ON-DEMAND AUDIOVISUAL MARKETS

IN THE EUROPEAN UNION

FINAL REPORT
A study prepared for the European Commission
DG Communications Networks, Content & Technology
by

Digital
Agenda
for
Europe
This study was carried out for the European Commission by

European Audiovisual Observatory, 76 Allée de la Robertsau, 67000

Strasbourg, France
Authors:
Director of publication: Susanne Nikoltchev, Executive Director,
European Audiovisual Observatory
Supervision: André Lange, Head of Department for Information on
Markets and Financing, European Audiovisual Observatory
Author: Christian Grece, Analyst at the European Audiovisual
Observatory
Preparatory notes: Lorenzo Principali, Analyst at the European
Audiovisual Observatory

Internal identification
Contract number: 30-CE-0520606/00-86
SMART number: 2012/0026

DISCLAIMER
By the European Commission, Directorate-General of Communications Networks, Content & Technology.

The information and views set out in this publication are those of the author(s) and do not necessarily
reflect the official opinion of the Commission nor of the European Audiovisual Observatory, its members or
of the Council of Europe. The Commission does not guarantee the accuracy of the data included in this
study. Data compiled by external sources are quoted for the purpose of information. The author of this
report is not in a position to verify either their means of compilation or their pertinence. Neither the
Commission nor any person acting on the Commission’s behalf may be held responsible for the use which
may be made of the information contained therein..

ISBN 978-92-79-38425-7

DOI 10.2759/51823

© European Union, 2014. All rights reserved. Certain parts are licensed under conditions to the EU.

Reproduction is authorised provided the source is acknowledged.

INTRODUCTION ........................................................................................................................................... 5
1 DEFINITIONS ............................................................................................................................................... 7
1.1.1 The ITU definition of Video on Demand .................................................................................................. 7
1.1.2 The legal definition provided by the Audiovisual Media Services Directive ............................................ 7
1.1.3 Market definitions ................................................................................................................................... 9
1.1.4 The technical solutions for on-demand audio-visual services ............................................................... 11
2 THE MAVISE DATABASE AND THE CENSUS OF ON-DEMAND AUDIOVISUAL SERVICES .......................... 16
2.1 Services established in a country ................................................................................................... 16
2.2 Services available in a country ...................................................................................................... 20
ADVERTISING-FINANCED ON-DEMAND AUDIOVISUAL SERVICES ............................................................... 31
3 THE ONLINE ADVERTISING MARKET ................................................................................................................ 35
3.1 Online advertising in Europe in 2012 and 2013: trends and developments (IAB & eMarketer) .... 35
3.1.1 IAB Europe AdEx Benchmark 2012 and main figures available on the online advertising market in
Europe 36
3.1.2 Online video advertising ....................................................................................................................... 44
3.1.3 Mobile advertising ................................................................................................................................ 50
3.1.4 Social network advertising .................................................................................................................... 53
3.1.5 Programmatic, real-time bidding and video advertising ....................................................................... 56
3.2 The online advertising market 2011– Data available on online advertising investments (IDATE &
IAB data) 58
3.2.1 The online advertising market .............................................................................................................. 59
3.2.2 The European online advertising market .............................................................................................. 64
3.2.3 Online ad spend compared to total and other media ad spend (Warc data) 2008-2014 ..................... 69
3.2.4 The American online advertising market 2012 ..................................................................................... 73
3.3 Online display advertising - a complex market ............................................................................. 82
3.3.2 Online video advertising, the rising star of display advertising ............................................................. 85
3.3.3 Trends underlying the increased ad spend on online display advertising ............................................. 88
3.3.4 Various kinds of audiovisual services financed by advertising .............................................................. 90
4 TYPES OF ADVERTISING-SUPPORTED ON-DEMAND AUDIOVISUAL SERVICES ............................................................. 91
5 AUDIENCE DATA: COMSCORE’S VIDEO METRIX ................................................................................................ 92
5.1.1 The United Kingdom ............................................................................................................................. 94
5.1.2 Germany................................................................................................................................................ 95
5.1.3 France.................................................................................................................................................... 96
5.1.4 Spain...................................................................................................................................................... 97
5.1.5 Italy ....................................................................................................................................................... 98
5.1.6 The Netherlands .................................................................................................................................... 99
TRANSACTIONAL VIDEO ON-DEMAND SERVICES ..................................................................................... 100
6 TYPES OF TRANSACTIONAL VOD SERVICE ....................................................................................................... 102
7 STRATEGIES OF SELECTED INTERNATIONAL PLAYERS ......................................................................................... 103
7.1 Typology of players ..................................................................................................................... 103
8 VOD MARKET STATISTICS ........................................................................................................................... 115
8.1 International Video Federation (IVF) statistics ............................................................................ 115
8.2 Market shares of VoD services .................................................................................................... 124
8.2.1 Market shares United Kingdom.......................................................................................................... 125
8.2.2 Market shares Germany ...................................................................................................................... 131
8.2.3 Market shares France .......................................................................................................................... 133
SUBSCRIPTION ON-DEMAND AUDIOVISUAL SERVICES ............................................................................. 136
9 TYPES OF SERVICES ................................................................................................................................... 139
10 SUBSCRIPTION VIDEO ON DEMAND (SVOD) ............................................................................................... 140
10.1 What is a subscription video-on-demand (SVoD) service? ...................................................... 140
10.1.1 Main SVoD players in EU-5 and Nordics .............................................................................................. 141
 10.2 US OTT SVoD market ............................................................................................................... 146
10.3 Main market numbers available for Europe ............................................................................ 149
10.4 Growth drivers of SVoD services .............................................................................................. 155
10.4.2 Exclusive licenses and licensing deals ................................................................................................. 157
10.4.3 Investment in original content ............................................................................................................ 164
10.4.4 ATAWAD – Any time, anywhere, any device ....................................................................................... 167
11 EXAMPLES OF THE STRATEGIES OF THE MAIN PLAYERS - NETFLIX..................................................................... 180
11.1 Netflix ...................................................................................................................................... 180
11.1.1 Netflix’s background ........................................................................................................................... 180
11.1.2 Change of paradigm in Netflix’s strategy: The beginning of streaming video content, the years 2008-
2010 183
11.1.3 Netflix 2011-2012: international expansion and original programming ............................................. 188
ON-DEMAND AUDIOVISUAL SERVICES OF PUBLIC BROADCASTERS.......................................................... 202
12 SERVICES FINANCED BY PUBLIC FUNDS ...................................................................................................... 203
SAMPLE STUDY ON THE PRESENCE OF SELECTED EUROPEAN WORKS IN VOD PROVIDERS CATALOGUES 208
13 SAMPLE STUDY .................................................................................................................................... 209
13.1 Introduction ............................................................................................................................. 209
13.2 European movies in VoD catalogues: Sample results & Analysis ............................................ 213
13.2.1 Overview of results ............................................................................................................................. 213
13.2.2 Analysis of results................................................................................................................................ 217
CONNECTED TVS AND CONNECTED DEVICES ............................................................................................ 226
14 SMART TV AND APPS............................................................................................................................ 227
14.1 The Global Smart TV market ................................................................................................... 227
14.2 The European Smart TV market .............................................................................................. 233
14.2.2 The differences in statistics: Connected TV vs. Smart TV .................................................................... 237
14.2.3 The global on-demand video market for connected TVs .................................................................... 238

TABLE OF TABLES ............................................................................................................................................. 242

TABLE OF FIGURES ........................................................................................................................................... 247

Introduction

This report on on-demand audiovisual services in Europe was prepared by the European
Audiovisual Observatory under a contract with the European Commission’s DG Connect. This is the
fourth report that the Observatory has produced on this market. It is intended to be a roadmap for the
rapidly developing European on-demand services landscapes. The sector is growing fast and the
number of on-demand audiovisual services available in Europe is rising, driven by rapid consumer
adoption and made possible by technological innovations and a shift in consumption habits. The rising
importance of on-demand services in the media ecosystem is introducing a shift towards an attention
economy. The introduction of the Internet as a delivery platform and the digitisation of audiovisual
content have provoked major changes in the functioning of the media sector. The passage from a
relatively closed media system where content was scarce, controlled and broadcast linearly to an
open, uncontrolled media ecosystem where content is abundant and the audience chooses its
favourite content on-demand (non-linear, “ATAWAD – any time, anywhere, any device”), the main
challenge of traditional media companies, telecommunications companies and “over-the-top” on-
demand audiovisual service players is getting the audience’s attention.

This shift towards an attention economy is impacting the audiovisual value chain and existing
business models; commercial TV channels are more and more in competition with online services for
advertising budgets, pay-TV channels are challenged by Subscription Video on-Demand services, the
home video market (DVDs and Blu-ray) and cinemas see Transactional Video on-Demand and
electronic sell-through services increasingly in competition with them for the consumer’s money and
attention. In 2013, even though on-demand audiovisual services have existed for almost a decade,
technology coupled with changes in the supply and demand sides have started to transform the
European media sector.

The major developments in 2013 regarding on-demand audiovisual services were the rise of
connected mobile devices and their increasing importance in video consumption (enabled by mobile
broadband), the rising importance and expansion of “over-the-top” players (Netflix, Amazon, Apple,
Google) as online video providers in Europe, the continuous enlargement by traditional media players
of their business models to adapt to the technology and demand side changes (multi-screen viewing)
and the increase in the online video advertising market, in 2013 the second most important advertising
market after the TV advertising market in Western Europe.

Keeping track of market developments, audience behaviour and technology changes is particularly
challenging, even more when considering the general lack of data on on-demand audiovisual services
in Europe and the rapidity of the change that is happening. The opacity of financial and economic data
renders the task of describing and analysing the market difficult. The report is based on the MAVISE
database, comScore’s Video Metrix data for the online advertising market and advertising-financed
on-demand audiovisual services and free available data from various sources. The lack of reliable and
trustworthy sources of data on the European on-demand audiovisual market obliged us to rely on
different sources: consulting groups, press releases and specialised news sites and professional
organisations. The lack of transparency concerns various areas: financial data such as revenues from
on-demand activities, ownership of services, editorial responsibility, catalogue information, audiences
of audiovisual works, revenues of right holders, which raises obstacles in assessing the market, the
market power of players, market shares and the importance of the on-demand market when compared
to other business segments of the media value chain. The situation is paradoxical as the web
economy as a whole produces huge amounts of data (referred to as “big data”) as every click and visit
can be tracked, stored and analysed. Possessing data is a competitive advantage, and whereas data
on other media sectors (such as broadcasting, cinema and home video) is relatively transparent, the
sector which produces and is fuelled by data is very opaque.

The report is structured in order to give a general overview of the European on-demand audiovisual
market in different business segments: online advertising and advertising-supported on-demand
services, transactional video on-demand services, subscription video on-demand services and
services provided by public organisations. The information was gathered throughout 2013. The
European online landscape is fragmented, with each country having a different market situation,
language and culture, and this fragmentation adds another layer of complexity when we look at the
pan-European picture. The data collected and analysed where possible should give a picture of the
general state of the European on-demand market, pinpoint areas where more investigation is needed
and help to identify potential challenges and issues that will affect the European media sector in the
years to come.
1 Definitions

The on-demand audiovisual services ecosystem is complex, with sets of definitions, regulatory
frameworks, technological solutions and several business models co-existing. This short section
therefore summarises the main expressions and definitions relating to the on-demand audiovisual
markets and the typology of services.

1.1.1 The ITU definition of Video on Demand

The technical definition in English recommended by the ITU in 2004 for the transmission of video on
demand (VoD) was as follows: “Program transmission method whereby the program starts playing
after a certain amount of data has been buffered while receiving subsequent data in the background,
1
where the program is completely created by the content provider.”

This definition was, however, rather restrictive as it was related to the classical download of files,
which has been since then complemented by other technical solutions (VoD through streaming, VoD
over IP, VoD on cable, etc.).

A more recent and broader definition was provided by the ITU in a report on requirements for the
support of IPTV services.

“Video-on-Demand (VoD): “A service in which the end-user can, on demand, select and view a
video content and where the end-user can control the temporal order in which the video content is
2
viewed (e.g. the ability to start the viewing, pause, fast forward, rewind, etc.) NOTE - The viewing
may occur some time after the selection of the video content”.

In a technical context, the legal status, the usage forms and types of content are not taken into
consideration. Services that offer films and television broadcasts generally put onto a server by
professional providers may be included, as may services based on the principle of making
programmes provided by individual users available (“user generated content”).

1.1.2 The legal definition provided by the Audiovisual Media Services

Directive
A legal definition of on-demand services is provided by the European Audiovisual Media Services
Directive (AVMSD), which was adopted in November 2007: “an audiovisual media service provided by
a media service provider for the viewing of programmes at the moment chosen by the user and at his
individual request on the basis of a catalogue of programmes selected by the media service
provider”.3

This definition is more restrictive than the technical definition as it excludes from its scope VoD
forms that are not part of the normal service activities or cases where the use of VoD techniques is not
part of the main objective of a service. In particular, the Directive’s definition does not cover services
consisting of programmes provided by users.

1
ITU, J.127 (04), 3.314
2
[ITU-T Y.1901] adopted in 2009.
3
For general information on the AVMSD, see the website of DG Connect: http://ec.europa.eu/digital-agenda/en/audiovisual-
media-services-directive-avmsd
To identify if a service is an on-demand audiovisual media service within the meaning of the Directive,
various criteria should be met:
 the service must enable the user to view the service at the time of his/her choosing and on
individual demand;
 there must be a service available, that is to say an offering normally provided against payment;
 the service must be under the editorial control of an audiovisual media service provider,
 the service is provided on the basis of a catalogue of programmes selected by the media services
provider;
 the purpose of the service must be to inform, entertain or educate the general public;
 the principal purpose of the service must be to supply audiovisual programmes;
 the service must be supplied by electronic communications networks.

The purpose of this report is not to discuss the definition provided by the Directive or how it is
transposed by states into domestic law and interpreted by regulatory bodies responsible for producing
4
reports on the application of Article 13, which relates to the promotion of European works . However, it
should be pointed out that it is generally accepted that:

 NVoD services (which entail the viewer watching a programme transmitted at a time chosen by the
service provider) do not constitute on-demand audiovisual media services but television services;
 video-sharing platforms, such as YouTube or Dailymotion, do not constitute OD AVMS as their
operators do not have editorial control;
 by contrast, the “channels” offered by commercial operators on these platforms may, under certain
conditions, be described as on-demand audiovisual media services;
 Newspaper websites with news videos are not OD AVMS as the use of videos is only subsidiary to
the publication of texts.

4
For a legal approach to those issues see: Nikoltchev S. (ed.)The Regulation of On-demand Audiovisual Services: Chaos or
Coherence? IRIS Special, European Audiovisual Observatory, Strasbourg, 2011; Nikoltchev S. (ed.), What Is an On-
demand Service?, IRIS plus 2013, European Audiovisual Observatory, Strasbourg, 2013
1.1.3 Market definitions
Neither the technical nor the legal definitions are operational for the market analysis. The first is too
broad, the second too restrictive. Unfortunately, market definitions are not as formalised as the
technical and legal definitions.

A first classification will allow us to clarify the definitions used in this report.

Table 1 On-demand audiovisual services - Classification of on-demand audiovisual services

Catch-up TV

Premium TV
ODMAS On demand audiovisual media services
according to the AVMS Directive
VoD

Branded services on sharing platforms

Video sharing platforms (YouTube, Dailymotion…)

Other on demand audiovisual services
not falling within the definition of the AVMS
Directive
Social networks allowing video upload by users (Facebook,
etc.)
Video pages of newspapers websites

Promotional websites with video content

Source : European Audiovisual Observatory

Catch-up TV (or Replay TV)

A catch-up TV service is an on-demand audiovisual service provided by a broadcaster who makes

available recent programmes, after their initial broadcasting and during a limited period of time. A
catch-up service can be delivered on different platforms (Internet, IPTV, cable, telephone, applications
for smartphone, tablet or Smart TV).

Various business models are possible for catch-up TV services:

– free catch-up TV service: the service is accessible without payment (generally on the Internet
and is financed by advertising or, in the case of public broadcasters, by public funding)
– transactional catch-up TV service: the broadcaster providing the service makes the access
conditional on payment for a single programme;
– subscription catch-up TV service: the catch-up TV service is accessible on the condition that
users pay a subscription in order to access it;
– catch-up TV as part of a subscription: the catch-up TV service is part of a broader offer of TV
and various on-demand audiovisual services provided by a distribution platform accessible by
subscription.

Preview TV

A preview TV service of allows the user to access TV programmes (typically episodes of series)
before their broadcast release. Preview TV is a paid-for service (transactional or subscription).

VoD

In the industry jargon, VoD is generally understood in a more restrictive sense that the technical
definition proposed by the ITU. VoD services are those services providing access on demand to a
catalogue of films or audiovisual programmes (animation, TV series, documentaries, music, archives,
training, general interest, etc.) independently of any television broadcast of those works. While catch-
up TV services are almost exclusively provided by broadcasters, VoD services are provided by a wide
range of companies: distributors of TV services (IPTV, cable, satellite, pay-DTT operators), film
companies, video publishers, retailers, newspapers, companies created just for this activity. Some
broadcasters may also provide VoD services in addition to their catch-up TV services.

 VoD services can be provided through various business models:

– TVoD - Transactional Video on-Demand: (a.k.a. Transactional Video on Demand, Pay Per View
VoD, Standard VoD.) – With Transactional VoD the customer pays for each individual video on
demand program. TVoD can take the form of digital retail (purchasing a title) or rental (renting a
title for a defined time period, sometimes referred to as iVoD, Internet VoD). In contrast to EST,
the video is not downloaded onto the customer’s device.

– EST - Electronic sell-through (digital retail): services offering the purchase of a digital video
file online, whereby the file is downloaded and stored on a hard drive; the content may become
unusable after a certain period and may not be viewable using competing platforms. Electronic
sell-through can be provided for an unlimited period (download-to-own - DTO) or for a limited
period (download-to-rent - DTR).

– SVoD - Subscription Video on-Demand: refers to a service that gives users unlimited access
to a wide range of programmes for a monthly flat rate. The users have full control over the
subscription, and can decide when to start the programme.
Subscribers to SVoD services have unrestricted access to specified programmes for a routinely
billed fee. In the case of SVoD services, the individual title rates are not applicable. SVoD
operates on a distinct business plan when compared with transactional VoD (TVoD). The
majority of SVoD services have similar content fees to TVoD businesses, although they do not
include higher-margin income streams like Internet, pay-TV, and fixed or mobile subscriptions.
Regardless of the quick boost in SVoD subscriber volumes, the majority of these services still
5
depend on their physical distribution business to stay profitable .
Most known SVoD services in Europe include Netflix, LOVEFiLM, HBO Go, Wuaki.tv, Canal
Play Infinity, FilmoTV, Maxdome, and Watchever.

– Pack VoD: services providing access, through a single transaction, to a limited number of films.

– AVoD/FVoD – Advertising-supported Video on-Demand/Free Video on-Demand/on-demand

audiovisual services supported by advertising: video on demand providers (e.g. Sony’s Crackle,
Snag Films, Viewster) where the content is financed by placing advertisements.

– TV VoD: Video on-Demand on a digital TV platform (IPTV, cable (US: C-VoD), satellite). TV
VoD is VoD on a controlled platform where the service providers act as gatekeepers, the
contrary of OTT VoD services that bypass this traditional distribution platform.

VoD services can also be classified according to the kind of content they provide. In the MAVISE
database, the following categories are used:

- Generalist VoD: services providing various kind of programmes: films, TV fiction,

documentaries, animation, programmes for children,

5
http://www.techopedia.com/definition/29272/subscription-video-on-demand-svod
 - Film VoD: services providing only feature films
- TV fiction VoD: services providing only TV fiction programmes (mainly series and soaps)
- Film and TV fiction VoD: services providing both films and TV fiction programmes
- Short movies VoD: services specialising in the provision of short films
- Documentary VoD: services specialising in the provision of documentaries
- Children/animation VoD: services specialising in the provision of children’s programmes or
animation programmes (in particular mangas)
- Music VoD: services specialising in the provision of music programmes (video music or music
events)
- General-interest programme VoD: services specialising in the provision of general-interest
programmes , such as do-it-yourself or training programmes,
6
- Adult VoD: services specialising in the provision of adult programmes.
- Lifestyle and health VoD: services specialising in the provision of lifestyle and health
programmes.
- VoD with recorded sports events: services providing programmes with recorded sports
events (mainly historical). This category differs from the category “Sport events”, which we do
not consider as VoD.

It should be noted that we do not include in the category VoD the services specialising in the
provision of archives (TV programmes, films from film archives) when they are free of access and
provided on a non-commercial basis.

1.1.4 The technical solutions for on-demand audio-visual services

One of the difficulties in describing the market for on-demand audiovisual services is the extreme
complexity and diversity of the technical solutions provided. The roll-out of these solutions differs from
one country to another according to the pre-existing roll-out of platforms for the distribution of
television services (cable, IPTV, satellite, DTT, telephone, broadband). Although it may be obvious to
experts, it is important to underline that on-demand and online should not be confused: not all on-
demand services are on-line (they may be transmitted through TV distribution platforms and not
through the Internet) and not all online services are on-demand (hundreds of TV services are now
available online).

6
In the MAVISE database and in the statistics published by the Observatory, adult VoD services are registered only if they are
registered by a national authority or if they are included in the line-up of a distribution platform. It does not include online
video services that generally use a mix of UGC content, sponsored programmes and paid-for programmes.
Table 2 Technical arrangements for the transmission of on-demand audiovisual services

Video is transmitted through the Open Internet, in a open

Download without format (mpeg, avi) which can be played by using freely available
specific player video players (e.g. VLC) and downloaded to the user's device
allowing for portability and offline playback

Video is transmitted through the Open Internet, in a

Download with proprietary format which requires a specific player (e.g. Microsoft
specific player Silverlight) and downloaded to the user's device allowing for
portability and offline playback

Video is streamed through the Open Internet, in an open or

proprietary format. Streaming requires an Internet connection
Internet

Streaming
and does not allow for offline playback as video is not "stored" on
the user’s device (Netflix)

Video is exchanged between multiple users (e.g. torrent

Peer-to-Peer protocol), downloaded to the users’ devices, can exist in multiple
formats.

Through an open Video is streamed to the user’s browser or application through

platform (such as the Open Internet, requiring an Internet connection to allow
YouTube, Dailymotion) playback.

Video is transmitted via the Internet on a closed platform and

Through store (such
requires the users to have downloaded the access (application)
as iTunes Store)
of the store.

Video is transmitted either via the Internet (WiFi connection)

Through application
or the mobile network (mobile broadband) when the user opens
for mobile Internet
the dedicated application.

Video is transmitted via the cable connection (Internet) on a

TV platform (closed

closed platform where the service provider can optimise the

Cable
transmission. It can be streamed or downloaded to a set-
top/hybrid box
platforms)

Video is transmitted via the Internet connection on a closed

IPTV platform where the service providers can optimise the
IPTV
transmission. It can be streamed or downloaded to a set-
top/hybrid box.

Video is transmitted using airwaves (frequencies) in the DTT

DTT
network. Downloaded to user's set-top box

Video is transmitted using the satellite link and downloaded to

Satellite
the user's set-top box.

Telephone Video transmitted through mobile networks.

 Through a dedicated Video is accessed via the open Internet and streamed to a
Connected TV box media device player (Apple TV, Roku).

Video is accessed via a video game console (Xbox One and

Through a video
360, Playstation 3 & 4). Can be downloaded or streamed by
games console
using an Internet connection depending on the service used.

Through Video is accessed via an application downloaded from a

applications for Smart Smart TV platform and streamed/downloaded to the user's
TV Smart TV.

Through a hybrid Video is accessed via the open Internet and streamed/
box downloaded to the user's hybrid box.

The reception screens

It should also be noted that the classical borderlines between reception on PC Screens and TV sets
have become very blurry:

- the growing popularity of HDMI cables makes it possible to establish a direct connection
between a computer or tablet and a TV screen, allowing the user to see any Internet content on
his/her TV screen without any gatekeeping by the operator;
- the possibility of viewing TV channels and on-demand audiovisual services on a PC or tablet
screens is made possible by solutions provided by the distributors (“On the Go formula”), the
broadcasters or a new category of players in the shape of service aggregators that provide
specific software (such as Zattoo).
- Wireless video streaming devices such as Google’s Chromecast which allow users to beam
content from a mobile device onto a TV screen blurry the borders further.

The concept of “Over the top” (OTT)

The concept of “Over the top” (OTT) has emerged in the audiovisual sector in the last few years.
The classic definition is the distribution of voice, video and data services without going through the
cable or telecommunications operators. A classical example is Skype, which provides a voice and
video service via the Internet (but is not an on-demand audiovisual service).

In the field of on-demand audiovisual services, the definitions of OTT services are not always
identical:

– Some definitions assimilate OTT to any on-demand audiovisual services accessible online ;
– Some definitions will assimilate OTT services to services accessible through specific
applications (on PCs, tablets, Smart TVs or through hybrid boxes).
– Some other definitions will characterise OTT services by the fact that they are provided by new
stakeholders which are not part of the classical media operators’ ecosystem (whether cable,
IPTV or satellite operators or broadcasters).
The creation of OTT services has led to wide-ranging competition between companies that offer
similar or overlapping services. The traditional distributors (cable, IPTV and satellite platform
operators) have had to anticipate challenges related to third-party firms that offer over-the-top services
by creating their own audiovisual on-demand services. But the success of OTT services such as
YouTube or Netflix and the development of household equipments like Smart TV sets or tablets are
leading the traditional operators to recognise the interest of those services. These operators are
therefore gradually adopting the so-called hybrid set-top box, which allows simultaneously for the
distribution of TV channels by traditional means and the distribution of OTT services via a connection
to the Internet and App stores.
 As the concept of OTT is rather imprecise, it has to be used with care, at least by stating exactly
what is included. In this report, we will use the third definition (with the emphasis on the fact that
OTT services are provided by new stakeholders which were not part of the traditional audiovisual
ecosystem).

