Videonomics. Video content consumption, production and distribution in the MENA region. January 2018

Transcription

1 Videonomics Video content consumption, production and distribution in the MENA region January 2018 Strategic Technical Creative

2 2 Videonomics Video content consumption, production and distribution in the MENA region Foreword

3 Video content consumption, production and distribution in the MENA region Videonomics 3 As always, it gives me immense pleasure to address the broadcasting and satellite industry insiders, and share the key trends while measuring the pulse of the industry through this report brought together in cooperation with Ernst & Young LLP. Frederique Maurell Group Director Exhibitions Dubai World Trade Centre A detailed study of the current and future media landscape clearly showed us that the seismic shifts in the way video is consumed will continue to evolve, with MENA s digital slice of the video revenue pie expected to grow robustly. As evident, this upsurge in digital and innovative mediums is driven by the burgeoning youth and the increasing number of personal viewing devices. Moreover, with the buoyancy of pure OTT and cross-ott platforms, the quality of content along with the convenience of the audience is driving viewership. Gone are the days of filler or mediocre in-between video content; now, practically every moment is primetime. Adding to the punchline are strategic media partnerships that will headline the industry and very well shape the curve of the media economy to come. We hope this report proves valuable and helpful in defining your next strategies, and once again, we are pleased to welcome you to CABSAT The global clout and phenomenal growth of the FAANG technology companies have led traditional media players to rethink their strategies and given an impetus for digital players to innovate further. In this whirlwind of disruption, one constant for the industry has been its focus on video. Video content is able to cut through the clutter to garner mass reach while maintaining high levels of stickiness within specific niches. Ahmed Reda MENA Sector Leader Telecom, Media & Technology Ernst & Young LLP To delve deeper into video content in the MENA region, and its role as the nucleus of the media and technology industries, this report explores some key questions in the space: Who is consuming video content and how will this grow? How is content being delivered across platforms? What kind of content are industry players producing? How can business models evolve to monetize content better? In exploring these questions, we have identified seven key impact trends. We hope you find this report helpful in shedding light on the video content space and the strategic needs of the hour. Nripendra Singh Director Media & Entertainment Performance improvement Ernst & Young LLP

4

5 Contents Executive summary 06 The video opportunity MENA s youth will drive growth Strategic partnerships will become key to success Infrastructure growth is enabling omni-platform consumption Localized content can tap into an audience needs gap On-demand content is leading to new viewing habits The OTT space has fragmented and driven the need for efficiencies Telcos will play an important role in the growth of content delivery 24 What s next? 26 EY s M&E advisory services 28 Glossary 31

6 6 Videonomics Video content consumption, production and distribution in the MENA region Executive summary Seven key trends will drive video consumption in the MENA region 1 MENA s youth will drive digital growth, with most MENA markets projected to grow online video revenues at 22-35% annually till 2021, to reach 17% of total video revenues from less than 10% today. 2 Srategic partnerships will become key to success across content acquisition, management, marketing, distribution and billing 3 Infrastructure growth is enabling omni-platform consumption, with time spent online making up 70% 90% of the time spent on TV 4 Localized content can tap into an audience needs gap, as Arabic internet usage is 3x that of English 5 On-demand content is leading to new viewing habits, which includes time-shifted bingeing and declining consumption of mid-tier content 6 The OTT space has fragmented and driven the need for efficiencies, across content costs, back-end savings and analytics 7 Telcos will play an important role in the growth of content delivery, with IPTV homes projected to grow 11% annually, nearly 3x as fast as satellite homes

7 Video content consumption, production and distribution in the MENA region Videonomics 7 and redefine strategic imperatives for the M&E industry Country and market-level business strategies Success will require customized strategies rather than one-size-fits all approaches across content procurement, monetization and delivery. A granular understanding of local demographics, connectivity levels, payment preferences and more is required to tap into each market s full potential. Partnering for growth As the market fragments and competition rises, video providers will need to partner across content creation, distribution, syndication and billing to drive growth and compete across different markets, formats and media. Customer knowledge Industry players must ensure they have the right technology systems in place to collect, and then analyze, the wealth of digital data a customer can provide. Insights can be used to build out content libraries, customize user interfaces and develop dynamic pricing models. Localized content for global Arab audiences Content providers need to understand the content genres, dialects and formats that deliver the greatest RoI not just at a local level, but which can be leveraged across multiple geographies and tap into the global Arabic diaspora. Interactivity Digital media provides a previously unachievable opportunity to interact with customers individually, and address their needs for escapism, knowledge and social acceptance. Initiatives such as contests, television playalong, prediction, voting and more can boost time spent and increase monetization. Focus on efficiencies High customer acquisition, churn, marketing spends and content costs have significantly impacted sustainability. Process efficiencies, organization structure optimization, automation, cost reduction, outsourcing and infrastructure co-operation will be the needs of the hour.

