THE STREAMING REVOLUTIONExploring the future of entertainmentIssue No. 8

A Changing LandscapeThe state of media & entertainment

The StreamingFrontierIn 2016, pay TV lost 1.6Msubscribers because of theeasy, 24/7 access toentertainment via streamingservices, but the major cableand satellite companies aren'tgoing anywhere yet. Throughefforts like skinny bundles andcross-industry partnerships,there is still a lot of room tocompete for consumers'attention.

In this issue, MEC andBloomberg unpack whatmarketers need to know mostabout what's happening nowand what's coming next, fromkey trends to new businessmodels to how to stay ahead ofit all.

Relentless pace of change

In the decade since the iPhone redefined the

smartphone industry, "watching TV" has changed

forever.

More than ever before, consumers have choices for

both content and how to consume it. Improvements

in handset-screen quality, ever-more-robust mobile

networks, and now-ubiquitous unlimited data plans

only increase the momentum.

In 2017, expect the competition for audience

attention, especially from the coveted 18-34 year old

demographic, to foment new strategies, new

products, and new opportunities.

KEY FACT

+80% of 18-34 year-olds in the U.S. are

using mobile platforms to consume

content – via Bloomberg.com

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"Content on demand is thenew reality in the medialandscape, and that presentschallenges andopportunities for brands -we can't rely on old admodels to be relevant topeople who consumecontent where and whenthey want it."– Noah Mallin, Head of Social, Wavemaker, MEC

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Blurring boundaries

Tech, telecom, pay TV and media companies are

coloring outside the lines in an effort to come out on

top with consumers, Bloomberg reports.

Carriers like AT&T now want to deliver big-ticket

television events like the Olympics to stay relevant

with younger consumers.

Tech giants Amazon, Netflix and YouTube have

become original content producers. Content

creators like Time Warner and Disney are becoming

streaming giants.

And it doesn't end there. Pay TV companies

Comcast and Charter plan to offer wireless service;

and Dish Network's Sling TV, once the only "skinny

bundle," is increasingly just one of many options.

Industry deal making intensifies

This year, AT&T expects to acquire Time Warner,

and Verizon plans to close its deal to buy Yahoo. At

the recent Mobile World Congress in Barcelona,

partnerships that would deliver content to mobile

environments were a key focus.

Read more: MEC at MWC: Key Takeaways and

Trends

2017 could see an additional wave of cross-industry

partnerships and takeovers. Bloomberg Gadfly sums

up the possibilities in this graphic:

Potential mergers and partnerships among media, telecom, payTV and tech companies this year

Click to enlarge

Content is still king

Walt Disney Co. Chairman and CEO Bob Iger distills

what's important to consumers amid this changing

environment in an interview with Bloomberg.

"The consumer is interested far more in content than

they are in how they get that content – although

that’s important too," said Iger. "I look at the AT&T-

Time Warner planned merger as a distribution

company needing to own content, as opposed to a

content company needing to own distribution."

Click to watch the full interview: Disney Chairman & CEO BobIger on Content, Distribution and Data

Assessing consumer touchpoints

Utilizing MEC Consumer Pulse, MEC’s proprietary

online survey panel, we’re able to glean insights into

consumer-reported viewing habits.

From January 2016 to February 2017, we have seen

a downward trend among Millennials who indicate

they watch Live TV (defined in Consumer Pulse as

"television that is viewed at regularly scheduled

time") in a typical week.

Click to enlarge

Accordingly, in January 2016, 70% of Millennials said

they watched Live TV frequently or very frequently in

a typical week; this amount dropped to 58% a year

later in February 2017.

However, despite this overall decline, MEC

Consumer Pulse reports slight spikes in Live TV

viewing that align with key moments of interest, such

as live events like the 2016 Rio Olympics in August

and the U.S. election season.

So what does this mean for marketers? Brands can

still leverage the broad reach of Live TV for key

moments or events that are relevant and speak to

Millennials.

However, as marketers move towards more

audience-centric planning over simple

demographics-based targeting, the key is to

supplement these mass-reach moments online by

reaching the right audience where and how they

actually consume content.

The New World OrderDriving the future forward

Re-engineeringOTTEntertainmentAs consumer expectationsdramatically shift, thereinvention of content and howit's accessed is critical tostaying relevant - and absolutefor those who want to stay ontop.

In this section, we highlight fourcompanies at the forefront ofthese changes, looking at boththe tactical toolbox and thebroader implications each hasfor critical topics for marketers,including: Global thinking;customer-centricity; balancingaction and consistency; andembracing new technologies.

Netflix's reality TV push: innovation with a global

focus

Netflix, the world’s largest paid video service, spent

about $6 billion on content last year; it is expected to

spend a similar amount this year, with $2 billion of

that going to original series, according to Bloomberg

Intelligence.