Multiplatform strategies vs. exclusivity strategies

Other elements of the complexity of the on-demand audiovisual markets are the different strategies
adopted by providers to make their services available on the web, through various platforms. Some
are looking for the broadest means of distribution, while others (in general, manufacturers such as
Apple or Sony, who operate their own integrated ecosystem) are much more restrictive.

Table 3 Availability of the main on-demand audiovisual services through platforms in

Europe (January 2014)

Services
Catalogues
Viewing option iTunes on Xbox Google Sony Netflix Viewster YouTube
Store Video Play Unlimited
PC
Yes (PC
Yes
Browser (streaming) No Windows No Yes Yes Yes
(480p)
Media player)
Yes (with
Mac Download Yes No No Player No No No
MediaGo)
Yes (with
PC Download Yes Yes No Player No No No
MediaGo)
Smartphones /
Tablets
iOS Yes No Yes (no No Yes Yes Yes
download)

No (except
Android No No Yes Sony Yes Yes Yes
Xperia)
Windows Phone No Yes No No Yes No Yes
Via
Surface/Windows RT No Yes Browser No Yes No Yes
(no
download)

Kindle No No No No Yes Yes Yes

Boxes
Roku No No No No Yes Yes Yes
Apple TV Yes No No No Yes Yes Yes
Game consoles
PSP No No No Yes No No No
Xbox No Yes No No Yes No Yes
 Services
Catalogues
Viewing option iTunes on Xbox Google Sony Netflix Viewster YouTube
Store Video Play Unlimited
Smart TV Apps
Samsung No No No No Yes Yes Yes
Sony Bravia No No No Yes Yes Yes Yes
Yes
(Android
LG No No No Yes Yes Yes
Smart TV
platform)
Yes
(Android
Philips No No No Yes Yes Yes
Smart TV
platform)
Notes: This table takes account only of the availability agreed on by the providers. Some non-agreed solutions may exist. Services and viewing options are not necessarily
available in all European countries Source: European Audiovisual Observatory 2014

Geolocation and its limits

A further criterion of the classification of on-demand audiovisual services is the definition of the
extent of their geographical distribution.

Services provided by TV distribution platforms (cable, IPTV, DTT) are limited by the natural national
coverage of those platforms. In the case of services provided by operators of satellite platforms (such
as BSkyB or Sky Deutschland), the services will be accessible in the two or three territories where
they market the service, together with a possible “grey market” in other countries. It should be noted,
however, that some service providers (in particular the affiliates of major US studios) are designing
VoD services that are sold to IPTV or cable operators in various countries.

The situation is more complex for services provided through the Internet, either directly or through
open platforms (YouTube, Dailymotion), stores (iTunes Store, Google Play, Xbox Live). There are
various business models:
 Services accessible worldwide. This is the case for most open platforms (such as YouTube
and Dailymotion) and the services they provide, but also for most of the catch-up TV services
provided by TV broadcasters, video news pages provided by newspapers, portals, etc.
Worldwide services are possible only for providers that own the world rights for the content
offered.
 Services accessible worldwide but with geolocation for specific content. Some VoD services
(such as the ARTE VoD service or some VoD services on YouTube) are accessible worldwide
but accessibility to specific content depends on whether rights have been secured for a
specific country.
 Services with geolocation. Most VoD services are geolocated in relation to the segmentation
of markets by copyright owners. The geolocation is generally based on the consumer’s IP
address, but it may also be based on the location of the credit card used for the payment (e.g.
the iTunes Store) or on the location of the user’s postal address (e.g. the Google Play
service).
The geolocation of VoD services through an IP address is certainly the most frequent, but it is also
the most easy to bypass. Consumers are more and more aware of the possibility of bypassing
geolocation by subscribing to a VPN service or services such as Unlocator, which allows them to hide
their location and access services geolocated in other countries. Providers of services are aware of
7
the existence of this grey market and may use it as a way of penetrating new markets.

7
See for example the arguments of the economist Eric Crampton, who points out that Netflix uses the grey market in New
2 THE MAVISE DATABASE AND THE CENSUS OF ON-
DEMAND AUDIOVISUAL SERVICES

Census of on-demand services: the MAVISE database

The first major information gap is the lack of comprehensive and up-to-date registers of services
established in the Member States. Progress was made in 2013 and the co-operation with EPRA has
allowed us to collect lists in 21 countries. However, authorities in major countries such as France,
Germany and Italy did not provide us with any lists. When lists are provided, they are not necessarily
comprehensive (in particular when related to on-line film VoD services) or up-to-date. Also, registers
by national authorities do not give a comprehensive picture of the services available in one country but
established in another.

In order to fill this gap the European Audiovisual Observatory has enlarged the MAVISE database
to include on-demand audio-visual services. The comparison between data provided by authorities
and listings from the MAVISE database (http://mavise.obs.coe.int) shows the discrepancies between
official registration and the results of the data collection by the Observatory.

MAVISE allows also enables lists and statistics of services

– established in a country
8
– available in a country
to be drawn up.

The definition of on-demand audiovisual services adopted in MAVISE is both wider and more
pragmatic than that provided by the Audiovisual Media Services Directive. The aim of the MAVISE
census is not to interpret the law but to present as complete as possible a picture of an extremely
complex and rapidly changing market for which few reliable data are available. In other words, we can
say that the Observatory’s MAVISE data collection is endeavouring to identify on-demand media
services as defined by the Directive but has supplemented the analysis by including services that do
not, at the outset, fall within the definition contained in the Directive, including, in particular, services in
respect of which it is debatable whether or not it is correct to describe them as on-demand audiovisual
services (“branded channels” in the iTunes or Xbox Video catalogue; podcasts and applications for
smartphones and tablets that permit access to on-demand catalogues; applications for Smart TV or
services on video-sharing platforms like YouTube and Dailymotion).

2.1 Services established in a country

The following table illustrates the discrepancies between the data collected by the authorities (and
9
communicated by the EPRA Secretariat ) and the data collected by the Observatory. Discrepancies
may be explained by various factors:

Zeeland as a way of reducing its costs of negotiating with content owners. E. CRAMPTON, "Netflix and fixed costs" in The
National Business Review, http://www.nbr.co.nz/article/netflix-and-fixed-costs-ts-146464
8
A large number of free on-demand audiovisual services online are accessible worldwide. By “services available in a country”
we consider only those for which there are clear indications that when established in a country A they target a country B:
use of the language of the country B not in use in the country A, commercial marketing in the country B, delivery via a
platform in the country B, etc.
9
EPRA is the European Platform of Regulatory Authorities (http://www.epra.org). 52 regulatory authorities are members of
the platform.
 The authorities’ lists are drawn up on the basis of a declaration or the registration of the services
and may include services not yet or no longer existing, while MAVISE aims to track existing
services operational on the market.
 The definition used by the authorities is (for the reasons already explained) more restrictive. It will
in general not include, for example, branded channels, trailer and archive services or news
services.
 In MAVISE the different linguistic variants of the same brand (e.g. iTunes Store) will be considered
to be as many different services as versions, while the authorities may consider them as a unique
service
 Some authorities only include services of a certain size in their list.
 In various countries, authorities have mainly registered services provided by broadcasters and not
taken into consideration those provided by other categories of players. In particular, we have noted
that an significant number of online VoD services have not been taken included.

Table 1 Comparison between the number of on-demand audiovisual services identified by

the national regulatory authorities and the MAVISE database (2013)

EPRA questionnaire (Sept. 2013) MAVISE (Feb. 2014)

AT 121 118
BE (CFR) 23 45
BE (VLG) 52 69
BE (DSG) n.a. 1
BG 15 25
CY 2 22
CZ n.a. 125
DE n.a. 330
DK n.a. 51
EE n.a. 14
ES n.a. 109
FI n.a. 28
FR n.a. 337
GB 206 682
GR n.a. 39
HR n.a. 16
HU n.a. 90
IE n.a. 26
IT 4 151
LT 3 15
LU 6 121
LV 3 21
MT n.a. 8
NL 20 120
PL 24 112
PT n.a. 40
RO 7 52
SE 41 153
SI n.a. 20
SK 45 51
Total EU n.a. 2991
 BA n.a. 3
CH n.a. 46
IS n.a. 1
MK n.a. 2
NO 66 97
RU _ 74
TR n.a. 4
Source : EPRA and MAVISE / European Audiovisual Observatory

To give a comprehensive picture of the range of on-demand audiovisual services in Europe, it is also
important to take account of services established in non-European countries that clearly target one or
more European countries. Of course, quite a number of services established outside Europe are
accessible there – as they are not geolocated and do not clearly target Europe. It is almost impossible
to provide any figure on the number of worldwide services as this is increasing every month, but some
of them are clearly targeting Europe, this is the case of:

 VoD services charging prices in EUR or in any national European currency (Google Play Movies
services for France, Germany, the UK; various SVoD services on YouTube, French, German and
Turkish versions of MUBI, etc.).
 Services distributed by European platforms, in particular through the Xbox Live service operated by
Microsoft Luxembourg S.A. Most of the Hollywood studios are operating VoD catalogues on this
platform. Although no precise information is provided on their country of establishment, there are
serious grounds for assuming that they are operated directly by the US mother company.
 Services for which a detailed analysis by a European regulatory authority has concluded that they
are established in a non-EU country. This is the case of the services operated by the Playboy
Group for the UK market. After investigation, OFCOM reached the conclusion that those services
were operated from Canada.

Table 2 Services from non-European countries targeting Europe

US 223
CA 2
Source : MAVISE / European Audiovisual Observatory

Table 3 summarises the different genres of audiovisual on-demand services that are established in
Europe and other countries (targeting European countries) and listed in the MAVISE database of on-
demand audiovisual services. As of February 2014, the European Audiovisual Observatory has listed
2 991 on-demand audiovisual established in the EU and classified into 18 different categories of
genres. The countries which have the most established ODAS are the United Kingdom (682), France
(337) and Germany (330). When analysing the establishment of ODAS in the EU by genre, catch-up
TV services (1 104), branded channels on open platforms (711) and VoD films are the genres most
represented in Europe (by country of establishment).

Of course, those numbers have to be put into relation with the actual market force and market
shares of those services. As the section on market shares of transactional on-demand services shows
it in the United Kingdom, a few players seem to dominate the different market segments (by business
model – SVoD, EST, TVoD, iVoD, TV VoD). Therefore, the overall number of on-demand audiovisual
services has to be put into perspective with actual market power.
 Table 3 Number of on-demand audiovisual services by country of establishment and by
genre (February 2014)

Branded
VoD VoD VoD VoD
channels Catch up TV News / VoD VoD VoD VoD VoD Film/TV Film VoD VoD
Country Films + TV Children/ Sport (5) General Short Various Total
on open services (2) Portals (3) Generalist (4) Music Films TV fiction Documentary archives trailers Lifestyle Adult (6)
fiction Animation Interest movies
platforms (1)
AT 5 63 16 1 1 6 1 1 1 5 1 17 118
BE 8 37 7 9 2 24 2 3 3 1 3 2 1 4 9 115
BG 1 12 5 1 5 1 25
CY 2 4 1 1 11 1 1 1 22
CZ 6 38 10 8 9 4 19 1 4 1 1 8 4 2 10 125
DE 77 126 8 4 5 26 11 23 7 13 2 10 5 7 1 5 330
DK 5 18 3 1 12 1 2 9 51
EE 1 10 3 14
ES 32 33 2 6 2 17 1 6 1 1 3 4 1 109
FI 3 5 3 11 1 2 1 2 28
FR 98 148 10 9 40 4 17 9 22 2 11 5 12 19 2 14 12 434
GB 236 206 10 18 23 44 2 46 17 29 4 3 19 16 9 682
GR 14 16 1 5 1 1 1 39
HR 6 3 1 4 2 16
HU 12 62 3 8 1 1 3 90
IE 10 7 2 3 2 1 1 26
IT 62 38 13 1 1 10 1 5 3 2 2 4 2 7 151
LT 6 5 4 15
LU 9 5 17 1 82 3 3 1 121
LV 3 15 3 21
MT 2 4 1 1 8
NL 44 34 1 1 27 2 2 2 4 2 1 120
PL 33 35 2 8 2 18 1 2 4 1 1 5 112
PT 11 20 2 1 3 1 2 40
RO 16 24 8 3 1 52
SE 3 99 4 29 8 1 6 1 2 153
SI 3 5 2 5 1 1 3 20
SK 3 32 6 1 2 2 1 1 3 51
Total EU 711 1 104 112 83 61 409 61 114 39 86 24 45 61 25 21 3 45 84 3 088
AL 1 1
BA 3 3
CH 3 10 4 3 23 2 1 46
IS 1 1
LI 0
ME 1 1 2
MK 1 1 2
NO 5 41 41 5 3 1 1 97
RU 30 6 8 19 5 1 2 1 2 74
TR 3 1 4
UA 6 5 4 16 4 35

CA 2 2
US 1 4 2 4 124 25 6 16 1 12 7 9 2 10 223

(1) Broadcasters’ branded channels on Dailymotion, YouTube etc. established in the country.
(2) Catch-up TV services or promotional web services by broadcasters of the country or targeting the
country.
(3) Portals such as MSN, Yahoo! and video pages of newspaper websites.
(4) VoD services accessible in the country providing a mix of films and various categories of TV
programme.
(5) Services providing access to sport events or archives of sports events.
(6) Includes only services registered by a regulatory authority or part of the line-up of a distribution
platform.

Source: European Audiovisual Observatory / MAVISE database

© European Audiovisual Observatory - Yearbook Online Premium Service 2013
2.2 Services available in a country
In this section, video on-demand services (not on-demand audiovisual services in general as in the
section before) that are available in a country are listed by country of establishment (table 4 – country
of establishment categorised by national establishment, establishment in another EU country,
establishment in the US or in another country). As was the case above with on-demand audiovisual
services, we only took into consideration VoD services that target the country concerned and not
those available worldwide without a specific geolocation and without directly targeting a specific
country.

Table 4 Number of VoD services available (all genres except Adult) in the EU by country of
establishment (February 2014)

Total of Established Established

Established Unident-
available VoD National in another in another
in the US (1) ified
services EU country country
AT 87 11 21 52 3
BE - Flemish (2) 105 41 10 52 2
BE - French (2) 112 42 11 55 4
BE - German (2) 88 17 17 53 1
BG 14 9 5
CY 43 7 4 31 1
CZ 33 27 4 1 1
DE 171 97 16 54 3 1
DK 51 15 17 18 1
EE 12 3 6 0 3
ES 121 31 11 70 6 3
FI 89 13 21 54 1
FR 241 122 24 86 7 2
GB 241 126 7 99 9
GR 43 7 4 31 1
HR 11 7 2 0 2
HU 25 12 8 3 2
IE 95 6 14 71 3 1
IT 88 22 8 55 3 0
LT 13 4 6 3
LU 50 5 9 33 3
LV 12 3 6 3
MT 37 2 3 31 1
NL 68 29 14 21 3 1
PL 49 33 11 1 3 1
PT 48 7 7 33 1
RO 13 5 4 2 2
SE 50 14 10 23 3
SI 47 9 6 31 1
SK 19 7 8 1 2 1
Source: MAVISE / European Audiovisual Observatory
(1) The location of film VoD services (being branded catalogues of major studios) accessible through distribution platforms such as Xbox Live, iTunes Stores, YouTube is

not available. In most cases, we have assumed that the branded services of US major studios were operated directly from the US. Studios and the MPAA declined to

provide more information on this location issue.

(2) VoD services for Belgium (Flemish, French and German) can be counted twice or three times due to their availability in the whole of Belgium.

Figure 1 Number of VOD services available (all genres except Adult) in the EU by country of
establishment
300

250

200
86
99

150
54
24
7

16
100

52 55 70 122
54 53 126
50 1 21 52 55 71
10 11 97
11 18 11
14 23
31 31 31 33 33
17 8 21 17
31 10 21 41 42
27 33 29 14 31
4 4 6 7 9 14 15 22 17
12 7 7 9 7 5 11 13 6
0
GR

GB
HR
EE

ES
LV

PL

NL
LT

HU

PT

LU

IT

IE
SI
RO

MT

DK

FI

DE
FR
BG
SK

CZ

SE

AT

BE - French
BE - German
CY

BE - Flemish

National Established in another EU country Established in the US (1)

Established in another country Unidentified

Source: MAVISE / European Audiovisual Observatory

The country of establishment is one way of measuring the actual state of national and cross-border
VoD services in and outside the EU, be it for regulatory or tax purposes. Another way of reflecting the
situation of the VoD service market in the EU is to identify the parent/controlling company of VoD
services by their corporate headquarters and the country in which they are incorporated rather than
putting the focus on the country of establishment. Tables 5 and 6 show the actual situation regarding
the ownership of VoD services as of February 2014 in the EU by identifying the parent (controlling)
 10
company and its country of incorporation (national, in another EU country, in the USA, in another
country, unidentified location).

Table 5 Ownership of VoD services available in the EU by country and by origin of parent
(controlling) company

Other
National EU US(1) Unidentified Total
country
AT 6 18 60 3 87
BE - Flemish (2) 25 21 56 3 105
BE – French (2) 27 21 59 5 112
BE - German (2) 13 15 58 2 88
BG 6 4 3 1 14
CY 6 2 33 2 43
CZ 19 7 4 2 1 33
DE 48 28 90 4 1 171
DK 12 9 27 3 51
EE 3 2 1 6 12
ES 20 11 80 7 3 121
FI 4 14 69 2 89
FR 87 22 120 9 3 241
GB 42 7 176 14 2 241
GR 5 4 32 2 43
HR 5 2 1 3 11
HU 5 7 10 3 25
IE 4 8 77 5 1 95
IT 19 4 61 3 1 88
LT 4 2 1 6 13
LU 4 6 36 4 50
LV 2 3 1 6 12
MT 0 3 32 2 37
NL 17 14 31 4 1 67
PL 18 14 9 5 3 49
PT 6 5 35 2 48
RO 2 3 5 3 13
SE 11 3 31 5 50
SI 6 5 34 2 47
SK 3 7 4 4 1 19
Source: MAVISE / European Audiovisual Observatory 2014 (1) The location of film VoD services (being branded catalogues of major studios) accessible through
distribution platforms such as Xbox Live, iTunes Stores, YouTube is not available. In most cases, we have assumed that the branded services of US major studios were
operated directly from the US. Studios and the MPAA declined to provide more information on this location issue. (2) VoD services for Belgium (Flemish, French and
German) can be counted twice or three times due to their availability in the whole of Belgium.

10
For example, Apple S.à.r.l incorporated in Luxembourg is controlled by Apple Inc. incorporated in the USA, and therefore
considered as being controlled by a parent company established in the US. Similarly, Orange Polska is controlled (50%) by
the French Orange S.A. and is therefore considered as being controlled by a company established in another EU country
(France).
Figure 2 Figures for the ownership of VoD services available in the EU by country and by
origin of parent company

300

250

200

120
150
176
90
100 22
56 59 80
28
50 60 58 61 69 77
31 87 7
4 35
9 31 27 21 21
7 32 33 32 34 14 36 14 4 11 48 42
19 3 2 3 9 18 15 19 14 8 25 27 20
0 6 45 56 56 18 64 11 12 17 6 13 4 4
GR

GB
EE

NL

ES
HR

LV
LT

HU

PL
LU
PT
MT

SI

DK

IT

IE

FR
RO
BG

AT

FI
SK

CZ

SE

BE - French
CY

BE - German

DE
BE - Flemish
National EU US Other country Unidentified

Source: MAVISE / European Audiovisual Observatory 2014

Figure 3 EU-5, ownership of available VoD services by country and by origin of parent
company, in %

GB 17.4%2.9% 73.0%

IT 21.6% 4.5% 69.3%

ES 16.5% 9.1% 66.1%

DE 28.1% 16.4% 52.6%

FR 36.1% 9.1% 49.8%

0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0%

National EU US Other country Unidentified

Source: MAVISE / European Audiovisual Observatory 2014

Table 6 Ownership of VoD services available in the EU by country and by origin of parent
(controlling) company, in %

Other Uniden-
National EU US(1) Total
country tified
AT 6.9% 20.7% 69.0% 3.4%
BE - Flemish (2) 23.8% 20.0% 53.3% 2.9%
BE – French (2) 24.1% 18.8% 52.7% 4.5%
BE - German (2) 14.8% 17.0% 65.9% 2.3%
BG 42.9% 28.6% 21.4% 7.1%
CY 14.0% 4.7% 76.7% 4.7%
CZ 57.6% 21.2% 12.1% 6.1% 3.0%
DE 28.1% 16.4% 52.6% 2.3% 0.6%
DK 23.5% 17.6% 52.9% 5.9%
EE 25.0% 16.7% 8.3% 50.0%
ES 16.5% 9.1% 66.1% 5.8% 2.5%
FI 4.5% 15.7% 77.5% 2.2%
FR 36.1% 9.1% 49.8% 3.7% 1.2%
GB 17.4% 2.9% 73.0% 5.8% 0.8%
GR 11.6% 9.3% 74.4% 4.7%
HR 45.5% 18.2% 9.1% 27.3%
HU 20.0% 28.0% 40.0% 12.0%
IE 4.2% 8.4% 81.1% 5.3% 1.1%
IT 21.6% 4.5% 69.3% 3.4% 1.1%
LT 30.8% 15.4% 7.7% 46.2%
LU 8.0% 12.0% 72.0% 8.0%
LV 16.7% 25.0% 8.3% 50.0%
MT 0.0% 8.1% 86.5% 5.4%
NL 25.4% 20.9% 46.3% 6.0% 1.5%
PL 36.7% 28.6% 18.4% 10.2% 6.1%
PT 12.5% 10.4% 72.9% 4.2%
RO 15.4% 23.1% 38.5% 23.1%
SE 22.0% 6.0% 62.0% 10.0%
SI 12.8% 10.6% 72.3% 4.3%
SK 15.8% 36.8% 21.1% 21.1% 5.3%
Source: MAVISE / European Audiovisual Observatory 2014 (1) The location of film VoD services (being branded catalogues of major studios) accessible via
distribution platforms such as Xbox Live, iTunes Stores and YouTube is not available. In most cases, we have assumed that the branded services of US major
studios were operated directly from the US. Studios and the MPAA declined to provide more information on this location issue. (2) VoD services for Belgium
(Flemish, French and German) can be counted twice or three times due to the availability in the whole of Belgium.

When looking at the parent companies and their core business, one fundamental difference
appears between EU and US limited companies. In the EU, the majority of parent companies that own
VoD service providers in other EU countries operate in the telecommunications sector (such as
Orange, Deutsche Telekom, Telefónica, Vodafone) and therefore control Internet access or
companies already established in the media sector (such as Bonnier Group, the BBC, ProSiebenSat.1
Media AG, Bertelsmann SE & CO. KGaA, ARTE). Most US-incorporated parent companies owning
VoD service providers in the EU are media groups (such as the Walt Disney Company, 21st Century
 Fox and Viacom) already established in the European audiovisual landscape (pay-TV, TV channels,
distribution) or pure OTT players (such as Apple Inc., Netflix Inc., Google Inc, Amazon) for which
audiovisual services are not their core business (except for Netflix, which is in Europe a pure OTT
player) but, rather, an addition to and expansion of their existing ecosystems and business model.

In Table 7, VoD services available in EU countries and Europe as a whole are split up by categories
for more clarity. Film VoD services and Fiction VoD services lead the field in most EU countries as
they are the most popular video content genres for consumers. Increasingly, VoD services with
children’s programming are becoming established on the European markets as connected devices
(such as tablets and smartphones) become more widespread among the European population.

Table 8 lists on-demand audiovisual services available in Europe, excluding VoD services for more
clarity. The most popular ODAS (excluding VoD services) are catch-up TV services (usually offered by
broadcasters to enable viewers to catch up on their linear content and mostly free of charge or part of
a subscription) and branded channels of broadcasters on platforms such as YouTube and
Dailymotion, which in this case are not “user-generated” but professionally produced and often
originate from the linear programming of the broadcasters and content producers, the online presence
of whose content represents an opportunity and a challenge to broadcasters as they try to reach
“Generation Y” by occupying the online places where they consume content. The acquisition by
11 12
Canal+ of Studio Bagel in March 2014 and the launch of over 20 YouTube channels illustrate this
trend. As online advertising increases through the increasing consumption of content available from
ODAS, broadcasters and TV groups expand their online reach and (possible) audiences in order to
compete also for advertising budgets with other ODAS services financed by advertising (Newspapers,
portals, user-generated content platforms, social networks). The section on advertising-financed on-
demand audiovisual services shows in more detail the situation of the online advertising market.

As before, those figures of services established and owned have to be put into perspective by
assessing the actual market shares of those services in order to establish their relative market power.

