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IABMBUSINESS INTELLIGENCE SUPPLEMENT Q U A R T E R LY D I G E S T DECE MBER 2 016

You can find more information regarding IABM Business Intelligence at www.theiabm.org/business-intelligence


THE QUARTERLY DIGEST The IABM Market

CONTENTS Global Business Environment Overview Exchange Rate Movements The Broadcast Business The End-User Business

4 6 7 8 9

The Power of Analytics

9

The Threat of Ad-Blocking

11

The Supplier Business

13

IABM Research

13

VR/AR in Broadcast & Media

18

Regional Focus: Latin America Market Overview

Report contents and structure

Intelligence (MI) Quarterly

The analysis is undertaken by our Research Analyst

Digest provides IABM

Lorenzo Zanni. We publish the latest news and

members with a varied

research findings across a variety of topics, including:

range of business

n Current Global Business Environment

information about the

n Demand Side of the Broadcast Technology Sector

broadcast industry and the

n Supply Side of the Broadcast Technology Sector

wider global economy in a

n Focus on a Regional Market

“digestible” way. The

This edition of the Business Intelligence Digest includes

purpose of this report is to

a regional focus on the Latin American Market to

enable member companies

complete a world picture over the first year of publication

to keep up with the latest

of this report. The other regional focus articles published

developments in our

this year are:

industry by presenting

n Middle East & North Africa (March Issue)

otherwise scattered

n North America (Special NAB Issue)

information in an orderly

n Asia-Pacific (June Issue)

and relevant manner.

n Europe (September Issue)

FY 2016:

22

A GLOOMY YEAR

23

n Recent data from the OECD show that most developed countries will

Business Environment

24

experience slowing GDP growth in both 2016 and 2017

Business Opportunities

26

n Growth in the UK is forecast to slow from 2.2% in 2015 to 1.0% in 2017. This

Transition to Digital Broadcasting

26

is due to the “Brexit” effect following the June vote on EU membership

Transition to HD and UHD

28 n The Eurozone economy has remained

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OTT and Multi-Platform Delivery

29

Pay-TV Development

31

in sluggish condition in recent months with US prospects remaining stable

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EXECUTIVE SUMMARY OF THE INDUSTRY The hidden potential of analytics

Customers are confident!

n The increasing presence of the internet in our lives has coincided with the incredible rise of technology-driven companies

Very positive Quite positive Neutral Quite negative

n The capacity to better understand consumers’ behavior through the systematic analysis of big data is one of their common traits and has undoubtedly given them a competitive advantage over rivals n Netflix uses big data analytics to make informed strategic decisions on a variety of business issues n Traditional media organizations do not have the “data advantage” that Netflix has

Source: IABM

Customers’ confidence reaches a record high n The results of the pre-IBC Show 2016 End-User Survey show that broadcast and media technology customers are confident despite the changing nature of the industry n The survey shows that only 20% of the sample still derive over 80% of their revenues from traditional broadcast operations as 2016* 2017* they increasingly shift to digital offerings n The IABM Benchmark Report shows that R&D expenditure in the industry is still rising to sustain new product development n The IABM Industry Index – December 2016 shows an improvement in broadcast and media suppliers’ financials n Preliminary data from the IABM Industry Trends Survey – December 2016 show increasing confidence in the suppliers' community

W

Increased interest (and investment) in VR/AR Beware of ad-blocking

n According to Digi-Capital, VR/AR technology is expected to reap about $120bn revenues by 2020

n Ad-blocking is threatening advertising revenues for content providers broadcasting content over the internet

n AR is expected to generate 75% ($90bn) of the total value, VR 25% ($30bn)

n According to Pagefair, the cost of ad-blocking is expected to reach $41.4bn in 2016, up by 90% compared to the estimated cost in 2015

n The acquisition of Oculus Rift by Facebook has driven a wave of investment in VR/AR startups

n Most digital advertising today is delivered through client-side ad insertion, although new methods are needed to defeat ad-blocking

n Despite the recent spending bonanza, broadcasters still have to figure out how to consistently make money from the new technology. Will it be a subscription-based, advertising-based or PPV model?

Global Economic Cost of Blocking Ads ($bn)

50 40 30 20 10 USD/KRW

0 2013

2014

2015

2016 Source: Pagefair

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GLOBAL BUSINESS ENVIRONMENT IABM – December 2016


GLOBAL BUSINESS ENVIRONMENT Overview The fourth calendar quarter of 2016 has so far showed a worsening in the global economic outlook. Recent data from the OECD shows that most developed countries will experience slowing GDP growth in both 2016 and 2017. The only two developed countries set to experience increased growth in this period are Canada and Japan. Brazil will continue to navigate difficult economic conditions throughout the next two years. The outlook for most developing countries has slightly improved as commodity prices have risen compared to previous levels. Chart 1: Real GDP Growth by region, 2015-2017 10.0%

2015

2016*

2017*

8.0% 6.0% 4.0% 2.0% 0.0% -2.0%

Brazil World

United States

Euro Area

Japan

Canada

UK

China

India

Rest of the World

-4.0% -6.0% Source: OECD

Growth in the UK is forecast to slow from 2.2% in 2015 to 1.0% in 2017. This is partly accounted for by the “Brexit” effect following the June vote on EU membership. The positions of the two negotiating parties have hardened over the course of the last months. The UK government remains focused on obtaining immigration restrictions from the negotiations while keeping its status as a single market member. However, EU leaders do not appear keen on making any concession. Michael Noonan, Irish PM, said of this:

The USA’s prospects have remained stable with analysts expecting a Fed hike before the end of 2016. The election of Donald Trump as presidentelect in November 2016 has put a question mark on this course of action. The election results triggered an initial stock sell-off, although markets quickly stabilized after the overnight plunge. The Fed has been postponing an interest rate hike during 2016 amid fears of weaknesses in the global economic outlook, although recent jobs and GDP data backed up that decision.

“The UK cannot have the advantages of the European Union without carrying out the obligations”

The current geopolitical climate is adding uncertainty to the overall outlook. Aside from the Brexit political impasse in Europe, relationships between Russia and the US have deteriorated worryingly. US officials have publicly accused Russia of committing war crimes in the Syrian conflict while, according to several news outlets, Russia is preparing for a potential conflict with the West. This outlook may arguably be improved by the results of the US presidential elections, which were applauded by the State Duma – the Russian Parliament. The Kremlin issued a statement saying that: “Putin expressed hope for joint work to restore Russian-American relations from their state of crisis, and also to address pressing international issues and search for effective responses to challenges concerning global security”.

The UK PM, Theresa May, has declared that she will trigger Article 50 of the Lisbon Treaty to formally begin the UK’s withdrawal from the EU by the end of March 2017. However, at the beginning of November 2016, the High Court ruled that the UK government does not have the power to trigger Article 50 without a parliamentary vote. If Article 50 is triggered in March 2017, the UK looks set to officially leave the Union by summer 2019. The Eurozone economy has remained in a sluggish condition in recent months with a number of European banks coming under the spotlight of financial markets for their risk profile.

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2017*

W Exchange Rate Movements

The five major drivers of turbulence in foreign exchange markets have been: n “Brexit” effect n Presidential elections in the US n Decline in commodity prices n Economic slowdown in China n Monetary policy in Europe, Japan and the US

We report the latest swings in major economies’ exchange rates and provide an outlook for their possible movements over the coming months. Exchange rates are highly unpredictable, but it is still useful to plan ahead and attempt a forecast based on current macroeconomic trends.

Chart 2: Daily Exchange Rate Movements vs. USD, Oct. 2015 – 2016 (15/10/2016 = 100) 130 120 110 100 90 80

USD/CAD

USD/EUR

USD/JPY

USD/GBP

Chart 2 plots the major currency movements against the US Dollar during last year – up to mid-October 2016. We have given the data a common starting point (mid-October 2015) to appreciate how different world currencies have moved against the US Dollar. The series that lie below the 100 line have depreciated against the US Dollar whereas the series that lie above the 100 line have appreciated against the US Dollar. Most currencies depreciated against the US Dollar at the beginning of 2016 as a result of the Fed rate hike in December 2015. From March 2016 onwards, most of them had gained back some ground against the US Dollar with the exception of three outliers: the British Pound, the Mexican Peso and the Japanese Yen – the Japanese Yen largely appreciated against the US Dollar. The trajectory of the British Pound has closely followed Brexit developments as well as the Bank of England’s monetary policy. When the UK voted to leave the EU in June 2016, its value plunged to a record low – the British Pound lost about 15% of its value against the USD between 23 June and 6 July – but stabilized from July onwards despite the rate cut by the Bank of England. This trend continued until the 7th of October 2016 when the British Pound plunged by more than 6% against the US Dollar in a matter of minutes. Analysts have tried to explain the plunge in October with a variety of theories – including “fat-finger trade” and automated algorithm theories – but it is probably more likely that it was related to a hardening of the UK government position on Brexit.

USD/NZD

20 16 15 / 9/

8/

15 /

20 16

20 16 15 /

15 / 6/

USD/AUD

7/

20 16

20 16 15 / 5/

4/

15 /

20 16

20 16 15 /

3/

20 16 15 / 2/

15 /

20 16

01 5 1/

5/ 2

12 /1

15 / 11 /

10 /1

5/ 2

01 5

20 15

70

USD/KRW

USD/MXN

Source: IABM analysis of PACIFIC Exchange Rate Service data

The Japanese Yen trend in 2016 has been unusual and counterintuitive. The continued monetary stimulus by the Bank of Japan has failed to produce the desired effects as the economy has remained sluggish. Expansionary monetary policy is thought to produce a depreciation in the value of a currency, but the Yen has instead appreciated against most world currencies. This shows the unpredictability of exchange rate movements in a world where negative interest rates are a possibility. The surge in the value of the Yen has been extremely damaging for several Japanese exporters. Data from Japan’s Ministry of Finance show that profits for the “Information & Communications Equipment” sector – an export-driven industry group that includes Japanese broadcast and media technology vendors – have declined by 21.3% between 2015 and 2016. Some of these suppliers have issued profit warnings blaming the Yen for the steep decline in profits. The Mexican Peso is considered to be highly sensitive to broad-based market sentiment and oil prices – Mexico is one of the largest oil exporters in the world. Its value has also been highly sensitive to the developments of the US presidential elections.The Mexican Peso fell to a record low against the US Dollar when the results of the US presidential elections were announced but quickly recovered some of its losses. Investors had initially priced in the possibility of restrictions to the NAFTA agreement that guarantees free trade between the US and Mexico.

