7 PREDICTIONS ABOUT

THE FUTURE OF MEDIA

BI Intelligence

Providing in-depth insight, data, and analysis of everything digital.

1. DIGITAL WILL INHERIT THE EARTH

DIGITAL MEDIA CONSUMPTION IS GROWING,

EVERYTHING ELSE IS SHRINKING
US Consumer Media Consumption Share

2011

2012

2013

2014

2015
43.2%

40.9%

Mobile

35.2%

30.0%

Desktop/laptop
14.0%

12.0%
6.6%

TV

Radio

2.9%

Print

5.8%

3.3%

Other

Digital
Source: eMarketer

And averages do not tell

the whole story

THE SHIFT IS GENERATIONAL

Top 5 Media Mentions Among All Adults, 2013

Aged 75+
Aged 65-74
Aged 55-64
Aged 45-54
Aged 35-44
Aged 25-34
Aged 16-24
Total

Watch TV
Read newspapers/
magazines
Listen to the radio
Go online on a computer/
laptop/netbook/tablet
Use a smartphone

20

40

60

80

100
Source: Ofcom

GENERATIONS HAVE A PREDICTABLE LIFE CYCLE

Source: Goldman Sachs

MILLENNIALS AND GEN Z

First digital native generation(s)

Already 45% of population and largest share of earners
Profoundly different media habits

18-24 TV VIEWING DOWN ~30% IN 4 YEARS

Traditional TV* Viewing Trends Among 18-24 Year-Olds
Weekly time spent in hours, based on total 18-24 population

30
Hours spent

25

26

20
15

16

10
5
0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015 2015
*Traditional TV refers to all live + DVR/time-shifted TV viewing during the quarter.
Source: Nielsen

Meanwhile

DIGITAL MEDIA CONSUMPTION GROWING EVERY

YEAR, ESPECIALLY MOBILE

Total minutes (MM)

Growth In US Digital Media Time Spent

Desktop
Mobile App

Mobile Browser
118,299

97,440
77,081
409,847

778,954
621,410

476,553

480,967

550,522

Jan-13

Jan-14

Jan-15

MOBILE TIME SPENT

Source: comScore Media Metrix Multi-Platform & Mobile Metrix;

US, Total Audience

MILLENNIALS CHECK THEIR PHONES

EVERY 10 MINUTES

Source: Kana Software

My smartphone never leaves my side,

night or day
87.0%

THEY KEEP THEM IN

REACH 24 HOURS A
DAY
12.0%
2.0%
Agree

Disagree

Not sure

Source: Zogby Analytics, cited by KPCB (Mary Meeker LinkedIn slideshare)

When I wake up, the first thing I do is reach for

my smartphone
80.0%

THEY CHECK THEM

FIRST THING IN THE
MORNING
18.0%
2.0%
Agree

Disagree

Not sure

Source: Zogby Analytics, cited by KPCB (Mary Meeker LinkedIn slideshare)

So heres a glimpse at the past,

present, and future of media

THE PAST (~2000): 3% DIGITAL

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Smartphone
Computer/laptop/tablet
Radio
Print
TV

Source: Ofcom

THE PRESENT (~2015): 40% DIGITAL

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Smartphone
Computer/laptop/tablet
Radio
Print
TV

Source: Ofcom

THE FUTURE (~2030): 80%+ DIGITAL

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Smartphone
Computer/laptop/tablet
Radio
Print
TV

Source: Ofcom

2. SUBSCRIPTIONS FOR THE WIN!

Remember when pundits said

digital content had to be free
because no one would ever pay?

Oops.

STREAMING VIDEO SUBS CLIMBING FAST

Streaming Video Subscription Revenue
US

11.5
9.2

4.0

2014

4.8

2015E

Billions USD

7.3
5.8

2016E

2017E

2018E

2019E

Note: Includes video services that stream long-form TV and movie length content (e.g.
Netflix and Hulu). Does not include short-form video content services (e.g. YouTube).

MUSIC SUBS ARE CLIMBING FAST

Streaming Music Paid Subscribers
US

16.5

18.7

20.6

14.0
Billions

11.4
8.7

2014E

2015E

2016E

2017E

2018E

2019E

Source: BI Intelligence estimates based on historical data from the RIAA

EVEN PRINT SUBS ARE CLIMBING FAST

New York Times Digital Revenue

$120

Global

$80
SubscripZons

$60

Millions

$100

$40
AdverZsing

Q1 13

Q2 13

Q3 13

Q4 13

Q1 14

$20
Q2 14

Q3 14

$-
Q4 14
Source: The New York Times

The new pundit story is that theres

one right model subs or ads

The truth is that both work,

as do a la carte sales.

Most media companies

have dual revenue streams.

