Converging Trends

7/31/2019 Converging Trends

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VIDEO GRAIL: CONFIDENTIAL BUSINESS PLAN April 6, 2010

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Converging Trends

Broadband Usage71 million households have broadband connections tothe internet while rural areas are growing exponentially

E- Commerce / M-Commerce

Online retail sales in the US rose to $32.4 billion andaccounted for 3.6% of all retail sales in the second quarterof 2009, even as total retail sales fell 0.4%

Online Advertising

US Online video advertising will surpass $1 billion in 2010and will not slow down anytime soon.

Multimedia Content Online

By 2013, 35% of ALL video content will be accessiblevia Internet Protocol

Social MediaNot only is almost everyone using some form of socialmedia for personal use, 77% of the fastest growingcompanies have a social media strategy

OMNIVIDEO

TV is already the worlds most powerful medium, yet it is about to evolve into a form that will

be even more powerful, OmniVideo. OV includes TV content experiences and devices butgoes beyond these, creating new content, distribution, and device possibilities, all of which

feed the human need to consume video experiences. All video product strategists whether

at the TV networks, cable networks, TV service providers, or video device manufacturers

must take note: OmniVideo is about to explode, driving up total video viewing time from 4

hours per day to 5 hours by 2013, increasing the market potential.


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Technology Adoption

There was 6.5 million new broadband households in 2009 bringing the overall total close to 71 million

households that report they have access to the abundance of activities on the internet that are enabled

by faster connection speeds. Broadband users can more easily take advantage of the range of offerings

the internet has, and this is evidenced in the significant uptake of more advanced online activities such as

social networking and multimedia entertainment.

While the number of households that reported being online only grew slightly more than 3% between

2008 and 2009, reported broadband adoption among Internet households grew slightly more than 6%.

With the majority of households having a broadband connection and more than 50% of online

consumers having been online for 10 years or more, the Internet starts to resemble a traditional media

channel. People have specific preferences and behaviors and a limited amount of time to dedicate to

their activities.

Technology Changes Demand

The Internet is a now fundamental way for consumers, advertisers, and

content owners to interact. Entertainment, commerce, and social

networking are not limited by devices. Trends show that as technologyinfrastructure continues to expand, prices for technology will go down

introducin even more consumers.

Internet TV on demand continues to evolve rapidly, with the lines between

Internet TV and DVR services rapidly blurring.


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The rise of broadband and the underlying networks that support its deployment provides greater

opportunities for online video services, including the potential to deliver high definition, full-length

content to an increasing proportion of users. The concept of DVRs and DVR services is already disrupting

traditional media content delivery and broadcast models, and the pace of this disruption is likely to

accelerate in the near future.

The online and broadcast markets are colliding, with video services making the move to the PC

environment and web-based services becoming a core element of the TV viewing experience. Online

video delivery is emerging as a true competitive threat to existing content service providers, offering the

potential to extend reach to new consumer groups.


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Broadband, Storage Capacity, and Improved Hardware supports OmniVideo

Traditional TV OmniVideo

Device Used Television Set TV, PC, Mobile Device, Media

Player

Content Produced TV Networks and Movie Studios TV Networks, Movie Studios,

Independent Producers, Amateur

Producers, Individuals

Content Finalized Producers and Directors Viewers

Consumption 4 hours/day 5 hours/day(2013)

OmniVideo makes content meaningful to individuals. Advertisers have a tremendous potential to address

the individual over just the target market. The pace at which online video services develop may well be

closely aligned to development in the advertising market; with broadcasters struggling to maintain

advertising revenue via traditional TV-based services, many will look to derive income from the

development of new platforms.

E-Commerce and M-Commerce

E-commerce continues to expand with no end in sight as sales have been

up over 400% in the last 3 years. 90% of Americans own a mobile device

and still only 7% have conducted a transaction from it. Mobile commerce

today in the U.S. is still in its infancy, but its growing at an astounding rate.