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THE BROADCAST BUSINESS IABM – December 2016


THE BROADCAST BUSINESS The End-User Business The Power of Analytics The emergence of the Internet of Things (IoT) has prompted some commentators to hail the advent of a “New Industrial Revolution”. The increasing presence of the internet in our lives has coincided with the incredible rise of technology-driven companies such as Facebook, Amazon and Google. These companies have initially disrupted their original markets – think about what Amazon did to the traditional retail industry - and then expanded into new areas. They have grown into what The Economist defined as “Superstar Companies”. What lies behind their success? Some would argue that data and analytics have been key in elevating them to their current status. The capacity to better understand consumers’ USD/NZD behavior through the systematic analysis of big data is one of their common traits and undoubtedly underpins their competitive advantage.

Chart 3: Google’s Ad Revenues, 2001-2015 ($bn)

At the time of the writing, AT&T is set to acquire Time Warner for $85bn in a move aimed at enriching AT&T’s premium content ownership and challenging Netflix’s dominance in attracting streaming consumers. Netflix, very much like Google or Facebook, can be considered a technology-driven media company rather than a pure technology company. Sir Martin Sorrell said at IBC 2016 that Google and Facebook are media companies rather than technology companies as they sell advertising inventory. Netflix sells subscriptions to allow its customers to gain access to a wide range of premium video content. Netflix uses big data analytics to make informed strategic decisions on a variety of business issues. For instance, strategic decisions on programming investment are based on an enormous database of information on viewers’ behavior. According to Kevin Spacey, the use of Netflix’s viewership data was instrumental in securing the House of Cards deal:

USD/KRW

“It was the only network that said: ‘We believe in you…we’ve run our data, and it tells us the audience would watch this series’”

80 70 60 50 40 30 20 10 0

Source: Google

Let’s take Google as an example. Chart 3 shows Google’s incredible growth in advertising revenues in the period 2001-2015. Up until 2002, advertising revenues at Google were below $1bn. Revenues grew by 63% CAGR between 2001 and 2015 reaching over $67bn. How did Google do this? Google’s original business was creating algorithms to help people sort quickly through the rising amount of information being put online. This characteristic made it the No. 1 search engine in the market. It then transformed into an extremely lucrative business based on advertising monetization. Advertisers flocked to Google’s platform as it gave them the ability to target consumers on the basis of their web behavior. Today, Google is the leader in the digital advertising landscape, followed by Facebook. The financial success of its advertising arm has allowed Google to enlarge its business and invest in a variety of emerging technologies – including VR/AR, machine learning and driverless cars. Facebook has done the same. In the broadcast and media industry, Netflix disrupted the traditional media landscape by proving that high-end video content could be successfully streamed over the internet (and people would pay to watch it there!). It invented a new business model and forced traditional media companies to change theirs.

100 90 80 70 60 50 40 30 20 10 0

Chart 4: No. of Netflix Streaming Subscribers (m), 2011-2016

Q3 2 Q4 011 2 Q1 011 2 Q2 012 2 Q3 012 2 Q4 012 2 Q1 012 2 Q2 013 2 Q3 013 2 Q4 013 2 Q1 013 2 Q2 014 2 Q3 014 2 Q4 014 2 Q1 014 2 Q2 015 2 Q3 015 2 Q4 015 2 Q1 015 2 Q2 016 2 Q3 016 20 16

20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15

Estimates based on this database’s population are increasingly accurate as Netflix’s subscriber base rises. In fact, statistical theory tells us that an estimator approaches its true value as the sample of the study grows.

Source: Statista

Chart 4 shows that Netflix’s subscribers have increased by 30% CAGR in in the last five years. Now Netflix has almost 90m subscribers spread around the world. Netflix uses this information to pick the titles it is going to invest in but, more importantly, to power its recommendation system. According to a 2012 Netflix blog post, the company utilizes a ranking function containing a number of user engagement drivers to predict users’ happiness with a certain title – and thus, consumption of that title. User engagement drivers can be variables such as popularity or predicted rating of a title. These variables are included if their presence in the equation improves the accuracy of the ranking function. This accuracy is computed through the use of various machine learning algorithms.

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USD/KRW


THE BROADCAST BUSINESS In order to make these predictions, Netflix relies on a rich database of information including:

n Ratings n Popularity measures (daily, weekly, monthly etc.) n Data on stream plays (duration, time of the day, device type etc.)

n Title metadata n How the title was presented on the UI (in which list? Was it the first title on the list? etc.)

n How the user has interacted with the recommendations (scrolling behavior etc.)

n Social data (ratings from connected friends) n Search terms used on Netflix search engine n Demographic, location, language and temporal data This internal data is complemented with a wide range of external information on the title (external ratings, box office performance etc.). Algorithms are also constantly developed to deliver better results.

This undoubtedly represents an opportunity for broadcast and media technology vendors and service providers as billions of dollars will be invested in big data deployments over the coming years. Vendors should increasingly incorporate analytics/reporting functionalities into their product offerings in order to better satisfy customers’ appetites for data. The cloud is certainly an enabler of big data analytics as it makes it easier and more cost-effective to collect customers’ information. The cloud also makes it easier to deploy and scale business analytics USD/KRW solutions according to specific organizational requirements. Products should be made easy-to-use for end-users as not everyone can boast Netflix’s in-house expertise with big data. Effective and interactive visualizations of data are therefore key to a product’s success. These visualizations should produce realtime insights from a continuously updated database – the figure shows Netflix’s data visualization software for monitoring its network.

According to Netflix, 75% of viewer activity is based on recommendations powered by its data. Also, the Netflix average success rate for a TV show – the likelihood of a show being renewed for an additional season – is considerably higher than traditional television. Traditional media organizations do not have the “data advantage” Netflix has. Most of them have always relied on television ratings and intuition to make programming choices, not elaborate analytical models. Traditional media organizations currently launching digital offerings often do not possess in-house technical skills to use data the way Netflix does either. Inexperience with big data is common to most industries. According to an Accenture survey, a scant 5% of research participants use only internal resources for big data analytics although they consider it central to their organizations’ future success. Chart 5 shows that most companies rely on external consultants, contract employees or technology vendor resources to power big data in their organizations. This inexperience with big data is partly related to a shortage of data science skills common to several developed countries. According to a survey by CrowdFlower, 83% of respondents indicated that it is difficult for their organizations to find data scientists.

Chart 5: Did you get external help for your big data installation? 0%

10%

20%

30%

40%

50%

60%

Yes, consultants Yes, contract employees Yes, technology vendor resources No, we used internal resources only

Source: Netflix Tech Blog

Service providers should bear in mind that their customers are becoming more aware of the benefits that big data could bring to their organizations. They should therefore tailor their solutions to suit their changing needs. This includes investment in big data capabilities and skills. For instance, analytics and reporting capabilities are increasingly important features of OTT platforms – to understand viewers’ behavior – and CDNs – to monitor the efficiency of the network. The IABM DC Global Market Valuation & Strategy Report contains a category in the services segment including only data and statistics service providers. Big data in broadcast and media does not necessarily mean just better understanding of viewership. It could also mean increased reporting capabilities on internal operations to increase efficiency. For instance, at IBC 2016, EditShare CEO, Andy Liebman, put forward an original way to use big data analytics in broadcast production operations. Data analytics could be used to monitor production to make useful recommendations to the process as well as avoiding human error and waste. The list of possible applications of big data to the media & entertainment industry goes on. The potential of big data analytics is enormous, but it is still hidden.

Source: Accenture

P A G E 10

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The Threat of Ad-Blocking Ad-blocking is threatening advertising revenues for media organizations delivering content over the internet. According to Pagefair, ad-blocking “refers to various techniques that prevent the display of advertising on web pages”. When a web page loads, the user’s browser makes a request to servers for advertising content. Ad-blocking software can refuse requests including the delivery of advertising content. According to various surveys, adblocking leads to increased user satisfaction but also prevents publishers from monetizing advertising. This has caused a “war” between advertisers and ad-blocking companies. Randall Rothenberg, president of the Interactive Advertising Bureau (IAB), described ad-blocking companies as an “unethical, immoral, mendacious coven of techie wannabes” and described Adblock Plus, the most popular ad-blocking software, as “an oldfashioned extortion racket, dressed up in the flowery but false language of contemporary consumerism”.

Chart 6: Global Economic Cost of Blocking Ads ($bn)

50 45 40 35 30 25 20 15 10 5 0

In India and Indonesia, more than half the smartphone population use ad-blocking browsers. Pop-up ads appearing on browsers reduce page loading speed and this issue is exacerbated in emerging countries where mobile broadband infrastructure is less developed. This might act as a powerful incentive to download ad-blocking software.

90% YoY Growth

2013

2014

2015

According to the report, by March 2016, there were 408m users of mobile ad-blocking browsers – 21% of the world’s 1.9bn smartphones had an ad-blocking browser installed. These figures have made ad-blocking browsers the most popular form of ad-blocking technology in the world. Chart 7 shows that the number of mobile ad-blocking browsers grew by 90% in 2015. The geographical data show that ad-blocking is concentrated in emerging markets such as China, India or Indonesia. According to the report, in March 2016, the Asia-Pacific region contained 55% of global smartphone users but 93% of ad-blocking browser usage!

