Contending with Another Challenger

A Special Report from THE MEDIACENTER Contending with Another Challenger When you re King of the Hill, challengers, pretenders and wannabes come at you from all sides. For traditional TV, it started with videocassettes and videodiscs, then cable and satellite, DVD/Blu-Ray, game consoles, the DVR, PCs, smartphones and tablets, and now streaming media services: Netflix, Amazon, Hulu, YouTube and an ever growing list of even newer players. Have these disrupters eroded some of TV s dominance? Certainly, it s only to be expected. What may be more amazing is that the average time spent per adult per day with live TV is still more than twice as much as any of the 8 other media measured by Nielsen, including during its most recent measurement period, Q1 2016. Although Nielsen doesn t include streaming video on demand, or SVOD, in the table above, SVODs have definitely captured the attention and time of media consumers. It reached 50% penetration of TV households during Q1 2016 according to Nielsen; however, HD TV penetration was 94%. With most of the major SVOD services promoting themselves and being perceived by viewers as TV networks, it s important to understand their effect on total media consumption and that s the purpose of this Special Report from THE MEDIACENTER. Total Media Consumption: Average Time Spent/Adult/Day*, Q1 2014, 2015 & 2016 Medium Q1 2014 Q1 2015 Q1 2016 Tablet (App/Web) 0:12 0:19 0:31 Smartphone (App/Web) 0:47 1:02 1:39 Internet on PC 0:49 0:48 0:58 Multimedia device 0:05 0:09 0:13 Video game console 0:12 0:14 0:14 DVD 0:10 0:09 0:08 AM/FM radio 1:54 1:51 1:52 Time-shifted TV (DVR) 0:32 0:33 0:33 Live TV 4:51 4:34 4:31 Total Time 9:32 9:39 10:39 Nielsen, Total Audience Report Q1 2016 *hours:minutes

www.mediacenteronline.com pg. 2 By the Numbers According to May 2016 data from Strategy Analytics, a research and consulting firm, streaming media services first victim appears to be DVDs, as Americans will increase their spending by 22% for SVOD services during 2016. All video acquisition categories will decrease, except for the purchase of downloads. US Consumer Spending on Video, by Format, 2016 Format Total Spending % Change media services $6.62 B +22% Purchase DVD $5.67 B -7% Rent DVD $2.75 B -10% Purchase download $2.20 B +17% Rent download $1.84 B -5% emarketer (Strategy Analytics), June 2016 Of maybe even greater significance is that the ubiquitous TV is clearly digital video viewers favorite device to watch SVOD content, according to 2015 research from RealityMine. As one of the many celestial bodies in the Alphabet universe (Google s parent company), it s not surprising that YouTube is forecast to have the most over-the-top (OTT) video services users and the largest penetration rate of the Big 4 OTT service providers for the period 2016 2019. US OTT Service Users and Service Provider Data, 2016 2019 OTT Service Provider 2016 2017 2018 2019 Total OTT Service Users YouTube 176.1 M 180.7 M 184.7 M 187.8 M Netflix 126.9 M 134.9 M 139.4 M 143.0 M Amazon 73.2 M 79.9 M 85.1 M 88.6 M Hulu 67.0 M 73.7 M 78.8 M 82.2 M Total 186.9 M 191.9 M 196.2 M 199.6 M OTT Video Service User Penetration Rate YouTube 94.3% 94.2% 94.1% 94.1% Netflix 67.9% 70.3% 71.0% 71.7% Amazon 39.2% 41.6% 43.4% 44.4% Hulu 35.9% 38.4% 40.2% 41.2% emarketer, April 2016 Digital Devices Used to View Digital Video Content, March November 2015 Digital Video Source TV Mobile Device Desktop/ Laptop SVOD (Netflix, Hulu, etc.) 80% 58% 42% Video-sharing site (YouTube, Vine, etc.) 10% 22% 34% Digital download or rental service 3% 3% 4% emarketer (RealityMine), June 2016 Other 7% 17% 21%