8 8 Videonomics Video content consumption, production and distribution in the MENA region The video opportunity

9 Video content consumption, production and distribution in the MENA region Videonomics 9 Figure 1: MENA s video market (US$m) % 4308 growth TV Advertising TV Subscription AVoD SVoD / TVoD CAGR% 5.5% 7.4% 25.5% 26.2% Digital video revenues will more than double With most MENA markets projected to grow online video revenues 22% 35% annually till 2021, the region s digital consumption growth is among the highest in the world 1. A large youth population, fastimproving mobile connectivity and a flood of new streaming platforms into the market will drive this growth. As a result, digital s share of the video revenue pie is projected to rise from 9.6% in 2017 to 17.3% by Subscription and transactional revenues comprise a large share of this digital segment at ~45% 1. Segmented packages across price points and telco tieups for billing have helped in this region, but the trend also points to a new generation that cuts the cord and leapfrogs directly to digital subscriptions. Meanwhile, online video advertising is expected to show similarly strong growth. Native propositions are emerging as a particular focus, as they offer lower-risk revenue streams for content providers, while brands benefit from more targeted messaging. Pay TV will continue to drive growth MENA s TV market has long been dominated by FTA channels, and consequently, ad-funded business models. The region s consumers have access to over 900 FTA channels and more than 90% of viewership comes from FTA in markets such as the UAE, KSA and Egypt 2. While the region has seen ~ 500 FTA channels added over the last decade, ad revenue growth has slowed 2. It appears the ad market is nearing saturation and, impacted by political turmoil, it recorded negative growth in 2016/17 3. As FTA channels typically offer local Arabic programing to the widest common denominator, consumers are increasingly seeking out unique content. The industry is looking to meet this appetite through pay TV HD channels are being added every quarter by satellite pay TV operators, and channels such as MTV Arabia have converted to pay 4. While piracy remains a major threat to building a sustainable model for premium content, pay TV revenues are projected to grow 7% 8% in the medium-term 1. 1 Global pay TV forecasts, Digital TV Research, May 2017; Global SVoD forecasts, Digital TV Research, Sep.2016; Media spend forecast, Zenith Optimedia, Sep.2016; Media spend forecast, IPG Magnaglobal, Dec.2016; Arab media outlook , Dubai Press Club, 2016; Industry discussions; EY analysis- 12 MENA markets considered (Algeria, Bahrain, Egypt, Jordan, KSA, Kuwait, Lebanon, Morocco, Oman, Qatar, Tunisia and the UAE) 2 Arab media outlook , Dubai Press Club, 2016; Industry discussions; EY analysis 3 MENA's advertising industry: $1B wiped off spending in 2016, Albawaba Business, Jan.2017; Industry discussions; EY analysis 4 Growth in pay TV and OTT video services, Frost & Sullivan, Mar.2017; Arab media outlook , Dubai Press Club, 2016; EY analysis

10 10 Videonomics Video content consumption, production and distribution in the MENA region MENA s video landscape The MENA markets shown in Figure 2 comprise over 48m TV households, but less than a tenth of these homes are estimated to subscribe to pay TV, and only a fifth watch online video regularly 5. However, there can be significant regional variation. The more mature pay TV and online video ecosystems in the UAE, Qatar and Bahrain are expected to record stronger ARPU growth, whereas North African markets such as Algeria, Morocco and Egypt have greater potential to grow their subscriber bases 5. Figure 2: MENA's linear TV landscape 5 Total TV households (m, 2017) Algeria Tunisia Egypt Morocco Jordan Oman Lebanon Kuwait KSA Bahrain Qatar UAE 70% 60% 50% 40% 30% 20% 10% 0% % of TV households that are pay (%, 2017) Figure 3: MENA's online video landscape 5 TV households that watch online TV/video regularly (m, 2017) % 40% 35% 30% 25% 20% 15% 10% 5% % of TV households that watch online TV/video regularly (%, 2017) 0.0 Jordan Tunisia Morocco Algeria Egypt KSA Oman Lebanon Bahrain Qatar UAE 0% 5 Global pay TV forecasts, Digital TV Research, May 2017; Global SVoD forecasts, Digital TV Research, Sep.2016; World indicators, IMF, Jul.2017; Number of households, Helgi Library, 2017; EY analysis

11 Video content consumption, production and distribution in the MENA region Videonomics 11

12 12 Videonomics Video content consumption, production and distribution in the MENA region