Table 7 Number of legal VoD services available by country in Europe (December 2013)
Note: a same service by be counted in two or more countries

VoD services
Film +
Generalist Films Fiction Children Document- General Sport
Fiction Lifestyle Music Total
(1) (3) (4) (5) aries interest (6)
Country (2)
Austria 2 2 34 8 9 2 9 7 8 0 81
Belgium - Flemish 10 0 41 10 7 1 10 6 5 0 90
Community
Belgium - French 11 0 42 11 7 1 9 6 9 0 96
Community
Belgium - German-
speaking Community
4 0 32 8 7 2 10 6 7 0 76
Bulgaria 5 1 7 0 0 0 0 0 1 0 14
Croatia 1 4 4 0 0 0 0 0 0 0 9
Cyprus 1 0 10 8 2 0 9 6 4 0 40
Czech Republic 8 2 6 1 3 0 0 4 5 3 32
Denmark 2 6 38 3 2 0 0 0 1 0 52
Estonia 0 0 9 0 0 0 0 0 0 0 9
Finland 3 6 50 8 3 0 9 6 4 0 89
France 24 6 61 37 39 10 9 28 17 4 235
Germany 8 12 48 33 18 8 10 10 10 5 162

11
http://variety.com/2014/biz/news/canal-plus-acquires-leading-youtube-channels-network-studio-bagel-1201124490/
12
http://variety.com/2013/digital/news/canal-plus-launches-youtube-channels-1200822327/
Greece 0 0 12 8 1 1 9 6 3 0 40
Hungary 1 2 12 1 4 0 0 0 2 0 22
Ireland 3 0 49 6 6 3 9 7 6 0 89
Italy 2 1 33 17 4 4 9 6 7 0 83
Latvia 0 0 9 0 0 0 0 0 0 0 9
Lithuania 0 0 10 0 0 0 0 0 0 0 10
Luxembourg 1 0 13 8 2 0 9 6 7 0 46
Malta 0 0 8 7 1 0 9 6 3 0 34
Netherlands 2 4 50 4 2 1 0 0 4 0 67
Poland 8 2 27 5 0 0 0 0 4 0 46
Portugal 2 0 10 9 3 0 9 6 5 0 44
Romania 2 1 5 1 2 0 0 0 0 0 11
Slovakia 2 4 7 1 2 0 0 1 0 0 17
Slovenia 2 2 12 7 2 1 9 6 3 0 44
Spain 8 2 43 16 7 1 9 16 8 3 113
Sweden 2 6 40 0 2 0 0 0 1 0 51
United Kingdom 13 3 80 44 30 19 9 17 13 7 235

Albania n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Armenia 0 0 1 0 0 0 0 0 0 0 1
Bosnia and
Herzegovina 0 1 3 0 0 0 0 0 0 0 4
Iceland 1 0 0 0 0 0 0 0 0 0 1
Liechtenstein 1 0 2 0 2 0 1 0 3 0 9
Montenegro 1 1 0 0 0 0 0 0 0 0 2
Norway 1 7 37 0 2 0 0 0 1 0 48
Russian Federation 8 4 23 1 2 0 0 0 0 0 38
Serbia 0 2 0 0 0 0 0 0 0 0 2
Switzerland 6 0 40 1 6 2 1 0 7 0 63
“The Former Yugoslav
Republic of Macedonia”
1 1 0 0 0 0 0 0 0 0 2
Turkey 4 0 4 0 0 0 0 0 0 0 8

(1) VoD services providing various categories of works: film, fiction, documentaries, children’s programmes, etc.
(2) VoD services providing films and TV fiction
(3) VoD services providing only films
(4) VoD services providing only TV fiction works
(5) VoD services providing only works for children and/or animation
(6) VoD services providing archives of sport events, training programmes, etc. to the exclusion of live events
Source : European Audiovisual Observatory / MAVISE database
Table 8 Other types of on-demand audiovisual services in Europe (December 2013)

The various categories of services included in this table are, in most cases, not-geolocated and
therefore accessible worldwide.
In order to have meaningful figures we take into account only those services with some relevance
for the country concerned (mainly based on the language).
Branded Catch-up
Films
channels TV News Portals Archives Sport
trailers Various Total
by broad- services (3) (4) (5) events
(6)
casters(1) (2)
Austria 44 76 16 1 3 9 2 23 174
Belgium- Flemish
Community
6 32 5 1 2 1 3 7 57
Belgium- French
Community
6 30 7 1 3 1 5 4 57
Belgium- German-
speaking Community
0 9 2 0 2 2 2 2 19
Bulgaria 1 15 0 0 0 0 0 1 17
Croatia 7 6 0 0 0 0 0 0 13
Cyprus 3 5 1 0 0 1 1 2 13
Czech Republic 5 39 8 2 1 6 1 10 72
Denmark 6 44 3 1 2 1 1 0 58
Estonia 3 20 0 1 2 1 0 0 27
Finland 4 27 1 1 3 2 2 2 42
France 94 128 7 1 4 7 14 26 281
Germany 44 124 7 2 4 3 12 14 210
Greece 14 19 2 1 2 0 2 2 42
Hungary 15 78 3 0 3 0 0 3 102
Ireland 16 28 1 0 2 2 2 8 59
Italy 68 44 10 5 4 2 6 14 153
Latvia 5 29 0 1 2 1 0 0 38
Lithuania 8 12 0 1 2 1 0 0 24
Luxembourg 4 8 4 0 2 2 4 3 27
Malta 2 4 1 0 0 0 1 2 10
Netherlands 52 32 1 1 4 2 1 1 94
Poland 38 58 1 1 6 1 1 5 111
Portugal 9 25 1 1 2 0 1 2 41
Romania 18 30 0 0 2 1 0 0 51
Slovakia 3 38 2 4 2 1 0 3 53
Slovenia 3 9 1 0 2 0 1 2 18
Spain 42 36 3 1 3 3 5 16 109
Sweden 7 95 4 0 3 5 1 2 117
United Kingdom 179 69 12 1 6 18 5 28 318

Albania 0 1 0 0 0 0 0 0 1
Armenia 0 0 0 0 0 0 0 0 0
Bosnia-Herzegovina 0 2 0 0 0 0 0 0 2
Iceland 0 1 0 0 0 0 0 0 1
Liechtenstein 41 8 1 0 1 1 0 0 52
Montenegro 0 0 0 0 0 0 0 0 0
Norway 7 80 0 1 1 1 0 0 90
Russian Federation 3 35 3 6 1 1 0 2 51
Serbia 0 2 0 0 0 0 0 0 2
Switzerland 47 26 2 1 3 3 4 2 88
The Former Yugoslav
Republic of Macedonia
0 3 0 0 0 0 0 0 3
Turkey 3 4 0 1 0 0 0 0 8
(1) Branded channels on open platforms such as YouTube, Dailymotion, Snack TV
(2) Catch-up TV services online or part of the offer of TV distribution platforms. The coverage of catch-up TV services provided
by local television is not comprehensive and may differ country by country
(3) Include video web pages of newspapers and news TV channels
(4) Video web pages of portals such as MSN, Yahoo, portals from ISPs, etc.
(5) Film or TV archives

– Services are considered whatever their means of access or business models

– The same service may be counted in several countries
– A service is considered as "available" in a country when it is targeting this country in particular
(language, marketing, geolocation, inclusion in a national platform or a store designed for the
country, etc.). Services available worldwide but not specifically targeting the countries are not
included.

Table 9 EU – Number of services by distribution mode

– This table has been produced with the data available in the MAVISE database as of 17.12.2013
– The data refer to the country of establishment of the service. This does not mean that that the
country of reception is the same (e.g., the GB services established and received on IPTV
include services received only in France)
– The country of establishment is not always communicated by the providers (in particular for the
services accessible through stores and video games consoles)
Internet only Through TV distribution platforms only 2 or more
Internet Through video Dow nload Video game Specific Smart TV Apps Store for tablets IPTV Cable Sat Hybrid DTT Mobile distribution TOTAL
(1) open platforms (2) stores (3) consoles (4) box (5) Apps (6) or smartphones (7) (8) (9) PVR (10) box (11) (12) phone (13) modes (14)
AT 101 3 1 n.a. n.a. 2 8 2 117
BE 29 9 n.a. n.a. 13 21 3 6 81
BG 17 1 n.a. n.a. 6 1 25
CY 14 2 n.a. n.a. 6 22
CZ 97 8 n.a. n.a. 7 2 10 124
DE 127 47 31 5 n.a. n.a. 18 52 1 281
DK 22 6 n.a. n.a. 10 5 1 7 51
EE 1 3 n.a. n.a. 1 2 6 13
ES 45 38 1 5 n.a. n.a. 9 3 8 109
FI 12 3 n.a. n.a. 13 28
FR 78 118 29 10 5 n.a. n.a. 36 19 18 1 73 387
GB 229 232 51 32 1 n.a. n.a. 59 17 3 2 2 43 671
GR 20 14 n.a. n.a. 4 1 39
HR 3 6 n.a. n.a. 5 2 16
HU 63 15 n.a. n.a. 10 1 89
IE 10 10 n.a. n.a. 1 1 3 25
IT 73 63 2 n.a. n.a. 6 2 5 151
LT 4 6 n.a. n.a. 3 2 15
LU 32 9 75 n.a. n.a. 3 1 120
LV 6 3 n.a. n.a. 9 2 20
MT 3 3 n.a. n.a. 2 8
NL 49 45 n.a. n.a. 6 17 2 119
PL 39 35 n.a. n.a. 10 9 7 6 6 112
PT 18 8 n.a. n.a. 3 6 35
RO 35 16 n.a. n.a. 1 52
SE 85 3 n.a. n.a. 6 3 1 58 156
SI 6 3 n.a. n.a. 7 2 2 20
SK 43 3 n.a. n.a. 4 1 1 52
EUR 28 1261 712 188 54 6 n.a. n.a. 258 179 1 30 9 12 228 2938

CH (15) 10 n.a. 1 11

CA (15) 2 2
US (15) 31 32 6 150 n.a. 4 223

Source: European Audiovisual Observatory 2013, from the database MAVISE (http://mavise.obs.coe.int)

(1) Includes services with owned players - Some minor services are not included in the MAVISE database.
(2) Mainly YouTube and Dailymotion - Includes only branded catalogues from broadcasters and paid VoD
services
(3) Mainly iTunes Store (does not include services through apps).
(4) Services designed for Xbox or PSP consoles.
(5) Services accessible to specific boxes operated by companies other than TV distributors (cable, satellite,
IPTV, DTT).
(6) Services available only through Smart TV apps (NB: most of the services with apps also exist as pure Internet
services and are therefore counted in the Internet category).
(7) Services available only through apps for tables or smartphones (NB: most of the services with apps also exist
as pure Internet services and are therefore counted in the Internet category).
(8) Services accessible only to subscribers to an IPTV distribution service.
(9) Services accessible only to subscribers to a cable TV distribution service.
(10) Storage on a PVR from signal received from satellite.
(11) Internet services accessible through the hybrid box operated by a TV distribution operator.
(12) Services accessible only by subscribers to a DTT distribution platform.
(13) Services accessible only to subscribers to a mobile telephone service.
(14) Services accessible on two or more categories of platforms are not counted in the other categories. In most
cases, these are services accessible through cable and IPTV.
(15) Includes only services targeting the European Union.

Table 10 EU – Number of services by distribution mode (OTT only, TV platforms,

multiplatform)

Internet Through TV distribution 2 or m ore

only platform s only distribution TOTAL
Total Total m odes
AT 105 10 2 117
BE 38 37 6 81
BG 18 7 25
CY 16 6 22
CZ 105 9 10 124
DE 210 70 1 281
DK 28 16 7 51
EE 4 3 6 13
ES 89 12 8 109
FI 15 13 28
FR 240 74 73 387
GB 545 83 43 671
GR 34 5 39
HR 9 7 16
HU 78 11 89
IE 20 2 3 25
IT 138 13 151
LT 10 5 15
LU 116 4 120
LV 9 11 20
MT 6 2 8
NL 94 23 2 119
PL 74 32 6 112
PT 26 9 35
RO 51 1 52
SE 88 10 58 156
SI 9 9 2 20
SK 46 5 1 52
EUR 28 2221 489 228 2938

CH (15) 10 0 1 11

CA (15) 2 0 2
US (15) 219 4 223
Source: European Audiovisual Observatory 2013, from the database MAVISE (http://mavise.obs.coe.int)
Audience data and market shares of services
As for audience data, a clear distinction should be made between free services accessible online
and mainly financed by advertising and paid VoD services.

For video online services, various companies (Comscore, Nielsen, Médiamétrie) have created
audience measurement tools that are mainly designed to provide information to advertising
stakeholders (agencies, advertisers). ComScore’s Video Metrix service is the only one with a
harmonised methodology for various EU countries (France, Germany, Italy, Spain, UK and, since
2013, the Netherlands).

The Video Metrix service is becoming the currency at the international level, but it should be
underlined that the measurement:

- is only related to fixed Internet and does not include audiences on the mobile Internet
(smartphone, tablets) or audiences using Smart TV applications;

- includes not only video online services but also open platform file sharing (such as
YouTube) and cloud storage services (such as Amazon Cloud);

- does not measure closed VoD services online (either streaming services like Netflix or
stores like iTunes);

- includes Adult services but the audiences of those services are not included in the ranking
of most popular services.

For VoD services, there is not yet any systematic or comprehensive measurement of the number of
subscriptions, transactions and success of individual titles. In Spain, Rentrak is testing the
measurement system already operational in the United States (established in collaboration with the
main providers of services). In Germany, France and the UK, data are available on market shares of
services established on the basis of panel interviews but not on the basis of real data.

The actual high number of services shouldn’t hide the fact that, as market shares for the United
Kingdom seem to indicate, a few players dominate each segment (SVoD, EST, iVoD, TV VoD, AVoD)
of the on-demand audiovisual services market.

For actual audience data and market shares, please refer to chapter 5 for advertising-financed
audiovisual on-demand services and to chapter 8 for transactional VoD services.
Advertising-financed on-demand
audiovisual services
Executive summary - The online advertising market in
Europe
 The online advertising market in Europe had a market value of €24.3 billion in 2012, representing
growth of 11.5% year on year
 Paid Search remains the largest segment with a market value of €11.9 billion, up by 15.5%
 Online display advertising had a market value of €7.8 billion, up by 9.1% in 2012
 The main driver of this growth was online video advertising, with a market value of €661.9 million,
up by 50.6%, representing 12.9% of the online display market in 2012, and mobile advertising,
which was up by 78.3% and reached a total market value of €392 million.
 Large disparities in online ad spend remain between Western/Northern Europe and Central and
Eastern Europe, but CEE markets are experiencing strong growth as advertisers continue to invest
in them.
 Online advertising outperforms the advertising market and this trend is likely to continue as
advertisers seem to see the opportunity to engage with consumers and advertising budgets
continue to shift from print to online.
 Online video ad spend had a market value of £159.6 million, up by 6.5% in 2012, in the United
Kingdom with pre/post roll video ads representing a market value of £136.7 million (43.2% year on
year) and Social and others representing £22.9 million(+69.1% year on year). The advertising
revenues of VoD services in the UK had a market value of £104 million in 2012 and a total ad
spend market share of 0.6%.
 Online video ad spend in France in 2012 had a market value of €90 million, up by 50%.

Trends on the online display and video advertising market

 On-demand video sites and publishers are increasingly profiting from the online video advertising
trend and seeing their number of unique viewers increase at a steady rate.
 The amount of space available for online video ads is increasing, so the online video advertising
market is expected to grow from €764 million in 2011 in Western Europe to €1.768 billion in
2017.
 The surge of online video advertising will continue and intensify as it represents a new means for
advertisers to run brand advertising and engage with their targeted customers in order to ensure
the relevance of their advertising message.
 Behavioural targeting is gaining in importance as marketers seek to target their core audience
as was possible with TV ads.
 Online video publishers are increasingly competing with one another for quality content and
audiences.
 The ecosystem of online display advertising is complex, fragmented and will tend in the future
to become more concentrated.
 Online publishers and advertising networks aim to convince advertisers that the Internet offers the
same quality as traditional TV advertisements and therefore persuade them to shift their TV ad
budgets towards online (until now, the shift mostly affected print advertising).
 Whereas UGC platforms are dominated by Google’s YouTube, social networks by Facebook,
portals by Yahoo! and Microsoft, this is not the same for newspaper and television websites
in the EU, where national companies still have the lead on their national markets.
 Advertising networks are the main players for the delivery of video advertisements in the European
markets.
 Google sites (YouTube, AdSense, AdWord) dominate the landscape by providing an integrated
ecosystem where advertisers can find an all-in-one solution.
 The online advertising market is concentrated: in 2012 in the United States, 10 companies
accounted for 72% of total revenue. This trend is likely to continue and, although figures are not
 available to us for Europe, the situation should not be very different from that in the United States.
 Online publishers are increasingly incorporating advertising trading desks into their own
structure instead of relying on third-party services.
 Online video advertising coupled with behavioural and demographic targeting has made room
for a new market: real-time bidding (RTB) for advertising space on publishers’ websites, which
is similar to the spot/stock market. This has put downward pressure on CPM (cost per mille), the
pricing method for online display advertising.
 As consumers are more equipped with mobile devices (smartphones, tablets) and network
capabilities are increasing in bandwidth, the trend towards online video advertising and
mobile advertising will increase.
 The use of “big data” to analyse consumer behaviour, tastes and demographics is increasing and
will lead more and more to the better segmentation and targeting of audiences for advertisers and
agencies.
 Broadcasters are increasingly offering advertisers combined advertising campaigns on TV and the
web through their websites. This new means of advertising is referred to as T/V advertising
(combined television and video advertising).
 Catch-up TV is becoming a means for broadcaster to counterbalance their shrinking advertising
revenues.
 All kinds of traditional media companies are moving into online video advertising in order to
obtain a share of this fast-growing market.

Internet consumption among Europeans is increasing the trend towards online video
advertising:

 426.9 million Europeans go online every week, 37% accessing the web from more than one
device and spending on average 14.8 hours per week online.
 91% (388.5 million) of those accessing the Internet read newspapers online.
 73% watch TV online, but this figure is higher in the case of the younger generations: 83% of 16-
24-year-olds and 81% of 35-44-year-olds.
 The Internet is becoming a multi-screen space, where advertisers target consumers across
multiple devices.
3 The online advertising market

3.1 Online advertising in Europe in 2012 and

2013: trends and developments (IAB &
eMarketer)
The rise of online video consumption has been accompanied by an increase in online video ads (and
other display ad formats, both mobile and fixed), supported by the penetration of connected mobile
devices (smartphones, tablets, etc), increased broadband speeds for fixed and mobile Internet
connections, increased use of social networks and the rise of real-time bidding platforms which enable
the automation of ad space buying between publishers and advertisers. In this short introduction, we
provide an overview of major developments and figures for 2012 and 2013.

Major developments related to online display advertising are:

- the growing importance of video advertising
- mobile video advertising
- the importance of social networks
- the use of real-time bidding platforms and their increasing importance
- more connected Internet users (mobile and fixed)
Ad-financed on-demand audiovisual services such as user-generated content platforms like
13 14 15
YouTube and Dailymotion , video on-demand service providers such as Netzkino.de and Sony’s
16
Crackle have seen a tremendous rise in their audiences over the past few years. They are
17
competing more and more with broadcasters for the advertising budgets of agencies and brands
through the use of online video ads (which are categorised under online display advertising).

One of their main goals is to prove that through their services advertisers can improve the targeting
of their audiences for an advertisement (through the use of data collected by the services on users,
behavioural advertising and a better knowledge of the viewer) and thus placing an advertisement on
their services is more effective than on TV. Until recently, advertisers and agencies still heavily relied
on TV advertising and online ads were seen as complementing a TV campaign, but with the
proliferation of connected devices, the increase in the use of advertising-supported on-demand
audiovisual services, improved fixed and mobile bandwidth allowing for smoother video consumption
(be it at home or “on the go”) and the rising importance of social networks such as Facebook,
advertising-financed on-demand audiovisual services are seen more and more as a true alternative
and not only as a complement to traditional broadcast adverting. The recent figures available on the
European, US and worldwide online advertising markets support this shift in the view of advertisers of
advertising-supported on-demand audiovisual services. The following sub-section will present the
overall online advertising market in Europe (mainly figures from IAB Europe and eMarketer), online
13
More than 1 billion worldwide users each month, 100 hours of video uploaded every minute, 6 billion hours of video watched
every month in 2013 http://www.youtube.com/yt/press/statistics.html
14
105 million unique visitors per month, 2.2 billion video views per month, 32nd most visited website worldwide in 2012
http://advertising.dailymotion.com/stats/
15
http://www.netzkino.de/#!
16
http://www.crackle.com/
17
The overall champion remains Google with roughly 33% of net digital ad revenue worldwide and 55% of net mobile Internet
ad revenue worldwide in 2013, according to eMarketer.
video advertising, mobile advertising, social network advertising and real-time bidding advertising.

3.1.1 IAB Europe1819 AdEx Benchmark 2012 and main figures

available on the online advertising market in Europe
The three major categories of online advertising are search, display and directories & classifieds.
The total value of the European online advertising market was €24.3 billion in 2012, an increase of
11.5% compared to 2011 (€21.8 billion. Search remains the strongest category (48.8% of total online
ad spend), followed by display (32.4% of total ad spend) in 2012 (Figure 2).

Figure 1 Total online advertising in Europe 2011-2012

Total online advertising Europe

in EUR billion
24.3
+11.5%
21.8

2011 2012

Source: IAB AdEx Benchmark Europe 2012

Figure 2 Format shares of online advertising Europe 2011-2012

Format shares of online advertising, Europe 2012

in % of total
120.0%
100.0%
19.6% 18.5%
80.0%
60.0% 32.7% 32.4%

40.0%
20.0% 47.1% 48.8%

0.0%
2011 2012

Search Display Classifieds and directories Others

Source: IAB AdEx Benchmark Europe 2012

18
http://www.iabeurope.eu/files/8813/7363/8652/Interact_2013_ADEX_Presentation_FINAL.pdf
19
26 countries are taken into account: Austria, Belgium, Bulgaria, Czech Republic, Croatia, Denmark, Finland, France,
Germany, Greece, Hungary, Ireland, Italy, Netherlands, Norway, Poland, Russia, Romania, Serbia, Slovenia, Slovakia,
Spain, Sweden, Switzerland, Turkey, United Kingdom.
Figure 3 Europe online ad format growth by category 2011-2012

Year-on-year growth by format

in %
20.0% 17.9%
15.5% 15.3% 14.5%
15.0%
11.5%
9.1%
10.0%
5.7% 6.3%
5.0%

0.0%
Search Display Classifieds & Total
Directories

2011 2012

Source: IAB AdEx Benchmark Europe 2012

Looking at the growth rates of the different formats, search also leads the other categories. Display
ads have experienced less rapid growth than in 2011 but display advertising is set to grow in the near
future with the increased use of mobiles and the rising video consumption on mobile devices.

Online advertising has overtaken newspaper advertising for the first time in Europe and is the second
biggest medium for advertising (figure 4). This illustrates the increased importance for advertisers and
agencies of online as an effective medium to reach targeted audiences.

Figure 4 Advertising market in Europe, by medium 2012

in EUR billion

Cinema 0.6

Radio 4.6

Out-of-home 6.3

Magazines 8.7

Newspapers 19.3

Online 24.3

TV 28.1

0 5 10 15 20 25 30

Source: IAB AdEx Benchmark Europe 2012. Source for non-online ad revenue: IHS.

The rising importance of online advertising is also shown by the increase in its overall market share
of ad budgets in just 6 years. From just 10.3% of ad budgets in 2006, online ad spend rose to 25.6%
in 2012.
Figure 5 Online market share of ad budgets 2006-2012 Europe

in % of total ad budgets

30.0%
25.6%
25.0%

20.0% 19.0%

15.0%
10.3%
10.0%

5.0%

0.0%
2006 2009 2012

Source: IAB AdEx Benchmark Europe 2012

Based on the projections made by eMarketer, digital ad spend is set to continue its growth in value
(from $23.51 billion in 2011 to $38.25 billion in 2017, table 1) whereas it is expected to stabilise its
share of total ad spend in Western Europe (10.1% in 2012, 10.6% in 2017, table 2).