2016 Chart 8: Active Users of Ad-Blocking Browers by Country, March 2016 (millions)

Research by Pagefair provides interesting stats on the rise of adblocking and its potential damage to the media and advertising industry. The report estimates the cost of ad-blocking will reach $41.4bn by 2016, up by 90% compared to the estimated cost in 2015. This is an immense price to pay for the media and advertising industry. Ad-blockers are effectively getting a cut of their business – sometimes ad-blocking companies charge companies such as Google to allow some of their ads to bypass the ad-blocking software.

400

Chart 7: Global Monthly Active Users of Mobile Ad-Blocking Browers (millions)

350 300 250 90% YoY Growth

200 150

Jan-15

Apr-15

Jul-15

Oct-15

Jan-16

0 China India Indonesia Pakistan Russian Federation Saudia Arabia Brazil Malaysia United States Philippines Vietnam Nigeria UAE Great Britain France German Egypt

20

40

60

80

100

120

140

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The rise in mobile ad-blocking has been boosted by Apple’s decision to allow iPhone users to block ads from September 2015. This has produced a surge in content blocking apps – from 0.7m in September 2015 to 4.5m downloads in March 2016. Other popular ways of blocking ads are in-app ad-blocking – see figure on the next page – and opt-in browser blocking. Certainly, the proliferation of ad-blocking software on consumer connected devices is generating problems for media companies and advertisers.

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P A G E 11


THE BROADCAST BUSINESS In fact, ad-blocking represents a threat to content monetization over digital platforms. ProSiebenSat.1 and RTL Group have sued Eyeo, the company behind the famous Adblock Plus, accusing it of anticompetitive behavior – they have failed to win in court. ITV and Channel 4 do not load content on their websites when they detect ad-blocking software on the user’s device.

So far, the most successful OTT businesses have very little reliance on advertising to drive their revenues. For instance, Netflix does not rely on advertising at all, while Hulu offers both a commercial-free option and a commercial option to subscribers, and Amazon Instant Video has only funded one of its original shows – The Fashion Fund – with commercials. For advertising to be a credible revenue driver in an OTT model, the threat of ad-blocking needs to be expunged or at least limited in some way. Most digital advertising today is delivered through client-side ad insertion. This method delivers ads through the user’s media player. The main drawback of this approach is its vulnerability to ad-blocking software. In fact, the user can easily install ad-blocking software on their web browser to block the request of the media player. Also, client-side ad insertion can lead to video buffering and delay, worsening the user’s experience. Advertising technology companies and OTT platform operators have therefore pushed content providers to adopt server-side ad insertion. With server-side ad insertion, advertising and content are packaged together in a single stream to circumvent adblocking software and provide a better user experience. One of the main relevant drawbacks of server-side ad insertion is the decreased ability to track users’ behavior. With less powerful analytics and reporting capabilities, server-side ad insertion gives less information on viewers to use as leverage with advertisers in negotiations. Is it a painful compromise to make in order to defeat ad-blocking?

P A G E 12

IABM is ooffering ffering mu much ch mor moree than a stamp stamp of of approval approval to industry industry collaboration collaboration The Indus try Collabor ative Group Group (ICG) Industry Collaborative Endor sement Scheme is a major IABM initiativ e Endorsement initiative o encourage encourage ccollaboration ollaboration across across a and is designed tto wide rrange ange of indus try is sues and opportunities, fr om industry issues from bes practice to to standardization standardization and interoperability. interoperability. bestt practice IABM’s vision is for for a universally universally recognized recognized IABM’s framework wher e endor sed ccollaborative ollaborative gr oups framework where endorsed groups supported, pr omoted and encouraged encouraged to to fulfil will be supported, promoted potential and mo ve fforward orward in an open, their potential move constructive envir onment tto o the benefit of the wider constructive environment industry. IABM will hos ovide industry. hostt and chair meetings, pr provide technological e xpertise, e xpand int ernationally, technological expertise, expand internationally, provide space space at shows shows and much mor e. provide more. Applications for for endorsement endorsement are are invit ed Applications invited ollaborative gr oups. Mor e from all indus try ccollaborative from industry groups. More w to to apply apply ccan information and details details of ho an information how found at www .theiabm.org/icg be found www.theiabm.org/icg

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2017*

The Supplier Business IABM Research IABM recently published results from two of its main reports: the pre-IBC Show 2016 End-User Survey and the IABM Benchmark Report. Preliminary results from the IABM Industry Index – December 2016 and the IABM Industry Trends Survey – December 2016, will be exclusively presented at the 2016 IABM Annual International Business Conference. We provide a snapshot of the main highlights from these reports.

technology CapEx budget is spent with traditional broadcast suppliers, down from previous IBC Show editions of this survey. Chart 10 shows the trend from traditional broadcast technology to generic IT technology in the last four years. The survey also contains two new sections on technology adoption and collaboration. The section on technology adoption discusses the state of adoption of emerging technologies such as 4K/UHD, IP,

IABM Pre-IBC Show 2016 End-User Survey

HEVC, Cloud-based technology and OTT.

The IABM End-User Survey is designed to help IABM members better understand their customers’ broadcast and media technology

Chart 10: Broadcast Technology Capex Spend vs Generic IT Capex Spend

purchasing behavior. Results from the latest survey (pre-IBC Show 2016) showed that, while confidence in media technology supplier

80.0%

businesses may be low at the moment, and the future outlook

70.0%

uncertain, their customers areUSD/KRW full of confidence. Chart 9 illustrates that over 75% of the sample said that their outlook for the business

60.0% 50.0%

environment is “quite positive” or “very positive”.

40.0% Chart 9: Customers’ confidence

30.0% 20.0%

Very positive Quite positive Neutral USD/KRW Quite negative

2013 NAB

2013 IBC

2014 NAB

2014 IBC

2015 NAB

2016 IBC

2016 NAB

2016 IBC Source: IABM

As far as 4K/UHD is concerned, we found that 39% of end-users think that they will launch some sort of 4K/UHD offerings within the next two years, although 21% of respondents say that they do not Source: IABM

plan to launch any 4K/UHD offerings in the next 10 years. We also

Broadcast and media technology customers are confident despite

found that most end-users (41%) do not know which technology

the changing nature of the industry. In fact, the broadcast and media

infrastructure they plan to deploy for 4K/UHD content. This is

industry is evolving rapidly as video and audio content becomes

indicative of the difficult decision facing broadcasters that plan to

available on multiple platforms. Viewership data from the Rio

transition to 4K/UHD. The most preferred approaches are IP (29%)

Summer Games showed a significant migration of viewers from

and Hybrid SDI-IP (15%).

linear television to digital platforms. The challenge for broadcasters and content owners remains to find an efficient way to satisfy this consumer demand while at the same time generating incremental

Chart 11: What is the most likely timeline for the launch of 4K/UHD offerings in your organization?

(and profitable) revenue. Our survey shows that only 20% of our pre-IBC 2016 sample still derive over 80% of their revenues from traditional broadcast operations as they increasingly shift to digital offerings. Multiplatform content delivery continues to be the most important project in broadcast and media technology investment for end-users; this is consistent with previous editions of this survey. Operational

We have already launched 4K/UHD offerings In 1-2 Years In 3-4 Years In 5-6 Years In 7-8 Years In 9-10 Years We do not plan to launch any 4K/UHD offerings in the next 10 years

efficiency continues to be the most important factor driving the decision to purchase broadcast and media technology besides cost and technical specification. This shows that end-users are investing in efficient solutions to enable them to smoothly transition to a multi-platform delivery infrastructure.

Source: IABM

Although 85% of respondents say that collaboration is “important” or “very important”, most of them (59%) are, on average, unfamiliar

End-users making this transition are buying an increasing amount

with interoperability initiatives. This shows that increasing

of general-purpose (or COTS) equipment rather than the dedicated

collaboration between suppliers and end-users is needed to

hardware that used to dominate broadcast operations until fairly

facilitate the transition to next-generation infrastructures.

recently. We found that 51% of respondents’ broadcast I A B M B U S I N E S S I N T E L L I G E N C E Q U A R T E R LY D I G E S T – D E C E M B E R 2 0 1 6

P A G E 13


THE BROADCAST BUSINESS The table of contents of this survey is given below:

TABLE OF CONTENTS Part 1 – Business Sentiment and Outlook

n Ranking The Future Commercial Outlook for The Broadcast Industry from The Perspective of Technology Buyers l

Global Respondents

l

Broadcasters

l

Systems Integrators

l

Production / Post-Production

Part 2 – Customer Revenue: Current and Future Sources

n Current Revenue Sources of Broadcast and Media Technology Buyers n Future Revenue Sources of Broadcast and Media Technology Buyers Part 3 – Broadcast and Media Technology Procurement

n n n n n n n n

Factors Influencing the Purchase of Broadcast and Media Technology Products Broadcast and Media Technology Purchasing Priorities Broadcast and Media Technology Purchasing Priorities Index Broadcast and Media Technology Purchasing Preferences Broadcast and Media Technology Channel Preferences Approach to Technology Purchasing Decision Makers Today Key Decision Makers in The Future

Part 4 – Drivers of Product Choice

n Strategic Drivers of Broadcast and Media Technology Product Choice n Index of Strategic Drivers of Broadcast and Media Technology Product Choice Part 5 – Impact of IT Technology

n n n n

Relationship Between Broadcast Engineering and IT Departments Technology CapEx Budget Profile – Broadcast Versus IT Current CapEx Spend with “Traditional Broadcast Suppliers” versus “Traditional IT Vendors” Projected CapEx Spend with “Traditional Broadcast Suppliers” versus “Traditional IT Vendors”