13 Video content consumption, production and distribution in the MENA region Videonomics 13 1 MENA s youth will drive growth Demographic dividends As teenagers and young adults enter the workforce and become paying consumers (or customers advertisers will pay for), they add a significant boost to media spends. The fastest growing media markets therefore tend to be the youngest ones, as can be seen in the top-right quadrant of Figure 4. As the year age group comprises more than a fifth of each MENA market below, except for the UAE, growth will be robust. MENA s projected video revenue growth of ~6% for linear TV and ~26% for online video from places it ahead of every major media market, except India and Indonesia 6. To capture a piece of this growth, content creators would be well served to focus on relevant genres for this youth audience, which may include sports, premium action or coming-of-age films. Marketing will also need to focus more on social media, where significant time is spent, and digital interactivity will become key to drive sticky consumption. Figure 4: Demographic impact on media growth 6 35% Egypt Annual online video revenue growth (%, ) France 30% 25% 20% Japan 15% Australia US 10% S.Korea Mexico UK Kuwait Brazil China Germany Russia Lebanon Qatar UAE Bahrain Turkey Oman Nigeria Indonesia Morocco Size of bubble denotes total population 10-24y 5% -2% 0% 2% 4% 6% 8% 10% 12% Annual linear TV revenue growth (%, ) KSA India % of population 10-24y: >25% 20-25% <20% Non-MENA 6 Global pay TV forecasts, Digital TV Research, May 2017; Global SVoD forecasts, Digital TV Research, Sep.2016; Media spend forecast, Zenith Optimedia, Sep.2016; Media spend forecast, IPG Magnaglobal, Dec.2016; Arab media outlook , Dubai Press Club, 2016; Industry discussions; World indicators, IMF, Jul.2017; EY analysis

14 14 Videonomics Video content consumption, production and distribution in the MENA region 2 Strategic partnerships will become key to success An interlinked landscape MENA s video content ecosystem has become complex, with a multitude of specialties and niches. As few companies are able to produce, deliver and monetize content end-to-end, especially across a range of diverse markets, strategic partnerships have become crucial. We explore several proven partnership models in the region here. Figure 5: MENA s video content ecosystem 7 Content Creation Content Aggregation Distribution Platforms Delivery Infrastructure Local production and post - production houses O3 Productions Prime Focus twofour54 (zone) Foreign studios 20 th Century Fox Disney Universal Pictures Warner Bros. Pay TV operators Al Majd Network BeIN Media Group My-HD OSN Uplink Services DTH satellite operators Arabsat Es'hailSat Eutelsat Nilesat Noorsat Yahsat A Regional broadcasters ADMC MBC DMI Rotana B OTT extensions BeIN Connect OSN Play / Wavo Shahid Plus / Net C Telco operators / IPTV providers Du Mobily Selevision Etisalat Ooredoo STC Limited (MENA) Pure OTT players Amazon Icflix Cinemoz Google Play Istikana itunes Netflix Starz Play Telly D Viu Youtube Yupp Tv Device manufacturers Humax LG Roku Samsung Note: non-exhaustive list of companies 7 Public company information; Growth in pay TV and OTT video services, Frost & Sullivan, Mar.2017; Pay TV in MENA: Changing the channel, A.T.Kearney, Mar.2016; EY analysis