The streaming leader, with almost 94 million

subscribers worldwide, has upended entertainment

industry traditions by releasing its content

everywhere at once.

That strategy will extend to the 20 new unscripted

TV shows it plans to launch in 2017. The first of

those, "Ultimate Beastmaster," which launched in

late February, plays to the company's international

ambitions with 12 hosts, 108 contestants and six

different versions tailored for audiences around the

world.

Photo: Daniel Acker/Bloomberg

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51% of adults overall say theyuse Netflix compared to 74%of Millennials.Source: MEC Consumer Pulse

2,500 U.S. respondents, Adults 18+, Feb. 2017

Amazon's Oscar turn helps deepen consumer

relationships

Amazon, the world’s largest online retailer, spent $3

billion on content last year, according to estimates. It

also has global ambitions, announcing plans last year

to stream its own new reality show "The Grand Tour"

in 200 countries and territories.

But it has played more by Hollywood’s rules, giving

motion pictures a serious run in theaters. That

strategy helped deliver a big payoff: the first-ever

best picture nomination for an online video service

with "Manchester by the Sea."

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The brand equity that builds helps the company

attract members who pay a yearly fee that includes

media streaming. Members are more likely to stick

around on the site and spend; in turn, video watchers

are also more inclined to renew their memberships.

Last year, Amazon also introduced a standalone

service featuring on-demand access to thousands of

movies and Amazon originals for $8.99 a month. In

all, Amazon had about 65 million members in the U.S.

at the end of September, up 38% from a year earlier.

32% of adults overall saythey use Amazon comparedto 41% of Millennials.Source: MEC Consumer Pulse

2,500 U.S. respondents, Adults 18+, Feb. 2017

YouTube's big bets stay true to brand identity

YouTube's ad-supported premium content model

remains successful. It also wants viewers to pay for

original programming via its subscription service

YouTube Red.

Its shows are by the aspiring filmmakers and

vbloggers who got their start on YouTube, which

helps it stand out. But the unfiltered strategy hasn't

been without risk, as its biggest stars are also its

most outspoken.

YouTube also announced a new service just last

month that will deliver an assortment of major

television channels to paying customers via the

internet. For $35 a month, starting this spring,

subscribers to YouTube TV will be able to watch the

top four broadcast networks and 35 or so of their

affiliated cable channels.

YouTube CEO Susan Wojcicki announces YouTube TV. Photo:Patrick T. Fallon/Bloomberg

Time Warner's Boomerang brings tech in-house to

stream back catalog

Meanwhile, Time Warner is mining its huge catalog

of content to launch its own distribution channels,

according to Bloomberg.

First up is a new animation-themed service, called

Boomerang, that will offer more than 5,000 episodes

of TV shows - but won't carry ads. It will debut this

spring and cost $4.99 a month, about half the price

of Netflix’s monthly fee.

Every division of Time Warner, in fact, is exploring

the streaming business - and Warner Bros. will

provide the technology to support Boomerang,

thanks to the acquisition of a streaming service. The

studio may build online services devoted to its film

franchises in coming months.

The four big players spotlighted in this section will

continue to aggressively compete to shape the new

media landscape - but they are far from an

exhaustive list of all the activity happening in this

explosive space. For brands, honing in on which

developments offer the right opportunities is key.

Traditional MediaNot the same disruption story

Evolving andAdaptingWhile the streaming revolutionmay hold more change to come,the news isn't all bad fortraditional entertainmentproviders.

Cable TV has shown resilience,with both recent subscribergains and broadband growth;music streaming has deliveredrevenue growth for the musicindustry as a whole.

In this section, we look at threeexamples that demonstrate howtraditional media is seizing thestreaming moment.

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"It would be a mistake toignore the enduring value oftelevision...It would equallybe an error to forget thateven in 'traditional' mediathere has always been adividend for creativity– more people remember– and relevance – morepeople act."– Rob Norman, Chief Digital Officer, GroupM

Streaming positively impacts music

Spotify and other paid streaming services have

boosted the entire record industry, according to

Bloomberg.

Recorded music sales grew 7% in 2016, the fastest

pace in decades. Streaming accounted for $5.4

billion of $16.1 billion in global record sales.

That follows significant revenue growth for the

recorded-music industry in 2015, thanks in part to

streaming. In fact, revenue from music streaming has

multiplied fourfold in five years.

Online streaming has become the music industry's #1 revenuesource - but that's lifted the entire industry. Source: Bloomberg

Click to enlarge

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A surge of new subscribers

Meanwhile, Comcast, the largest U.S. cable operator,

is enjoying a golden age of TV - cable TV. The

company gained TV customers in four of the past

five quarters and added to its subscriber rolls,

reclaiming market share from some telecom carriers

and satellite-TV providers, Bloomberg reported in

January.