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Multimedia Content Online

Networks and studios have taken audience share from YouTube and created viable revenue streams by

moving beyond viral video into Internet television. They are offering branded, episodic, quality

programming that taps into consumer desires around chapterized content, integrated video experiences,

and unobtrusive advertising. VG is carefully monitoring 4 emerging trends that could dynamically change

the marketplace: streaming library size, YouTube and Hulu content deals, exclusive distribution, and

Web serials.

Both large and small content companies have an incentive to drive traffic downward to the branded

destinations. A Website entirely focused on a single media brand, programmers can drive users to

additional videos free from competitive offerings on aggregators. Higher engagement and association

with a brand could yield highly targeted audiences and correspondingly higher adverting rates (e.g.,

DailyShow.com vs. AOL.com/DailyShow). With 47% of online television watchers discovering content

directly from branded destinations, companies should utilize promotional episodes and clips on

aggregators that can direct content back to branded destinations.

Traditional TV broadcasters are struggling to retain viewership in the face

of multi-channel fragmentation, and more recently the emergence of

internet-based video alternatives. Broadcasters around the world are

seeking to evolve into multi-platform video distribution networks, aiming to

reproduce their traditional TV business online,


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While there is no suggestion that content owners will sever their ties with traditional partners anytime

soon, the balance of power in the value chain is shifting. Although the early development of the online

video market has been driven by the availability of user-generated content, the emergence of

professional content is key to driving future revenue growth. Current market trends suggest thatadvertising-supported content is more appealing to the average consumer than paid downloads.

Ad-supported online video business models are now becoming commonplace, challenging the market for

paid downloads/rentals. In order to succeed, paid content providers will need to innovate and

differentiate their services to deliver greater value and flexibility than is possible via ad-supported

alternatives.


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Online Video Advertising Market

In certain markets, industry associations report that online advertising spending has overtaken spending

on some traditional advertising channels leading advertisers and publishers to ask new questions about

when online advertising will achieve its fair share of the total advertising market. Despite a downturn inthe economy, many advertisers continue to boost spending on the online channel in international

markets. The overall online advertising market is set to reach $39 billion in 2012.

Online video advertising will make up the majority of the market, accounting for

over $2.3 billion by 2012 and over $3 billion by 2014. Companies will have to

balance reach and revenue share in maximizing value captured for content.


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Forecasts show that social media marketing in the US will grow to $935 million in 2010, about 20% less

than spending on online video advertising and we believe the social media market will grow to $3.1

billion in 2014, just 3% bigger than video advertising spending. See the July 6, 2009, US Interactive

Marketing Forecast, 2009 to 2014 report.

Advertisers Tendencies

Marketers Are No Longer Afraid To Run In-Stream Ads

Despite the growing prevalence of pre-roll advertisements and other in-video advertising formats, plenty

of interactive marketers are scared that users will be overwhelmed by in-video advertising. But most

marketers are finally getting comfortable with the format.

When given a choice between paying for video content or watching free ad-supported content, online

video viewers are four times more likely to choose the ad-supported option. Its little surprise that

interactive marketers, faced with a growing opportunity to reach consumers with video advertisements,

are flocking to the format. 63% said in a 2009 survey that they are running online video advertisments.

Brands like Dove, Kraft Foods, and Tide have most aggressively adopted instream video advertising.

According to 2009 US interactive marketing forecast, video ad spending including in-stream

Advertisements, video banners, and other video formats will exceed $1 billion for the first time in

2010 and reach $3 billion in 2014.

Video has quickly become one of the most popular types of online content. Nearly every website featuresvideo, and 66% of Internet users in America watch online video each month. Generation Y consumers

watch more online video than any other age group, but even the majority of seniors watch online video

monthly or more.

In October and November 2009, Forrester conducted a WebTrack review of 39 US sites and 45 European

sites with online video content to learn more about how marketers are deploying in-video advertising like

pre-rolls and overlay advertisements. The WebTrack included only short video clips of 10 minutes or less

The Internet video market has expanded from a limited library of paid downloads to

an expansive library of advertisement-supported content that is syndicated across

the Internet.