Part 6 – Broadcast and Media Technology Adoption

n n n n n

Transition to UHD: When? Transition to UHD: How? Cloud-based Technology OTT Platforms: Build vs Buy OTT Technology

Part 7 – Collaboration

n Importance of Interoperability n Awareness of Interoperability Initiatives Part 8 – Appendix

n About IABM n Copyright Notice

P A G E 14

I A B M B U S I N E S S I N T E L L I G E N C E Q U A R T E R LY D I G E S T – D E C E M B E R 2 0 1 6


60.0%

7/ 15 /2 01 6 8/ 15 /2 01 6 9/ 15 /2 01 6

80.0%

le’s Ad Revenues, 2001-2015 ($bn)

/NZD

USD/KRW

Chart 10: Broadcast 50.0% Technology Capex Spend vs Generic IT 40.0% Capex Spend 30.0%

70.0%

20.0%

USD/MXN

60.0%

2013 NAB

2013 IBC

2014 NAB

2014 IBC

2015 NAB

2016 IBC

2016 NAB

2016 IBC

50.0%

IABM Benchmark Report – September 2016 40.0% The IABM Benchmark Report monitors the 30.0% financial performance of supplier companies in 20.0% sector. the broadcast and media technology

Key findings of the report are as follows:

n The profit-to-sales ratio has worsened significantly

20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15

2013 2013 NAB IBC Information is aggregated and statistical analysis

Chart 11: What is the most likely timeline for the the gross margin relatively stable 2014 although 2014 2016offerings 2016 remains 2016 of 4K/UHD in your organization? launch 2015 NABn The IBC financial NAB health IBC ofNAB IBC the industry seems to have We have already launched

improved and the situation4K/UHD remains offeringsbetter than

delivers industry-wide benchmarks against

comparative sectors

which member companies can compare and

In 1-2 Years In 3-4 Years

n Both software and comms.In 5-6 equipment companies Years

evaluate their own performance.

In 7-8 Years compared to show a better return on net assets

etflix Streaming SubscribersOur (m),latest report shows that the broadcast and In 9-10 Years the B&MT sector for the Chart 11:isWhat is the most likely timeline 016 We do not plan to launch any 4K/UHD media technology industry’s profitability

14 20 15

launch of 4K/UHD offerings your organization? offerings in the(WCM) next 10 years n TheinWorking Capital Management indicators declining – this is consistent with the latest remain stable compared to our previous report We have already launched Industry Index results. Overall, performance 4K/UHD offerings n R&D investment and selling, marketing, general measured against other financial indicators In 1-2 Years and administration costs continue to increase as remains stable or weaker than both software In 3-4 Years industry tries to stay ahead of the curve the In 5-6 Years publishers and the communications equipment In 7-8 Years In 9-10 Years Gross R&D % of4K/UHD Sales to launch any We do not planMargin offerings in the next 10 years

Q2 013 2 Q3 013 2 Q4 013 2 Q1 013 2 Q2 014 2 Q3 014 2 Q4 014 2 Q1 014 2 Q2 015 2 Q3 015 2 Q4 015 2 Q1 015 2 Q2 016 2 Q3 016 20 16

vendors. The figure below shows that, despite the gross margin remaining at a high level, the growth in R&D and selling, marketing, general &

60%

Median

19%

Admin % of Sales

Net Margin

34%

7%

administration costs has contributed to a decrease in the margin after these costs from

xternal help for your big data10% installation? in December 2015 to 7% in this report. 0%

10%

20%

30%

40%

50%

60%

Source: IABM

Gross Margin

Q3 016 20 16

ants

R&D % of Sales

Admin % of Sales

Net Margin

IABM Industry Index – December 2016

ees

rces

Data from the IABM Industry Index – December 2016 showed an improvement in broadcast and media

only

technology companies’ financials.

60%

Median

19%

34%

7%

Chart 12: Year-on-Year Market Sales Change, last 24 months, by size

Overall market sales growth jumped from the -0.6% reported in August 2016 to 1.6% in November 2016. This 8.0%

lation?

significant improvement was driven by large companies’ sales growth, which increased from 0.2% in August 6.0%

2016 to 3.4% in November 2016. As4.0% opposed to large companies’ improving situation, SMEs’ sales growth

60%

continued 3.0%from -6.1% in August 2016 to -9.3% in November 2016. As a result of Economic Cost of Blocking Ads ($bn) to deteriorate – decreasing this, the financial divide between large 0.0% companies and SMEs’ sales growth has more than doubled reaching

Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

12.8%. This is a record level for the-2.0% industry. The figure below shows sales growth for large companies, SMEs, and the whole industry.

-4.0% -6.0% -8.0%

-10.0% Chart 12: Year-on-Year Market Sales Change, last 24 months, by size

90% YoY Growth

8.0%

-12.0% All – 3mth moving avg.

6.0% 2014

2015

Large – 3mth moving avg.

2016 4.0%

n)

3.0% 0.0%

al Monthly Active Users of Mobile-2.0% locking Browers (millions) -4.0%

-15

SME – 3mth moving avg.

Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

Chart 13: Year-on-Year Profit Growth, last 24 months

20.0%

-6.0%

15.0%

-8.0%

10.0%

-10.0%

5.0%

-12.0%

0.0% -5.0% All – 3mth moving avg.

90% YoY Growth

Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

SME – 3mth moving avg.

Large – 3mth moving avg.

-10.0% Jul-15

Oct-15

Jan-16

-15.0%

Source: IABM

-20.0%

I A B M B U S I Profit N E S S Growth, I N T E L L I Glast E N C24 E Qmonths U A R T E R LY D I G E S T – D E C E M B E R 2 0 1 6 Chart 13: Year-on-Year

20.0%

P A G E 15


lation? 60%

n)

an-16

THE BROADCAST BUSINESS Large companies’ growth may have been slightly boosted by the effects of recent acquisitions although we have tried to minimize these when updating their financials. Large companies also have more resources 12: Year-on-Year Market Sales Change, last 24 months, by size Chart (both8.0% organizational and financial) to speed up the launch of next-generation products such as cloud-based media technologies and IP equipment. Many industry leaders have indeed done this in recent months. 6.0% 4.0% Small and medium companies’ financials often remain dependent upon the sales of traditional products, 3.0% which are in decline. According to some of the company reports we reviewed, this is a transitionary period as they 0.0% invest in next-generation products and services – R&D is rising according to our latest Benchmark Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov -2.0% Report data. -4.0% As far as profits are concerned, the situation has significantly improved. Profits declined by -12.4% in -6.0% November 2016 as opposed to the -16.3% reported in August 2016. This is undoubtedly a good sign: profits -8.0% are still declining but the trend in the last quarter of 2016 shows a recovery in the growth rate. Broadcast and -10.0% media technology suppliers have strived to achieve increasing cost efficiencies to alleviate declining demand -12.0% from end-users. These efforts are starting to produce important results. The number of loss making All – 3mth moving avg.

SME – 3mth moving avg.

Large – 3mth moving avg.

companies also decreased from 37% to 35% of our sample. The chart below shows the trajectory of profits in the last 24 months, up to November 2016.

Chart 13: Year-on-Year Profit Growth, last 24 months 20.0% 15.0% 10.0% 5.0% 0.0%

Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

-5.0% -10.0% -15.0% -20.0%

The market concentration indicators remained stable with the top 20% companies in our sample still capturing about 80% of total revenues. The cyclical demand of end-users covering the Summer Games improved suppliers’ performance in Q3 2016. The effect on large companies’ financials is clear as illustrated by the rise in their growth rate between August 2016 and November 2016. It is safe to say that this event-related spending will drive an improvement in SMEs’ numbers in 2017 – when they file their financials for 2016. End-users continue to spend an increased amount of their technology budgets on next-generation technologies such as cloud applications to the media & entertainment industry and IP. Their transition to next-generation technology infrastructures is well underway and we expect to see a continued improvement in sales and profit growth in 2017. The transition to HD, an important technology demand driver for broadcast and media technology suppliers, will continue to drive spending in 2017 as the number of HD channels grows in emerging markets and broadcasters upgrade their infrastructures in developed regions. The ongoing transition to DVB-T2 in Germany will act as an additional catalyst of HD channel growth and, consequently, HD product spending. As opposed to HD, 4K/UHD is yet to drive significant spending in Europe and North America although it is in demand both in Japan and South Korea.

P A G E 16

I A B M B U S I N E S S I N T E L L I G E N C E Q U A R T E R LY D I G E S T – D E C E M B E R 2 0 1 6


Very Positive Quite Positive Neutral Quite Negative

IABM Industry Trends Survey – December 2016 Preliminary data from the IABM Industry Trends Survey –

traditional broadcast customers such as broadcasters and

December 2016 showed an improvement in broadcast and

content distributors. This information was derived from new

media technology suppliers’ confidence in the year ahead.

questions added to the survey.

Chart 14: Suppliers’ Confidence

Chart 15: Factors limiting Order/Contract Fulfilment

Very Positive Quite Positive Neutral Quite Negative

Development Capacity Skills & Staff Manufacturing Capacity Credit & Finance Issues Supply Chain Issues Regulatory & Compliance Issues Other

Source: IABM

Chart 14 shows that the percentage of respondents feeling

Source: IABM

As far as the ability to fulfil orders is concerned, the main

“positive” increased from 50% in H1 2016 to 61% in H2 2016.

constraint remains “development capacity” for 44% of the

As a result of this, the IABM Confidence Ratio surged from Chart 15: Factors limiting Fulfilment four in H1 2016 to 10 in H2 2016.Order/Contract Individual comments

sample, up from 32% in our previous survey. “Skills and staff” remains the second most important constraint to order

indicated that sales are expected to pick up in 2017 as

fulfilment with 23%, down from 25% in our previous survey.