15 Video content consumption, production and distribution in the MENA region Videonomics 15 A Content partnerships by pure OTT players C OTT-telco partnerships Typically, the bulk of pure OTT players content library for MENA is acquired via third parties, as they seldom have the established catalog of traditional broadcasters. Deals for Hollywood content and local Arabic series have filled this gap in recent years. However, as foreign rights are often non-exclusive and local rights are rising in costs, pure OTT players are focusing more on original productions via local partnerships. For instance, Icflix recently partnered with local producers in the UAE, Egypt and Morocco to create original films and series 8. Building such IP not only serves as a differentiator in the space but also offers flexibility for geographic expansion and in secondary rights markets. More than a third of MENA consumers surveyed did not pay for any digital content in And with low credit card penetration in most markets, when these consumers do pay, it is often via cash. This poses billing issues for pay OTT platforms, but telco operators have made deep inroads in these markets. With telco players looking to increase the attractiveness of their data bundles and decrease churn, and OTT platforms seeking direct billing mechanisms and distribution, partnerships between the two groups have become common. Starz Play, for example, has partnered with UAE-based Du and Etisalat, Orange in Egypt and Maroc Telecom in Morocco, among others 12. B Synchronizing linear and digital offerings Figure 6: Most preferred payment method (2016) 13 Egypt 70% Striking the right balance between OTT, apps and linear delivery was rated as the single most pressing concern in a recent survey of global broadcasters 9. MENA s broadcasters and pay TV operators are wary of digital services cannibalizing the core broadcast audience and losing the exclusivity of premium content. But the lines between linear and digital offerings are blurring. In an effort to create a more streamlined partnership between the two, players are eschewing time delays, exclusivity and other content restrictions. Rather, they are opting for strategies that draw audience support on both mediums. This was reflected, for instance, in OSN s OTT platform Wavo, which offers a full mix of Live TV, Catch-up TV, VoD and sports content across multiple packages and prices 10. Jordan 68% Lebanon 60% KSA 46% Kuwait 45% UAE 43% Qatar 53% D Hardware bundling Cash on delivery Credit card In a bid to further increase reach and leverage a built-in captive audience, content providers have explored partnerships with hardware manufacturers. Starz Play, for instance, integrated its app directly onto Humax set-top-boxes, while Icflix partnered with Samsung and LG to provide access to smart TV owners 14. Meanwhile, MBC partnered with Humax to create a customized set-top box GOBX, which offers free and encrypted satellite channels and supports a broadband connection 15. Such devices can allow for more targeted advertising opportunities and may serve as an additional avenue to expand a player s SVoD subscriber base Icflix: An Arabic equivalent of Netflix, Forbes Business, Sep Disrupting the connected entertainment value chain, TV Connect, Jan OSN launches new streaming service, Digital TV Europe, Aug OTT and premium online video, Ipsos, Apr Starz Play and du partner to bring HD VOD content, Digital Studio ME, Sep.2015; Starz Play Arabia expands SVOD service in North Africa, Rapid TV News, Oct.2016; Starz Play signs an exclusive partnership with Orange Egypt, Starz Play blog, Sep State of payments, Payfort, Oct About Humax, Humax portal, Dec.2017; Icflix featured on smart devices, PRNewswire, Jan Going OTT in MENA, KNect365, Aug.2017

16 16 Videonomics Video content consumption, production and distribution in the MENA region 3 Infrastructure growth is enabling omni-platform consumption A global shift The falling costs of broadband data and easy access to smartphones, coupled with the proliferation of streaming services, have changed the way consumers watch content. While consumption on linear TV is largely stagnant at a global level, time spent on online video is catching up with double-digit growth rates in nearly every country 16. A similar pattern can be found in MENA, where time spent online (including non-video activities) in the UAE and KSA makes up 70% 90% of the time spent on TV 17. To better address these trends, players would be well served to understand which markets and technologies are driving omni-platform viewership, and how consumption patterns are therefore changing. Figure 7: Average time spent (hours/week, 2017) Linear TV Online 24 UAE KSA Importance of smartphones and tablets Figure 8: Video consumption by device 18 MENA: Share of viewers that use the device to watch online video (2016) MENA: Share of consumption of OTT videos (2016) 71% Snartphone 42% 23% Tablet 46% 27% Tv / Smart Tv 7% While video content is getting consumed across a variety of media devices, smartphones and tablets receive the lion s share of online viewership, per Figure 8. Notably, while tablet penetration is fairly low relative to smartphones, video consumption and stickiness for each tablet user are high. As seen in Figure 9, a household s tendency to watch videos online is closely related to smartphone access. Given that these 11 MENA territories will gain an additional 35m smartphone subscribers by 2020, it is vital for content providers and delivery networks to ensure formats, user interfaces and payment options are optimized for mobile in particular Online video forecasts, Zenith Optimedia, Jul Media consumption forecasts, Zenith Optimedia, Jun.2016; Interaction, GroupM, Apr.2017; EY analysis 18. Internet user share who consume online videos in the Middle East by device, Statista, 2017; Consumption distribution of OTT videos in MENA by device, Statista, 2017; EY analysis 19. Global SVoD forecasts, Digital TV Research, Sep.2016; World ICT indicators, ITU- United Nations, Jun.2017; EY analysis