Table 1 Digital Ad Spending in Western Europe, by country, 2011-2017

in USD billions
2011 2012 2013 2014 2015 2016 2017
UK $7.63 $8.60 $9.63 $10.83 $11.70 $12.52 $13.27
Germany $4.57 $5.05 $5.65 $6.22 $6.59 $6.94 $7.29
France $2.49 $2.64 $2.80 $3.05 $3.26 $3.46 $3.65
Italy $1.44 $1.52 $1.65 $1.83 $2.05 $2.28 $2.51
Netherlands $1.37 $1.48 $1.60 $1.72 $1.84 $1.95 $2.05
Spain $1.15 $1.14 $1.15 $1.24 $1.36 $1.47 $1.57

Sweden $0.83 $0.91 $1.01 $1.10 $1.18 $1.25 $1.31

Norway $0.74 $0.79 $0.85 $0.91 $0.97 $1.03 $1.08
Denmark $0.65 $0.73 $0.80 $0.86 $0.92 $0.99 $1.05
Finland $0.28 $0.31 $0.35 $0.37 $0.39 $0.41 $0.42
Other $2.35 $2.60 $2.91 $3.25 $3.53 $3.80 $4.05
Western Europe $23.51 $25.76 $28.39 $31.31 $33.79 $36.09 $38.25
Note: includes advertising that appears on desktop and laptop computers as well as mobile phones and tablets on all formats mentioned; includes
display - affiliates, banners, rich media, sponsorships, tenancies and video (in-stream, in-banner, in-text); search (paid listings, contextual text,
links, paid inclusion); classifieds; and email (embedded ads only); includes mobile ad spending and lead generation within existing formats, mainly
search and banners; numbers may not add up to 100% due to rounding

Source: eMarketer, June 2013; confirmed and republished August 2013

Table 2 Digital Ad Spending Share in Western Europe, by country, 2011-2017
% of total
2011 2012 2013 2014 2015 2016 2017
UK 32.5% 33.4% 33.9% 34.5% 34.6% 34.7% 34.7%
Germany 19.4% 19.6% 19.9% 19.8% 19.5% 19.2% 19.1%
France 10.6% 10.2% 9.9% 9.7% 9.7% 9.6% 9.5%
Italy 6.1% 5.9% 5.8% 5.8% 6.1% 6.3% 6.6%
Netherlands 5.8% 5.8% 5.6% 5.5% 5.4% 5.4% 5.4%
Spain 4.9% 4.4% 4.0% 3.9% 4.0% 4.1% 4.1%
Sweden 3.5% 3.5% 3.6% 3.5% 3.5% 3.5% 3.4%
Norway 3.2% 3.1% 3.0% 2.9% 2.9% 2.8% 2.8%
Denmark 2.8% 2.8% 2.8% 2.7% 2.7% 2.7% 2.7%
Finland 1.2% 1.2% 1.2% 1.2% 1.2% 1.1% 1.1%
Other 10.1% 10.1% 10.3% 10.4% 10.4% 10.5% 10.6%
Note: includes advertising that appears on desktop and laptop computers as well as mobile phones and tablets on all formats mentioned; includes display - affiliates, banners,
rich media, sponsorships, tenancies and video (in-stream, in-banner, in-text); search (paid listings, contextual text, links, paid inclusion); classifieds; and email (embedded ads
only); includes mobile ad spending and lead generation within existing formats, mainly search and banners; numbers may not add up to 100% due to rounding Source:
eMarketer, June 2013; confirmed and republished August 2013

Predictions made by eMarketer for the years 2013 to 2014 (Figure 6) show that online display
advertising in Western Europe will continue to rise to reach $13.39 billion in 2017, up from $8.92 billion
in 2013 (+50% over 4 years) and that the global online advertising market will reach a value of $38.25
billion in 2017.

Figure 6 Digital Ad Spending in Western Europe, by Format, 2011-2017 in USD billions

$45.00
$36.09 $38.25
$40.00
$33.79
$35.00 $31.37 $6.61
$28.39 $6.38
$30.00 $25.76 $6.12
$23.51 $5.82
$25.00 $5.44 $13.39
$5.14 $12.36
$4.96 $11.17
$20.00 $10.08
$8.92
$7.99
$15.00 $7.34
$10.00 $18.25
$15.47 $16.49 $17.34
$11.21 $12.63 $14.03
$5.00
$0.00
2011 2012 2013 2014 2015 2016 2017

Search Display* Classifieds and directories

Note: includes advertising that appears on desktop and laptop computers as well as mobile phones and tablets on all formats mentioned; includes mobile ad spending within
existing formats, mainly search and banners; numbers may not add up to total due to rounding; converted at the exchange rate of US$1=€0,78;*affiliates, banners, rich media,
sponsorships, tenancies and video (in-stream, in-banner, in-text) Source: eMarketer, June 2013; confirmed and republished, Aug 2013

Looking at figures available for total online ad spend in Central and Eastern Europe, eMarketer
expects that the amount will more than double in 6 years (from $£2.87 billion in 2011 to $7.03 billion in
2017). Online ad spend is closely related to Internet penetration among the population of these countries
(addressable market = the larger the audience for advertising, the more advertisements and therefore
the more online ad spend). Table 4 shows that in the coming 5 years the proportion of Central & Eastern
Europe’s Internet users will rise from 50.2% of the population in 2012 to 66.5% in 2017, which will still be
behind Western Europe’s average of 68.7% in 2012 and 72.9% in 2017 (table 5) but catch up at a
quicker rate as consumers become more equipped with Internet capable devices.

Table 3 Digital ad spending in Central & Eastern Europe, by country, 2011-2017

in USD billions
2011 2012 2013 2014 2015 2016 2017
Russia 1.21 1.62 2.01 2.37 2.68 2.95 3.18
Other 1.66 2.08 2.54 2.91 3.29 3.56 3.84
Central & Eastern
Europe 2.87 3.7 4.55 5.28 5.97 6.5 7.03
Note: includes advertising that appears on desktop and laptop computers as well as mobile phones and tablets; includes all the various formats of advertising
on those platforms; excludes SMS, MMS and P2P messaging-based advertising; numbers may not add up to total due to rounding Source: eMarketer, June
2013; confirmed and republished, Aug 2013

Table 4 Internet User Penetration in Central & Eastern Europe, by Country, 2011-2017
in % of population in each group
2012 2013 2014 2015 2016 2017
Russia 50.0% 54.4% 58.2% 61.3% 64.2% 66.3%
Other 50.3% 54.4% 58.2% 61.3% 64.1% 66.6%
Central & Eastern
Europe 50.2% 54.4% 58.2% 61.3% 64.1% 66.5%
Note individuals of any age who use the Internet from any location via any device at least one a month Source: eMarketer, Nov 2013

Table 5 Internet user penetration in Western Europe, by country, 2012-2017

in % of population of each group
2012 2013 2014 2015 2016 2017
Norway 85.0% 86.0% 87.0% 87.0% 87.0% 87.0%
Denmark 83.0% 84.0% 85.0% 86.0% 87.0% 87.0%
Netherlands 83.0% 84.0% 85.0% 86.0% 86.0% 86.0%
Sweden 81.1% 82.1% 83.1% 83.1% 83.1% 83.1%
Finland 80.9% 81.9% 82.9% 83.9% 84.8% 85.6%
UK* 73.6% 75.0% 76.1% 77.1% 77.8% 78.3%
France 72.9% 74.0% 74.9% 75.8% 76.6% 77.3%
Germany 71.8% 73.3% 74.4% 74.9% 75.2% 75.4%
Spain 61.9% 63.1% 64.0% 64.8% 65.2% 65.5%
Italy 55.2% 56.1% 58.0% 58.6% 60.0% 60.3%
Other 64.0% 65.1% 66.5% 67.2% 68.1% 68.4%
Western Europe 68.7% 69.9% 71.1% 71.8% 72.5% 72.9%
Note: individuals of any age who use the Internet from any location via any device at least once a month; *forecast of Aug 2013 Source: eMarketer, Nov 2013

A glance at the overall importance of online advertising markets reveals that 46% of European online
ad spend is generated by two countries, the United Kingdom and Germany, and the Top 5 countries
account for almost 69.5% of total online ad spend in Europe. Large disparities therefore exist as
countries differ from one another by digital penetration, customers’ incomes, the proliferation of
connected devices and general economic data such as total population, GDP, GDP growth,
purchasing power, etc.

Figure 7 Total online ad spend by country 2012

in EUR million

7,000 6,642

6,000
5,000 4,551
4,000
2,770
3,000
2,000 1,536 1,418
1,207 920 841 617 591
1,000
0

Source: IAB AdEx Benchmark 2012, Presentation Interact Barcelona 2013, IAB Europe 2013

Figure 8 Share of online ad revenue by market in Europe 2012

in %
120.0%

100.0% 95.5%
86.7%
78.3%
80.0% 69.5%

60.0%
46.0%
40.0%

20.0%

0.0%
Top2 Top 5 Top 7 Top 10 Top 15

Source: IAB AdEx Benchmark 2012, Presentation Interact Barcelona 2013, IAB Europe 2013

If we take a closer look at display ad growth, the category of interest regarding on-demand audiovisual
services, we see that average European growth was 9.1% in 2012 according to IAB’s figures. But the
growth rate varies from country to country (figure 9). The CEE countries (BG, CZ, HU, RO, PL), the
UK, Italy and the Nordics (SE, FI, DK) saw their online display ad spend rise above the European
average in 2012 whereas DE, AT, FR, IE, BE and NL saw their online display ad market fall below the
European average. GR, ES, HR and SI are EU countries where display advertising actually shrank
during 2012 (one explanation could be that advertising expenditures tend to shrink during economic
crises).

Figure 9 Growth of online display ads in Europe 2012, in %

Source: IAB AdEx Benchmark 2012, Presentation Interact Barcelona 2013, IAB Europe 2013

This general overview of the online advertising market in Europe gives indications of the raising
importance of online advertising but does not show the categories that are of interest for on-demand
audiovisual services, namely online video ads, mobile ads, advertising on social networks and real-
time bidding. Figure 10 demonstrates the growing importance in the growth of online display
advertising of video and mobile advertising which make up an important share of the overall growth of
this category. When excluding them from the display ad growth, display ad growth in most of the
countries would have increased
at a lesser rate.

Figure 10 Growth of - online display – display excluding video ads – display excluding video
and mobile Europe 2012, in %

Source: IAB AdEx Benchmark 2012, Presentation Interact Barcelona 2013, IAB Europe 2013

Global players: Google remained the undisputed champion of the global online advertising market in
2013, when the company’s market share for net digital ad revenues worldwide was 33% and was
even higher in respect of net mobile online advertising revenue, with more than half of the global
market, estimated at $116.82 billion in 2013 (55.9%, figure 7). Facebook, the world’s leading social
network and second-biggest advertising player worldwide, managed to obtain a market share of 5%
for net online advertising revenue in 2013 and 12.9% of net mobile advertising revenue. The mobile
advertising market illustrates well the importance of size and scale in the online advertising landscape.
While the share of other players in the global mobile ad market was still above 50% in 2011, it
represented less than a quarter of the global mobile advertising market in 2013 (23.53%).

Table 6 Net digital ad revenue share worldwide, by company, 2011-2013

% of total digital ad revenues
2011 2012 2013
Google 32.08% 31.46% 33.24%
Facebook 3.65% 4.11% 5.04%
Yahoo! 3.95% 3.37% 3.10%
Microsoft 1.27% 1.63% 1.78%
IAC 1.15% 1.39% 1.47%
AOL 1.17% 1.02% 0.95%
Amazon 0.48% 0.59% 0.71%
Pandora 0.28% 0.36% 0.50%
Twitter 0.16% 0.28% 0.50%
LinkedIn 18.00% 0.25% 0.32%
Millennial Media 0.05% 0.07% 0.10%
Other 55.59% 55.48% 52.28%
Total digital ($ billions) $86.43 $104.04 $116.82
Note: includes advertising that appears on desktop and laptop computers as well as mobile phones and tablets, and includes all the various formats of advertising on
those platforms; net ad revenues after companies pay traffic acquisition costs (TAC) to partner sites; numbers may not add up to 100% due to rounding Source:
Company reports, 2012 & 2013, June 2013

Table 7 Net Mobile Internet Ad Revenue Share Worldwide, by Company, 2011-2013

% of total
2011 2012 2013
Google 38,11% 52,36% 55,97%
Facebook - 5,35% 12,90%
Pandora 2,99% 2,71% 2,50%
Twitter - 1,57% 1,95%
Millenial Media 1,00% 0,82% 0,76%
YP 2,32% 2,86% 2,39%
Other 55,38% 34,33% 23,53%
Note: net ad revenue after companies pay traffic acquisition costs (TAC) to partner sites; includes display (banner and other, rich media and video) and search; ad
spending on tablets is included; excludes SMS, MMS and P2P messaging-based advertising; numbers may not add up to 100% due to rounding. Source: company
reports, 2012 & 2013; eMarketer, June 2013
3.1.2 Online video advertising
The online video advertising market varies considerably across European countries, according to
IAB’s figures for 2012 (be it in terms of total size or growth rates). The most important markets in terms
of size are the United Kingdom (above €160 million), Italy (€125 million), Germany (around €110
million) and France (around €90 million) [Figure 11].

Figure 11 Size of online video advertising by country – Europe 2012

Source: IAB AdEx Benchmark 2012, Presentation Interact Barcelona 2013, IAB Europe 2013

In 2012, the share of the display advertising market obtained by online video ads was 13%, with two
countries outperforming the European average, Italy (20%) and Spain (around 17.5%). Older forms of
online display advertising such as banner ads and rich media formats are still widely used by agencies
and brands, but with the increase in the measurability of the effectiveness and reach of online video
ads and with better targeting capabilities, those players are starting to use online video ads more and
more.

Figure 12 Online video share of display advertising, Europe 2012

Source: IAB AdEx Benchmark 2012, Presentation Interact Barcelona 2013, IAB Europe 2013

The average growth rate for online video ads outperformed display and search growth in 2012, with a
European average of 50.6% (only the Netherlands saw its online video ad market shrink in 2012, while
Spain’s online video ad market rose at an astonishing 200%).
As we did not find any free data on European advertiser expectations, tactics and ad budgets, we had
to rely on predictions and statements made by US TV and agency executives in order to establish how
the players in this market see future developments.

Figure 13 Online video growth – Europe 2012

Source: IAB AdEx Benchmark 2012, Presentation Interact Barcelona 2013, IAB Europe 2013

A trend that started in 2012 continued unabated in 2013. Advertisers and media buyers are beginning
to transfer TV advertising budgets to digital video (as opposed to shifting budgets from online to video
advertising). One of the main reasons is that advertising campaigns rely more and more on combined
2021
television and online video campaigns as various marketing and specialised press articles indicate.
Figure 14 shows that in 2013 75% of the sample of media buyers expected to shift more TV budgets
to digital video.

Figure 14 Likelihood of Media Buyers shifting more TV dollars to digital video according to
senior US executives, June 2013

% of respondents

Total 75% 15% 9%

Buy-side 70% 20% 10%

0% 20% 40% 60% 80% 100% 120%

Likely/very likely Undecided Unlikly/very unlikely

Note: total n=121, buy-side n=76, in the next 12 months; numbers may not add up to 100% due to rounding. Source: Interactive Advertising Bureau (IAB), "Digital Content
NewFronts", Aug 8, 2013

20
http://www.viralgains.com/2013/09/tv-online-video-marketing-theyre/
21
http://online.wsj.com/article/PR-CO-20131219-907788.html
TV ad spending will still largely outweigh digital video ad spending in the near future, even if the
expected growth rates for digital video are in double digits. TV ad spending is forecast to increase
from $66.35 billion in 2013 to $75.25 billion in 2017, whereas online video ad spending will increase
from $4.14 billion in 2013 to $9.06 billion in 2017, representing just 12% of TV ad spend.

Table 8 US TV* vs. digital video** ad spending, 2011-2017

in USD billions and % change
2011 2012 2013 2014 2015 2016 2017
TV* $60.66 $64.54 $66.35 $68.54 $69.91 $73.05 $75.25
% change 2.8% 6.4% 2.8% 3.3% 2.0% 4.5% 3.0%
Digital video** $2.00 $2.93 $4.14 $5.75 $6.99 $8.04 $9.06
% change 40.8% 46.5% 41.4% 38.9% 21.4% 15.1% 12.8%
Note:* includes broadcast TV (network, syndication & spot) & cable TV **includes advertising that appears on desktop and laptop computers as well as mobile and tablets;
data through 2011 is derived from IAB/PwC data; includes in-banner, in-stream (such as pre-roll and overlays) and in-text (ads delivered when users mouse-over relevant
words) Source: eMarketer, March 2013

But when taking into account the overall digital ad spend (all categories), online ad spend is
catching up with TV ad spend (at least in the US). TV ad spend will remain the number one advertising
category for the near future, but the question is when will digital ad spend catch-up and overtake TV
ad spend?

Table 9 US TV* vs. digital** ad spending, 2011-2017, in USD billions

$80.00 $73.05 $75.25

$68.54 $69.91
$70.00 $64.54 $66.35
$60.66 $60.40
$60.00 $56.52
$52.67
$47.80
$50.00 $42.52
$37.30
$40.00 $31.99

$30.00
$20.00
$10.00
$0.00
2011 2012 2013 2014 2015 2016 2017

TV* Digital**

Note:*includes broadcast TV (network, syndication & spot) & cable TV; **includes advertising that appears on desktop and laptop computers as well as mobile phones and
tablets, and includes all the various formats of advertising on those platforms; data through 2011 is derived from IAB/PwC data Source: eMarketer, March 2013

This trend of shifting TV ad budgets towards online advertising is further illustrated by the
expectations of US agency executives given in table 10. 25% and 23% respectively expect online
video and mobile video to have the highest increase, followed by 17% for mobile display advertising
whereas 25% see TV advertising as having the lowest growth for 2013 (online overtaken by direct
response advertising).
Table 10 Ad tactics in which US agency executives expect to see the highest and lowest
growth, March 2013
in % of respondents
Highest growth Lowest growth
Online video 25% 2%
Mobile video 23% 4%
Mobile display 17% 10%
Social media 9% 4%
Direct response 7% 32%
Online display 7% 4%
TV 6% 25%
Search advertising 5% 5%
Connected TV 2% 15%
Note: numbers may not add up to 100% due to rounding Source: BrightRoll, "Digital Video 2013", May 1, 2013

What are the challenges remaining to fully exploit all the possibilities offered by online advertising
(targeting, behavioural advertising – placing the right ad, at the right time in front of the right
customer)? Online video advertising still needs to improve on its targeting capabilities for 73% of the
marketing professionals surveyed, while 67% want improved measurement and 54% expect a better
reach for online video (figure 15).

Figure 15 Factors that will affect the increase in digital video spending according to marketing
professionals worldwide, April 2013

in % of respondents

Scale/Reach 54%

Measurement 67%

Better targeting 73%

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

Note: includes branded video content and video ads Source Be On, a division of AOL Networks as cited in press release, June 5, 2013 – eMarketer

The increased use of online video ads is also illustrated by the tremendous increase in branded video
ads viewed worldwide between the 3rd quarter of 2012 and the 4th quarter 2012 (figure 16). From
1082.21 billion online branded video ad views in Q3 2012 to 1784.01 billion in Q4 2012 (+64% in a
quarter showing the increased use of branded video ads during the Christmas season, which is a
crucial time for brands in Western countries), a trend that continued throughout 2013 (even though
there was a decrease in the number of branded ads viewed between Q2 2013 and Q3 2013).
Figure 16 Branded video ad views worldwide, Q3 2012 - Q3 2013

in billions
2,500.00

2,000.00 1917.55
1784.01 1819.46
1713.68

1,500.00
1082.21
1,000.00

500.00

0.00
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013

Note: all views were user-initiated and targeted to English-speaking audiences. Source: Visible Measures, "Q1 2013 Branded Video Report", Nov 2013

Video advertising can take on multiple formats. Figure 17 gives an overview of formats for which
marketing professionals plan to increase their investment. From this figure (as always with surveys, to
be taken with caution), it appears that pre-roll and social video ads are advertisers’ preferred formats .
Google’s YouTube innovated by proposing a video ad format called “True View” for which advertisers
22
only pay when the ad has been viewed and not when an impression is generated .

Figure 17 Formats of digital video on which marketing professionals worldwide plan to

increase spending, April 2013

% of respondents

Large format 34%

Display 37%

Branded content 38%

Promoted content 41%

Social 53%

Pre-roll 73%

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

Note: in the next 12 months Source: Be On, a division of AOL networks as cited in press release, June 5 2013

Finally, it seems that for the majority of marketing professionals (58%), video ads can achieve better
customer engagement with the brand than TV ads, and for 47% video ads can raise brand awareness

22
https://www.google.fr/ads/video/advertisers/ad-formats.html
better than TV ads (whereas 31% find that video ads are worse than TV ads for raising brand
awareness).

Figure 18 Ability of marketing professionals worldwide to achieve a better share of awareness

and engagement with digital video than TV*, April 2013

in % of respondents

15%
Worse
31%

14%
Same
24%

58%
Better
47%

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

Engagement Awareness

Note: read as 47% of respondents believe that digital video drives awareness better than TV and 58% of respondents believe that digital video drives engagement better
than TV; includes branded video content and video ads; * for the same investment

Source: Be On, a division of AOL Networks, as cited in press release, June 5 2013

One last point that should be mentioned is that ad fraud is on the rise (traffic generated by
23
machines and robots and false ad impressions , comScore found that 36% of the traffic is generated
24
by machines and not humans ). In order to reassure advertisers and marketers, this issue has to be
addressed and the advertising industry is continuously working on methods to improve ad security,
measurability and better targeting methods as the recent partnership in 2014 between Google and
25
comScore demonstrates .

23
http://bits.blogs.nytimes.com/2014/02/10/did-anyone-look-at-that-ad/?module=BlogPost-
Title&version=Blog%20Main&contentCollection=Technology&action=Click&pgtype=Blogs&region=Body
24
http://www.warc.com/LatestNews/News/Digital_traffic_fraud_hits_crisis_levels.news?ID=32571
25
http://blogs.wsj.com/digits/2014/02/10/with-comscore-google-hopes-to-attract-more-brand-ads/
3.1.3 Mobile advertising
In Europe, according to IAB’s figures, mobile display advertising accounted for an average of 5% of
online display ad spend in 2012 (figure 19). The United Kingdom saw the most impressive rise in the
share of mobile display advertising, which increased from 5.5% to just under 12% of total online
display advertising. Table 11 gives the estimates and projections for mobile Internet ad spend (all
categories) in Western Europe, which was worth $3.589 billion in 2013 and is projected to rise to
$15.184 billion in 2017. The United Kingdom, Germany and France are expected to be the countries
where mobile Internet ad spending will be the highest.

Figure 19 Share of mobile display advertising of total online display advertising in Europe,
2011 & 2012

Source: IAB AdEx Benchmark 2012, Presentation Interact Barcelona 2013, IAB Europe 2013

Table 11 Mobile Internet ad spending in Western Europe, by country, 2011-2017

in USD millions
2011 2012 2013 2014 2015 2016 2017
United Kingdom $323 $835 $1,586 $2,538 $3,680 $4,784 $5,885
Germany $112 $208 $436 $851 $1,361 $1,991 $2,787
France $87 $130 $240 $431 $690 $1,000 $1,361
Italy $63 $104 $198 $366 $568 $733 $916
Netherlands $45 $78 $172 $307 $460 $598 $747
Sweden $21 $57 $142 $238 $333 $416 $483
Norway $23 $50 $109 $183 $265 $339 $400
Denmark $26 $48 $105 $177 $247 $309 $380
Spain $21 $35 $68 $128 $224 $370 $574
Finland $10 $20 $43 $77 $108 $132 $152
Other $50 $107 $491 $1,092 $1,262 $1,377 $1,499
Western Europe $780 $1,669 $3,589 $6,388 $9,199 $12,050 $15,184

Note: includes display (banners, video and rich media) and search; excludes SMS, MMS and P2P messaging-based advertising; includes ad spending on tablets; numbers
may not add up to total due to rounding;*eMarketer benchmarks its UK mobile ad spending projections against the IAB UK/PwC data for which the last full year measured
was 2011. Source: eMarketer, June 2013; confirmed and republished, Aug 2013
 The addressable markets for mobile Internet ad spending depend on the percentages of mobile
Internet users in each country, which are given in table 12 for mobile phones in Western Europe
(persons who used a mobile Internet phone at least once a month) and table 13 for tablets for the EU-
5 (persons who used a tablet at least once a month). The addressable market in Western Europe for
smartphones was 40% of the total population and is expected to grow to 66% of the total Western
European population in 2017. Regarding tablets, another mobile Internet device, 17.8% of the EU-5
population used one and this percentage is expected to rise to 27.1% of the EU-5 population who use
a tablet at least once a month.

Table 12 Mobile phone Internet user penetration in Western Europe, by country, 2012-2017
% of population
2012 2013 2014 2015 2016 2017
Norway 50.7% 57.1% 63.5% 72.4% 79.3% 81.9%
Sweden 43.1% 51.6% 57.9% 63.9% 69.2% 74.4%
Denmark 40.8% 49.7% 59.7% 69.6% 77.4% 83.4%
UK 42.7% 49.3% 54.6% 59.0% 62.9% 66.4%
Finland 38.5% 47.2% 55.8% 62.8% 69.5% 76.6%
Netherlands 38.6% 47.1% 56.8% 66.3% 73.8% 80.5%
Spain 32.0% 42.5% 48.7% 54.8% 58.3% 61.8%
France 26.8% 36.7% 47.6% 54.7% 60.3% 65.2%
Germany 27.6% 35.5% 44.6% 56.5% 64.1% 70.8%
Italy 26.4% 34.1% 42.7% 51.6% 56.8% 58.7%
Other 29.1% 37.0% 45.0% 52.5% 57.8% 61.8%
Western Europe 31.7% 40.0% 48.2% 56.2% 61.7% 66.0%
Note: mobile phone users of any age who access the Internet from a mobile browser or an installed application at least once a month; use of SMS/MMS is not considered
mobile Internet access. Source: eMarketer, Dec 2013

Table 13 Tablet user penetration in the EU-5, by country, 2010-2016

% of population
2010 2011 2012 2013 2014 2015
UK 2.8% 6.5% 15.6% 21.2% 26.9% 31.9%
Spain 3.0% 6.2% 12.7% 19.7% 25.0% 28.8%
Germany 2.0% 4.8% 11.9% 16.5% 21.1% 25.7%
France 1.8% 4.9% 11.2% 16.4% 21.2% 25.4%
Italy 2.4% 4.9% 10.2% 15.9% 20.4% 24.3%
EU-5 2.3% 5.4% 12.3% 17.8% 22.7% 27.1%
Note: individuals of any age who use a tablet at least once a month. Source: eMarketer, Nov 2012

Table 14 Tablet user growth in the EU-5, by country, 2011-2016

% change
2011 2012 2013 2014 2015 2016
Germany 144.7% 149.1% 38.1% 27.6% 21.5% 14.7%
UK 132.1% 140.0% 36.8% 27.6% 19.3% 13.3%
France 173.4% 129.4% 47.2% 29.7% 20.3% 12.1%
Italy 109.4% 108.5% 56.1% 28.2% 19.9% 9.9%
Spain 108.8% 106.4% 56.3% 27.9% 16.3% 11.1%
EU-5 132.6% 128.9% 45.1% 28.1% 19.6% 12.5%
Note: individuals of any age who use a tablet at least once a month. Source: eMarketer, Nov 2012
Finally, in regard to video ads, viewers tend to consume more video content on their mobile Internet
2627
connected devices (smartphones, tablets) with user-generated content (50% of mobile device
28
owners as stated by the Accenture video consumption survey in 2013 ) and short films/clips (49% of
29
mobile device owners as stated by the Accenture video consumption survey ) leading video
consumption. Smartphones and other mobile Internet connected devices permit consumption “on the
go” as well as at home. The increase in video viewers in the EU-5 was 112% year on year in 2013, as
indicated by table 15. This trend is likely to continue as screens increase in size, mobile broadband
coverage is increased and on-demand video services optimise their services (apps, html5 and other
standards) in order to permit smooth mobile video consumption. ABI Research has found that online
30
mobile viewing represented 20% of total online viewing worldwide in 2013 . With the rising number of
mobile video consumers, mobile display advertising will also increase, thus providing another source
of finance and profit for on-demand audiovisual services.

