscriptions and revenues for VodafoneZiggo are allocated equally to Liberty Global and Vodafone                    Source: IHS Markit

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The reaction has been a series of merger mega-deals, positioning fewer,
larger players to better compete on a regional/global scale
                            Marriage of distribution and content          Scale: Content, production, channels

                                                                 Time
                            AT&T
                                                                Warner    Disney                     Fox

                                                  Convergence                  Geographic diversification

                                                                Liberty
                      Vodafone                                            Comcast                     Sky
                                                                Global

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And operators have tried implementing a range of strategies to keep pace

                           Bundling                          Unbundling        Mobile video

                                                           Aggregating new     TV UX and
             Premium content
                                                          content owners and   multiscreen
                provision
                                                                outlets        innovation

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But this kind of misses the elephant(s) in the room… to mix clichés

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These companies diversified to offer a whole range of consumer services

                                   Alibaba                 Alphabet               Amazon                 Apple                  Baidu              Facebook              Tencent
                                                                                                                                                                         Communications &
                                   Retail                  Advertising            Retail                 Devices                Advertising        Advertising
                                                                                                                                                                         Content

                                   1999                    1998                   1994                   1976                   2000               2004                  1998

  Ads                              Various                 Various                Amazon ads             App store search ads   Baidu ads          Facebook ads          Tencent social ads

  AI / Digital Assistant           Fashion AI              Google Assistant       Alexa                  Siri                   Raven H            Messenger bots        Dingdang

  Cloud                            Alibaba Cloud           Drive, Photos          Amazon Drive           iCloud                 Baidu Cloud        Workplace             Tencent Cloud
                                                                                                                                                                         WeChat Pay, QQ
  Commerce & Payment               Tmall, Taobao, Alipay   Android Pay            Amazon.com             Apple Pay              Baidu Wallet       Various
                                                                                                                                                                         wallet, Tenpay
  Communications                   Ding Talk               Hangouts, Allo, Duo    Alexa messaging        iMessage, FaceTime     Baidu Hi           WhatsApp, Messenger   WeChat, QQ
                                                           Movies & TV on Google                         Apple Music, Apple TV,                                          Tencent Video, Tencent
  Content                          Youku Tudou                                   Amazon Prime Video                             iQiyi, PPStream    Watch
                                                           Play, YouTube                                 Podcast, Airplay 2                                              Sports
                                                           Nexus, Chrome,
  Devices/ Software                Yun OS                                        Fire TV, Kindle, Echo   iPhone, iPad, Mac, iOS Raven H, Duer OS   Oculus                -
                                                           Android
  Health                           Ali Health              Google Fit             -                      Apple Health           -                  Moves                 WeDoctor

  Home                             TmallGenieX1            Google Home            Echo, Ring             HomeKit                Raven H            -                     -

  Location & Transport             Various                 Google Maps, Waze      -                      AppleMaps, CarPlay     Baidu Maps         Check-In              Tencent Maps, iSpace
                                   AR in commerce,
  VR & AR                                                  AR Core                Amazon AR View         AR Kit                 DuSee              Oculus                QAR
                                   games

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But their history and core business is a long way from the video industry

                                   Alibaba                Alphabet      Amazon   Apple     Baidu         Facebook      Tencent
                                                                                                                       Communications &
                                   Retail                 Advertising   Retail   Devices   Advertising   Advertising
                                                                                                                       Content

                                   1999                   1998          1994     1976      2000          2004          1998

   Ads

   AI

   Cloud

   Commerce & Pay

   Communications

   Content

   Devices/OS

   Health

   Home

   Location & Transport

   VR & AR

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Asymmetric business models are critical to platform disruption
                                                                      Share of 2017 revenue (%)
100%                                                           100%                                        100%                                    Other

 90%                                                Other       90%                                         90%
                                                                                                Other
 80%                                                            80%                                         80%
 70%                                                            70%                                         70%
 60%                                                            60%                                         60%
 50%                                                            50%                                         50%                                    Advertising
                                                    Hardware                                                                                       business
 40%                                                business    40%                                         40%
                                                                                                Retail
 30%                                                            30%                             business    30%
 20%                                                            20%                                         20%
 10%                                                            10%                                         10%
  0%                                                             0%                                          0%
                         Apple                                                Amazon                                         Google
                                                                  Other
                                iPhone                            AWS                                              Other Bets Revenues
                                iPad                              Subscription services                            Google Other
                                Mac                               Third-party seller services
                                Services                                                                           Google Network Members
                                                                  Physical stores
                                Other products                    Online stores                                    Google Properties
                                                                                         Source: IHS Markit, Consumer Platforms & Ecosystems Intelligence – 01/19
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Platform companies dominate new markets

                        USA: Online video advertising revenue                               World: Smartphone installed base by OS

                                                                Facebook                                                        iOS
                                                                YouTube                                                         Google - Android
                                                                Legacy TV                                                       Other - Android
                                                                Other                                                           Others

                            World: Mobile App Store revenues                            World: Smart speaker installed base by assistant

                                                                                                                                Alexa
                                                          Apple App Store
                                                                                                                                Google Assistant
                                                          Google Play
                                                                                                                                Siri
                                                          Other app stores
                                                                                                                                Cortana

                                                                          Source: IHS Markit, Consumer Platforms & Ecosystems Intelligence – 01/19
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And it’s starting to head that way in total video advertising…

                                                                   Share of ‘total video’ advertising over time

                                   2014                                                    2017                                      2023

             Legacy TV        YouTube        Facebook     Others            Legacy TV   YouTube   Facebook   Others   Legacy TV   YouTube   Facebook   Others

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And in content production

                                                                Original & Acquired Program spend ($m)
 10,000

   9,000

   8,000

   7,000

   6,000

   5,000

   4,000

   3,000

   2,000

   1,000

          0
               2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017
                   Walt Disney Co               NBC Universal      Sky      Discovery Comms.       Viacom Inc.            HBO                Netflix            Amazon

                                                                                                                                                           Note: Excludes Sport
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And it’s worth considering what we want this pie to look like in another 5 years

                                               Europe: Online video subscriptions by provider and type (2018)

                                                                              Others
                                                                               22%
                                                             MTG     Sky
                                                             2%      1%
                                                                                                Netflix
                                                                                                 44%
                                                                Discovery
                                                                   2%
                                                          Türk Telekom
                                                               2%
                                                          Turkcell   Sky
                                                            2%       3% HBO
                                                                                       Amazon
                                                                         4%
                                                                                        18%

                                                                                                                Source: IHS Markit

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What are the key takeaways from this?

• The TV industry isn’t driven by traditional economics anymore

• There is a more fundamental and philosophical discussion about public access,
   local culture and privacy

• National broadcasters and broadcast itself actually answer a lot of those concerns

• And perhaps what is missing is shared platforms and technology strategy
               • Smaller broadcast channels should move to online distribution
               • Major channels at higher quality across more broadcast spectrum

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Thank you
  Tom Morrod
  tom.morrod@ihsmarkit.com
  @tommorrod

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