Executives attribute the momentum in their cable-TV

business largely to their new video platform, called

X1, which makes it easier to search for shows and

movies on TV and on Netflix from their cable set-top

box.

Executives attribute themomentum in their cableTV business largely to theirnew video platform.Source: Bloomberg

In February, Comcast added YouTube to the X1

platform as well; the move lets customers avoid the

hassle of toggling between their cable service and

web-connected devices.

And the company's high-speed Internet service is

also growing. It signed up 385,000 new broadband

customers in the quarter, topping analyst

predictions.

TV service from cable and satellite companies is in roughly 85%of U.S. households; online TV options have increasingsubscribers

Click to enlarge

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Beating expectations

Time Warner reported fourth-quarter sales and

profit that beat analysts’ estimates. That growth

came largely from negotiating new, more lucrative

deals with distributors for its premium content,

according to Bloomberg.

The company's divisions also posted positive results.

At Turner, which owns CNN, TBS and TNT, revenue

increased 7% due to higher subscription sales.

At HBO, revenue rose 6% thanks to higher

subscription and content revenue. HBO Now, the

premium channel’s web-only service, has surpassed

2 million total online subscribers in the U.S.

2 millionTotal online subscribers HBO Now has in the U.S.

Source: Bloomberg

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What's next from media companies?

The traditional TV industry is divided on whether to

welcome internet streaming and video-on-demand

providers onto set-top boxes - while Amazon has

said it's open to pushing content through cable

boxes, and Netflix already has such partnerships.

Streaming consumption trends are sure to keep

accelerating -- but the technology that powers it will

need to keep pace. Several high-profile live-

streamed recent events experienced hiccups, and

consulting firm Activate estimates that only 12% of

U.S. households have fast enough internet speed to

support multiple people watching TV online.

12%Estimated share of U.S. households that have fast

enough internet speed to support multiple people

watching TV online. Source: Bloomberg Gadfly

In coming months, Unisphere Research and

StreamingMedia.com will release the most recent

annual OTT Video Services survey, offering a

window into where industry members see the market

headed.

You can also expect plenty of new digital video

content and product ideas from media companies

during the two week-long IAB Digital Content

NewFronts starting May 1.

MEC will be on the ground reporting live from the

NewFronts – look out for our MEC@ Digital Content

NewFronts Takeaways Report.

Cable and pay TV operatorsare making sizableinvestments in their future,including those listed below.Which do you see as mostimportant?

Leveraging new technologies to create

advanced set-top boxes

Expanding network capability to meet

growing data demands

Increasing business services offerings

All of the above

See results

The FutureFighting for connection

LookingForwardPhones, tablets, computers andsoon to be cars are whereconsumers are increasinglyspending their time beingentertained.

In the near term, that puts thefocus squarely on how wellbrands leverage all the availableways to connect.

In the longer term, as industryplayers consolidate and 5Gbecomes available, the ease ofthe journey across devices andtouchpoints is where the futurelies.

Here are three key strategicpoints to consider.

1. Watch for wireless and video convergence

While 5G service isn’t expected to be commercially

available until 2020, Verizon and rival AT&T are

bringing the technology out of the lab and into the

hands of actual users with market testing.

Improved connections and capacity will help

companies offer fast Internet speeds while relieving

congestion created by consumers who demand

video streamed directly to their phones.

It is essential for marketers to understand the

opportunities that can come with undisrupted

streaming experiences and how they can change

expections and pathways for consumers.

2. Creative chops and tech skills both matter

The question of whether content or distribution is

more important may not have an answer; each is

dependent on the other to disseminate ideas, foster

relationships and spur action.

For example, vertical video ads haven't yet gone

mainstream - but that may be about to

change. Marketers must consider both sides of the

equation, evaluating how brand content interacts

with means of distribution and what opportunities

new technologies afford for creating brand content.

3. Planning ahead helps strike the right balance

Understanding where, when and how to act on new

capabilities requires steadfast alignment, not only

with core brand values and assets, but also with the

needs of consumers at each stage.

Planning for the resources needed to seize new

opportunities will help marketers execute on

strategies while maintaining focus on paramount

brand attributes.

The streaming revolution is nascent, but the shift in

entertainment consumption habits and preference is

real. That requires a content strategy hard-wired to

the purchase journey in order to transform brand

performance.

For more MEC thought leadership,

check out MEC Global Publications

Thank you for reading

THE STREAMINGREVOLUTIONwww.mecglobal.com#MECideas

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