Table 15 Smartphone video/TV viewers in the EU-5, by country, June 2013

% of change versus same period in previous year

Total EU-5 112%

France 77%

UK 103%

Spain 110%

Italy 124%

Germany 150%

0% 20% 40% 60% 80% 100% 120% 140% 160%

Note: ages 15+; three-month average for periods ending June 2012 and June 2013. Source: comScore MobiLens as cited in company blog, Aug 19, 2013

3132 333435
The use of mobile devices as second screens (using a mobile device while watching TV but
second screens can also be laptops or desktop computers) also enables more advertising, especially
for social networks (commenting, exchanging views on a TV show, movie or live TV [sports, reality
shows, political discussions] on social networks like Facebook or Twitter) and other marketing tactics
3637
and strategies . Second screen engagement with TV shows, movies and advertising (interactive
ads, combined ad campaigns, extra content, information on shows) provide yet another option for
advertisers and marketers.

26
http://www.digitalstrategyconsulting.com/intelligence/2013/02/mobile_streaming_trends_how_are_consumers_using_their_s
martphones_and_tablets_infographic.php
27
http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-Video-Over-Internet-Consumer-Survey-2013.pdf
28
Idem page 5
29
Idem page 5
30
https://www.abiresearch.com/press/mobile-video-growth-will-continue-to-outpace-viewi
31
http://www.techopedia.com/definition/29212/second-screen
32
http://www.nytimes.com/2013/10/03/technology/social-networks-in-a-battle-for-the-second-screen.html?_r=0
33
http://www.emarketer.com/Article/Second-Screen-Viewing-Becomes-Common-Activity-UK/1009981
34
http://www.emarketer.com/Article/Multiscreen-Viewing-on-Rise-Sweden/1010182
35
http://www.theguardian.com/technology/appsblog/2012/oct/29/social-tv-second-screen-research
36
http://www.jwtintelligence.com/wp-content/uploads/2012/05/TV_5-8.pdf
37
http://www.theguardian.com/media-network/media-network-blog/2012/sep/10/second-screen-experience-mobile-tablet-tv
3.1.4 Social network advertising
Social network advertising is becoming more and more important, rising at a growth rate of29.9% in
2012 in Western Europe (figure 20) to attain $1.65 billion in 2012 (representing 6.4% of total digital ad
spend) and at a rate of 57% to attain $207.3 million (representing 5.6% of total digital ad spend) in
Central and Eastern Europe (figure 21). The projections for 2015 for Western Europe are an increase
to $2.82 billion for social ad spend, which represent 8.4% of total digital ad spend and in Central
Europe an increase to $477,4 million, representing 8% of total digital ad spend, according to
eMarketer’s expectations.

Figure 20 Social network ad spending in Western Europe, 2012-2015

in USD billions, % change and % of digital ad spending

$3.00 $2.82 35.0%

29.2%
$2.50 $2.38 30.0%
$2.00 25.0%
$2.00 19.1% 18.3%
$1.65
20.0%
$1.50 21.4%
15.0%
$1.00 7.1% 7.6% 8.4%
6.4% 10.0%
$0.50 5.0%

$0.00 0.0%
2012 2013 2014 2015

Social network ad spending % change % of digital ad spending

Note: includes display, search, video and other forms of paid advertising appearing within social networks, social games and social applications; excludes spending by
marketers that goes towards developing or maintaining social network profile pages or branded applications. Source: eMarketer, Sep 2013

Figure 21 Social network ad spending in Central and Eastern Europe, 2012-2015

in USD millions, % change and % of digital ad spending

$600.00 60.0%
53.8%
$500.00 $477.40 50.0%
57.0%
$390.80
$400.00 40.0%
$318.70
$300.00 22.6% 22.2% 30.0%
$207.30
$200.00 20.0%

7.0% 7.4% 8.0%

$100.00 5.6% 10.0%

$0.00 0.0%
2012 2013 2014 2015

Social network ad spending % change % of digital ad spending

Note: includes display, search, video and other forms of paid advertising appearing within social networks, social games and social applications; excludes spending by
marketers that goes towards developing or maintaining social network profile pages or branded applications. Source: eMarketer, Sep 2013
Regarding the addressable market for social ad spend, social network penetration in Western Europe
reached 38.5% of the population in 2012, a percentage expected to raise to 49.4% in 2017 (table 16).
Table 17 shows a decline in the growth in the number of social network users in the coming years,
down from 12.1% in 2012 to only 3.1% in 2017.

Table 16 Social network user penetration in Western Europe, by country, 2011-2017

% of population in each group
2011 2012 2013 2014 2015 2016 2017
Netherlands 59.5% 64.7% 69.6% 71.8% 74.4% 76.1% 77.3%
Norway 59.0% 64.3% 69.2% 73.0% 75.5% 77.9% 79.8%
Sweden 54.4% 59.6% 64.5% 68.2% 70.8% 73.2% 75.1%
Finland 46.7% 51.7% 56.3% 59.9% 63.0% 65.3% 67.2%
Denmark 46.5% 51.4% 56.0% 59.5% 62.6% 65.5% 67.3%
United Kingdom 43.5% 47.7% 50.2% 52.6% 53.9% 55.0% 55.6%
Spain 33.1% 37.2% 41.2% 44.5% 46.9% 49.2% 50.8%
Germany 31.5% 35.9% 39.9% 42.8.% 45.1% 47.2% 48.9%
France 30.6% 33.5% 35.9% 37.8% 39.1% 40.3% 41.2%
Italy 25.9% 29.6% 32.6% 35.0% 36.8% 38.3% 39.7%
Other 28.7% 32.6% 35.8% 38.4% 40.2% 41.9% 43.4%
Western Europe 34.5% 38.5% 41.9% 44.5% 46.4% 48.1% 49.4%
Note: Internet users who use a social network site via any device at least once a month. Source: eMarketer, April 2013

Table 17 Social network user growth in Western Europe, by country, 2011-2017

% change
2011 2012 2013 2014 2015 2016 2017
Spain 18.8% 13.0% 11.5% 8.8% 6.4% 5.8% 4.1%
Germany 20.8% 13.7% 11.1% 7.0% 5.3% 4.5% 3.4%
Italy 27.8% 15.0% 10.2% 8.0% 5.3% 4.3% 4.0%
Denmark 14.3% 10.8% 9.1% 6.5% 5.4% 5.0% 3.0%
Finland 17.1% 10.7% 9.0% 6.3% 5.3% 3.7% 2.8%
Sweden 12.9% 9.8% 8.4% 6.0% 4.0% 3.6% 2.8%
Norway 12.1% 9.3% 8.0% 5.8% 3.9% 3.5% 2.8%
Netherlands 11.9% 9.3% 8.0% 5.8% 3.9% 3.5% 2.8%
France 12.2% 10.1% 7.6% 5.8% 3.8% 3.5% 2.8%
United Kingdom 14.2% 10.5% 6.3% 5.6% 3.4% 2.8% 2.0%
Other 22.5% 13.9% 10.3% 7.4% 5.2% 4.4% 3.7%
Western Europe 17.6% 12.1% 9.1% 6.6% 4.7% 4.0% 3.1%
Note: Internet users who use a social network site via any device at least once a month. Source: eMarketer, April 2013
Facebook is the undisputed champion of social networks with over 1.19 billion monthly active users
38
worldwide (and 728 million daily active users) in 2013 (of which 874 million mobile users, an
increase of 45% year on year - mobile advertising revenue therefore surged to represent 53% of
39
Facebook’s total advertising revenues of in Q4 2013). In Western Europe, Facebook had 153 million
monthly active users in 2013, and the number is projected to increase to 182.7 million users in 2017
(table 18).

Table 18 Facebook users in Western Europe, by country, 2011-2017

in millions
2011 2012 2013 2014 2015 2016 2017
United Kingdom 25.6 28.3 29.9 31.4 32.2 33.0 33.6
Germany 16.7 20.0 22.1 23.6 24.9 25.9 26.9
France 17.6 20.4 22.0 23.4 24.4 25.2 25.9
Spain 12.8 16.4 18.3 20.0 21.3 22.6 23.8
Italy 12.9 16.3 18.0 19.3 20.3 21.3 22.1
Netherlands 9.2 10.0 10.8 11.1 11.5 11.8 12.0
Sweden 4.5 4.9 5.4 5.7 5.9 6.1 6.2
Norway 2.6 2.8 3.0 3.2 3.3 3.4 3.5
Denmark 2.3 2.6 2.8 3.0 3.1 3.3 3.4
Finland 2.2 2.5 2.7 2.8 3.0 3.1 3.2
Other 13.0 16.3 18.0 19.4 20.4 21.4 22.3
Western Europe 119.5 140.5 153.0 162.8 170.4 177.0 182.7
Note: Internet users who access their Facebook account via any device at least once a month; numbers may not add up to total due to rounding. Source: eMarketer, April
2013

Western Europe is second worldwide regarding social network ad spending per user at $10.24, behind
North America where social network ad spending per user was $19.03 in 2012. CEE social network ad
spending per user was $1.36 in 2012 (table 19). Spending per user will increase to $16.17 in Western
Europe and to $2.54 in CEE by 2015.

Table 19 Social network ad spending per social network user worldwide, by region, 2012-2015
in USD
2012 2013 2014 2015
North America $19.03 $26.05 $32.82 $39.89
Western Europe $10.24 $12.04 $13.71 $16.17
Asia-Pacific $2.95 $3.36 $3.60 $4.12
Central & Eastern Europe $1.36 $1.87 $2.21 $2.54
Latin America $1.41 $1.78 $2.17 $2.39
Middle East & Africa $0.27 $0.37 $0.50 $0.66
Worldwide $5.14 $6.18 $6.97 $7.98
Note: includes display, search, video and other forms of paid advertising appearing within social networks, social games and social applications; excludes spending by
marketers that goes towards developing or maintaining social network profile pages or branded applications. Source: eMarketer, Jan 2014

38
http://www.prnewswire.com/news-releases/facebook-reports-third-quarter-2013-results-229923821.html
39
http://online.wsj.com/news/articles/SB10001424052702304428004579350971373442410
3.1.5 Programmatic, real-time bidding and video advertising
40
Real-time bidding is the automation of ad exchanges between a publisher and an advertiser. “A
highly complex, computer auction-based system of buying ads – with transactions taking fractions of a
second – programmatic trading is similar to how stocks and share are traded on stock markets. The
trading, which takes the form of automated real-time bidding based on complicated algorithms,
41
matches ads with audiences. ” It enables cost-reductions (as the process is automated and involves
less staff, such as sales and other agencies’ in-house teams. Real-Time bidding is mostly used with
display advertising and its introduction to online video ads has brought about a market increase (see
chapter 3.3 - Online display market – a complex market). Real-time bidding can help to improve video
ad placements but the process is still in expansion (having been around since 2003 but only used to
sell unsold inventory) but is promised a bright future, rising fast at +233.1% in 2013 in the EU-5
according to SpotXchange data. As table 20 shows, programmatic digital video ad spending in EU-5
was worth €119.6 million in 2013 (12.2% of total video ad spending) but will rise to €626.5 in 2017
(representing 33.2% of total video ad spending).

Table 20 Programmatic digital video ad spending in the EU-5, 2012-2017

In EUR millions, % change and % of total video ad spending
2012 2013 2014 2015 2016 2017
Revenues 35.9 € 119.6 € 225.5 € 368.8 € 503.0 € 626.5 €
% change - 233.1% 88.5% 63.5% 36.4% 24.6%
% of total video ad spending 4.6% 12.2% 18.7% 25.8% 30.3% 33.2%
Source: IHS, "Video goes programmatic: Forecasting the European online video advertising landscape" commissioned by SpotXchange eMarketer calculations, Sep 5,
2013

Table 21 Programmatic video ad spending share in the EU-5, 2012-2017

% of total video ad spending
2012 2013 2014 2015 2016 2017
UK 9.0% 18.2% 24.3% 31.2% 36.2% 38.9%
France 3.0% 11.4% 17.5% 24.5% 28.7% 31.4%
Italy 3.9% 11.3% 19.0% 28.7% 32.8% 36.0%
Spain 2.5% 9.1% 16.3% 22.9% 27.2% 29.8%
Germany 1.9% 6.7% 13.1% 18.9% 23.1% 26.6%
Source: IHS, "Video goes programmatic: Forecasting the European online video advertising landscape" commissioned by SpotXchange

Taking into account overall display ad spending, the rise of programmatic display ad transactions is
further highlighted. In the US in 2012, $4.8 billion was spent through programmatic transactions, or
63.2% of total display ad spending, and this figure is projected to rise to $16.9 billion in 2017,
representing 51.8% of total display ad spending.

Worldwide (that is to say in Australia, China, France, Germany, Japan, Netherlands, Spain, UK and
the US according to Magna Global figures), programmatic display ad spending will rise from $7.6
billion in 2012 to $32.6 billion in 2017.

40
http://marketingland.com/the-mechanics-of-real-time-bidding-31622
41
http://www.theguardian.com/media/media-blog/2014/feb/09/advertising-sales-programmatic-trading
 Table 22 US and worldwide* programmatic display ad spending, 2011-2017
USD billions, % change and % of total
2011 2012 2013 2014 2015 2016 2017
US $2.8 $4.8 $7.5 $9.8 $12.4 $14.8 $16.9
% change - 71.4% 56.3% 30.7% 26.5% 19.4% 14.2%
% of total 62.2% 63.2% 62.5% 59.0% 56.6% 54.2% 51.8%
Worldwide $4.5 $7.6 $12.0 $16.6 $21.9 $27.3 $32.6
% change - 68.9% 57.9% 38.3% .1.9 24.7% 19.4%
Note: Includes both RTB and other programmatic/automated platforms for banner, social and video ads on desktop and mobile devices *includes Australia, China, France,
Germany, Japan, Netherlands, Spain, UK and the US. Source: MAGNA Global as cited in press release; eMarketer calculations, Oct 14, 2013
3.2 The online advertising market 2011– Data
available on online advertising investments
(IDATE & IAB data)
Advertising in the online landscape was still on the rise in 2012. While paid search continues to
represent the main proportion of ad spend in the online landscape, display ads are increasingly being
used. This is mainly due to two factors: the rise of online video ads and of mobile display ads coupled
with technical improvements regarding bandwidth and the ongoing equipping of consumers with
connected devices (smartphones, tablets, PCs).

This section explores in more detail the state of online display advertising relating to audiovisual on-
demand services.

In regard to financial figures and statistics, the major source for online advertising remains the
Interactive Advertising Bureau (IAB). Most of the main players on the online advertising market do not
communicate precise financial data or statistics on their businesses. Reports on advertising-supported
video on-demand services made by consulting groups such as PwC or Rentrak are very costly, so we
had to rely on figures either communicated by business organisations like IAB, Warc, Idate or ad-
network financed studies (like BrightRoll, Brightcove or TubeMogul) which play an active part on the
online advertising market and have a direct commercial advantage to prove to advertisers the
importance of online display advertising in order to encourage them to shift their TV ad spend to online
display ads. Or else we had to rely on articles in the specialised press relating to online advertising,
mostly written or funded by industry players.

Also, we found that figures are much more readily available on the US than the European market,
so the figures cited in this section should be taken as a guideline to actual trends.

As the note was commissioned in March 2013 when IAB’s AdEx Benchmark 2012 Europe was not
yet available, most of the data in this note rely on IAB’s AdEx Benchmark 2011.

Digital Content: the main driver of online display advertising

Increased network capabilities, the general availability of broadband connections permitting the
smooth delivery of videos via the Internet and the appetite of consumers to view videos and engage
with content viewed are driving online display advertising. Publishers are increasingly competing for
original content that appeals to consumers and therefore increases the audience of their websites,
making it more valuable to advertisers and thus generating higher advertising revenue. Advertising
agencies and ad networks provide advertisers with the technical know-how and capabilities of
targeting consumers, thus making the advertising message more coherent and relevant to them.
Technical innovations like dynamic online video ad insertion depending on the consumers’ profile
(tastes, consumption habits, browser history retrieved through cookies and behavioural analysis) have
allowed advertisers to engage and reach their target audience in a new way. Unlike TV advertising,
online advertising permits a much more fine-grained audience analysis and therefore a more valuable
advertising message for advertisers. Whereas paid search advertising focused on a more return on
investment approach as advertisers could measure the impact of their ad campaign through click-
through rates and traffic attracted to their websites coming from search results (a short term approach
to online marketing where advertisers seek to attract traffic in order to make sales or identify sales
leads), display advertising is more focused on delivering a brand message. For a long time, display
advertising consisted mainly of banner ads mixing text and images, whether moving or not, which did
not permit the effective delivery of a a brand’s message. With the introduction of video ads, advertisers
could more effectively engage in storytelling like on TV and thus convey the brand’s core message.
Therefore, the main drivers of the growth of the online display ad market have since 2010 been online
video ads and mobile ads, videos allowing better brand advertising and mobile ads making it possible
to engage with the consumer wherever he/she is connecting from, such as a smartphone or tablet.
The reason underlying the better targeting capabilities is to be found in the rise of so-called “big data”.
Video-on-demand websites financed by advertising are taking advantage of those innovations. As
advertisers and marketers see the Internet as a viable form of brand advertising, close to the way
advertising was carried out through television with improved targeting and audience segmentation, the
competition to provide advertisers and marketers with the audience they need has improved. What
does attract an audience and ensure a large audience base? In this study, the focus is on on-demand
audiovisual services, so we will concentrate on the forms of display advertising found on on-demand
video sites. These are increasingly video ads which enable advertisers to conduct brand advertising
and tell a story about their brand. The perception of the Internet not only as a medium for result- and
ROI-centric advertisements, e.g. paid search, but also as a place to communicate and engage with
customers around the brand message conveyed is fundamental to the rise of both video on-demand
sites financed by advertising and in the surge of display advertisements, especially online video ads.
Broadcasters have played an active part in the promotion of this form of advertising to counterbalance
the shrinking of their TV advertising revenues.

3.2.1 The online advertising market

“The global market of online advertising will rise from 60 billion EUR in 2012 to 108 billion EUR in
2016”42 according to IDATE. (The following section is an extract from IDATE’s report on online
advertising).

USA dominant in the field, with APAC growing rapidly

Figure 22 Online advertising market worldwide 2012-2016

Online advertsing market - revenues worldwide 2012-

2016
in EUR million

120,000 108,400
100,000

80,000
60,217
60,000

40,000

20,000

0
2012 2016

Source: IDATE, July 2012

42
http://blog.idate.fr/world-Internet-markets-on-line-advertising/
 Online advertsing market breakdown of revenues
worldwide 2012
in %

12%
24%

28%

36%

EU27 USA Asia-Pacif Rest of world

Source: IDATE, July 2012

Online advertsing market breakdown of revenues

worldwide 2016

19% 20%

31%
30%

EU27 USA Asia-Pacif Rest of world

Source: IDATE, July 2012

Online advertising represents an important part of total media advertising

Online advertising will continue to be a main part of the advertising landscape, passing from around
16% in 2012 of the total media advertising market to 24% in 2016.

Figure 23 Online advertising’s share of total media by market 2012-2016

Online advertising's share of the total media advertising market by

region, in 2012 and 2016e
30%
24% 25%
25% 23% 23%

20% 17% 18% 17%

16%
15%

10%

5%

0%
World EU27 USA APAC

2012 2016e

World EU27 USA

30% 24% 30% 23% 30% 23%
16% 17% 18%
20% 20% 20%
10% 10% 10%

0% 0% 0%
2012 2016e 2012 2016e 2012 2016e

APAC
30% 25%
20% 17%

10%
0%
2012 2016e

43
Source: IDATE , July 2012

43
http://blog.idate.fr
Video, mobile and social networks lead the way

The advertising market is dominated by global players such as Google, Facebook, Apple… Mobile
advertising is set to generate the most revenue as connected mobile devices are more used by
customers and the advertising industry adapts rapidly to those new technologies.

Figure 24 Breakdown of online advertising market by segment worldwide 2012 and 2016

Breakdown of online advertising market by segment,

worldwide in 2012 and 2016 in EUR million
16,000
14,050
14,000
12,500
12,000

10,000
7,975
8,000
5,840
6,000
4,425
4,000 3,317

2,000

0
Video advertising Mobile advertising Social network advertising

2012 2016
44
Source: IDATE , July 2012

44
http://blog.idate.fr/wp-
content/uploads/2012/07/world_Internet_advertising_Img3_breakdown_online_advertising_segment.jpg
Highest per-user revenue for advertising on social networks
Social Networks allow addressing targeted advertisement to identified target groups of social network
users, which as more value for advertisers as the advertising revenue per user shows

Figure 25 Breakdown of online advertising per-user revenue per year by segment 2012 and
2016

Breakdown of online advertising per-user revenue per year by

segment, worldwide in 2012 and 2016 in EUR
9
8.2
8
7
6 5.3
4.9
5
4.1
4
3 2.3 2.5
2
1
0
Video advertising Mobile advertising Social network advertising

2012 2016

45
Source: IDATE , July 2012

45
http://blog.idate.fr
3.2.2 The European online advertising market
Online advertising is continuing to rise, totalling €20.9 billion in Europe46 in 2011 (an increase of
14.4% compared to 2010) and $36.57 billion in the USA in 201247 (up by 15% from $31.74 billion in
2011). Driven by the increased consumption of online content, video in particular, and increased
mobile advertising, ad spend on the web now represents 20% 48 of total ad spend in Europe and is the
fastest growing advertising segment (the overall European advertising market, excluding online, grew
at 0.8% in 2011).

Figure 26 Economic and ad growth 2011 Europe

Economic and ad growth 2011

in %
25.0%

19.7%
20.0%

14.4%
15.0%
11.5%
9.7%
10.0%

5.5%
5.0% 3.2% 3.6%
1.5% 1.3% 1.7%
0.8%
0.0%
Western Europe CEE Total Europe
-1.0%
-5.0%

GDP Total exluding online Online Total

Source: AdEx 2011, IAB Europe

The resistance of advertising to the economic crisis, which affected ad spend in other media such
as newspapers or magazines shows the increased need for advertisers to get into touch with
consumers where they are, which, in the 21st century, is most definitely the Internet. With marketers
and advertisers getting more and more used to the Internet as an effective medium not only to convey
an advertising message but also to interact with consumers, the next shift that is already underway is
the increasing interconnection between TV ads and online video ads, which are referred to as T/V
advertisements. However, how do advertisers in Europe spend their money on Internet
advertisements?

The AdEx report by IAB Europe only makes a distinction between the three major formats, display

46
AdEx Benchmark 2011, IAB Europe, http://www.iabeurope.eu/media/97996/2012_interact_presentation_final_delivered.pdf
AdEx 2011 coverage, 26 countries : Austria, Belgium, Bulgaria, Czech Republic, Croatia, Denmark, Finland, France,
Germany, Greece, Hungary, Ireland, Italy, Netherlands, Norway, Poland, Russia, Romania, Serbia, Slovenia, Slovakia,
Spain, Sweden, Switzerland, Turkey, United Kingdom.
47
IAB Internet advertising revenue report 2012, IAB and PwC,
http://www.iab.net/media/file/IAB_PWC_Internet_Advertising_Revenue_Report_FY_2012_Apr_16_2013.pdf
48
AdEx Benchmark 2011, IAB Europe.
advertising, paid search advertising and classifieds & directories.

Paid search advertising accounted for €9.7 billion in 2011 (up 17.9% from €8.2 billion in 2010) or
46% of total ad spend. Display advertising represented €7 billion or 33.5% of the total online
advertising market (up by 14.7% from €6.1 billion in 2010) with classifieds and directories accounting
for 19% of the total online advertising market at €4 billion (up by 5% from €3.8 billion in 2010).