Development Capacity suppliers reap the benefits of new product developments. Skills & Staff Manufacturing Capacity Credit & Finance Issues “Market stall has passed and we expect that over the Supply Chain Issues next 12 months we will see more spend on infrastructure Regulatory & Compliance Issues equipment” Other

We report some of the comments below:

“Market trends are showing sustainable growth” “We have re-invented ourselves and look with a bright spirit to a challenging year in front of us!” “Signs are that 2017 will be better but at the same time cautious behavior due to all the unknowns. Placing smaller bets” “2016 was transition year, 2017 is the year of IP & Cloud deployments” Many new products were announced at both the 2016 NAB Show and the 2016 IBC Show. The industry outlook is brighter and the improvement in financials shown by the

The other factors limiting suppliers’ ability to fulfil orders are shown on the chart above. The final analysis will contain an extensive discussion of trends and insights on the following topics:

n n n n n n n n n

Confidence & Outlook Product and Service Categories Revenue sources Regional Growth Orders & Supply Chain Selling, Labour & Cost Prices Investment in Personnel, R&D and Trade Shows Skills & Training Mergers & Acquisitions

Only companies that have completed the survey will be eligible to access the final analysis. We will close the survey in mid-December 2016 so there is still time to complete it for members who wish to access the final report.

Index data supports this. We have previously highlighted that, according to our Benchmark Report, median R&D expenditure as a percentage of sales is equal to 19%, a record level for the industry. According to preliminary responses from our research participants, average R&D expenditure is 22% in their companies. Respondents also told us that, on average, they spend about 46% of their marketing budgets on trade shows and derive 70% of their total annual revenues from

I A B M B U S I N E S S I N T E L L I G E N C E Q U A R T E R LY D I G E S T – D E C E M B E R 2 0 1 6

P A G E 17


THE BROADCAST BUSINESS VR/AR in Broadcast & Media The interest in Virtual Reality (VR) skyrocketed in March 2014 as a result of Facebook’s acquisition of Oculus Rift. VR technology is about creating an interactive virtual world for its users. Chart 16 shows worldwide Google searches for the words “Virtual Reality” and “Oculus Rift” in the last five years. Searches for “Oculus Rift” experienced a peak in March 2014 when Facebook bought the company and in January 2016 when pre-orders of the Oculus headset went live for the first time.

P A G E 18

I A B M B U S I N E S S I N T E L L I G E N C E Q U A R T E R LY D I G E S T – D E C E M B E R 2 0 1 6


Chart 16: Google Searches for ‘Virtual Reality” and Oculus Rift in the last 5 years 100 90 80 70 60 50 40 30 20 10 0

10

/2 3/ 1/ 201 23 1 /2 4/ 012 23 /2 7/ 012 23 / 10 20 1 /2 2 3/ 2 1/ 012 23 /2 4/ 013 23 /2 7/ 013 23 /2 10 013 /2 3/ 2 1/ 013 23 /2 4/ 014 23 /2 7/ 014 23 10 / 20 1 /2 3/ 4 2 1/ 014 23 /2 4/ 015 23 /2 7/ 015 23 / 10 20 1 /2 5 3/ 20 1 1/ 23 5 /2 0 1 4/ 23 6 /2 0 7/ 23 16 /2 01 6

Facebook acquires Oculus Rift for $2bn

Chart 16: Google Searches for ‘Virtual Reality” and Oculus Rift in the last 5 years

Virtual reality: (Worldwide)

Oculus Roft: (Worldwide)

/2 3/ 1/ 201 23 1 /2 4/ 012 23 /2 7/ 012 23 / 10 20 1 /2 2 3/ 2 1/ 012 23 /2 4/ 013 23 /2 7/ 013 23 /2 10 013 /2 3/ 2 1/ 013 23 /2 4/ 014 23 /2 7/ 014 23 10 / 20 1 /2 3/ 4 2 1/ 014 23 /2 4/ 015 23 /2 7/ 015 23 / 10 20 1 /2 5 3/ 2 1/ 015 23 /2 4/ 016 23 /2 7/ 016 23 /2 01 6

100 Facebook acquires Oculus Rift for $2bn 90 Source: Google Trends 80 70 60 Chart 16 also shows that Facebook’s acquisition of Oculus Rift was indeed a catalyst for increased interest 50 Google searches for “Virtual Reality” were flat. After the in VR technology. In fact, before the acquisition, 40 acquisition and, more markedly, after pre-orders opened at the beginning of 2016, interest in VR exploded 30 Chart 17: Forecast of20VR/AR revenues on 2020 and overtook the interest in the Oculus Rift. 10 0 The interest in Augmented Reality (AR) exploded as a result of the launch of the game Pokemon Go even though few associated the game with AR technology. AR technology is about creating an interactive blending Augmented Reality Virtual Reality

10

of virtual and real life for users.

VirtualAR reality: Oculus Roft: VR/AR technology is expected to reap about $120bn revenues by 2020. is (Worldwide) expected to generate 75%(Worldwide) $120bn

($90bn) of the total value, VR 25% ($30bn). According to Digi-Capital, VR/AR revenues will be mostly driven by hardware sales – technology giants such as Facebook, Google and Samsung have so far invested and launched VR/AR hardware offerings. The success of VR/AR technology hinges on the rate of consumer adoption of VR/AR Chart 17: Forecast of VR/AR revenues on 2020

equipment. At the moment, consumer adoption of VR/AR equipment is low as the price of VR/AR technology is still too high.

Chart 23

The price for a high-end VR headset In which ranges from $500 toChart $800.18: Often, the fields of application do you think virtualsuch reality headsets are likely to be used? $120bn purchase of a powerful VR headset as the Oculus Rift also requires the

Augmented Reality Virtual Reality

65% 60% 55% 50% 45% 40% 35% 30% 25% 20%

Share of respondents

consumer to invest in a PC with higher

0% 10% 20% 30% 40% 50% 60% 70%

Video games

processing power. The total investment

Movies & TV

in high-end VR equipment is then likely

Military

to surpass $1,000: still too costly for Adult entertainment mainstream adoption. Technological advances should

Education Source: Digi-Capital

Medicine & psychologyin (for example for bring a reduction surgeries or treatment)

the cost of processing power that(for will How-tos/tutorials example driving lessons or cooking)

eventually drive down prices for VR headsets. However, the entity of this reduction may well be countered by the addition of

Professional tasks (for example for premium functionalities that will architects or pilots)

be added current VR fields headsets models. do you think Chartto 18: In which of application

virtual reality are likelythe to be used? VR/AR technology has the potential to affect a variety of verticals including theheadsets gaming industry, Communication

Tourism (for example sightseeing)

Share of to respondents broadcast and media industry, the healthcare industry, the education industry etc. According Shopping 0% 10% 20% 30% 40% 50% 60% respondents to a recent survey by Statista, the top three applications for VR headsets are video games,

movies & TV and military.

70%

Video games Movies & TV Military Adult entertainment Education

Medicine & psychology (for example for I A B M B U S I N E S S I N T E L L I G E N C E Q U A R T surgeries E R L Y DorI Gtreatment) EST – DECEMBER 2016

Chart 19: Trend in MetalHow-tos/tutorials and Energy(forPrices, Jan. 2000 – Sep.2016 example driving lessons or cooking)

P A G E 19

2005 2006 20


40% 35% 30% 25% 20%

THE BROADCAST BUSINESS

2005 2006 2007 2008

Chart 18: In which fields of application do you think virtual reality headsets are likely to be used? Share of respondents 0%

10%

20%

30%

40%

50%

60%

70%

Video games Movies & TV Military Adult entertainment Education Medicine & psychology (for example for surgeries or treatment) How-tos/tutorials (for example driving lessons or cooking) Professional tasks (for example for architects or pilots) Communication Tourism (for example sightseeing) Shopping

Source: Statista

The acquisition of Oculus Rift by Facebook drove an increased wave of investment in VR/AR startups. Google invested over $500m in Magic Leap in October 2014 while Jaunt and NextVR together raised a total of $145m between 2015 and 2016. NextVR provides live, long-form virtual reality content in broadcast quality. Jaunt creates immersive cinematic VR experiences by employing a 360-degree stereoscopic 3D imagery with Chart 17: Trend inaMetal Energy Prices, Jan. Sep.2016 investments in VR/AR. ambisonic audio. Below we present simpleand timeline illustrating the2000 most–important 300.00

&'()*++,%'(-./0)1%2(.3.1%4+0%5!*6% % % % % -.''.'()*&

250.00

A AB%1:'0:.@%C'.6:%0'/1)1%5$;=%/6%6)D% B%1:'0:.@%C'.6:%0'/1)1%5$;=%/6%6)D% 4. 4.6E/68% 6E/68%

7++83)%/69)1:1%5;<!=%/6%>'8/(%?)'@% 7++83)%/69)1:1%5;<!=%/6%>'8/(%?)'@%

200.00

F F)G:AB%0'/1)1%5H"=%/6%6)D%4.6E/68% )G:AB%0'/1)1%5H"=%/6%6)D%4.6E/68%

/.').'()+&

)(.').'()*&

0./.'(),&

150.00 '()+&

100.00

!"#$%

'(),&

PMETA !"#$%&&

PNRG

50.00

Source: IABM

2009M5 2009M12 2010M17 2011M12 2011M9 2012M4 2012M11 2013M6 2014M1 2014M8 2015M3 2015M10 2016M5

0.00 2000M1 2000M8 2001M3 2001M10 2002M5 2002M12 2003M7 2004M2 2004M9 2005M4 2005M11 2006M6 2007M1 2007M8 2008M3 2008M10

'()*&

Backers of NextVR include: SoftBank, Time Warner and Comcast. Backers of Jaunt include: The Walt Disney Company, Sky plc, ProSiebenSat.1 SE and Axel Springer SE. According to Digi-Capital, investment in VR/AR topped $1.1bn in March 2016 – not including Facebook’s acquisition of Oculus. As already mentioned in this chapter, VR/AR technology has various potential applications. There is a group of startups focusing on live VR broadcasting. Aside from NextVR and Jaunt, HypeVR focuses on developing software tools and 3D capture systems for the broadcast of live VR content. Another interesting company in the live VR landscape is Livelike VR. Livelike is a VR platform that provides broadcasters and sports teams Chart 1: Real GDP Growth by region, 2015-2017 the opportunity to deliver live VR content over the internet. Below, Livelike’s app is represented as the last 2015 2016* 2017* step before delivery to consumers. There have been some tests and experiments with live VR broadcasting. The most relevant one was the recent provision of 85 hours of VR content by NBC during this summer – for the first time ever in a Summer or Winter Games' broadcast. Some broadcasts – such as the opening and closing ceremonies – were made available on delay in VR along with a wide range of downloadable content – such as highlights. Viewers could enjoy the VR broadcasts through the NBC Sports app using only the Samsung Gear VR headset together with a Samsung Galaxy mobile phone. World