www.mediacenteronline.com pg. 3 Audience Loyalty May 2016 research from TDG Research showed that younger adults prefer subscription-based streaming video services instead of traditional pay-tv services (cable, satellite or Telco-TV) if they were faced with a choice of one or the other. Not surprising, these results changed with age. (Those responding to the survey were broadband users who had access to both traditional TV and subscription-based streaming video services.) US Adults Preference for TV Content Source, May 2016 Age Range Traditional TV Video 18 24 33.8% 66.3% 25 34 38.2% 61.8% 35 44 61.0% 39.0% 45 54 68.1% 31.9% 55 64 76.6% 23.4% 65+ 77.3% 22.7% MediaPost (TDG Research), June 2016 A separate study from E-Poll Market Research of 1,354 participants age 13 54, who had watched a full-length streamed program during the past 6 months, found that Netflix, at 33%, was their first choice to watch a TV program. Similar to the TDG Research results, twice as many adults, 18 24, would access Netflix most often compared to adults, 50 54. At approximately half the Netflix rate, a TV channel during its original airtime was second, at 16%, followed by DVR or TiVo service, at 15%. These were the first choices of Generation X and Baby Boomer adults. ABC/Accenture Strategy conducted a study of the advertising spending of 20 leading national brands during a three-year period. The study found that multiplatform TV, which includes linear TV as well as premium long-form video content viewed online, creates a halo effect on search, display and short-form advertising within integrated campaigns. Remove the halo effect, and the average ROI of the digital channels would decrease by 18%. It s important to remember that these studies are focused on people s preferences while Nielsen s Q1 2016 Total Audience Report reveals people s actual TV viewing habits and live TV was first among adults, 18 34, compared to the next four preferred media. US Adults, 18 34 Weekly Time* Spent with Media, Q1 2016 Media Time Live TV 35:13 App/Web on smartphone 28:48 AM/FM radio 21:39 Internet on a PC 12:25 Game console 7:37 Video on a PC 4:58 Nielsen, Total Audience Report Q1 2016 *hours:minutes

www.mediacenteronline.com pg. 4 Viewer Insights Recent data from our friends at The Media Audit, culled from their comprehensive online consumer surveys in most major US metro areas, provide a more in-depth profile of streaming media services users than the Nielsen report. When comparing the Atlanta, GA and Milwaukee- Racine, WI markets, there are some similarities and interesting contrasts. Maybe, the most telling contrast is that 49.0% of adults, 18+ in Milwaukee-Racine said they used streaming media services to watch video or TV shows during March 2016 while 30.5% did in Atlanta during October 2015. Although both gender s in both markets used streaming media services at relatively the same rate Atlanta: men, 49.4%, and women, 50.6%; Milwaukee-Racine: men, 52.1%, and women, 47.9% there were significant disparities for each of the four major SVOD services. s Users* by Service and Gender, 2016 Atlanta, GA Milwaukee-Racine, WI Men Women Men Women Netflix 44.7% 55.3% 49.2% 50.8% Amazon 59.2% 40.8% 50.8% 49.2% YouTube 61.3% 38.7% 87.3% 12.7% Hulu 40.9% 59.1% 35.2% 64.8% An age-group comparison of these two markets match what other research sources have discovered and that is streaming media services users skew younger. s Users by Age, 2016 18 34 35 49 50 64 65+ Atlanta, GA Metro Area Netflix 44.4% 34.4% 17.3% 3.9% Amazon 44.0% 31.1% 19.1% 5.9% YouTube 26.5% 47.8% 23.6% 2.2% Hulu 48.1% 28.7% 18.5% 4.4% Milwaukee-Racine, WI Metro Area Netflix 48.7% 24.4% 20.2% 6.7% Amazon 53.7% 21.4% 18.5% 6.4% YouTube 11.9% 56.9% 14.4% 16.8% Hulu 50.3% 22.5% 24.9% 2.2% Although Netflix, Amazon and Hulu follow the same general pattern in both markets, YouTube is quite different. Its highest spike in Atlanta was among adults, 35 49, and adults, 50 64, while in Milwaukee-Racine, it was adults, 65+. *adults, 18+