Figure 27 Europe online formats 2011 and 2012

Growth across formats pushes online above €20 billion mark

in EUR billion
25
20.9
20 18.3

15
9.7
10 8.2
6.1 7

5 3.8 4

0
Display Classifieds & Directories Search Total

2010 2011

49
Source: IAB Europe AdEx Benchmark 2011 . “Other” not shown separately, but included in total

Figure 28 Europe online ad growth by format

Europe: online ad growth by format

30%

25%

20%
2009
15%
2010
10% 2011

5%

0%
Display Classified Search Total

Source: ScreenDigest, Focus March 2012

49
http://www.iabeurope.eu/files/9113/6852/1903/2011_adex_benchmark_final.pdf
Figure 29 Online ad format by share of total online advertising

Format shares of online ads - Paid-for search remains

the largest segment
120.0%
100.0%
80.0% 33.4% 33.6%

60.0%
40.0% 45.1% 46.5%

20.0%
20.9% 19.3%
0.0%
2010 2011

Classified & Directories Search Display Others

Source: AdEx Benchmark 2011, IHS ScreenDigest, IAB.Europe

Paid search still dominates the online ad market owing to its ability to allow a more ROI-centric
approach as its results are measurable either by sales directly made or by a traffic increase on a
website. Also, as advertisers and marketers were from the beginning of online advertising more used
to paying for search keywords (Google’s keywords and paid search being the most valued and used)
the shift to a more display focused approach to online advertising took some time. Remember the time
when the only online display advertisements were mainly banner ads which provided poor click-
through ratings? Online branding through display advertisements (video, rich media, new banner ads
with improved click-through ratings) is still relatively recent so there is still time for marketers to get
used to them and adopt them as a marketing tool equal to TV ads before it is too late.

With regard to country-by-country online ad spend, 7 of the 26 countries included in the study
account for 75% of total ad spend, with the United Kingdom accounting for over 25% of total online ad
spend in Europe.

Figure 30 Top 7 online advertising markets represent a share of 75%

Figure 31 Growth in European online advertising market

Another conclusion that can be drawn from the 2011 AdEx Benchmark report is that Central
European countries’ online ad spend is growing enormously compared to Western Europe. The
increased network capabilities coupled with increased web access for the Central and Eastern
European populations are providing advertisers with a new audience which must be addressed.
Russia’s online ad spend growth is particularly impressive with a rise of 55% over one year. The more
mature markets of Western and Northern Europe are in line with the general trend observed in Europe
of around 10% growth in 2011.
50
On 23 May 2013, IAB Europe published a press release on its website announcing the AdEx
Benchmark survey for 2012 (not yet available at the date of this note). In 2012, the European online
advertising market, according to the press release, surpassed €24.3 billion, up by 11.5% from 2011.
While paid-for-search advertising remains the main category in Europe’s online advertising market
with a market value of €11.9 billion in 2012 and growth of 15.5% over the year, display advertising
grew by 9.1% compared to 2011 and has a market value of €7.8 billion. Display advertising was
mainly driven by mobile and online video. “More reliable audience metrics, better campaign
measurements, improved automation and simplification of purchasing online advertising space
developed by industry, increased confidence amongst marketers in the online ad medium”.

Advertisers and ad agencies need to evaluate their ad campaigns and, in order to do so, need
metrics on the ROI of funds invested in ads, the better targeting of core audiences to which the ad
message is addressed and a simpler method of placing online display ads. As we will see in section
1.3, which deals with online display advertising and online video advertising, the emergence of “big
data” and behavioural analysis allow for better audience segmentation and targeting whereas real-
time bidding permits a much more simple and automated way of placing online ads. Those
improvements in online display ads, particularly in video ads, have ensured that marketers and
advertisers rely more on the Internet as a medium which can effectively convey a brand message.

The press release also states “Continued strong migration of ad spends online, which followed
media usage patterns, underpinned the overall strong growth. Demand for online video advertising
increasingly acted as a major draw for brand advertisers growing by 50.6% in 2012, to nearly
50
http://www.iabeurope.eu/news/european-online-advertising-market-surpasses-24bn-euros-in-value.aspx
€661.9M. This is the first time in Europe that online video has grabbed double-digit display market
share, jumping to 12.9%”.

As we will see below, online advertising is also eating into advertising budgets of other media,
particularly print. However, the gap between online advertising and TV advertising in Europe is
continuously narrowing: online ad spend represented 25% of total ad spend, TV 28% (as IAB has not
51
yet published this report, we have relied on Warc which had access to it ). In the United Kingdom this
is already the case and the figures show that online advertising, while progressing in the future, will
have to convince advertisers that online ads have the same strength as TV advertisements.

The IAB Europe press release also establishes a ranking of the top 10 European markets in regard
to total online ad spend. The United Kingdom leads this ranking with a total of €6.6 billion in 2012,
followed by Germany with €4.6 billion, France €2.8 billion. Russia was the only country which
progressed, passing in front of Italy with online ad spend growth of 34% between 2011 and 2012,
totalling €1.5 billion. Italy ranks in fifth place with €1.4 billion, followed by the Netherlands with €1.2
billion and Spain with €0.9 billion.

Top 10 Country Rankings, AdEx Report 2012

Table 23 Top 10 country rankings in 2012 in Europe by online advertising ad spend

– United Kingdom – €6.6bn

– Germany – €4.6bn
– France – €2.8bn
– Russia – €1.5bn
– Italy – €1.4bn
– Netherlands – €1.2bn
– Spain – €0.9bn
– Sweden – €0.8bn
– Norway – €0.6bn
– Denmark – €0.6bn

The IAB Europe AdEx reports are useful in order to measure the total European online advertising
market and to distinguish between their three major categories. The freely available report
unfortunately does not furnish any more information, this section being reserved for IAB members. In
order to see the progress of online ad spend in Europe, we choose to incorporate Warc data where
available. This data is presented in the following section.

51
http://www.warc.com/Blogs/IAB_Europes_AdEx_report_Whats_the_future_for_online_branding.blog?ID=1721
3.2.3 Online ad spend compared to total and other media ad spend
(Warc data) 2008-2014

 France

Table 24 Online ad spend compared to total ad spend 2008 -2014 France

Source: Warc

Online ad spend has risen steadily in France since 2009 and the economic crisis (negative growth
only between 2008 and 2009 of -3.3% quickly offset by growth of 19.5% between 2009 and 2010).
From only 13.8% of total ad spend, the Internet accounted in 2012 for 20.1% of total ad spend and
was the only medium which did not shrink between 2011 and 2012 (Newspaper ad spend shrank by -
10.2% and even the huge TV ad spend experienced a fall of -4.5%). At €2.7 billion in 2012, online ad
spend accounted for 65% of TV ad spend, up from only 46.9% in 2008.

France’s online ad spend is following the main trends in Europe, with greater investment in online
ads in order to expand the reach and ensure the better targeting of ads. The data available do not
allow for a more precise breakdown as we do not have the figures for online display advertising or
paid search.
 Germany

Table 25 Online ad spend compared to total ad spend 2008 -2014 Germany

Source: Warc
 United Kingdom

Table 26 Online ad spend compared to total ad spend 2008 -2014 United Kingdom

Source: Warc
 Italy

Table 27 Online ad spend compared to total ad spend 2008 -2014 Italy

Source: Warc
3.2.4 The American online advertising market 2012

More online ad spend data are provided in IAB’s US AdEx report 201252, which does provide a
breakdown between ad spend, distinguishing between several formats instead of only the three used
in the IAB Europe report.

The revenues of the online advertising market rose by 15.2% between 2011 and 2012 to reach
$36.6 billion. The most impressive increase came from mobile advertising, which went from 5% of
overall ad spend in 2011 ($1.585 billion) to 9% in 2012 ($3.29 billion). The overall weight of paid
search was slightly reduced but still accounted for $16.8 billion in 2012, followed by display advertising
at 7.6 billion.

The interesting aspect of the figures supplied is that they provide a breakdown between digital video
ads and display ads (unlike in Europe): proportion of video ads in regard to total ad revenues is stable
at 6%, rising from $1.9 billion in 2011 to $2.19 billion in 2012. IAB USA has become aware of what a
powerful tool online video ads are for marketers and advertisers.

52
http://www.iab.net/media/file/IAB_Internet_Advertising_Revenue_Report_FY_2012_rev.pdf
Evolution of Ad formats 2011-2012 in the USA

Figure 32 USA: evolution of ad formats 2011 - 2012

Ad formats - full year 2011

Total - $31.7 billion
4% 4% 1%
5%
6%

5% 47%

8%

21%

Search Display / Banner Classifieds

Mobile Digital Video Lead Generation
Sponsorship Rich Media Email

53
Source: IAB

Ad formats - full year 2012

Total - $36.6 billion
5% 2% 3% 0%
6%

9% 46%
7%
21%

Search Display / Banner Classifieds

Mobile Digital Video Lead Generation
Sponsorship Rich Media Email

Source: IAB

53
http://www.iab.net/media/file/IABInternetAdvertisingRevenueReportFY2012POSTED.pdf
 Looking at the historical trend of these different shares between 2006 and 2012, several
observations might be made:

– Search remains powerful and accounts for more than 40% of overall ad spend
– Display ads are stable over the time period
– Classified ads experienced a significant decrease as a proportion of overall ad spend, whereas
they their use is still growing in Europe
– The enormous surge of mobile ads and video ads, with mobile ads overtaking classified ads for
the first time in 2012 and therefore becoming the third most important format for online
advertisements.

Figure 33 USA – Advertising format share 2006-2012

As the report explains, the rise in mobile ads is explained by several facts: the increased equipping
of the population with smartphones which allow for smoother mobile web navigation coupled with
faster connection speeds, as well as the shift of social media onto mobile consumption and, therefore,
the ability to target consumers “on the go”.

Internet economies are under the network effect and prone to monopolistic or oligopolistic markets.
The US AdEx report 2012 underlines this fact by showing that 72% of overall revenues in the 4th
quarter of 2012 were generated by 10 companies (Google being number 1 but the report does not
provide any other company names). Also, almost 90% of total online advertising revenues are
commanded by 50 companies, and this trend is likely to continue as many small start-up companies
are either bought by the Internet giant if they overperform or a gently pushed out of business as they
do not possess the capacities, either financially or technically, to compete in the long run with their
much bigger competitors.
Figure 34 USA – Online ad revenue share by number of companies

Source: IAB, AdEx USA 2012

With search remaining the main online ad format, performance based pricing is still the dominant
form. Click-through cost and cost-per-action are the main pricing models here. Advertisers pay if the
consumers click on their ad or search result or if the advertisement leads to an action resulting in a
sale or registration on a web site or provides a lead for the advertising company to follow up. In 2012,
performance-based pricing accounted for 66% of overall ad revenues.

Cost-per-mille (CPM) is typically used for display ads, video ads and mobile ads. Here, advertisers
pay the website/publisher a rate which varies greatly (from $0.1 up to $40 for exclusive top-tier sites)
for each thousand views/unique viewers of the ad. This form of pricing can be equated to TV
advertising, where the advertiser also pays for an overall audience reached (gross rating points, or
GRP).

As we will see in section 1.3 dealing with display ads and video ads, this ecosystem allows for a
large number of intermediaries, each intervening in one or more stages to reach the target audience.
With the increasing amount of quality content available on the web and the ever larger number of
advertisers, CPM is on a downward spiral and applies more to a seller’s market. Also, real-time
bidding mechanisms implemented by the main advertising sellers and start-ups are increasingly
automating the selling and buying of display advertisements and putting further pressure on the price
of CPM. In order to be able to command top CPM’s, publishers and ad-space selling companies have
to provide quality content valued by the target audience.
Pricing models used in the online advertising market in the US

Figure 35 USA – Pricing model rises and falls 2011 - 2012

Pricing models - FY 2011

Total - $31.7 billion

4%

31% Performance
CPM
Hybrid
65%

Pricing models - FY 2012

Total - $36.6 billion
2%

32% Performance
CPM
Hybrid
66%

Source: IAB, AdEx USA 2012

Figure 36 USA – Internet ad revenues by pricing model

Internet ad revenues by pricing model

in % of total revenues
70%
65% 66%
60% 62%
59%
57%
50% 51%
48%
47%
46% 45%
40% 41%
39%
37%
33% 32%
30% 31%

20%
13%
10%
5% 4% 4% 4% 5% 4%
0% 2%
2005 2006 2007 2008 2009 2010 2011 2012

Performance CPM Hybrid

Source: IAB, AdEx USA 2012

Figure 37 USA – advertising revenue market share by media 2011

Advertising revenue market share by media 2011

in USD billion
Cinema 0.7
Video Games 0.8
Out of Home 7.5
Raido 16.1
Newspaper 19.4
Magazines*** 22.8
Cable Television** 32.5
Internet 36.6
Broadcast Television* 39.6

0 10 20 30 40 50

The total US advertising market includes other segments not charted here.

*Broadcast Television includes network, syndicated and spot television advertising revenue

**Cable Television includes national cable networks and local cable television revenue

***Magazines include consumer and trade magazines

Source: IAB Internet Advertising Revenue Report, PwC

Figure 38 USA – advertising revenue market share by media 2005-2012

Changes in US ad spend 2005-2012

As the above tables show, Internet overtook cable television advertising in 2011 and continued its
rise throughout 2012 to reach almost the figure for broadcast television. The trend is likely to continue,
with increased branding capabilities offered by online video advertising and improved targeting
methods allowing marketers/advertisers to reach customers on their mobile device. In the not-too-
distant future, revenue from online advertising will be equivalent to or higher than broadcast television.
This trend is enhanced by the fact that traditional broadcasters have heavily invested in the web to
profit from these new methods of advertising and limit the stagnation of their traditional revenues. The
fact that they aim at advertisers with an offer comprising TV ads coupled with online ads to increase
the reach of an advertising campaign is a sign of their adaptation to the online advertising market. It is
also a way for broadcasters to increase the value of their content.
Table 28 USA – Net Online display ad revenue of Top 5 ad-selling companies

Net US online display ad revenues at Top 5 ad-selling

companies in USD billion
2011 2012 2013 2014
Facebook $1.73 $2.58 $3.29 $3.75
Google $1.71 $2.54 $3.68 $4.76
Yahoo! $1.35 $1.40 $1.50 $1.64
Microsoft $0.56 $0.67 $0.80 $0.96
AOL $0.53 $0.62 $0.71 $0.81
Total Top 5 $5.88 $7.81 $9.98 $11.91
Total online display $12.40 $15.39 $18.57 $21.91
Note: eMarketer benchmarks its US total online display ad spending projections against IAB/PwC data, for which the last full year measured was 2010; mobile included:
net ad revenues after companies pay traffic acquisition costs (TAC) to partner sites; includes banners, rich media, sponsorships and video

Source: eMarketer Feb 2012; company reports 2011 & 2012

As the table from eMarketer shows, the US online display market is heavily dominated by the pure
players on the web. The leading social network (Facebook), the leading video platform and advertising
network (Google) and the leading portals (Yahoo!, Microsoft, AOL) are in the top 5. This situation will
be further enhanced by the recent acquisitions by these players (Instagram in the case of Facebook,
Tumblr in the case of Yahoo!). The competition for content and therefore audience has been
underway for years and the situation on the online display market is tending to become oligopolistic.

Table 29 USA – Top online video content properties ranked by unique video viewers
Table 30 Top online video ad properties ranked by unique video viewers

The last two tables show that ad networks such as Bright Roll and Adap.tv are on the rise. In fact,
for many advertisers and publishers they are the main intermediaries for the delivery of video ads.
Google, which has an integrated approach as it is both a publisher through YouTube and an ad-
network through DoubleClick (both acquired during the late 2000s, YouTube for $1.7 billion and
DoubleClick for $3.1 billion), sees its strategy paying off, enjoying as it does a dominant position on
the online content video market and a leading position on the ad video market.
3.3 Online display advertising - a complex
market
Figure 39 LUMA online display advertising ecosystem

Source: LUMA Partners 2012

 The above graphs show the complexity of the ecosystem of the online display market.
Marketers/Advertisers who want to launch an advertising campaign on websites have to interact with
many players, the main ones being the marketers/advertisers, whose goal/need is to place an
advertisement/advertising campaign on the Internet, the ad agencies which will develop the
ad/campaign, the ad servers which will deliver the advertisements, the demand side platforms (DSPs)
which provide agencies with a unique interface for placements on various publishers’ websites, ad
networks which “run” the business (Google, Yahoo!, AOL, Tremor Video) and, finally, the publishers
which through their content attract the desired audience for the marketer/advertiser.

The complexity has for a long time made it difficult for marketers to effectively run ad campaigns on
the Internet, having concerns as they do about the effectiveness of ads, the measurability of the reach
of their campaigns and, ultimately, the various intermediaries with whom they have to negotiate.
Recently, however, DSP or integrated ad networks like Google have simplified the task for marketers
and offer a one-stop place to advertise.

Figure 40 Online display advertisement industry structure

This is a simplified structure of the online display market. The value-added service providers
represent in this part the various intermediaries from the LUMA landscape. The interesting point in this
schema is that advertisers can also contact publishers (here Yahoo!, MSN) directly or go through an
advertising network such as Google ad networks (DoubleClick, AdSense) to place their campaign.

Table 31 Online display ad spending in Western Europe by format 2011-2016 in € millions

Online display ad spending in Western Europe, by format in € millions

2011 2012 2013 2014 2015 2016
Rich media* €1,686 €2,120 €2,551 €3,010 €3,508 €4,045
Video €764 €920 €1,112 €1,321 €1,540 €1,768
Text ads €963 €1,042 €1,139 €1,238 €1,345 €1,447
Static image €723 €681 €631 €567 €506 €425
Total €4,136 €4,763 €5,433 €6,136 €6,899 €7,685
Source: *: excludes video Forrester Research “Digital Media Buying Forecast 2012 to 2017” as cited by TechCrunch, Oct 9 2012, retrieved from eMarketer
Table 32 Online display ad spending in Western Europe by format 2011-2016 in % change

Online display ad spending growth in Western Europe, by format, in % change

2012 2013 2014 2015 2016
Rich media* 25.7% 20.3% 18.0% 16.5% 15.3%
Video 20.4% 20.9% 18.8% 16.6% 14.8%
Text ads 8.2% 9.3% 8.7% 8.6% 7.6%
Static image -5.8% -7.3% -10.1% -10.8% -16.0%
Total 15.2% 14.1% 12.9% 12.4% 11.4%
*: excludes video

Source: Forrester Research “Digital Media Buying Forecast 2012 to 2017” as cited by TechCrunch, Oct 9 2012, eMarketer calculations, retrieved from eMarketer

Rich media ads and video ads are enjoying growth in Western Europe, with a rise of 20% projected
in 2013. Advertisers prefer more and more those display ad formats which allow them to engage with
the target audience and carry out brand advertising/storytelling, which is not possible through simple
static images. The banner we are used to is likely to slowly decrease in importance. The newer ways
of reaching and engaging with the audience are clearly preferred by marketers, so exclusive/quality
content will remain important for publishers in order to attract the desired audiences and, therefore,
advertisers.

Figure 41 Europe: mobile display ads as share of online display

Mobile display ads as share of online display - Europe 2011

% of Display
6.0% 5.3%
5.0%

4.0% 3.6% 3.6%

3.0% 2.3% 2.2% 2.2%

1.8% 1.7% 1.7%
2.0% 1.5%

1.0% 0.5% 0.4%

0.0%

Source: AdEx Benchmark 2011, IHS ScreenDigest, iab Europe

Mobile advertising is also playing an increasing role for advertisers. With smartphone penetration
approaching 50% of Western Europe’s population, advertisers aim increasingly to reach and engage
with potential consumers everywhere they connect and this is more and more “on the move”.
3.3.2 Online video advertising, the rising star of display advertising
Figure 42 Video advertising as share of online display ads in Europe

Video ads as share of online display - Europe 2011

% in of online display
12.0%
9.8% 9.7%
10.0%
8.5% 8.3%
8.0% 7.5%
6.5%
5.9% 5.8% 5.8%
6.0% 5.2%

4.0%

2.0%

0.0%

Source: IAB Europe AdEx Benchmark 2011

Non-existent 8 years ago, online video ads are taking an increasing share of online display
advertising and ensuring the growth of this format. Germany and the United Kingdom, according to
estimates by ScreenDigest, reached a market value of over €100 million in 2012, and that figures does
not take into account ad revenues generated by YouTube, the major online ad-financed video
platform.

Figure 43 IP-delivered net video revenue by market in € million

IP-delivered net video ad revenue* by market 2011

in EUR million
120

100

80

60

40

20

0
Spain Italy France Germany United-Kingdom

*excluding YouTube Source: ScreenDigest, Focus August 2012

 Warc provided figures in 2012 relating to online video advertising in the United Kingdom.

Table 33 Online video ad spend in the United Kingdom (2011-2012)

GBP million

2011 2012 2012/2011

Online video - pre/post roll 95.4 136.7 43.2%

Online video - social and other 13.5 22.9 69.1%

Online video - total 108.9 159.6 46.5%

Source : Warc

Total online video ad spend had a market value of £159.6 million in 2012 in the United Kingdom, up
by 46.5% year on year. Pre- and post-roll video ads represented the bulk of total online video
revenues, with £136.7 million in 2012 (+43.2%) whereas online video advertising on social networks
and other sites accounted for £22.9 million (+69.1%).

In France, the national regulator CSA stated in a press release that online video advertising had a
market value of €90 million in 2012, up by 50%, and that the bulk of that ad revenue was generated by
national broadcasters’ catch-up TV websites54.

Figure 44 US digital video ad spending 2011-2017

US Digital Video Ad spending 2011-2017

in USD billion and % change
$10.00 46.5% 50.0%
$9.06
$9.00 45.0%
41.4% $8.04
$8.00 38.9% 40.0%
40.8% $6.99
$7.00 35.0%
$5.75
$6.00 30.0%
$5.00 $4.14 25.0%
$4.00 15.1% 20.0%
$2.93 12.8%
$3.00 21.4% 15.0%
$2.00
$2.00 10.0%
$1.00 5.0%
$0.00 0.0%
2011 2012 2013 2014 2015 2016 2017

Digital video ad spending % change

Note: includes advertising that appears on desktop and laptop computers as well as mobile phones and tablets; data through 2011 is derived from IAB/PwC data; includes
in-banner, in-stream (such as pre-roll and overlays) and in-text (ads delivered when users mouse-over relevant words)

Source: eMarketer, March 2013

54
http://www.csa.fr/Etudes-et-publications/Les-dossiers-d-actualite/Le-marche-publicitaire-en-2012-et-les-perspectives-pour-
2013
Table 34 US online video ad CPM by inventory tier 2010-2017

US online video ad CPM, by inventory tier 2010-2017

Indirect Midtier Premium Average CPM
2010 $16.10 $25.00 $45.00 $26.90
2011 $16.90 $25.00 $40.50 $26.00
2012 $17.80 $25.00 $36.50 $25.30
2013 $18.60 $25.00 $32.80 $24.60
2014 $19.60 $25.00 $31.20 $24.45
2015 $20.50 $25.00 $31.20 $24.80
2016 $21.60 $25.00 $31.20 $25.30
2017 $22.70 $25.00 $31.20 $25.80
Note: excludes mobile display ad impressions; average COM calculated using weighted average for online display ad impression share

Source: Credit Suisse, “Web 2.012”, Feb 2012 retrieved from eMarketer

As the above graphs show, online video ad spend is bound to increase to $9.06 billion in 2017 with
premium content seeing its CPMs decrease over time. We did not find current figures for Europe.

Figure 45 USA – online video reels in ad revenue

Source: The Wall Street Journal

55

In the USA, according to figures published by BrightRoll and eMarketer, the online video ad market
is set to reach an overall market value of $4.1 billion in 2013 out of a total digital advertising market of
$42.5 billion. As the figures show, there is also pressure on a downward trend for CPMs on top-tier
sites. With the increase in ad space and quality content available, added to RTB platforms, the market
is becoming more profitable for advertisers.

55
http://online.wsj.com/article/SB10001424127887324034804578346540295942824.html
3.3.3 Trends underlying the increased ad spend on online display
advertising

The main trend which explains the rise of online video advertising is that it makes it possible for
advertisers to convey a better branding message to consumers. Advertisers can engage with their
target audience by offering them videos that may raise their interest. Also, new measurement
methods, the increase in real-time bidding mechanisms and platforms are transforming the online
display ad market and making it more dynamic. Videos are not only paid for but advertisers are seek
to engage consumers, and with social networks that allow the sharing of videos the success of a
campaign is not only measured by views or clicks but also by the number of times the video has been
shared, commented on and viewed.

Native advertising, advertising in line with the content of a web page/site, is becoming more
common. In fact, it is a good way not only to pass on the advertising message but also to identify the
brand with the publisher’s content. The graphs below show the rise of brand advertising as a share of
online display in Europe. From only 5% of branding found on the online display market on 2008, this
share rose to 18% in 2011 with a clear trend towards a further increase over the next year. This
development has to be seen in the context of the increase in online video advertising.

Figure 46 Brand advertising as a share of online display, Europe 2008

Brand advertising as a share of online display - 2008

5%

95%

Brand Direct response

Source: IPA Digital Group

Figure 47 Brand advertising as a share of online display, Europe 2010

Brand advertising as a share of online display - H2 2010

87%

Brand Direct response

Source: IPA UK
Figure 48 Brand advertising as a share of online display, Europe 2011
For copyright reasons this figure cannot be reproduced in the public version of this report

Source: IHS Screen Digest

The statistics below show that while the major pure Internet players, such as Google or Facebook,
continue to dominate the online video market (Google through YouTube and its ad network), pure ad
networks are on the rise for video served. The BrightRoll video Network is the major online video
advertising network worldwide.