P A G E 20

United States

Euro Area

Brazil Japan

Canada

UK

China

India

I A B M B U S I N E S S I N T E L L I G E N C E Q U A R T E R LY D I G E S T – D E C E M B E R 2 0 1 6

Rest of the World


NextVR signed a five-year partnership with Fox Sports for the provision of premium live VR content at the beginning 2016. Fox Sports signed the deal after having worked for over a year with NextVR on testing live VR broadcasting. The first sports events made available in VR were the Premier Boxing Championship fight, the NASCAR Daytona 500, the Big East college basketball tournament and the U.S. Open golf championship. The Bundesliga 2016-2017 opening match between Bayern München and Werder Bremen was also broadcast live in VR. All these events were made available for free on the NextVR app. Viewers needed to download the app on any Samsung Gear VR headset-compatible phone to access the live stream. Sky has committed to investing in its own VR studio, and created Sky VR Studio, a dedicated in-house VR production unit, in March 2016. The VR content is available free through the Sky VR App. Sky has also been investing in Jaunt since 2013. Most broadcasters have so far relied on external suppliers to deliver VR experiences; this has been achieved through investments or partnership. The rationale behind outsourcing VR broadcasting resides in the inexperience of broadcasters with the technology and, more importantly, in the current absence of financial gains from VR broadcasting. In fact, the most common business model in use so far entails the free broadcast of specific live events on a third-party app. Also, most Pay-TV broadcasters currently do not require any authentication to access the VR content. Therefore, despite the recent spending bonanza, broadcasters still have to figure out how to consistently make money from the new technology. Will it be a subscription-based, advertising-based or PPV model? The answer to this question is key to shaping future investment in VR/AR. At the moment, broadcasters are still experimenting with VR/AR technology as viewers’ current level of adoption of VR/AR headsets still does not justify a massive investment effort in that direction. However, they should not allow viewers to become accustomed to watching VR free of charge as this clearly won’t be sustainable for them in the long-term. VR/AR advertising is arguably set to be a game-changer as it will radically change the advertising experience compared to traditional television. In fact, as opposed to HD or UHD advertising inventory, which is not generally charged at a premium, VR/AR advertising inventory could be potentially charged at a premium to advertisers due to its immersive and memorable nature. Broadcasters will also find that subscription-based offerings and PPV are valid models for content monetization. Viewers may be more inclined to subscribe to a new VR/AR video service if this includes the type of content they are interested in watching in that format. To this end, it might be sensible to start limiting access to live VR/AR content and offer a subscription to watch it. Viewers seem more inclined to pay to watch a live football match in VR compared to recorded content. This is because the VR live experience could represent an alternative, or surrogate, to watching the same match in the stadium. Advances in technology will allow real live experiences to be reproduced much more accurately in a virtual world.

I A B M B U S I N E S S I N T E L L I G E N C E Q U A R T E R LY D I G E S T – D E C E M B E R 2 0 1 6

P A G E 21


REGIONAL FOCUS:

LATIN AMERICA IABM â&#x20AC;&#x201C; December 2016


REGIONAL FOCUS

LATIN AMERICA Market Overview This edition of the MI Digest includes a regional focus on the Latin American market to complete a world picture over the first year of publication of this report. The other regional focus articles published this year are:

n n n n

Middle East & North Africa (March 2016 Issue) North America (Special NAB 2016 Issue) Asia-Pacific (June 2016 Issue) Europe (September 2016 Issue)

In 2017, we will continue to update and extend these focuses to give IABM members more up-to-date information on various regional markets. Latin America constitutes an emerging broadcast and media market where the transitions to HD and digital broadcasting are still ongoing. The transition to digital HD workflows represents a golden opportunity for suppliers of broadcast and media technology as only Mexico has already switched off analog signals in the region and the number of HD channels is set to grow significantly over the coming years. From our perspective, the transition to UHD is not yet a relevant driver of broadcast and media technology spending for a variety of reasons. We discuss these reasons and the state of UHD adoption in a chapter of this Regional Focus. Despite low broadband penetration and poor connection quality, OTT and mobile broadcasting are growing significantly and represent an opportunity for suppliers of broadcast and media technology. It is, though, worth remembering that free-to-air television remains the platform preferred by most Latin American viewers, both for economic and cultural reasons. GDP per capita in Latin America is equal to about 16% of the US equivalent. It is therefore safe to say that Latin American viewers are less likely than their North American (or European) counterparts to spend money on subscription-based programming. Latin America is also home to large, integrated media companies such as Globo and Televisa. The majority of viewers rely on local programming produced by these organizations and seem unlikely to switch to operators providing a lesser amount of local content. The Pay-TV industry in Latin America has grown significantly in the last five years but still accounts for a small share of global Pay-TV revenues. Pay-TV growth has been hindered by slowing economic growth and piracy. However, Pay-TV service providers still need to make substantial investments to update their current networks.

2014

2015

2016

2017

2018

2019

Population

378.3m

382.1m

385.7m

389.4m

392.9m

396.3m

399.7m

0.9%

Households

103.3m

104.8m

106.4m

107.9m

109.5m

111.0m

112.5m

1.4%

GDP/Capita (USD)

2020 CAGR (2014-2020)

$9,348m

$8,072m

$8,296m

$8,579m

$8,922m

$9,299m

$9,707m

0.6%

Internet Penetration

55.10%

57.50%

59.60%

61.40%

62.80%

63.90%

64.80%

2.7%

Smartphone Penetration

27.80%

32.30%

36.40%

39.90%

42.80%

45.20%

47.10%

9.2% Source: Statista

The table above provides key statistics for three major broadcast and media markets in Latin America (Brazil, Argentina and Mexico). Macroeconomic woes have troubled the region in recent years. The decline in the demand for commodities from China has triggered increased volatility in currency markets, while political crises in some countries have sparked uncertainty. Latin America remains an attractive region for both broadcast and media technology suppliers looking to generate revenues from traditional technology products and also next-generation suppliers focusing on providing solutions for OTT and multiplatform delivery.

I A B M B U S I N E S S I N T E L L I G E N C E Q U A R T E R LY D I G E S T â&#x20AC;&#x201C; D E C E M B E R 2 0 1 6

P A G E 23


Professional tasks (for example for architects or pilots) Communication Tourism (for example sightseeing)

REGIONAL FOCUS – LATIN AMERICA Shopping

65% Chart 18: In which fields of application do you think 60% virtual reality headsets are likely to be used? 55% Share of respondents 50% Latin American countries have gone0%through times 10% 20%turbulent 30% 40% 50% 60% in 70%recent years. The steep decline in 45% commodity prices coupled with the slowdown in the Chinese economy have–triggered games Video Chart 19: Trend in Metal and Energy Prices, Jan. 2000 Sep.2016large depreciations in40% Movies domestic exchange rates. In fact,& TV most Latin American countries are heavily dependent on the export of one35% Military 300.00 30% or more commodities with China being their largest buyer for over a decade – copper from Chile and oil Adult entertainment from Mexico to invest in industrial production. The ongoing transition in China from an 25% 250.00have allowed China Education 20%

Chart 23: Pay-TV Pen America, 2

Business Environment

investment-centered to a consumption-centered economy has produced a reduction of the demand for Medicine 200.00 & psychology (for example for surgeries or treatment) commodities from Latin America. How-tos/tutorials (for example driving 150.00 or cooking) exports has made Latin American countries’ domestic currencies more lessons The high dependency on commodity 100.00 PMETA Professional tasks (for example for vulnerable to market fluctuations. architects or pilots)The effects have been stark with currencies such as the Mexican Peso PNRG 50.00 and the Brazilian Real losing as much as 20% between 2015 and 2016. Communication

2005 2006 2007 2008 2009

2009M5 2009M12 2010M17 2011M12 2011M9 2012M4 2012M11 2013M6 2014M1 2014M8 2015M3 2015M10 2016M5

2000M1 2000M8 2001M3 2001M10 2002M5 2002M12 2003M7 2004M2 2004M9 2005M4 2005M11 2006M6 2007M1 2007M8 2008M3 2008M10

Tourism (for example sightseeing) 0.00 Chart 19 shows the trend in two commodity prices indices over the last 16 years: Shopping

n PMETA: the Metals Price Index. It includes Copper, Aluminium, Iron Ore, Tin, Nickel, Zinc, Lead, and Uranium Price Indices. Index = 2005

n PNRG: the Fuel (Energy) Index. It includes Crude oil (petroleum), Natural Gas, and Coal Price Indices. Index = 2005 Chart 19: Trend in Metal and Energy Prices, Jan. 2000 – Sep.2016 Chart 1: Real GDP Growth by region, 2015-2017 300.00 2015