FREEMIUM IS OFTEN THE BEST APPROACH

Paid Digital Subscribers As % Of Total Digital Users
30%
25%

25%
22%

21%

20%
15%
10%

5%

5%

5%

3%

2%

NYT

LinkedIn

0%
SpoZfy

Hulu

WhatsApp

Pandora Match Group

Source: BI Intelligence estimates

3. (NATIVE) DIGITAL ADVERTISING

WILL CONTINUE TO THRIVE

The best definition of native ads

NATIVE ADS

Ads that fit the way content and stories

in the medium are consumed.

In digital, search and scroll are the

dominant ways content is consumed.

BEHOLD THE POWER OF NATIVE DIGITAL ADS

Digital Advertising Revenues
Global

$25

Twiber

Billions

$20

Yahoo

$15

AOL

Facebook

$10
$5

Google

$0

Note: Based on GAAP revenue.

Source: Company Filings, BI Intelligence estimates

Read, watch, and listen

are also digital formats.

But the experience is different

than in legacy media.

Native digital brand ads will increasingly

take advantage of the digital difference.

4. THE EXISTENTIAL CRISIS

OF AD BLOCKING WILL RESOLVE ITSELF
BUT CAREFUL WHAT YOU WISH FOR

AD BLOCK USAGE IS RISING

Adblock Monthly Active Users
In Millions

181

198

144
121

21

30

39

54

Jan 10 Jun 10 Jan 11 Jun 11 Jan 12 Jun 12 Jan 13 Jun 13 Jan 14 Jun 14 Jan 15 Jun 15
Source: Adobe, PageFair

ESPECIALLY AMONG MILLENNIALS

Share Of Global Internet Users Who Have Blocked Ads In The Past Month, By Age
17%

55-64

22%

45-54
35-44

24%

25-34

31%
35%

16-24
0%

urce: GlobalWebIndex

5%

10%

15%

20%

25%

30%

35%

40%

Source: GlobalWebIndex

AND TECHIES
Ad-Block Usage Rates, By Vertical
Global

Travel
Finance
Local
Lifestyle
Business
News
Sports
Entertainment
Adult
Comics
Technology
Games

5%

10%
10%
10%

15%
15%

20%
20%
20%

25%
25%

30%

Note: Estimated to nearest 5% increment

Source: PageFair

There is a lot of self-interested

finger-pointing, moralizing,
and rationalizing going on
from all parties.

ONE THING IS CLEAR

If all ads are blocked, most free

content will cease to exist.

So what will happen?

Quality will improve!

Publishers, platforms,
and advertisers will focus more
on user experience and choice.

People will choose to view ads

from, and/or subscribe to,
publishers and platforms they like.

These decisions will not all

be voluntary.

5. THE NEXT BIG PLATFORM IS

As smartphones get boring,

everyone is hunting
for the next big platform.

Many candidates have been suggested

glasses, watches, cars, virtual reality

None of these
will be the next big platform.

Smart glasses flopped.

Smartwatches havent entirely flopped,

but no one will be reading, watching,
or listening to media on them
anytime soon.

Cars wont become media

and communications platforms
other platforms will be used inside them.

VR is promising,
but its still too early.

VR INSTALLED BASE STILL SMALL

30
25
20
15
10

Shipments (Millions)

Estimated Global Virtual Reality Headset Shipments

5
-
2015E

2016E

2017E

2018E

2019E

2020E
Source: BI Intelligence estimates, 2015

 Complicated to use
AND EXPERIENCE
STILL LEAVES MUCH
TO BE DESIRED

Screen resolution low

Display often nausea-inducing
Prices steep

SO THE NEXT BIG PLATFORM WILL BE

Messaging apps!

Smartphone Activities Performed At Least Once Each Day

MESSAGING
IS AT THE
HEART OF
THE MOBILE
EXPERIENCE

Accessing email

91%

Text messaging

90%

Searching on the internet

76%

Social networking

75%

Gecng news alerts

62%

Playing games

57%

Listening to music

46%

Reading
Watching videos or movies
Gecng direcZons

43%
30%
24%

Source: Salesforce

SOCIAL NETWORKS ARE BIG

Monthly Active Users
Global

3,500
3,000

Top 4 Social Networking Apps

2,000
1,500

Millions

2,500

1,000
500
0
4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15
Source: Companies, BI Intelligence estimates

BUT MESSAGING APPS ARE ALREADY BIGGER

Monthly Active Users
Global

Top 4 Social Networking Apps

3,000

Top 4 Messaging Apps

2,500
2,000
1,500

Millions

3,500

1,000
500
0
4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15
Source: Companies, BI Intelligence estimates

THE TOP 4 HAVE ALMOST 3 BILLION USERS

Monthly Active Users
Global, Q3 2015
1000
900
800
700
600
500
400
300
200
100
0
WhatsApp Messenger