17 Video content consumption, production and distribution in the MENA region Videonomics 17 Strategic imperatives The era of omni-platform consumption has several implications going forward. First, the same consumer can watch content in various scenarios be it a tablet at breakfast, a smartphone while commuting or a smart TV at the end of the day. This means content libraries need to be more flexible than ever, with a mixture of short, mid and long-form content to help meet diverse needs across platforms. Second, content providers should be aware of market-level differences in technology infrastructure. As seen in Figure 9, Gulf markets such as the UAE and Qatar have mature well-connected ecosystems, whereas most markets in North Africa are still under-penetrated 20. These differences mean that players must customize monetization strategies and user interfaces for each market. Figure 9: Omni - platform consumption potential % Smartphone penetration (%, 2017) 90% 80% 70% 60% 50% 40% Lower-penetration, stronger AVoD potential Jordan Tunisia Algeria Egypt KSA Higher-penetration, stronger SVoD potential Lebanon Oman Bahrain UAE Qatar 30% Morocco Size of bubble denotes total 2017 population 20% 10% 15% 20% 25% 30% 35% 40% 45% % of TV households that watch online TV/video regularly (%, 2017) Third, interactivity is becoming increasingly valuable as a way to boost engagement in the short-term, while building loyalty and retaining viewers in the long-term. Content providers should look to build in such interactivity, particularly on social media, and help foster community engagement. Interactivity can take various forms. The gameshow KBC has a live play-along app, the NBA allows fans to vote on social media for players for its annual all-star game, while Netflix has launched a kids series wherein multiple storylines can be selected 22. Figure 10: Share of viewers that watch live video content more if it has a social media tie-in (%, 2015) 21 Mid-East/Africa APAC 65% Latam 41% 57% North America Europe 26% 33% 20. Global SVoD forecasts, Digital TV Research, Sep.2016; World ICT indicators, ITU- United Nations, Jun.2017; World indicators, IMF, Jul.2017; Number of households, Helgi Library, 2017; EY analysis 21. Screen wars: The battle for eye space in a TV-everywhere world, Nielsen, Mar KBC play along app, KBC-SonyLiv.com, Sep.2017; Kids control the story in Netflix s new interactive shows, Engadget, Jun.2017

18 18 Videonomics Video content consumption, production and distribution in the MENA region 4 Localized content can tap into an audience needs gap Untapped potential As is the case with any audience, MENA consumers prefer offerings customized to their language and taste. Historically, there has been a relative dearth of such content, particularly online, but this is changing. Video content providers are recognizing this gap and eschewing one-size-fits-all approaches for targeted plays across both content and customer experience. Figure 11: MENA internet use by language 23 Arabic 58% 20% English 25% 3% % in 2017 Native language content Given that Hollywood content is often non-exclusive and available across multiple players in the region, video content providers are increasingly focusing on original, locally produced Arabic series and films. Such content not only serves as the flagship draw for a channel or platform but also boosts stickiness and helps draw interest to the rest of the line-up. However, such initiatives are expensive. High-end Arabic series can cost upward of US$200,000 per episode to produce, while the acquisition landscape is seeing a greater protection of IPs 24. As a result, market players with scale have a built-in advantage, as they are able to leverage any produced or acquired content across multiple avenues. For instance, pan-regional broadcasters can re-use series on their linear channels and OTT extensions, while global OTT players are able to amortize costs across various international customers. For many broadcasters and OTT players, building large libraries of original local productions may be unfeasible in the shortterm. However, various smaller-scale investments can also boost stickiness. For instance, dubbing English, Turkish, Hindi or even other Arabic dialects has become a common strategy. At costs of US$2,000 US$4,000 per hour, this can be a costeffective play for OTT players to reach local audiences, as well as the global Arabic diaspora 24. Demand for a better experience In contrast to the sparsely available TV ratings in the MENA region, OTT platforms are able to collect a treasure trove of customer data. Digital platforms, with their limitless libraries and configurations, have particularly unique opportunities to leverage these insights. Personalization can occur beyond just content- title recommendations, user interfaces and flexible delivery at different bitrates are all ways in which offerings can be customized further. Indeed, customer experience appears to be a needs gap just as much as content, as seen in Figure 12. Figure 12: Share of customer demands for online video platforms (% of MENA respondents, 2016) 25 Better HD experience Wider range of video content Better screen quality 60% 39% 33% 23. Media use in the Middle East 2017: A seven nation survey, Northwestern University in Qatar, Industry discussions; EY analysis 25. Share of customer demands for online video platforms in the Middle East, Statista, 2017