Figure 49 Video websites’ worldwide ranking by unique viewers in January 2013

Ranking of worldwide video sites by unique visitors

in millions, January 2013
Unique visitors
YouTube 755
Facebook 296
Vevo 255.8
Viacom Digital 161.1
BrightRoll video network 152.8
Youku 144.8
Tencent 126
Liverail.com 120.4
Adap TV 117.9
Yahoo! 177.3
Specific Media 116.14
Dailymotion 116.12
Source: comScore Video Metrix, January 2013, Worldwide 15+, Les Echos

Figure 50 Broadband household penetration in USA and Western Europe 2000-2014

For copyright reasons this figure cannot be reproduced in the public version of this report

The rise of online video advertising (and video sites in general) has to be seen in the context of the
ever-increasing household broadband penetration. Videos require a larger bandwidth and this is
achieved through broadband connections (ADSL, fibre optic, etc). As more and more households have
broadband access, permitting the smooth viewing of videos, online video advertising is on the rise,
both in Western Europe and the US as the addressable markets expands.

.
3.3.4 Various kinds of audiovisual services financed by advertising

In this section, we will present the major kinds of audiovisual services financed by advertising in 5
European countries (Germany, France, Spain, Italy and the United Kingdom) using the comScore
Video Metrix dataset. For the whole section, the comScore dataset is for the key measurements
(unique visitors, videos available and viewed, total number of minutes spent by visitors) as of March
2013 and for the trends between March 2012 and March 2013, the last available when we began this
report (May 2013).

Videos are increasingly used to attract viewers and therefore enlarge the audience reached through
online advertising. Video content proves to be more appealing to visitors and therefore has the ability
to generate higher traffic and increase advertising revenues.

The audience data of comScore’s Video Metrix can be found in the annexes in the section “Various
kinds of audiovisual services financed by advertising” for:

- Top 30 overall video sites by country

- TV channel websites by country

- Portals by country

- Social networks by country

- Newspapers by country

- YouTube partners by country

- Ad-focused networks by country

- Video advertising networks by country

For copyright reasons these figures and graphs cannot be reproduced in the public version
of this report.
4 Types of advertising-supported on-demand
audiovisual services

Various services that provide video content can be considered on-demand audiovisual services
offering video content free of charge to users and financing this service through advertisements.

- Advertising-financed VoD services (e.g. Snack, Netzkino, Crackle, etc): these services
offer films and TV shows in their catalogues and users can view them “free of charge”. The
service is financed by placing advertisements (which can take many forms, such as video
advertising, rich media advertising, banners, etc).

- Commercial TV channels’ websites and catch-up TV financed by advertising (e.g. TF1,

ITV, ProSieben): on the websites and catch-up apps of commercial TV, their linear
programming is in general offered for catch-up viewing after their linear diffusion (content
for which catch-up rights have been acquired for an average period of up to 7 days).

- User-generated content platforms (e.g. YouTube, Dailymotion): platforms which provide

user-generated content free of charge, financed by advertisements, are considered on-
demand audiovisual services. These services also offer branded channels of content
rightholders and subscription on-demand audiovisual services in the case of YouTube.

- Newspaper websites with video content (e.g. Der Spiegel, The Guardian): newspaper
websites include video content (reports, insights) to illustrate news. This trend is general
and on the rise and for this reason newspaper websites which offer video content are on-
demand audiovisual services.

- Social networks (e.g. Facebook): social networks allow users to post videos and links to
videos and are thus considered on-demand audiovisual services that also function as
(social) recommendation tools. Also, social networks sell targeted advertisements (videos,
banners, rich media ads) to advertisers by using the data on their members collected
through their service.

- Portals with videos financed by advertising (e.g. MSN, Yahoo!, AOL, Orange, Free): portals
offer content on their web pages financed through advertisements.
5 Audience data: comScore’s Video Metrix
56
A main source of information on advertising-financed video websites is comScore’s Video Metrix .
We subscribe to the Video Metrix data for the following countries: the United Kingdom, Germany,
France, Spain, Italy and the Netherlands. In the following section, the main statistics for these
countries are given for unique viewers, videos per viewer and minutes per viewer and their monthly
annual averages. Data given for 2013 is only for January to September 2013 as they were the latest
data available as of December 2013.

Also, please note that as comScore’s Video Metrix does not track consumption on mobile
Internet and connected devices (smartphones, tablets) and only views and unique visitors
accessing those web sites from a desktop computer on a fixed Internet connection are included. As
video consumption and web navigation are migrating to mobile devices, this lack of data can explain
the decrease in viewers and time per viewer in some cases. As the introductory section showed, more
mobile connected devices induce more mobile video viewing and mobile advertising. The comScore
Video Metrix statistics therefore only give a picture of video viewing on fixed access networks and
devices such as a desktop or laptop at a time when 40% of YouTube’s video viewing takes place on a
57
mobile device (up from only 25% in 2012 and 6% in 2011) and more than half of Facebook’s ad
58
revenues come from mobile advertising (53% of its ad revenues in Q4 2013 ) – 77% of its 1.2 billion
monthly active users access Facebook from mobile devices). This is why the picture given by the
59
comScore Video Metrix is certainly enlightening for a “fixed line” situation but incomplete when
considering all the mobile video consumption that is now taking place and is increasing every month.

In order to provide multiplatform data, comScore has launched in 2013 a new service, MMX Multi-
60
Platform . MMX Multi-Platform provides the industry’s first comprehensive view of digital consumer
behaviour across desktop computers, smartphones and tablets. The services provide data for US, UK
and Spain. Extension of the service to other European countries (including France and Germany) is
announced for 2014. In US, comScore works in close collaboration with the CIMM (Coalition for
61
Innovative Media Measurement), a platform federating major media and advertising companies.

comScore has not authorised the European Audiovisual Observatory to reproduce systematic data
from the Video Metrix database for the public version of this report. To access some of the data
collected by comScore, the public is invited to visit the website of the company, where press releases
and reports are made available. While the company has a policy of regular disclosure of data for the
US online video market, its disclosure of data for the European markets is only done from time to
62
time.

56
https://www.comscore.com/Products/Audience_Analytics/Video_Metrix
57
http://techcrunch.com/2013/10/17/youtube-goes-mobile/
58
http://online.wsj.com/news/articles/SB10001424052702304428004579350971373442410
59
comScore has launched mobiLens in order to measure the audience on mobile devices
https://www.comscore.com/Products/Audience_Analytics/MobiLens
60
http://www.comscore.com/fre/Products/Audience_Analytics/Media_Metrix_Multi-Platform
61
http://cimm-us.org. See also :
http://www.comscore.com/fre/Insights/Press_Releases/2014/1/comScore_Collaborates_with_CIMM_to_Expand_its_Pionee
ring_Cross-Platform_Measurement_Service
62
See . http://www.comscore.com/Insights
Various 2013 reports related to digital markets in Europe are available here :
http://www.comscore.com/fre/actualites_et_evenements/Blog/2013_Digital_Future_in_Focus_-
_Un_tour_d_horizon_du_marche_du_Digital_dans_le_monde
Audience of Reportable European Markets by Ranked by Videos per Viewer - August 2013
Total European Audience, Age 6+, Home and Work Locations
Source: comScore Video Metrix

Total Unique Viewers Videos per Viewer

(000)

United Kingdom 37,992 323.6

Netherlands 11,090 269.5

Spain 22,193 228.3

Turkey 21,810 207.7

France 39,885 194,6

Germany 46,529 179.3

Italy 26,850 158.7

Russia 60,016

Source : comScore, Press release, 7 October 201363

63

http://www.comscore.com/fre/Insights/Press_Releases/2013/10/comScore_Launches_Online_Video_Measurement_Service
_in_the_Netherlands
5.1.1 The United Kingdom
 Monthly data 2008-2013

Figure 1 GB – Unique Viewers – Monthly data – 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report

comScore Video Metrix

Figure 2 GB – Videos per viewer – Monthly data – 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report

comScore Video Metrix

Figure 3 GB – Time per viewer – Monthly data – 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report

comScore Video Metrix

Table 1 GB – Summary key statistics 2013 (first 9 months)

For copyright reasons this figure cannot be reproduced in the public version of this report

comScore Video Metrix

 Annual monthly average 2008-2013

Figure 4 GB – Unique viewers – Annual monthly average 2008 - 2013

For copyright reasons this figure cannot be reproduced in the public version of this report

comScore Video Metrix

Figure 5 GB – Videos per viewer – Annual monthly average 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report

comScore Video Metrix

Figure 6 GB – Time per viewer – Annual monthly average 2008 - 2013

For copyright reasons this figure cannot be reproduced in the public version of this report

comScore Video Metrix

Table 2 GB – Annual monthly average 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report

comScore Video Metrix

 Top 20 sites by visitors and time in September 2013

Table 3 United Kingdom – Top 20 by visitors - September 2013

For copyright reasons this figure cannot be reproduced in the public version of this report

comScore Video Metrix

Table 4 United Kingdom - Top 20 by minutes - September 2013

For copyright reasons this figure cannot be reproduced in the public version of this report

comScore Video Metrix

5.1.2 Germany

 Monthly data 2008-2013

Figure 7 DE - Unique Viewers – Monthly data – 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report

comScore Video Metrix

Figure 8 DE – Videos per viewer – Monthly data – 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report

comScore Video Metrix

Figure 9 DE – Time per viewer – Monthly data – 2008-2013

For copyright reasons this figure cannot be reproduced in the public version of this report

comScore Video Metrix

Table 5 DE – Summary key statistics 2013 (first 9 months)

For copyright reasons this figure cannot be reproduced in the public version of this report

comScore Video Metrix

 Annual monthly average

Figure 10 DE – Unique viewers – Annual monthly average 2008 - 2013

For copyright reasons this figure cannot be reproduced in the public version of this report

comScore Video Metrix

Figure 11 DE – Videos per viewer – Annual monthly average 2008-2013

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comScore Video Metrix

Figure 12 DE – Time per viewer – Annual monthly average 2008 – 2013

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comScore Video Metrix

Table 6 DE - Annual monthly average 2008-2013

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comScore Video Metrix

Figure 13 Germany - Top 20 by minutes - September 2013

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comScore Video Metrix

Figure 14 Germany – Top 20 by visitors - September 2013

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comScore Video Metrix

5.1.3 France

 Monthly data 2008-2013

Figure 15 FR - Unique viewers – Monthly data – 2008-2013

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comScore Video Metrix

Figure 16 FR – Videos per viewer – Monthly data – 2008-2013

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comScore Video Metrix

Figure 17 FR – Time per viewer – Monthly data – 2008-2013

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comScore Video Metrix

Table 7 FR – Summary key statistics 2013 (first 9 months)

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comScore Video Metrix

 Annual monthly average 2008-2013

Figure 18 FR – Unique viewer – Annual monthly average 2008 - 2013

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comScore Video Metrix

Figure 19 FR – Videos per viewer – Annual monthly average 2008-2013

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comScore Video Metrix

Figure 20 FR – Time per viewer – Annual monthly average 2008 - 2013

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comScore Video Metrix

Table 8 FR – Annual monthly average 2008-2013

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comScore Video Metrix

 Top 20 sites by visitors and time in September 2013

Table 9 France – Top 20 by visitors - September 2013

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comScore Video Metrix

Table 10 France – Top 20 by minutes - September 2013

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comScore Video Metrix

5.1.4 Spain
 Monthly data 2010-2013

Figure 21 ES - Unique viewers – Monthly data – 2010-2013

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comScore Video Metrix

Figure 22 ES – Videos per viewer – Monthly data – 2010-2013

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comScore Video Metrix

Figure 23 ES – Time per viewer – Monthly data – 2010-2013

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comScore Video Metrix

Table 11 ES – Summary key statistics 2013 (first 9 months)

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 Annual monthly average 2010-2013

Figure 24 ES – Unique viewers – Annual monthly average 2010 - 2013

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comScore Video Metrix

Figure 25 ES – Videos per viewer – Annual monthly average 2010-2013

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comScore Video Metrix

Figure 26 ES – Time per viewer – Annual monthly average 2010 - 2013

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comScore Video Metrix

Table 12 ES – Annual monthly average 2010-2013

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comScore Video Metrix


 Top 20 sites by visitors and time in September 2013

Table 13 Spain – Top 20 by visitors - September 2013

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comScore Video Metrix

Table 14 Spain – Top 20 by minutes - September 2013

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comScore Video Metrix

5.1.5 Italy
 Monthly data 2010-2013

Figure 27 IT - Unique viewers – Monthly data – 2010-2013

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comScore Video Metrix

Figure 28 IT – Videos per viewer – Monthly data – 2010-2013

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comScore Video Metrix

Figure 29 IT – Time per viewer – Monthly data – 2010-2013

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comScore Video Metrix

Table 15 IT – Summary Key statistics 2013 (first 9 months)

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comScore Video Metrix

 Annual monthly average 2010-2013

Figure 30 IT – Unique viewer – Annual monthly average 2010 – 2013

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comScore Video Metrix

Figure 31 IT – Videos per viewer – Annual monthly average 2010-2013

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comScore Video Metrix

Figure 32 ES – Time per viewer – Annual monthly average 2010 - 2013

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comScore Video Metrix

Table 16 IT – Annual monthly average 2010-2013

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comScore Video Metrix

 Top 20 sites by visitors and time in September 2013

Table 17 Italy – Top 20 by visitors - September 2013

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comScore Video Metrix

Table 18 Italy – Top 20 by minutes - September 2013

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comScore Video Metrix

5.1.6 The Netherlands
For the Netherlands, data are only available for August and September 2013.

Figure 33 NL - Unique viewers – Monthly data – Aug/Sept 2013

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comScore Video Metrix

Figure 34 NL – Videos per viewer – Monthly data – Aug/Sept 2013

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comScore Video Metrix

Figure 35 NL – Time per viewer – Monthly data – Aug/Sept 2013

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comScore Video Metrix

 Top 20 sites by visitors and time in September 2013

Table 19 Netherlands – Top 20 by visitors - September 2013

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comScore Video Metrix

Table 20 Netherlands – Top 20 by minutes - September 2013

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comScore Video Metrix

Transactional video on-demand services
6 Types of transactional VoD service

In this section, an overview is provided of all types of VoD services which involve a transaction
(rental and purchase). Transactions for video can take different technical forms, streaming or direct
download to the user’s device (electronic sell-through). We have included in this section different
forms and business models of transactional video on-demand services, differentiated by the core
business of the service provider (OTT players, telecommunications companies, TV groups) and the
platform on which the service operates (closed platforms versus open Internet in the case of OTT
players, but the trend is for all players to offer their services also on their website or through apps for
smart phones, tablets, connected devices and Smart TVs).

Rentals of video content (movies & TV shows) through transactional video on-demand
services:

 TVoD services (also referred to as iVoD) – digital rental services operated by OTT players
(e.g. Blinkbox, Univers Ciné, etc): movies and TV shows are rented for a specific period
against payment through TVoD services and streamed to the customer’s device (thereby
requiring an Internet connection and access to the service).

 Download-to-rent VoD services (e.g. Apple’s iTunes): movies and TV shows are rented
against payment and downloaded to the customer’s device for a limited period. This form of
rental has the advantage of not requiring an Internet connection and lets the customer transfer
his/her rented content to other devices.

 TVoD services – digital rental services operated by telecommunications groups (e.g.

Orange, BT Vision): video content that is rented through VoD services offered by
telecommunications groups via their IPTV platforms (and, generally, also on the web).

 TV VoD services – digital rental services operated by TV groups and networks (on TV
platforms) (e.g.TF1 VoD, Canal+ VoD, Film4oD): VoD services that are operated by a
broadcasting group. Originally the services were rendered on TV platforms (IPTV, cable,
satellite) but they are generally also provided on the Internet.

Purchase of video content (movies & TV shows) through transactional video on-demand
services:

 TVoD services – digital purchase services operated by OTT players (e.g. Blinkbox): movies
and TV shows are rented for a specific period against payment through TVoD services and
streamed to the customer’s device (thereby requiring an Internet connection and access to the
service).

 Electronic sell-through (download-to-own) VoD services [EST/DTO] (e.g. Apple’s iTunes

Stores, Xbox Video, Sony Entertainment Network): movies and TV shows are purchased
against payment. The content purchased is downloaded to the customer’s device and stored
without a time limit.

 TVoD services – digital purchase services operated by telecommunications groups (e.g.

Orange, BT Vision): movies and TV shows that are purchased and digitally stored on VoD
platforms operated by telecommunications groups (generally, also accessible on the Internet).

 TV VoD services – digital purchases of VoD services operated by TV groups and networks
(on TV platforms) (e.g. Disney): movies and TV shows are sold through TV VoD platforms
(and their websites) operated by TV groups and networks and are stored for access online.
7 Strategies of selected international players

7.1 Typology of players

Towards a typology of pan-European strategies of providers of on-demand
audiovisual services

This section aims to describe and analyse various types of pan-European strategy by leading
64
providers of on-demand audiovisual services. The notes on the individual players are in the annexes.

Since its appearance at the end of the 19th century, with the creation of a recorded music market
and then of the film market, the audiovisual industry has always had an international market. Since the
beginning, manufacturers and producers of recorded music and films have tried to realise economies
of scale by establishing international distribution networks. This has generally taken the form of
creating local affiliate companies in the main countries of operation and adapting to the various
national frameworks. Television followed the same patterns in the first decades of its development.
However, since the mid-1980s, the development of satellite and cable has created the possibility of
the cross-frontier circulation of services, leading to the need for the definition of European legal
frameworks (Convention on Transfrontier Television, Television without Frontiers Directive) and to the
roll-out of pan-European strategies by a number of TV groups, mainly European and American but
also some Asian and Arab investors interested in the European markets. The possibility of
interconnecting satellites has enabled TV or radio services established outside the continent to be
beamed to European countries or territories but this has remained a marginal practice without major
impacts on the market itself. By establishing some liabilities for satellite operators for the
retransmission of extra-European channels, the revision of the Directive has enable to control over a
basic regulatory European framework to be maintained.

The roll-out of the World Wide Web and the ability of broadband to distribute audiovisual services
have dramatically changed the situation: audiovisual signals can now be delivered worldwide without
the need to establish even a single company in the continent targeted.

This report aims to discuss the legal aspects of the globalisation of the distribution of audiovisual
services and assess its impact on the market. The objective is to identify how companies operate on a
worldwide or pan-European level in practice, define their corporate strategy to deal with the potentiality
of the EU market as well as with the territorial limitations which remain a reality due to various factors
(linguistic and cultural diversity of markets, persistence of different regulatory frameworks in various
fields such as content regulation, IPR, rules relating to the promotion of European works, tax systems
and technical considerations such as the existence of data centre capacities) .

64
The concept of “on-demand audiovisual services” is used in this report with a broader definition than that of “on-demand
audiovisual media services” provided by the AVMS Directive.” In particular, it includes references to services like open video
platforms (more often defined by the ambiguous term UGC platforms), video search tools, video portals, etc.
Methodology

The report is based on various systematic data collection processes:

The European Audiovisual Observatory has undertaken a regular census of existing on-demand
65
audiovisual services established (or assumed to be established) in its Member States or services
66
targeting one or more of its Member States. This census is based on various systematic data
collection operations:

– The analysis of lists of on-demand media audiovisual services as published by national

regulatory authorities,
– The analysis of line-ups of distribution platforms
– The analysis of the variations by language and countries of the pan-European service
67
concepts.

Typology of strategies

The report focuses on the geographical strategies employed by major firms operating on-demand
audiovisual services and the way they have implemented their services throughout Europe. We
distinguish between seven different strategies with regard to geographical deployment.

 Centralised world-wide strategy in a single language.

Some on-demand services are provided worldwide in a single language, generally English. This is the
case, for example, of Sony Pictures Entertainment and its Crackle on-demand streaming service. The
service is managed and deployed worldwide, without any country-specific adaptation, be it language
or content. Crackle is free but follows a geolocation policy to prevent access to the service for
countries not targeted (in Europe, only UK residents can access the service). The services deployed
under this strategy are often distributed via the Internet. The provider of the on-demand service neither

65
The identification of the company providing the services (and then the identification of the country of establishment of that
company) is not obvious in some cases:

VoD services or portals without a clear identification of the company providing the services.

Branded channels (in particular on YouTube) or branded catalogues (in particular on iTunes Stores in France, Germany and
the UK): the group providing the service is not difficult to identify, but it is not possible to identify what affiliate company of
the group is providing the services.

Branded VoD services provided by some IPTV or cable service operators: IPTV and cable operators may include in their
line-up on-demand services (VoD, catch-up TV services) provided by third parties. Those services will generally be provided
by well-identified groups, but, once again, without any clear identification of the affiliate company providing them;

Applications enabling access to on-demand audiovisual services in the stores provided by manufacturers of smartphones,
tablets or smart TV sets: the publisher of the application and the providers of the services are not necessarily clearly
identified.
66
By services targeting European markets, we mean services that are clearly designed for those markets. They may be
identified by the design of the service, the language chosen, the currency in which payment is to be made, the explicit
geolocation, etc. It is., of course, not possible to provide a comprehensive census of all on-demand audiovisual services
established outside Europe and accessible in Europe but for which Europe is probably not the main market. This is the case
of a large number of catch-up TV services from non-European broadcasters or of worldwide VoD services providing Asian
or Arabic films which may be accessible in Europe but for which Europe is obviously not the core market.
67
The itemisation by language or country of services is an issue not covered by the definition in the AVMS Directive. As for
the census of television channels in the MAVISE database, we have opted for the linguistic or national version of an on-
demand audiovisual offering to be considered a separate service. This may differ from the option chosen by national
authorities when drawing up the list of services established in their countries.
adapts the content to countries where it is deployed nor the language (English being the most
common language found on those services). It permits the less complicated central management of
the service, the only major issue remaining being to reach agreements with rightholders for the
distribution of their content. Access to the service can be allowed or denied on the basis of geolocation
through the IP address or credit card number.

 Centralised world-wide strategy with a linguistic adaptation towards targeted national or

linguistic markets
The second geographical strategy found on the market for on-demand audiovisual services is a
centralised worldwide strategy involving linguistic adaptation to the national market targeted. The
services are mostly managed from the US but the content provided is adapted to the tastes and
languages of the national market it is aimed at. Services available worldwide are all adapted by
making content agreements with national content providers or establishing branded channels, as in
the case of YouTube. The on-demand audiovisual services following this strategy are mainly
68
YouTube (based in the US), YouTube Movies (US), MUBI (US), Acetrax (CH) [bought and closed
69 70
down by Sky in June 2013], Viewster (CH) and HBO OD [or GO] (CZ). The on-demand services
applying this strategy are centrally managed but are adapted to the languages of the countries
where they are deployed and, occasionally, also provide country-specific content such as films or
TV shows. The central management and adaptation to each country makes it necessary to conduct
negotiations with rightholders for specific content and translated content as well as to reach
agreement to provide the content in each country of deployment.

 Worldwide strategy with regional hubs

Another worldwide approach consists in relative decentralisation by world regions (America,
Europe, Asia, etc) through regional hubs and then the national variant of a service concept . The
companies implementing this strategy adapt both the language and some content to the national
market targeted but follow a general worldwide strategy in the delivery of on-demand audiovisual
services. Even if the language and some content is adapted to the national market, the overall
strategy is defined by the corporate headquarters. Firms following this strategy are Apple (iTunes),
Microsoft (Zune and Xbox Live Gold) and Sony Unlimited. In this strategy, the on-demand service
provider adapts to the national market targeted by translating content and providing national
programmes such as TV shows or films. The service provider, even if adapting to the national
market, still closely manages the service on a central basis. Providing country-specific content and
linguistically adapted TV shows and films also calls for more negotiations and agreements with
rightholders because distribution agreements most be reached for each region or country. The on-
demand service market is very competitive, so negotiations with rightholders can prove very tough.
Moreover, as more and more rightholders (TV groups, film studios) enter the VoD market (with
different business models and strategies), having exclusive rights to films or TV shows is less
common than at the beginning of the on-demand video market.

 Regional roll-out through national affiliated companies

The fourth strategy in regard to geographical implementation consists in establishing national affiliated
companies in the markets targeted which will handle the brand on the market concerned, adapting it to
71
national and linguistic constraints. An example of a company operating under this strategy is Voyo ,
the service provided by the Bermuda based group Central European Media Enterprises (CME), the
leading group providing free TV in Central and Eastern Europe. In this case, the different variants of
the service concept are operated by the national companies running the grouping national TV
channels. This strategy seems to be related to the willingness to take into consideration national

68
https://mubi.com/
69
http://www.viewster.com/
70
http://m.hbogo.cz/pages/default.aspx
71
http://voyo.ro/ http://voyo.bg/welcome http://voyo.si/ http://voyo.nova.cz/
market specificities, as also exemplified by the TV programme production strategy of the respective
companies of the group. By using an affiliate company in the country of operations under the same
brand name, the companies applying this strategy seek to benefit from the brand name and reputation
and to adapt to the country by providing content adapted in language and tastes. This allows for a
more precise targeting of national markets.