www.mediacenteronline.com pg. 5 A look at ethnic groups share of streaming media services users in the two markets reveals Atlanta s greater diversity, with 57.1% of its total population European American compared to 76.7% of Milwaukee s. Notice, once again, YouTube s contrasting ethnic breakdown compared to the other services, especially the spikes among African Americans in both markets. s Users by Ethnicity, 2016 European American African American Latino American Asian American Atlanta, GA Metro Area Netflix 57.3% 22.8% 12.3% 4.9% Amazon 55.2% 19.1% 11.9% 10.5% YouTube 58.7% 25.4% <1% 16.0% Hulu 57.1% 24.2% 10.0% 1.7% Milwaukee-Racine, WI Metro Area Netflix 72.2% 11.4% 11.2% 4.2% Amazon 76.3% 9.8% 9.6% 3.8% YouTube 60.9% 39.1% <1% <1% Hulu 69.8% 14.1% 14.4% 1.1% An income comparison shows that middle- to upperincome persons are the majority of streaming media services users, although YouTube s number are somewhat different. s Users by Income, 2016 <$15K $35K <$35K $50K <$50K $100K $100K+ Atlanta, GA Metro Area Netflix 15.7% 8.7% 45.4% 30.3% Amazon 11.1% 8.3% 28.2% 43.3% YouTube 24.0% 30.8% 31.8% 13.5% Hulu 10.2% 11.4% 53.8% 23.5% Milwaukee-Racine, WI Metro Area Netflix 18.9% 9.6% 52.5% 19.0% Amazon 12.8% 8.4% 59.4% 20.4% YouTube 19.4% 57.2% 23.4% <1% Hulu 14.9% 23.0% 51.6% 10.4% When comparing streaming media services users by education, those with some college, a college degree and/or an advanced degree account for the largest share in all categories. Amazon scores the highest in Atlanta for those with an advanced degree, and much higher than Milwaukee, where all four have higher percentages of adults with a high school degree or less than Atlanta. s Users by Education, 2016 HS Graduate or Less Some College College Degree Advanced Degree Atlanta, GA Metro Area Netflix 17.6% 26.5% 36.1% 19.8% Amazon 14.8% 25.5% 27.2% 31.5% YouTube 6.4% 6.1% 65.7% 21.9% Hulu 9.2% 33.9% 30.7% 26.2% Milwaukee-Racine, WI Metro Area Netflix 23.9% 35.0% 31.4% 9.7% Amazon 21.1% 28.5% 38.6% 11.8% YouTube 6.7% 75.8% 17.6% <1% Hulu 30.1% 32.2% 25.4% 12.2% To subscribe to The Media Audit Newsletter or request a software demo, please contact Nell Rankin at nrankin@themediaaudit.com or 800.324.9921.

www.mediacenteronline.com pg. 6 Driven by Competition The streaming media services industry, just like all other digital technologies, is highly dynamic, with new ideas to expand services being introduced at a steady and sometimes hectic pace. Netflix s Q2 2016 financial report released during July was not what the company and analysts expected, as it added just 1.7 million new subscribers, compared to 3.3 million during Q2 2015 and 6.74 million for Q1 2016. It had forecast an increase of 2.5 million new subscribers. Netflix US Subscriber Growth, Q1 2015 Q2 2016 Quarter/Year Total Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 41.4 M 42.3 M 43.18 M 44.74 M 46.97 M 48.67 M Statista, April 2016 and Forbes, July 2016 As indicated on page 2 of this Special Report, Netflix has significantly more users than Amazon; however, Amazon had more US subscribers than Netflix as of the end of 2015, or 54 million versus 44.74 million. During 2015, Amazon s Prime members increased 35%, compared to 14.4% for Netflix. In addition, Amazon Prime subscribers are paying $99 annually, which also provides them with an advantage not available from Netflix: free shipping for all their Amazon.com purchases. A spring 2016 random survey of 380 current Amazon Prime members substantiated the value of free shipping. Primary Reason for Amazon Prime Membership, April 2016 Reason Percent Cut Cable Today, April 2016 Free 2-day shipping 91% Prime Instant Video 22% Other 8% Prime Music 5% The survey also found that 19.2% of Amazon Prime members never use its video streaming service, with just 9.7% using it daily; 34.8%, weekly; and 36.3%, monthly. These results shouldn t scare Netflix, however, since 38% of Amazon Prime members use Netflix daily, and even 12% use Hulu daily. In addition, more than 80% of Amazon Prime members also have Netflix subscriptions. Amazon Prime Members Other Services, April 2016 Service Percent Cut Cable Today, April 2016 Netflix 84% HBO NOW 43% Hulu 35% Sling TV 7% PlayStation Vue 3%