19 Video content consumption, production and distribution in the MENA region Videonomics 19 Localization initiatives MBC The past few years have seen the broadcaster launch channels MBC MASR and MBC Bollywood to target Egyptian audiences and Arabic Bollywood enthusiasts respectively. The group has also taken initiatives in rebroadcasting its signal via spot-beams and splitting up local feeds for specific markets 26. ZEEL The broadcaster has dubbed or subtitled content across its linear and digital offerings in the region. This includes content on its OTT platform Z5 Weyyak, which targets Arabic speakers via dubbed Hindi content, Bollywood movies, as well as locally acquired Arabic series 27. Icflix The streaming platform made an early push into localizing content for the region and has already produced a dozen films and series 28. Through offices in Dubai, Cairo and Casablanca, the company is partnering with local producers for over 40 more productions 28. Starz Play The streaming service has a library of over 1,200 hours of Arabic shows, 2,500 hours dubbed into French and is soon expected to launch an original production for MENA 29. Customizations include using French dubbing for North Africa, in contrast to subtitles for (non-animated) Hollywood content in Gulf markets 30. Netflix The company is projected to spend ~US$8b on content in 2018, with over a quarter of this amount spent on original programing 31. More of these originals are being customized for specific markets and produced locally, with 48% of 65 upcoming series set to be produced outside the US 32. In terms of the MENA market, the company s first original production a stand-up comedy special is expected to be released in By leveraging its granular data on consumers and their preferences, Netflix is able to localize offerings through the entire customer journey: Library: Viewer inputs (e.g., sub-genres selected, time spent and frequency) help the company pinpoint the type of content to renew or commission afresh. A recent study on scripted series revealed that US cable networks and broadcast channels had a male and female skew respectively, whereas Netflix s programing was gender neutral and able to target the widest target audience 32. Discovery: Content is classified across numerous microtags a lead character s personality traits, the happiness of the ending, the content s time and setting and various other facets 34. Thousands of sub-genres are created using these tags and then, basis viewership patterns and user ratings, Netflix s recommendation algorithm makes personalized suggestions for each user 34. Packaging: Each recommended title is given personalized visuals. A series of artwork is continuously tested on subscribers, and artwork prioritizing different characters, themes and fonts is selected for each viewer 35. Delivery: Adaptive streaming technologies are used to ensure smooth playback, optimized for network conditions and device-level limitations. The company s content delivery network configures both the hardware and software on the servers used to deliver audio and video files to users MENA TV landscape: Then and now, BroadcastPro Middle East, Dec ZEE drives digispace, BroadcastPro Middle East, Jun Icflix: An Arabic equivalent of Netflix, Forbes Business, Sep Starz Play Arabia secures new funding, Variety, Jul.2017; Starz Play Arabia in Warner deal extension, The Hollywood Reporter, Jan Starz Play Arabia on Middle East audiences, Variety, Nov Netflix says it will spend up to $8bn. on content, NY Times, Oct SVoD content strategies: the drive for originality, Ampere Analysis, Sep Netflix s first Middle East original to be comedy special, The Hollywood Reporter, Oct How Netflix reverse engineered Hollywood, The Atlantic, Jan Artwork personalization at Netflix, Netflix Tech Blog, Dec A/B testing and beyond, Netflix Tech Blog, Jun.2017

20 20 Videonomics Video content consumption, production and distribution in the MENA region On-demand content is leading to new viewing habits 5 Time-shifted bingeing With content available on demand everywhere and at all times, traditional patterns of primetime viewership are fading. Instead, consumers are picking and choosing time slots convenient to them, at which point they may binge significant amounts of content. This can be seen in Figure 13, where the time spent curve on SVoD platforms is flatter than that on linear TV. Partly due to this bingeing trend, content creators have been prioritizing shorter serialized arcs over lengthy episodic procedurals. In fact, the last eleven Best Drama winners of the US Primetime Emmys have all had episode seasons, compared to the 20+ episode seasons that were the norm earlier. For broadcasters with digital offerings, a key consideration here is optimizing release windows to maximize revenue across both platforms. Figure 13: Global viewership by day part (35-44y)37 Time spent (minutes) Scheduled TV channels SVoD am - 9am 37. 9am - 12pm 12pm - 2pm TV viewing: The new dynamic, Ampere Analysis, Jun 2017; EY analysis 2pm - 5pm 5pm - 8pm 8pm - 12am 12am - 6am

21 Video content consumption, production and distribution in the MENA region Videonomics 21 Decline of the mushy middle Mid-tier programing that was used to glue slots together in traditional TV schedules is no longer needed for an on-demand library. As a result, certain types of factual entertainment, news or talk shows may struggle to be appointment viewing. In contrast, two types of content will become more valuable. The first is big-budget spectacles, which have the potential to cut through the digital noise and attain mass interest. The second is niche programing targeted at specific audiences, who are willing to pay a premium. This hollowing-out of the middle has a parallel in the film industry, which is increasingly focused on lower-budget niche independent films and big-budget tentpoles, as seen in Figure 14. Figure 14: Top - 20 films' share of total industry production budgets38 45% 41% 40% 35% 32% 30% Production budgets, The Numbers, Dec.2017; EY analysis on 3601 global films with a cumulative production budget of US$131.4b