WeChat

Viber

LINE

Snapchat

Tango

Kik

KakaoTalk

Source: Companies, BI Intelligence estimates

FACEBOOK OWNS TWO PLUS INSTAGRAM

Facebook Messenger Monthly Active Users
900
800
700
600
500
400
300
200
100
0
4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15

Millions

Global

Source: Company, BI Intelligence estimates

SNAPCHAT HAS 200 MILLION AND COUNTING

Estimated Snapchat Monthly Active Users
Global, millions

250
200
150
100
50
0
4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15
Source: Companies, BI Intelligence estimates

YOU CAN DO EVERYTHING IN THESE APPS

Calls

Chat

GIFs

Games

SZckers

VoIP

Taxi

E-commerce

Music

Video

Payments

URL Bar /
Search

UZliZes

QR Codes

GENERATION DIGITAL IS NUTS ABOUT THEM

% Of Smartphone Owners Who Use Messaging Apps
US

50+

30-49

18-29

24%

37%

49%

Source: Pew Research Center, March 17-April 12, 2015

6. TV NETWORKS WILL SOON FEEL

NEWSPAPERS PAIN

TRADITIONAL TV HAS PASSED ITS PEAK

Households With Pay TV Vs. Subscription OTT, U.S., 2010-2015E, Millions
Pay TV Households
120
100

99

100.9

Digital SubscripZon (OTT) Households

100.8

99.3

98

97.1

80
60
40
20

23

28

33

38

43

50.3

0
2010

2011

2012

2013

2014

2015E

Leichman Research Group, US Census Bureau, Activate analysis

PAY TV SUBSCRIBERS ARE SHRINKING

Cable TV Subscribers (US)
51.0

Millions

50.5
50.0
49.5
49.0
48.5
48.0
Q1 14

Q2 14

Q3 14

Q4 15

Q1 15

Q2 15

Source: Leichtman Research Group

VIEWERSHIP IS FALLING

Nielsen Household RaZng (% Of

Households With TV Sets Watching)

Primetime Household TV Ratings

6.2
6.0

Big 4 US TV Networks Average

5.8
5.6
5.4
5.2
5.0
4.8
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
Source: Nielsen

Meanwhile

NETFLIX ~70 MILLION AND GROWING

Netflix Subscribers

80
70
60
50
InternaZonal
40
30
20
DomesZc
10
0
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015 2015 2015

Millions

Estimates in millions, Global

Source: Netflix

Hulu Subscribers

Estimates in millions, Global

2011

2012

2013

2014

10
9
8
7
6
5
4
3
2
1
0
2015E

Millions

HULU ~10 MILLION AND GROWING

Source: Hulu, BI Intelligence estimates

AMAZON PRIME ~45 MILLION AND GROWING

Amazon Prime Members
Estimates in millions, Global

50

30
20

Millions

40

10
2011

2012

2013

2014

0
2015E

Source: Deutsche Bank, Company reports

APPLE TV 35 MILLION+ AND GROWING

Apple TV Installed Base
40
US

30
25
20
15

Millions

Global

35

10
5
2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

-
2018

Source: BI Intelligence estimates

FACEBOOK REACHES MORE 18-24 THAN FREE TV

Facebook vs. TV Daily Reach
Four TV Networks
73%
58%

63%

68%

Facebook
83%

89%

63%
42%

Age 18-24

Age 25-34

Age 35-54

Percent Reach

US

Age 55+
Source: Nielsen

NETFLIX IS WATCHED MORE HOURS PER MONTH

THAN ALMOST EVERY OTHER NETWORK
Total Hours Of Viewing, Per Month Per Network

Liam Boluk, MEDIA REDEF

NETFLIX HOUSEHOLDS WATCH 60 HOURS OF

NETFLIX PER MONTH, 2X ANY NETWORK GROUP

Source: Liam Boluk, MEDIA REDEF

YES, TV STILL DOMINATES VIEWING TIME

US Consumer Time Spent On Video Per Month, 2015E, Hours

Ad-Supported
9%

Paid Downloads
5%

Total: 177 hours

SubscripZon TV
14%
TradiZonal TV
72%

Source: Digitalsmiths, eMarketer, GfK, Sandvine, Nielsen, TDG, Activate analysis

BUT DIGITAL VIEWING UP ~100% IN 3 YEARS

Monthly Consumer Time Spent On Video, U.S., 2012-2015E, Hours

Paid Downloads
7.5
3.5

Ad Supported

15

SubscripZon

25
16.5
8

2012

2015E

Source: Digitalsmiths, eMarketer, GfK, Sandvine, Nielsen, TDG, Activate analysis

And the TV audience is increasingly

a specific demographic

MEDIAN VIEWER AGE

MSNBC and CNN: 60

Broadcast Networks: 62-64
FOX News: 68

WHY IS DIGITAL TV GROWING?