250.00

2016*

2017*

200.00 150.00 100.00

PMETA

50.00

PNRG Brazil United States

Euro Area

Japan

Canada

UK

China

India

Rest of the World

2009M5 2009M12 2010M17 2011M12 2011M9 2012M4 2012M11 2013M6 2014M1 2014M8 2015M3 2015M10 2016M5

World

2000M1 2000M8 2001M3 2001M10 2002M5 2002M12 2003M7 2004M2 2004M9 2005M4 2005M11 2006M6 2007M1 2007M8 2008M3 2008M10

0.00

Source: IMF

The chart shows that both metal and energy prices started declining in mid-2014 – as a result of lower demand from China – reaching a record trough at the beginning of 2016. The other big drop in the two series can be traced back to 2008 when the two indices suffered from the negative shockwaves of the global financial crisis. 20 GDP shows the effects on the2015-2017 GDP of some Latin American countries – including ChartChart 1: Real Growth by region, forecasts for 2016 and 2017. 2015 2016* 2017* Chart 20: Latin American, Real GDP Growth by country, 2014-2017 10.0% 2014

2015

2016*

2017*

5.0% Brazil

0.0%

World

United States

Euro Area

Japan

Canada

Chile

Colombia

UK

China

India

Rest of the World

-5.0% -10.0%

Argentina Bolivia

Brazil

Ecuador

Mexico

Paraguay

Peru

Uruaguay

Venezuela

Source: IMF

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Chart 21: Market Share of OTT Leading Providers

Chart 22: OTT revenues in Latin A

1200


The overall picture is gloomy. The financial shockwaves are aggravated by the current political situation in some countries. In Brazil, president Dilma Rousseff was impeached by the Brazilian Parliament in August 2016 on corruption allegations. Michel Temer, who served as Ms Rousseff's vice-president and who had been the acting president since her suspension in May, was proclaimed president in September 2016. In Colombia, the president Juan Manuel Santos has been negotiating a controversial peace with the FARC guerrilla group to end a war that has lasted for over half a century. The rejection of the proposed peace agreement by the Colombian people in a recent referendum threatens to jeopardize future peace talks. Venezuela’s economy is suffering the worst crisis in its history – it has the world’s most negative GDP growth rate. Its current state is the result of a high dependency on oil exports and the debatable economic policies of president Nicolas Maduro. The recent drop in oil prices prompted the government to print money to recover the losses of stateowned oil enterprises. Venezuela’s inflation rate, which is already the world’s highest, is expected to reach 1,600% next year. Food shortages have exacerbated the public outcry with protests throughout the country inflaming the national political climate.

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REGIONAL FOCUS – LATIN AMERICA Business Opportunities In this chapter, we examine specific trends driving broadcast and media technology spending in Latin America. The trends we will focus on are the following:

n n n n

Transition to Digital Broadcasting Transition to HD and UHD OTT & Multi-Platform Delivery Pay-TV Development

The transition to digital broadcasting is a government-led initiative that has encountered many problems in Latin America. The transitions to HD, UHD and multi-platform delivery are instead natural evolutions of broadcasters’ infrastructures. The development of Pay-TV is also set to drive spending on broadcast and media technology.

Transition to Digital Broadcasting At the time of the writing, Mexico was the only Latin American market to have switched off its analog signals. The rest of the countries in the region are still going through the painful process of transitioning to digital broadcasting. The transition to digital broadcasting is often difficult to implement on time as it requires various parties (government, broadcasters, equipment suppliers, consumers) to coordinate to achieve the analog switch-off and then the digital switch-over. In Latin America, low disposable incomes have constrained timely digital deployment. Latin America constitutes one of the most unequal regions (in terms of income) in the world. The map chart below shows the GINI coefficient for a group of Latin American countries compared to comparative countries in other regions. The darker the color shading, the higher the rate of income inequality.

Source: IABM analysis of World Bank data

Governments have often had to step in to fund the purchase of digital equipment (STBs or digital converters) for low-income households. Below, we describe some of the most relevant Latin American countries’ experiences with the digital transition:

n Mexico: In Mexico, the transition to digital television was originally set for 2021 but in 2010, the government decided to bring forward the shutdown of analog transmissions to 2015. However, the timeline of the transition was too short as a considerable share of low-income households could not afford to purchase the necessary equipment. As a result of this, the government decided to give away digital TV sets to low-income households. Despite the completion of the analog switch-off in January 2016, 22% of homes still hadn’t switched over to DTT due to lack of equipment or coverage in August 2016. IFT, Mexico's telecoms regulator, announced at the end of November 2016 that a tender for 148 FTA channels will be launched at the end of 2016. The concessions, which cover 124 zones, will be awarded by the end of 2017.

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n Brazil: Brazil announced its digital TV switch-over plan in 2014. The plan established a pilot in 2015 and a rollout in 2016 in some state capitals. The pilot was completed in February 2016 after numerous postponements. The first rollout in Brasilia has also been postponed from April 2016 to October 2016 and then to November 2016. The other rollouts will take place in São Paulo, Belo Horizonte, Goiânia and Rio de Janeiro. The expected year for the analog switch-off is 2018. It is important to note that the completion of the digital transition will free up the 700MHz spectrum for mobile broadband use. Brazil started its digital switchover process in 2007.

n Colombia: RTVC, the Colombian media authority, started the third phase of DTT rollout in July 2016. It also published the rules for the acquisition, installation and commissioning of 15 DTT stations. The investment for this third phase will be $10.9m. The DTT stations will be built in Bañaderos, Buenaventura, Buenavista, Cerro Azul, Cerro Carepa, El Ruíz, Galeras, Jurisdicciones, La Rusia, Leticia, Martinica, Mirador, Montezuma, Munchique and Saboyá. Colombia plans to achieve 92% DTT coverage by 2018 and shut down analog signals by 2019. The digital switchover process was started in 2010.

n Argentina: Argentina started its digital switchover process in 2010 and plans to shut down analog signals in 2019. The government has recently awarded two DTT licences to Perfil, a publishing company. The licences will cover a period of ten years. As in the case of Brazil, the completion of the digital transition will free up the 700MHz spectrum for mobile broadband use. The figure below shows the (expected) date of analog switch-off for a group of Latin American countries as well as their DTT standards. DTT Transition & in Latin America

Source: IABM analysis of World Bank data

Most countries in Latin America rely on the Japanese-Brazilian digital TV standard ISDB-Tb. ISDB-Tb is based on the Japanese DTT standard ISDB-T but uses H.264 as compression standard. The exceptions are Colombia (DVB-T2) and Mexico (ATSC) along with a group of smaller countries (see map). All countries in Latin America rely on H.264 as their compression standard with the exception of Mexico (H.262). Overall, the transition to digital broadcasting is a significant driver of broadcast and media technology spending in Latin America. Governments in this region will gradually award DTT licences to broadcasters during the next 10 years. Broadcasters will upgrade their infrastructures to enable DTT broadcasting. It is an important opportunity for traditional suppliers such as transmitter vendors and system integrators. It is no surprise that many international broadcast and media technology suppliers have set up offices in the region or, alternatively, in the southern part of the US.

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REGIONAL FOCUS – LATIN AMERICA Transition to HD and UHD The transition to HD has been one of the most important

the Rio de Janeiro 2016 Summer Games. Other broadcasters

spending drivers in the broadcast and media technology

have tested UHD transmissions but have not launched any

industry. As opposed to developed regions such as Europe

regular offerings. Claro TV tested 4K/UHD transmission in

and North America, this transition is still far from reaching

Chile while Totalplay did the same in Mexico. Latin American

maturity in Latin America. In Latin America, HD remains a

broadcasters showed skepticism towards 4K development in

differentiator mainly offered by Pay-TV operators to have a

the region during the NexTV Series South America 2016 in

competitive advantage over rivals. According to Dataxis, the

mid-June 2016. We report two interesting comments:

number of HD channels offered in Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela will grow by 189% between 2016 and 2021 (from 257 to 743). As of today, about 75% of the 257 channels are still offered by Pay-TV providers. Mexico and Brazil have the highest number of HD channels, followed by Colombia, Argentina, Peru, Chile and Venezuela. The growth in HD channels will be mostly driven by the development of satellite broadcasting. Satellite service providers have turned to Latin America and other emerging regions to compensate for low growth in maturing markets

“As for 4K, it takes a long time to plan and a lot of investments to make. We have it planned but it will be analyzed to the extent that content offerings appear. The experience leap is not the same between HD and 4K that the one between SD and HD. Probably it will start through video streaming rather than on linear TV because we would have to change the set-top box (STB) supply.” Miguel Fernandez Technical Manager, Cablevision Argentina

such as North America and Europe. In March 2016, Arianespace launched the Eutelsat 65 West A satellite to

“I do not think consumers appreciate the difference between

expand the service provider’s capabilities in the region.

HD and 4K to justify the investment. We are thinking more about 360 degrees technology and we are experimenting with that.” Mariano D’Ortona Technology and Development, Turner International

Eutelsat said in a press release:

“EUTELSAT 65 West A is a tri-band satellite designed to target fast-growing video and broadband markets across Latin America. Its high-power Ku-band payload enables DTH reception of digital and HD channels across Brazil with 60cm antennas and facilitates corporate connectivity in Central America, the Caribbean and the Andean region”

Comments were consistent in highlighting the absence of incentives to invest in 4K/UHD technology in Latin America. The worsening of the economic crisis in the region may have

SES and SpaceX have also recently agreed to launch a

further impaired these incentives. In fact, a decline in

geostationary satellite on a reusable rocket in Q4 2016 to

disposable incomes diminishes consumers’ likelihood to

expand SES’ capabilities in Latin America. The number of DTH households is forecast to reach 43m in 2020 according to Digital TV Research data. Important satellite Pay-TV operators in Latin America are DirectTV Latin America, Dish Latino, Claro TV and SKY Brazil.

accept the high cost of 4K/UHD. It is interesting to note that internet streaming, rather than linear TV, is considered by some broadcasters a more viable way to deliver 4K content to audiences. This would allow broadcasters to reduce consumer prices – by circumventing the need to upgrade STBs – and appeal to younger audiences.