www.mediacenteronline.com pg. 7 Amazon, as you might expect, isn t standing pat. During April 2016, it raised the competitive stakes by offering a separate monthly video-streaming plan for $8.99, which is one dollar less than Netflix s $9.99/month. Then, during May 2016, Amazon trained its sights on YouTube by offering everyone the opportunity to post video content on the Amazon Website and generate revenue from advertising and royalties. YouTube, as a division of Alphabet, Google s parent company, and one of the other 800-lb. tech gorillas in the room, wasn t about to let Amazon have all the bananas. YouTube is also planning a separate monthly video-streaming bundle of cable TV channels, called Unplugged, to be accessible on the Internet during 2017. Although Hulu may be the low man on the totem pole, it has also recently announced some competitive moves. To date, Amazon and Netflix have been uninterested in streaming live programming, but Hulu is launching just such a service during 2017. According to The Wall St. Journal, live programming from ABC, ESPN, Disney, Fox, Fox News, FX and Fox s sports channels will be offered and NBC Universal s stable of Bravo, E!, MSNBC, CNBC, Oxygen, Syfy and USA are likely to be added too. During May 2016, Hulu also revealed that it would be initiating a first-of-its-kind interactive advertising system. Any connected TV either smart TVs or those with a streaming media player (Apple TV, Roku, PlayStation, etc.) will be able to click an on-screen ad, which would transfer them to another page or Website to learn about a discount and new product or other brand information. Turner, the parent company of Turner Classic Movies (TCM) is joining the battle with the launch of FilmStruck, a new subscription video on-demand service for film aficionados, during fall 2016. The Criterion Collection s outstanding selection of foreign films is among the film libraries that will be included. Hulu is currently the home of the Criterion Collection, but it will be losing this programming with the transfer of the collection to FilmStruck. image: http://cdn.exstreamist.com/

www.mediacenteronline.com pg. 8 SVOD s Effect on the TV Ad Model media services have and are contributing to a further fragmentation of TV viewership, although the data, analysis and insights in this MEDIACENTER Special Report indicate that traditional, or linear, TV hasn t suffered much from the addition of SVOD, as another viewing choice. At the current time, many of the streaming media services, Amazon and Netflix, for example, promote their commercial-free programming as a benefit of becoming a subscriber. Other SVODs, such as Hulu and Crackle, sell and run advertising spots. The challenge for these SVODs is that they don t sell ad slots in the same manner as linear TV networks and local affiliates. They sell advertisers a schedule, or flight, of spots to coincide with a specific season or promotion. SVOD advertisers tend to want a specific number of impressions. Since the number of SVOD viewers is much fewer than those watching linear TV at any given time, there is a much higher rate of spot repetition on streaming media services. This has created an environment that may be good for advertisers saturating viewers with the same spot within the same program but many viewers see it as much more intrusive than the spot breaks in traditional TV. Viewer complaints have driven Hulu, YouTube and others to offer a higher-priced, ad-free version of their service. This trend suggests that most (and certainly the major) streaming media services will never or are unlikely to offer spots to local advertisers. They will have to continue to rely on linear TV as the only advertising medium of its kind to reach local audiences and that should be an advantage and selling point for you and your station. Sources: Nielsen Website, 7/16; emarketer Website, 7/16; MediaPost Website, 7/16; The Media Audit Website, 7/16; International Business Times Website, 7/16; Investor s Business Daily Website, 7/16; Forbes Website, 7/16; Statista Website, 7/16; Cut Cable Today Website, 7/16; USA Today Website, 7/16; Bloomberg Website, 7/16; Tech Crunch Website, 7/16; The Business Times Website, 7/16; Turner Website, 7/16; TechHive Website, 7/16. Updated: July 2016 2016 THE MEDIACENTER. All rights reserved. THE MEDIACENTER 7000 Kennedy Blvd. East, M-9 Guttenberg, NJ 07093 Phone: 866-921-1026 www.mediacenteronline.com