22 22 Videonomics Video content consumption, production and distribution in the MENA region 6 The OTT space has fragmented and driven the need for efficiencies Robust competition MENA s OTT space has become increasingly competitive. Foreign players continue to roll out across multiple markets and platforms are competing over a finite amount of local content (for acquisition) and talent (for production). Figure 15: MENA s OTT landscape 39 Free/Ad - centric Subscription/Add-on options BeIN Connect Icflix Du View Regional Shahid.net Cinemoz Shahid Plus OSN Play/Wavo Istikana Telly elife On mview Seevii My Invision YouTube Amazon Iflix Netflix Viu Global Z5 Weyyak Google Play itunes Starz Play Yupp TV Regional linear TV presence Pure OTT player Telco/IPTV presence Note: non- exhaustive list of companies 39. Public company information; EY analysis

23 Video content consumption, production and distribution in the MENA region Videonomics 23 As the market fragments, players are aggressively pursuing subscribers and reach to realize the benefits of scale: Content costs: Large platforms will be able to amortize the cost of content acquisition or production across audiences in multiple geographies. Distribution scale can increase the scope for players to bundle smaller markets into existing deals, leverage different release windows for syndication or procure limited-scale rights. Back-end savings: Economies of scale can be leveraged to save on incremental costs such as platform development and cloud storage (price per unit of storage falls with size). Hybrid cloud content management platforms, auto-tagging and auto-versioning are some strategies that can deliver efficiencies at scale. Customer analytics: Network effects are important for OTT platforms, as each additional user helps refine the experience for the whole base. This data can be used to optimize content (identifying high time-spent genres), experience (customizing user interfaces) and churn (building better recommendation engines). While the race to scale will continue in the medium-term, consolidation is expected over time. Indeed, this has proven to be the case globally, with Netflix, Amazon Prime and Hulu accounting for ~60% of global SVoD revenues, while YouTube and Facebook share nearly half the global AVoD pie OTT adds US$25b revenue to the global video industry, Digital TV Europe, Sep.2016

24 24 Videonomics Video content consumption, production and distribution in the MENA region 7 IPTV will fuel growth of content delivery Growth of telco TV bundles MENA is a largely satellite-centric region for both free-to-air offerings and pay TV. Satellite provides mass reach across markets, regardless of on-ground cable and fiber connectivity challenges, and requires less investment in last-mile infrastructure. However, the prospect of triple-play services is appealing from a consumer standpoint, and telco pay TV bundles are growing in popularity. Moreover, as these telco operators already have a direct billing relationship with users, an incremental surcharge of IPTV is a relatively low-friction proposition. As the competition to acquire pay TV users heats up, aggressive discounts and the strengthening of base packs are projected to result in user growth but stagnant ARPU levels for the industry, as shown in Figure 17. This shift toward IPTV will have a muted impact on pan-regional broadcasters and pay TV content providers, as they typically offer content on both satellite and IPTV. However, more local channels accessible on a single platform will need to diversify their availability, lest reach gets impacted. Meanwhile, on the digital front, IPTV players are also looking to tie up directly with OTT players, offering users a bundle that includes access to an OTT platform s content. Offering such value add-ons may prove to be a key selling point and will help maximize reach. Figure 16: MENA's pay TV segmentation Total pay TV households (m) Monthly average revenue per household (US$) Satellite CAGR% IPTV CAGR% Pay households (m) Household ARPU (US$) 4% 11% 1% 0% 41. Global pay TV forecasts, Digital TV Research, May 2017; Pay TV services in MENA, Analysys Mason, May 2016; EY analysis- 12 MENA markets considered (Algeria, Bahrain, Egypt, Jordan, KSA, Kuwait, Lebanon, Morocco, Oman, Qatar, Tunisia and the UAE)

25 Video content consumption, production and distribution in the MENA region Videonomics 25

26 26 Videonomics Video content consumption, production and distribution in the MENA region What s next? The new market segmentation 42 Escapism News Social acceptance Cord cutters Premium pay TV + tactical digital users Premium exclusive content for SVoD and TVoD General news to boost visits and time spent News for career development and communities of interest to drive engagement Social interaction TV play along Content gamification Pay TV subscribers + free digital consumers Aggregated ad-supported content Free subscribers We believe that new customer segments will emerge. At the top of the video consumption pyramid will be the cord cutters, who will focus exclusively on online-only consumption. In addition, there will be a large share of TV subscribers who will also subscribe to one or more OTT platforms or procure content piecemeal. The next segment will be TV customers who will only watch free digital content. Finally, at the bottom of the pyramid, are free customers who will not pay and can only be monetized through advertising. Strategies to serve these segments vary. Across the media industry s three pillars of escapism, knowledge dissemination and provision of social acceptance, media companies will need to create different products for each segment. Strategies may include providing exclusive content to premium subscribers, with or without aggregated content, to enable a width of offerings. Meanwhile, mass and free customers can provide a large subscriber base, but monetization will only be enabled through advertising. This model requires scale to succeed. On the news and knowledge front, almost all news is free, whether linear or digital, and that is unlikely to change significantly. News is being used by OTT players to increase the frequency of visits to their apps (news apps and websites receive many multiples the number of visits relative to entertainment apps). But the game changer and most disruptive innovations will come from interactivity with customers. Through smartphones, content platforms can create immersive play along experiences with reality TV, vote and be counted involvement, guess what happens next challenges and much more around episodic content and events, particularly sports. We believe this new segmentation will drive a more focused approach to the creation of quality content, and as the inevitable shift takes place to data-driven decision making, the customer will truly benefit. 42. EY analysis