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not full-length TV shows like those available on Hulu or NBC.com because short clips remain the

dominant form of online video.

Marketers can buy in-stream advertisements on almost any major US site. In fact, its becoming

difficult to find online publishers that dontaccept in-video formats. WebTrack review gathered

that 85% of the US sites visited were running in-stream advertisements and just six of the 39

US sites we reviewed were not.

Publisher acceptance of other in-video ad formats has grown quickly. Just more than two years

ago YouTube became the first major publisher to accept overlay advertisements; now, nearly 1/4

of the sites tracked are running the format. Another 18% of the sites featured video

sponsorships. However, its rare to find a site that offers each of the main in-video ad options: Of

the 39 US sites only two (including YouTube) were running all three formats.

Understanding the Consumer

VideoGrail has synthesized OmniVideo with the drivers behind enhanced viewer experience therefore

improving the monetization intelligence. VG analyzed an assortment of research reports, marketing

studies, and consumer data to comprise what OmniVideo viewers are looking for and how VGs EI and MI

will produce superior brand targeting:

The Consumers Stipulations

Consistent Content Consumers most outstanding motivator is consistentcontent experience. In a recent report, 57% respondents

said they would watch more television through the

internet if more or all episodes/seasons of a show were

available on a website.

Better Advertising Consumers second most important motivator is feweradvertisements (47%), while shorter advertisements camein fourth (37%). Distributors do not need to abandon

advertising, but they should look to incorporate best

practices with better creative units, targeting, and

frequency capping.

High-Quality Videos Consumers are increasingly watching high-definition (HD)content in their living rooms and are becoming

accustomed to high-quality video 40% of online

consumers cite HD quality as a motivator to watch more

online video.

Free Content/Cheap Subscriptions Most of the existing Internet TV destinations, includingHulu, have been free to access; however, the cable TVdestinations that are being planned, such as Comcasts On

Demand Online, are likely to be accessible only to

subscribers who pay monthly fees. Forresters preliminary

research into price elasticity shows a steep drop-off at the

$9.99 price point, which puts the on-demand offering in

line with other common pay-TV up sell products, such as

digital video recorders (DVRs) and premium channels like

HBO and Showtime.


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Multiple Device Connections The ability to move content from the PC to the TV isbecoming increasingly important to consumers: 36% cited

watching Internet video on the TV as a motivator and 10%

cited being able to watch Internet video on mobile

devices.

OmniVideo originates as a requirement for the Generation Y consumers. These consumers have

characteristics in terms of how they want content and advertisements presented to them.

Generation Ys Online Behavior

Communicating and

Sharing Opinions

Generation Y likes to stay connected to their friends and is comfortable

using the applications available to them on the Web. Whilecommunication is a key to Generation Y, its even more so to spread

their opinions. More importantly, theyre happy to use the Internet as a

tool to take this formerly offline activity to the next level. 11% post

ratings and reviews, 18% comment on other peoples blogs, and 16%

also contribute to online forums and discussion groups

Consuming Free Media More than half of online Generation Y consumers watch video contentfrom other users online. 30% also watch full-length TV shows online, and

more than 40% listen to any kind of audio or radio online. However, the

conversion rate to getting these consumers to pay for content online is

low. Only 11% have paid to download TV shows, and 14% have paid to

download music

Viewing ChapterizedContent

Popular wisdom on the Web is that only short-form video content will

work. In the YouTube tag experience, consumers may have no idea what

comes before or after the segment they watched, and an opportunity to

watch more video is often lost. Moving beyond these experiences is a

key to unlocking value for video content, where a consumer starts at

one point in a video but advances to many numerous related parts of

the longer-form content. MTV Networks has gone so far as to partition

and catalog every episode of the Daily Show, allowing consumers to

finds clips by subject or favorite correspondent.


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Integrating into

Activities

As with search engines or social networks before it, Internet video

created a plethora of video destinations that will not all survive. Many

have shut down and many more are bound to join the list of casualties.