Convenience.

WHY IS DIGITAL GROWING?

We can watch what we want to

watch when we want to watch it
on any screen.

So whats going to happen?

First, ignore people

who say TV will die.

Old media dont die. They just find

their niche(s). See radio and print.

There are three key parts of TV

and two of them are thriving.

1. Digital TV networks will

continue to thrive

ITUNES AND NETFLIX ALREADY DWARF

AVERAGE CABLE NETWORKS

(Millions)

Cable Network vs. Digital Content Revenue 2007-2014

$20,000
$18,000
$16,000
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0

iTunes

Neilix
AMC

2007

2008

2009

2010

2011

2012

2013

2014

Source: News Reports, Company Filings

YOUTUBE REVENUE CLOSING IN ON

BROADCAST NETWORKS
YouTube Ad Revenue Vs. CBS Ad Revenue And AMC Networks Revenue
$12,000

(Millions)

$10,000

CBS Ad Revenue

CBS Ad

$8,000
$6,000

YouTube Ad Revenue

$4,000
$2,000

AMC Networks Revenue

$-
2007

2008

2009

2010

2011

2012

2013

2014

Source: News Reports, Company Filings, BI Intelligence estimates, BofA Merrill

Lynch Global Research

2. Access providers will continue

to thrive unless (until?)
real price competition

CABLES FUTURE IS BROADBAND

Cable Subscribers Millions By Service (US)
TV

Broadband

51

50 49

50 49

50 50

50 51

49

Q3 13

Q4 13

Q1 14

Q2 14

Q3 14

49

52

Q4 14

54

53

53
49

49

49

Q1 15

Q2 15

Q3 15

Note: Select major cable providers

Source: Leichtman Research Group

WIRELESSS FUTURE IS BROADBAND

Wireless data service spending in the US
(Billions, USD)

144.2
108.4
79.6

6.9

12.3

25.5

32.3

45.5

125.0

89.8

55.6

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: TIA

3. Traditional TV networks will go through

~decades of pain

Why?

Money follows eyeballs.

WHEN EYEBALLS LEFT PRINT THIS HAPPENED

Newspaper Ad Revenue (Print vs. Online)
$60,000

Print

Online

In Millions

$50,000
$40,000
$30,000
$20,000
$10,000
$-
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
Source: Newspaper Association Of America, *Estimate

THERE ARE TOO MANY NETWORKS

Channels Receivable And Watched Per TV Household
US

Average TV Channels Received

151.4

136.4

129.3

17.3
2008

17.7
2009

17.8
2010

Average TV Channels Watched

189.1
179.1
168.5

17.5
2011

17.8
2012

17.5
2013
Source: Nielsen

THERE ARE TOO MANY (MEDIOCRE) SHOWS

Average original TV series each year vs. survival rate

Source: Liam Boluk, MEDIA REDEF

So get ready for years of

consolidation and pain.

FORTUNATELY, TV IS AWASH IN MONEY

Revenues, U.S., 2015E, USD Billions

Pay TV SubscripZons
$103.1

Paid Downloads
$2.0

TV AdverZsing
$67.0

Ad Supported
$7.7

$185.3 B
Total

SubscripZon
$5.5

Source: BIA/Kelsey, Digital TV Research, eMarketer, Google, Hulu, Netflix, PwC,

SNL Kagan, Statista, Digital Market Outlook, TDG, Activate

So theyll suffer in style.

7. POWER AND WEALTH WILL BE

MORE CONCENTRATED THAN EVER

DIGITAL MEDIA IS THE NEW BIG MEDIA

2014 Revenue

Select Media Companies

10.3%
YoY

$66.0

8.4%
YoY

(Billions)

$48.8

-8.2%
YoY

$27.4

-9.7%
YoY

-3.7%
YoY

58.4%
YoY

$13.8 $13.3 $12.5

Google

Disney

Time
Warner

CBS

25.8%
YoY

-1.3%
YoY

-4.6%
YoY

8.7%
YoY

0.8%
YoY

Yahoo

Ganneb

AOL

New York
Times

$5.5 $4.6 $3.2 $2.5 $1.6

Viacom Facebook Neilix

Source: Company Filings, BI Intelligence estimates

And big media companies

are now distinctly medium-sized.

THIS IS THE NEW BIG

2014 Revenue

Select Media Companies

27.9%
YoY

Billions

$233.7

Apple

2.9%
YoY

5.4%
YoY

$132.4

$127.1

AT&T

Verizon

6.4%
YoY

10.3%
YoY

$68.8

$66.0

Comcast

Google

Source: Company Filings, BI Intelligence estimates

THANK YOU!

Sign up for BI Intelligence to get more content like this...

Subscribe to Business Insiders research service to get rich analysis and key insights
on todays most relevant topics in the digital landscape:
http://read.bi/intelligence