27 Video content consumption, production and distribution in the MENA region Videonomics 27 M&E companies preparing today for the video experience of the future should ask the following questions: Which future video trends will have the greatest impact on my company? Do I have the systems, processes and organizational structure to meet these trends head on? Have I thought through the supply chain, customer experience and data needs? How will these trends disrupt my well-established business models for ad-supported, subscription and transactional content monetization? How do I reimagine a viewing experience where screens complement, rather than compete against, one another? What tools or technologies do I need to measure engagement in an omni-platform, multi-screen environment? How do I measure and monetize bingeing? How do I use it to boost the value I can deliver to advertisers? What is my risk tolerance and investment boundaries when it comes to creative innovation? What will I need to do to adapt my strategies to prepare for a video consumption future different to the one employed by the industry for decades?

28 28 Videonomics Video content consumption, production and distribution in the MENA region

29 Video content consumption, production and distribution in the MENA region Videonomics 29 EY s M&E advisory services Our M&E Practice EY has a dedicated media & entertainment practice across Africa, India & the Middle East (AIM) region with over 100 experienced resources. We work with clients across television, film, print, radio, digital, events, advertising and out-of-home. Our services include: Strategic Business plans Market studies New technology diligence and assessment Operational services Internal audit Process documentation Risk Management Compliance Management Human capital Staffing for the future media organisation Right sizing Organisation structure development Performance improvement Robotics and automation Business dashboards Cost reduction Ad sales efficiency Content procurement efficiency Distribution efficiency Technology Security reviews and ongoing monitoring Media application design and implementation Controls strengthening Marketing spend Event conceptualization Event process validation Marketing spend audits Interactivity with consumers

30 30 Videonomics Video content consumption, production and distribution in the MENA region Contact details Ahmed Reda MENA Sector Leader Telecom, Media & Technology E: Amit Sachdeva Partner and Advisory Leader Technology, Media, Telecom, MENA Advisory E: Sameh Taher Partner MENA Financial Accounting Advisory E: Ashish Pherwani Partner Media & Entertainment Advisory E: Michael Hasbani Partner MENA Advisory E: Nripendra Singh Director Media & Entertainment Performance improvement E: Anil Menon Partner MENA Transactions Advisory E: Report acknowledgements: Radhika Pradhan, Senior manager Aditya Lahiri, Senior consultant Tanmay Mathur, Senior associate Nitesh Jain Partner MENA Tax Advisory E: Creative team: Yashaswita Gawade, Allan James For any comments or queries, please contact: Radhika Pradhan T: E: Maya Sawaya T: E:

31 Video content consumption, production and distribution in the MENA region Videonomics 31 Glossary Term APAC ARPU AVoD CAGR FAANG FTA IPTV KSA LATAM M&E MENA OTT RoI SVoD TVoD US$ Y-o-Y Definition Asia Pacific Average revenue per user Advertising video-on-demand Compound annual growth rate An acronym for the companies Facebook, Apple, Amazon, Netflix and Google Free-to-air Internet protocol television delivers content over the internet, in contrast to traditional terrestrial, satellite and cable television delivery methods Kingdom of Saudi Arabia Latin America Media and entertainment Middle East and North Africa Over-the-top media distribution across the internet, directly to endconsumers Return on investment Subscription video-on-demand Transactional video-on-demand US dollar Year-on-year

32 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. The MENA practice of EY has been operating in the region since For more than 90 years, we have grown to more than 6,000 people united across 20 offices and 15 countries, sharing the same values and an unwavering commitment to quality. As an organization, we continue to develop outstanding leaders who deliver exceptional services to our clients and who contribute to our communities. We are proud of our accomplishments over the years, reaffirming our position as the largest and most established professional services organization in the region EYGM Limited. All Rights Reserved. EYIN ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com/mena