The transition to UHD is still at an early stage in Latin America as most broadcasters are focusing on upgrading their infrastructures to HD. An exception is Globo. Globo has recently launched the mini-series “Dangerous Liaisons” in 4K HDR on its VOD platform, Globo Play. Viewers will need to purchase 4K-capable devices to be able to watch the content in 4K HDR. The Brazilian broadcaster also tested 8K transmission of video in conjunction with NHK during

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10.0% 2014

2015

2016*

2017*

5.0%

Argentina Bolivia

0.0%

Brazil

Chile

Colombia

Ecuador

Mexico

Paraguay

Peru

Uruaguay

Mexico

Paraguay

Venezuela

-5.0% -10.0%

OTT and Multi-Platform Delivery Colombia Ecuador Chile Brazil

Argentina Bolivia

Peru

Uruaguay

Venezuela

OTT is a very hot topic in the Latin American broadcast and

media industry. Broadcasters are discovering the benefits of Chart 21: Market Share of OTT Leading Providers internet video although the market for OTT is still hindered on Latin America by low broadband penetration and poor broadband quality.

1200

Netflix

800

Video of OTT Leading Providers Chart 21: MarketClaro Share on Latin America Vivendi NetMovies DirectTV Others

Netflix Claro Video Vivendi NetMovies DirectTV Others

Chart 22: OTT revenues in Latin America (US$M)

1000 Chart 22: OTT revenues in Latin America (US$M)

600

1200

400

1000

200

800

0

600 2015 Mexico

Brazil 400

2018* Argentina

Source: MTM

According to MTM, 200 OTT revenues in Latin America will grow from US$465m in 2015 0 to over US$1bn in 2018. Mexico is 2015 currently the largest OTT market in the region although Source: Dataxis

Mexico

Brazil

2018*

Argentina

Brazil is expected to overtake it by 2018. The growth in revenues should be driven by improvements in broadband

According to MTM, there are only 10-15 fixed-line broadband

penetration and quality, improvements in payment

subscriptions per 100 inhabitants compared to 30-35 in

infrastructure and increased investment in local content by

Canada and the US. Moreover, less than 60% of these

OTT operators. As of today, local content represents a

subscriptions in Mexico and less than 30% in Brazil provide

competitive advantage for traditional broadcasters such as

connections faster than 4MBps – the minimum for

Televisa and Globo. Traditional Latin American end-users are

streaming HD video. As a result of this, some OTT services

not taking the OTT threat to their business lightly. Televisa

have started offering offline content downloads. Looke, a

has recently decided to withdraw its content from the Netflix

Brazilian OTT platform, announced in October 2016 that it

catalogue to make it exclusively available on its OTT

would start offering the option to download movies, series

platform, Blim.

and music shows from its catalog for offline viewing. The company said in a press release:

“Internet in Brazil and the limits imposed by operators make life difficult for those who depend on mobile Internet to watch movies and series via streaming” Poor payment infrastructure is also a problem for OTT development as credit card (and bank account) penetration in the region is very low. This is similar to what Netflix is experiencing in Southern Europe where the use of credit cards for payments is less common than in Northern Europe. The consequence is a lower growth in subscriptions

The lack of local content on Netflix prompted regional

compared to regions where credit card payments are more

channels and other operators to launch niche OTT offerings,

common. Alternatives to credit card payments may therefore

often through mobile apps. During 2016, the number of

be welcomed by Latin American subscribers who do not

SVOD apps has increased substantially.

trust sharing their bank details online.

n Odeon, a free OTT platform, launched its first mobile app

The leader in the OTT market in Latin America is Netflix with

for connected devices in October 2016. Odeon is the VOD

a 66% market share (Dataxis). Netflix landed in South

platform of the Institute of Cinema and Audiovisual Arts

America in 2011 and took advantage of the absence of OTT

(INCAA) of Argentina and the national

services in the region to establish itself as the leading video

telecommunications company Arsat.

streaming provider. Other important providers are Claro Video (15% market share) as well as DirecTV, Vivendi and NetMovies (total = 12% market share).

n Morbido TV, a Pay-TV channel dedicated to horror movies, is said to be close to launching a mobile SVOD app to offer both its linear channel and a VOD content library on connected devices. Viewers will have to pay a

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REGIONAL FOCUS – LATIN AMERICA subscription fee to access the app unless they already subscribe to Pay-TV services carrying the channel. The app will be available in all Latin American countries except Brazil.

n The Spanish Pay-TV channel MIS has announced in September 2016 that it will launch in Mexico through the OTT service Wherever TV Latino. The channel’s programming is made up of 100% Spanish films. Many other broadcasters and Pay-TV operators have lined up to launch OTT services in Latin America. As mentioned above, this has often been achieved through the launch of SVOD apps made available on connected devices or connected TVs (such as Apple TV). Broadcast and media technology suppliers can help Latin American end-users smoothly transition to “TV Everywhere” offerings. Monetization of online content is key. For example, initial “TV Everywhere” offerings launched by FTA channels often do not take advantage of the possibility to monetize online advertising inventory. This is a problem not only in Latin America but also in Southern Europe. This can be related to technology, budgetary or rights constraints. For example, broadcasters may not have the rights to place advertisements on streaming feeds. Suppliers can help endusers overcome the technology constraints that prevent them from taking advantage of online advertising inventory. The complexity of digital rights management has risen as a result of the increased presence of content on multiple platforms. As mentioned above, a channel could be contemporaneously available on a Pay-TV bundle and an SVOD app, making the relationship between content providers and Pay-TV operators increasingly complex and controversial. The efficient management of these rights is also an area where suppliers could potentially help end-users. The proliferation of mobile SVOD services is in response to demand by Latin Americans. According to Nielsen’s Global Digital Landscape Survey, among video users who watch programming at home, 38% do so on mobile phones in Latin America. Moreover, among video users who watch programming on their way to work, 80% do so on mobile phones in Latin America (the highest percentage worldwide). Mobile broadcasting undoubtedly has the potential to grow further in the region as wireless connections improve and smartphone penetration increases. Moreover, in countries such as Brazil and Argentina, the digital switchover will free up spectrum for mobile broadband use. This will act as an additional catalyst for mobile broadcasting growth.

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Augmented Reality Virtual Reality

Pay-TV Development Latin America is an emerging broadcast and media market

According to Anatel, the Brazilian telecom regulator, the

where Pay-TV penetration has grown significantly in the last

local Pay-TV market was 18.9m in August 2016, down by

ten years. Chart 23 shows that Pay-TV penetration in the

3.5% compared to the same month in 2015.

region reached 60% in 2016 although there are countries such as Brazil and Colombia where the penetration of PayTV services is still below 40%.

65% 60% 55% 50% 45% 40% 35% 30% 25% 20%

Chart 23: Pay-TV Penetration in Latin America, 2005-2016

65% 60% 55% 50% 45% 40% 35% 30% 25% 20%

to Penetration other emerging broadcast and media markets, Chart Similarly 20: Pay-TV in Latin piracy is a relevant constraint to Pay-TV growth. In fact, many America, 2005-2016 consumers in Latin America access Pay-TV broadcast feeds through illegal devices. According to MTM, the retail value of content exchanged via BitTorrent in Brazil is the highest in the world. One of the main reasons behind the decision to access content through illegal means is price and it is no surprise that in a region where income inequality is so high many viewers rely on piracy to watch high-end programming.

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

The Pay-TV market in Latin America is not mature yet and there is still room for large improvements. Pay-TV operators 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: IBOPE

will need to update their distribution networks to allow integration with newly launched OTT services and alleviate the impact of piracy on their revenues.

According to Digital TV Research Ltd., satellite is the primary distribution medium for Pay-TV services in Latin America with over 70% share of total revenues. Analog and digital

Chart 24: Platforms’ shares of total revenues in Latin America in 2015 (%)

cable Pay-TV revenues have a joint 29% share of total revenues leaving IPTV with a little less than 1%. Total Pay-TV revenues amounted to about US$18bn in 2015 – which is equivalent to about 10% of revenues worldwide. Brazil and Mexico account for over a half of all Latin

Analogue Cable TV Digital Cable TV IPTV Satellite

American Pay-TV subscribers – which totaled 70m at the end of 2015 according to data from Digital TV Research Ltd. However, between 2015 and 2016, Pay-TV subscriber growth Source: Digital TV Research Ltd

2014M8 2015M3 2015M10 2016M5

has been hindered by difficult macroeconomic conditions.

h by region, 2015-2017

6*

2015

2016*

2017*

2017*

Brazil Japan

Canada

UK

China

India

Rest of the World

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IABM – Head Office 3 Bredon Court, Brockeridge Park Twyning, Tewkesbury, Gloucestershire GL20 6FF United Kingdom T: +44 (0)1684 450030 F: +44 (0)1684 450024 IABM – North American Office PO Box 230187 Portland, OR 97281-0187 USA T: +1 732 595 4077 IABM – APAC Office #09-02 Tampines Junction 300 Tampines Avenue 5, Singapore, 529653 T: +65 679 5839

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Copyright This information is Copyright IABM and may not be copied or published by any means, as a whole or in part, without prior permission in writing. The information and opinions contained in this publication are supplied in good faith and are derived from interpretation which we believe to be reliable and accurate but which, without further investigation, cannot be warranted as to its accuracy, completeness or correctness. This information is supplied on the condition that IABM and any partner, contractor or employee of IABM, are not liable for any error or inaccuracy contained herein, whether negligently caused or otherwise, or for loss or damage suffered by any person due to such error, omission or inaccuracy as a result of such supply.

IABM Business Intelligence Digest Supplement - December 2016  
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