Consumers are yearning for easier ways to find video than adding

another new destination: Take the video to consumers rather than force

consumers to come to the video. Market leader YouTube again serves as

a paradigm example, syndicating its videos into Googles general searchresults, allowing users to embed video on social networking pages, and

even letting users easily view video on an iPhone.

Avoiding Obtrusive

Advertising

Consumers frustration is not with advertising, but rather obtrusive and

irrelevant advertising. Consumers do show a willingness to accept

advertisements, particularly with free episodic and television produced

content. Leading practices to improve the advertising experience

include NBC announcing limiting video commercials to 15 seconds for

clip content, as well as AOL, YouTube, and VideoEgg all starting to

implement overlay ticker advertisements. Even with limitations on the

number and type of advertisements, the largest challenge remains

creating engaging advertisements for the medium.

SWOT Analysis

STRENGTHS

Incentive- based Interaction togather intelligence

Strategically differentiated fromcompetitors

Superior intelligence on thecontent for the Viewer

Superior intelligence on the Viewerfor the Advertiser

Social Media Integration iPhone, iPad, iTouch seamless

integration

WEAKNESSES

No Digital Rights Agreements No established brand No established user-base Lack of developed technology Dependent on available,

embeddable content

OPPORTUNITIES

No barriers to enter No industry standard Existing social media networks to

piggyback off of

Online video consumption is stillfree

Exclusive Digital Rights Agreements Fledgling DVD prices and sales Licensing agreements with

competitors

THREATS

Piracy Conservative Content Owners Competitor launches prior to Video

Grail

Large players making moves


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Competitive Moves from outside Companies Amazon launched its revised Amazon Video On Demand service in 2008. It has since forged

partnerships with vendors including Microsoft, Sony, Roku and TiVO to enable its content

services to be accessed directly via TV sets. Apple has undergone a huge transformation over the past few years, building on its computing

roots to become a leading player in the digital media market. Crucially, the firm offers a complete

ecosystem of device and content services.

The BBC iPlayer has quickly eclipsed other legitimate forms of online video delivery in the UK.Having started as a PC-only service, the iPlayer has evolved into a truly multi-platform offering,

with optimized interfaces available for Phone, Nintendo Wii, and Virgin Media / BT Vision pay-TV

services.

As a major part ofComcasts Project Infinity its vision to give consumers the ability to watchany content On Demand, either via digital TV or online the operator launched Fancast in

January 2008.

Google has yet to find ways to adequately turn clear consumer interest in YouTube intosignificant revenues. Google plans to launch a premium content section on the site which will

feature full-length movies and TV shows Via the Xbox 360 and PlayStation 3, Sony and Microsoft aim to bring high speed computing and

broadband connectivity into the living room, providing the opportunity for consumers to easily

access and purchase content direct from the TV without the need for a pay-TV subscription.

Video Grail Factors for Success

1. Matching advertising length with length of content2. Adjusting to how viewers watch video on their computers3. Rotating through advertising inventory frequently4. Sponsorships for long-form video5. Proprietary Player

More Effective, More DynamicAdvertisment Lengths and

Formats

Viewer's Choice of Brands andAdvertisments

Largest, Most OrganizedCollection of Video Content

Incentivized Viewer Interaction

Entertainment &MonetizationIntelligences


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Gaps in the Market Place

Driven by increasing amounts of leisure time, digital content, and services that can be accessed almost

anywhere, anytime, the consumption of all types of media continues to grow. Consumers are accessing

the internet for social networking, entertainment, and commerce from their computers, mobile devices,

and their televisions. The integration of web-based solutions across every device has led to more

advertising and more video content. The trends converged so quickly with rapid adaption by users that

there hasnt been enough time to collect intelligence to formalize proper technique and practices:

Consumers are inundated with advertisements yet struggle to find content that appeals to them Advertisers are not in tune with consumer preferences for their advertisements. Marketers still cannot bring Social Media and Word-of-Mouth marketing together seamlessly Content owners are at a loss on how to monetize their content through syndication while

keeping digital rights


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Appendix Material


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