 Heterogeneous strategies
One strategy, mostly followed by telecoms and cable operators on their distribution platforms, is that of
a decentralised and heterogeneous, country-specific approach to on-demand audiovisual services.
The platform is adapted to meet country-specific needs in regard to language, content and regulation.
The groups which have operated under this strategy are Orange-France Telecom, Deutsche Telekom
and Liberty Global, all operators present in different countries and offering a variety of services. They
tend to adapt to each market and not try to base their on-demand audiovisual services on a general
strategy like smaller competitors would do. This kind of strategy is often applied by telecoms
companies that operate IPTV platforms and have therefore already set up national structures in each
country in which they are established. As the affiliate companies mostly conduct business
independently of their headquarters, only reporting financial figures and implementing general
business strategies, their on-demand services are also operated independently of their headquarters.
This strategy enables the content provided to be adapted to a country at specific needs in terms of
language and content (national films and TV shows, international content translated into the national
language).

 Mixed strategies
A sixth strategy consists of a mix of centralisation and a country-by-country approach. A good
example of this is the German group ProSiebsenSat.1 Media, which operates national decentralised
72 73
pay-VoD services (Maxdome in Germany, NUTV in Denmark) and at the same time a centralised
74
free VoD service (MyVideo ), with five national versions operated from Romania and targeting
Germany, Switzerland, Romania, Hungary and Turkey. One other example is the roll-out of
75
LOVEFiLM (owned by Amazon Inc.): the service for the UK is operated by a UK company, the
service for Germany by a German company and the services for the Nordic countries by the same UK
based company [the service stopped operating in mid-2013 and LOVEFiLM exited the Nordic
markets].

 Network of independent national companies

Finally, the seventh strategy identified is the establishment of a network of on-demand services
provided by different independent companies whose strategy aims to maximise potential exposure
and customer capture by sharing the effort and expenses of deploying an on-demand audiovisual
76
service. An example of such a network is EuroVoD . By establishing a network of independent
companies, the firms choosing this strategy try to benefit from the network effect, that is to say to
share the costs of running the platform and marketing expenses while operating under the same label.
This strategy is often chosen by smaller, independent firms which do not possess the financial
resources of the bigger groups and companies.
As we have seen, many different geographical strategies in regard to on-demand audiovisual
services may exist in Europe. The on-demand audiovisual market is still recent and a definitive
business model has not yet been found, which is why the strategy followed by a given group depends
on its overall financial strength and on the content it may provide through deals and licences obtained
by producers and rightholders. Pre-existing activities (such as television) may also have an impact on

72
http://www.maxdome.de/
73
http://nutv.dk/
74
http://www.myvideo.de/
75
http://www.lovefilm.com/
76
http://www.eurovod.org/
the roll-out of VoD services. The various case studies mentioned in this report focus on the main
groups by trying to describe the services offered and the strategy followed.

The fact is that the Internet enables the online distribution of audiovisual content and has therefore
dismantled all the traditional barriers of entry into a national market and even the European territory.
Economic and political regulation faces many difficulties, especially in regard to content regulation. A
simple description of the market will not be enough to show the dramatic changes that have occurred
over the last few decades, which is why we have analysed the strategies employed by the providers of
on-demand audiovisual services in Europe, doing so mainly by studying their annual reports, press
releases and content provided by their services but also by analysing reports and news relating to
those companies in general.

Panel of companies

The census conducted by the European Audiovisual Observatory shows the growing VoD market,
with over 2200 on-demand services established in Europe. It is in an effort to rationalise and
synthesise our analysis that we have chosen the main and most representative firms operating in a
number of countries in Europe, namely:

– Apple
– Microsoft
– Google
– Bonnier Group
– Netflix
– Deutsche Telekom
The case studies give an interesting overview of the on-demand audiovisual services provided by
the firms, the countries they are operating in and their financial situation, where available.

Concerning the strategies studied, we have tried to provide an overview of the chosen strategies by
listing licence agreements and deals made with film studios and TV networks. Those deals and
agreements show whether country-specific content is provided and, therefore, whether the on-demand
service is adapted to the national situation or language. Also, the financial structure and management
of the on-demand audiovisual service gives an insight into how the service is managed and whether it
is centralised at corporate headquarters or decentralised.

The report will focus on the different strategies implemented by the groups studied. We have
chosen to present an analysis of the following firms: Apple and the iTunes Store (electronic sell-
through - EST), Netflix (Subscription VoD), Google (advertising-financed via YouTube, EST with
Google Play for movies), Bonnier (catch-up TV and on-demand subscription television), Microsoft
(Zune EST and MSN video portals, free VoD) and Deutsche Telekom (various models, Free VoD,
SVoD, catch-up, streaming and downloads).

The first case study presents Apple and the iTunes Store through which audiovisual content is sold
in Europe. The strategy followed by Apple is that of a regional, decentralised on-demand audiovisual
service with a clearly centralised corporate strategy. In order to assess the strategy, the first part of the
case study focuses on Apple’s general business strategy in regard to the products and service sold
and then shows how audiovisual content is sold in Europe through the national iTunes Store, which is
managed from and established in Luxembourg. The iTunes Store business model is based on the
electronic sell-through and download of audiovisual content (EST).

The second case study briefly presents Netflix and its business model. Netflix also applies a
corporate strategy involving the highly decentralised regional provision of on-demand audiovisual
content. As Netflix only launched its business in Europe at the beginning of 2012, the case study gives
an overview of general financial data and agreements with content owners. In regard to its business
model, Netflix operates a subscription based video-on-demand service (SVoD) where customers can,
in exchange for a monthly subscription, have unlimited access to the entire catalogue of content,
which is delivered through streaming.

The third monograph presented is that of Google with its services Google Play and YouTube,
provided under a worldwide centralisation strategy of with linguistic adaptation to a national market.
YouTube is a free video-on-demand (FVoD) service and Google Play is an electronic sell-through
(EST) service. YouTube streams its content to its viewers, whereas the customer downloads content
from Google Play.

After this case study, a monograph of Microsoft is provided. Microsoft mainly operates two services
with on-demand audiovisual content, the MSN portals, which provide Free VoD services, and the Xbox
Video Store, which is a transactional video-on-demand service.

Bonnier Group, the Scandinavian audiovisual conglomerate, provides several on-demand

audiovisual services, mainly catch-up TV and transactional video on-demand. The case study gives an
overview of its main audiovisual activities and explores further the on-demand service provided by its
different entities, the main ones being SF Anytime and C More.

Finally, the last report provides a short overview of Deutsche Telekom’s strategy regarding on-
demand audiovisual services in Germany and Europe.

The notes are in the annexes.

Netflix

(Note written in March 2013 – Annex)

 Founded in 1997, until 2007 America’s leading online DVD rental-by-mail service
World’s leading SVoD service. Evolved from a DVD rental-by-mail service into an online
subscription video-on-demand service in 2007
 Key financial figures (as of end 2012 – annual report 2012) [refer to note for information on
previous years]
o Revenues: $3 609.3 million
o Total cost of revenues: $2 625.9 million
o Net income: $17.2 million
o Gross margin: 27.25%
o Profit margin: 0.48%
o Streaming content obligations: $5 633.68 million
 Subscribers end of Q3 2013 (30 September 2013): 40 million - 29.93 million in the USA and 9.19
million internationally (not broken down by country
 Netflix does not break down its subscriber numbers or financial results by country, distinctions are
made between USA and international territories and financial results consolidated
 Main US competitors: Amazon Instant Video, Hulu Plus
 Main EU competitors (depending on country): Amazon LOVEFiLM (GB), HBO Go (Nordics),
wuaki.tv (GB)
 Start of international expansion in 2011 (Canada, Central and South America, Caribbean) and
2012 (United Kingdom, Ireland, Sweden, Denmark, Norway and Finland). [Update September
2013: Netflix launched in the Netherlands]
 Netflix Europe is based in Luxembourg and does not publish its financial results (only balance and
no P/L sheet)
 Started to produce (acquire first pay-TV window rights) original content (mostly TV shows) in 2013
(first VoD service provider to make this move, competing with traditional pay-TV on licensing
rights): House of Cards, Hemlock Grove, Orange is the New Black, Lilyhammer, Arrested
Development season 4, Bad Samaritans, Derek, Turbo, Sense8 (and more to come)
 Exclusive pay-TV deals with:
o Relativity Media (and Rogue Pictures)
o DreamWorks Animation (in 2013, after the expiry of its deal with HBO)
o Open Road Films
o Film District
o The Weinstein Company
o Walt Disney Studios Motion Pictures (Walt Disney Pictures, Walt Disney Animation
Studios, Disneynature, Pixar, Lucasfilm, Marvel Studios)
 Non-exclusive licensing deals with:
o Universal Studios
o Time Warner (Turner Broadcasting Systems, Warner Bros Television – Cartoon
Network, Warner Bros Animation, Adult Swim)
o Disney’s ABC Television Group
o DreamWorks Classics
o Kino International
o CBS Television Distribution
Apple Inc.

(Note written in February 2013 – Annex)

 Founded in 1976, world’s largest pure technology company with revenues of $156.5 billion in 2012.
 Operating in various business segments: personal computers, computer software, consumer
electronics, commercial servers and digital distributor of media content (iTunes, since 28 April
2003)

 Key financial figures 2012 [refer to note for information on previous years]
o Net sales: $156.5 billion
o Net income: $41.7 billion
o Total assets: $176 billion
o Profit margin: 26.67%
o Return on assets: 23.7%
o Return on equity: 35.3%

 Business strategy:
o Integration of software and hardware
o Innovation
o Product differentiation through design and high- pricing
o Simplification of products
o Focus on essential core business

 Product lines
o Macintosh – Net sales 2012: $23.2 billion (+6.6% annual growth andand net
sales/total sales 14.8%)
o iPod (since 2003) – Net sales 2012: $5.6 billion (-24.66% annual growth and net
sales/total sales 3.59 %)
o iTunes Store – Net sales 2012: $8.5 billion (+35.16% annual growth and net
sales/total sales 5.45%)
o iPhone – net sales 2012: $80.4 billion (+71.02% annual growth and net sales/total
sales 51.42%)
o iPad – net sales 2012: $32.4 billion (+59.27% annual growth and net sales/total sales
20.7%)

 Operating segment
o America – Net sales 2012: $57.5 billion (50.1% annual growth and net sales/total
sales 36.75%)
o Europe – Net sales 2012: $36.32 billion (30.76% annual growth and net sales/total
sales 23.2%)
o Japan – Net sales 2012: $10.57 billion (94.43% annual growth and net sales/total
sales 6.75%)
o Asia-Pacific – Net sales 2012: $33.27 billion (47.28% annual growth and net
sales/total sales 21.26%)
o Retail (395 stores in 14 countries. EU: 35 in the United Kingdom, 15 in France, 12 in
Italy, 10 in Germany, 10 in Spain, 2 in Sweden, 1 in the Netherlands ) – Net sales
$18.8 billion (33.28% annual growth and net sales/total sales 12.03%)
On-demand video – iTunes Stores

 iTunes is an electronic sell-through service provider. Customers buy or rent video content (TV
shows and movies) and download it to their device.
 Global roll-out of iTunes Stores worldwide operated by 4 affiliated companies
o Stores for North and South America are operated directly by Apple Inc.
o Stores for Europe, Africa, Middle East and most of Asian countries are operated by
iTunes S.à.r.l. (Luxembourg)
o The store for Japan is operated by iTunes K.K.
o The stores for Australia and New Zealand are operated by Apple Pty Limited
(Australia)
 iTunes started to sell video in 2005 in the USA by striking a deal with NBCU and for several hit TV
shows (for a precise chronology of deals made and number of films and TV shows available on
iTunes please, refer to section 2.2 of the annex)
 Availability of TV shows and films varies from country to country, depending on territorial licences,
and therefore renders the task of a complete listing difficult. The EAO has undertaken a listing of
the various genres of films available in European iTunes Stores which can be found in the annexes
 Apple’s iTunes Store for Europe (and Africa, Middle East & Asia) is located in Luxembourg, as
iTunes S.à.r.l
 Apple begun selling video content in Europe in 2007 in the United Kingdom and Ireland, 2008 in
Germany and France (initially TV shows, then movies)
 Sales of iTunes S.à.r.l. are not broken down by country or content sold. For a precise analysis of
iTunes S.à.r.l’s accounts and taxes please refer to the annexes, section 2.2.3.
 Key financial figures for iTunes S.à.r.l.(as listed by Creditrefrom Luxembourg/Amadeus)
o Operating revenue 2011: 1 038.1€ million (+40.8%) – Net income 2011: 63.56€ million
o Operating revenue 2012: 1 534.39€ million (+47.9%) – Net income 2012: 55.48€
million (-12.7%)
 As of March 2012, 112 national iTunes Stores were operated by iTunes S.à.r.l.
 75 national iTunes Stores provide catalogues of films
 3 national iTunes Stores also provide catalogues of TV shows (DE, FR and GB)
 Various branded catalogues of content providers (TV networks and studios) can be found in the
iTunes Stores in Germany, France and the United Kingdom
 The question of taxes effectively paid by Apple and iTunes S.à.r.l in Europe is sensitive. It seems
that operating revenues are transferred to Ireland and from there to the Virgin Islands (Baldwin
Holdings). This technique is known as “double Irish with a Dutch sandwich”. For more information,
please refer to section 2.2.3 of the annexes.
Google

(Report written by Lorenzo Principali in January 2013 – Annex)

 Founded in 1998, core business at the beginning was “web search”, founded on an innovative
algorithm, and online advertising (search, display)
 Extension of business segments to online video (YouTube, Android/Google TV), mobile operating
systems (Android), applications/entertainment stores (Google Play), browser (Google Chrome),
location services (business segments are related to the online advertising ecosystem)
 3 core business sectors: Advertising, Operating systems and platforms and Enterprise [please refer
to section 3.1.2 for a comprehensive listing of all activities)
 Revenues 2012: $50 billion only broken down into “advertising revenues” (Google website and ad
network) and “other revenues”
 Hundreds of subsidiaries worldwide. 36 in the US, at least 34 in Europe
 Google does not provide comprehensive data for many of its European subsidiaries

On-demand audiovisual services

 YouTube, bought by Google for $1.65 billion 2006

 Google does not release any financial data on YouTube, which are consolidated in the group
results
o Estimates made by eMarketer for 2013 put YouTube’s gross ad revenue at $5.6 billion
and net ad revenues at $1.96 billion and its share of the US video ad market at 20.5%
 At the beginning, YouTube was a user-generated content platform and evolved into a digital
platform with professional content from broadcasters (branded channels) and content producers.
o Over one billion unique viewers each month watching 6 billion hours of video, as of
2013
o 100 hours of video uploaded every minute
 YouTube partner programme allows content creators and rightholders to create channels and
monetise their video through advertising (and recently through a subscription fee)
 For a comprehensive listing of branded channels and comScore data on leading branded channels
by country, please refer to annexes 3.2.2
 Google Play is the Android based App store for smartphones and tablets. The service is provided
by Google Commerce Limited, based in Ireland
o Movies are available on Google Play for rental in FR, DE, GB, ES and for purchase in
FR, DE, ES, GB (as of January 2013)
o For a listing of TV apps provided in Google Play, please refer to annexes 3.2.3
Microsoft

(Report written by Lorenzo Principali in December 2012 – Annex)

 Revenues 2012: $72 billion
 Operations in 5 business segments:
o Windows & Windows Live Division
o Server and Tools
o Online Services Division – operating in online audiovisual services (MSN portals,
Bing)
o Microsoft Business Division
o Entertainment and Devices Division – operating in online audiovisual services (Xbox
Video)
 51 affiliated operating companies in Europe in 2011
 Online service division: Bing Video and MSN portals, generating revenue through the sale of
search and display advertising ($2.8 billion in 2012)
 MSN portals generate advertising revenues through content provided within a partnership with
broadcasters
 In Europe, 19 different national MSN portals exist (as of end of December 2012) (see section 4. 2.3
in the annexes for a comprehensive listing of the various national portals)
 Bing, the online search tool, was launched in 2009 to replace the former search tools provided by
Microsoft. Bing enables video searches
 Xbox Video (launched in 2006) is the other branch of Microsoft which provides video content,
regrouped under in the Entertainment and Devices division (Revenue 2012: $9.59 billion)
 Xbox Marketplace is under the control of Microsoft Luxembourg S.à.r.l., entirely owned by Microsoft
Ireland Operations Limited, which is a subsidiary of Microsoft Inc.(section 4.2 of the annex)
 In the EU, Xbox Video is available in 12 countries: AT, BE, DE, DK, ES, FI, FR, GB, IE, IT, NL, SE
 The P&L account and balance sheet of Microsoft Luxembourg S.à.r.l. can be found in section 4.2
but no breakdown between the different services and products commercialised through Xbox Live
is provided (revenue 2011 $336.9 million, net income 2011: $8.8 million)
 For a listing of licensing agreements between Microsoft and content rightholders (studios) by EU
country please refer to figure 13 in section 4.2
Deutsche Telekom

(Report written by Lorenzo Principali in January 2013 – Annex – Chapter 5)

 One of the world’s leading integrated telecommunications companies (129 million mobile
customers, 36 million fixed-network lines), operating in 50 countries with a revenue 2011 of €58.7
billion.
 In Germany, DT offers through its IPTV service the “Entertain TV” service, which incorporates over
15 000 programmes, and through its T-Online portal
 Videoload is a transactional and SVoD service owned by DT. No data is provided on Videoload.
 On-demand audiovisual services are used as a commercial argument for its IPTV services in
various countries where DT has made significant investments in the telecommunications sector
(mainly Eastern European countries: CZ, HR, HY, MK, SI, SK, PL, GR) by including a VoD offering
into the triple-play/fixed-line service
 On-demand audiovisual services are country-specific: language and content
 Section 5.1 provides a comprehensive listing of on-demand audiovisual services provided by DT in
the countries of its operations
 DT does not provide any data related to its operations in the audiovisual field. Data are merged into
the business “Consumer” segment

Bonnier Group

(Report written by Lorenzo Principali in December 2012 – Annex – Section 6)

 Swedish media conglomerate operating in 16 countries in 6 main business sectors:
o Books
o Magazines
o Broadcasting & Evening Paper – operates in online audiovisual services
o Entertainment – operates in online audiovisual services
o Morning paper
o Others
 In the EU, 70 active affiliates with over 600 companies (see section 6.1.1 of the annexes for a
comprehensive listing of affiliates)
 The Broadcasting business area of Bonnier Group includes:
o TV4 AB, fully-owned subsidiary since March 2007, operating 14 TV channels in SE,
DK, FI and NO (section 6.1.2. of the annexes), 6 catch-up TV on-demand services as
of December 2012
o C More Entertainment AB, pay-TV provider under the brand C More, operating its on-
demand audiovisual services (C More Play, C Sports, C Now and Filmnet) in SE, NO
and FI, DK (please refer to section 6.1.2 of the annexes for a comprehensive listing)
o MTV Oy, Finnish commercial TV fully owned by Bonnier Group, operating 10 TV
channels
 The Entertainment business area of Bonnier Group
o SF Anytime AB, based in Sweden and operating the on-demand audiovisual service
SF Anytime in the Nordics (language adapts to country of operation), 2011revenues:
€9 million (please refer to section 6.1.3 of the annexes for a full listing of SF Anytime
AB activities)
8 VoD market statistics

8.1 International Video Federation (IVF) statistics

The data in this section are drawn from the European Video Yearbook 2013 of the International
77
Video Federation .

Table 1 Consumer level digital video and TV VoD 2010- 2012 IVF Yearbook in EUR million

2010 2011 2012 2012/2011

Consumer level digital video 228.1 341.8 673.7 97.1%
Europe
Consumer level TV VoD 594.7 698.3 884.5 26.7%
Consumer level digital video 0.3 1.2 9.8 696.3%
Belgium
Consumer level TV VoD 36.6 54.7 71.5 30.8%
Consumer level digital video 1.2 2.8 10.9 291.7%
Demark
Consumer level TV VoD 7.2 13.7 21.9 60.3%
Consumer level digital video 0.5 0.9 2.3 159.5%
Finland
Consumer level TV VoD 0.5 2.0 3.3 62.2%
Consumer level digital video 47.6 78.6 106.4 35.3%
France
Consumer level TV VoD 138.0 145.8 167.9 15.1%
Consumer level digital video 50.6 70.7 125.3 77.1%
Germany
Consumer level TV VoD 33.5 43.5 63.5 46.0%
Consumer level digital video 0.1 0.2 3.1 1706.4%
Hungary
Consumer level TV VoD 0.8 1.4 2.2 55.1%
Consumer level digital video 2.9 5.5 11.9 117.1%
Ireland
Consumer level TV VoD 5.5 5.7 6.3 11.2%
Consumer level digital video 1.7 10.2 20.8 105.0%
Italy
Consumer level TV VoD 62.6 58.7 59.8 1.8%
Consumer level digital video 1.9 3.3 8.0 144.4%
Netherlands
Consumer level TV VoD 17.2 25.5 39.1 53.6%
Consumer level digital video 0.1 0.5 4.2 702.9%
Poland
Consumer level TV VoD 18.1 27.9 35.6 27.8%
Consumer level digital video 0.0 0.4 3.8 749.0%
Portugal
Consumer level TV VoD 17.1 19.9 24.8 24.6%
Consumer level digital video 2.1 6.3 14.2 126.0%
Spain
Consumer level TV VoD 33.2 31.5 32.0 1.6%
Consumer level digital video 3.1 7.8 18.6 138.9%
Sweden
Consumer level TV VoD 10.6 15.7 20.2 28.3%

77
http://www.ivf-video.org/
 2010 2011 2012 2012/2011
Consumer level digital video 104.5 124.4 273.2 119.6%
UK
Consumer level TV VoD 189.1 215.0 281.0 30.7%
Consumer level digital video 566.3 1 375.0 2 936.2 113.5%
USA
Consumer level TV VoD 1 528.2 1 391.9 1 533.1 10.1%
Consumer level digital video 10.7 17.8 33.8 89.6%
Norway
Consumer level TV VoD 5.1 7.0 10.6 51.9%
Source: IVF European Yearbook 2013

Consumer level digital video: The purchase or rental of movies and TV series delivered over the
open Internet through transactional models (also known as EST, DTO, Internet VoD) or on a
subscription basis.

Consumer level TV VoD: The delivery of movies and TV content on a transactional (VoD,
NVoD/PPV) basis via cable/satellite/IPTV services. [Closed and controlled platforms]

In Europe, on-demand consumption is still dominated by TV VoD (with the notable exception of
Germany and Ireland and soon the UK) but online video consumption is increasing at a higher rate
(+97.1% year-on-year growth, TV VoD +26.7% on average). With the increasing broadband speeds
and number of services, it is only a matter of time when Europe will follow the American situation
(Table 3) where on-demand services delivered over the open Internet are more popular than TV VoD
(closed and controlled platforms). The growth rates of online digital video exceed those for TV VOD in
all European countries and, with an increasingly connected population (mobile devices, mobile
broadband) and changing consumer patterns, the catch-up will happen soon.
 0€
50 €
100 €
150 €
200 €
250 €
300 €
Figure 1

Consumer level digital video

GB
Consumer level TV VoD

Source: IVF Yearbook 2013

Consumer level digital video

FR
Consumer level TV VoD
Consumer level digital video

DE
Consumer level TV VoD
Consumer level digital video

BE
Consumer level TV VoD
Consumer level digital video

IT
Consumer level TV VoD
Consumer level digital video

NL
Consumer level TV VoD
Consumer level digital video

ES
Consumer level TV VoD
Consumer level digital video

PL
Consumer level TV VoD
Consumer level digital video

SE
Consumer level TV VoD
Consumer level digital video

DK
Consumer level TV VoD
Consumer level digital video

PT
Consumer level TV VoD
Consumer level digital video
IE
Ranking of EU on-demand markets by size 2010-2012 in EUR million

Consumer level TV VoD

Consumer level digital video
FI

Consumer level TV VoD

Consumer level digital video
HU

Consumer level TV VoD

2012
2011
2010
Table 2 Europe – IVF Video Yearbook 2013 - Consumer level digital video and TV VoD, 2007-
2012

Source: IVF European Yearbook 2013

In comparison, the data for the United States:

Table 3 United States – IVF Video Yearbook 2013 - Consumer level digital video and TV VoD,
2007-2012

Source: IVF European Yearbook 2013

On the following pages, an overview for each country for which the IVF provides market data is
provided for the years 2007-2012.
 Belgium

Table 4 Belgium - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 Denmark

Table 5 Denmark - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 Finland

Table 6 Finland - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 France

Table 7 France - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 Germany

Table 8 Germany - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 Hungary

Table 9 Hungary - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 Ireland

Table 10 Ireland - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 Italy

Table 11 Italy - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 Netherlands

Table 12 Netherlands - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 Norway

Table 13 Norway - Consumer level digital video and TV VoD. 2007-2012

Source: IVF European Yearbook 2013

 Poland

Table 14 Poland - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 Portugal

Table 15 Portugal - – Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 Spain

Table 16 Spain - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 Sweden

Table 17 Sweden - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

 The United Kingdom

Table 18 United Kingdom - Consumer level digital video and TV VoD, 2007-2012

Source: IVF European Yearbook 2013

8.2 Market shares of VoD services
For 2013, precise market share figures are hard to obtain as the market lacks of transparency. In
most cases, the market share and values are based on panels. Also, the lack of standard
measurement tools and methods makes it hard to compare actual market values between countries.
In this section, we give the figures available for the UK, Germany and France. All figures should be
interpreted with care as they are mostly estimates or extrapolations of panels and surveys. Also, for
France for example, GfK figures only measure revenues from established national VoD services and
do not take into account revenues and sales from VoD services established outside France.
Therefore, OTT players like Apple’s iTunes, Microsoft’s Xbox Video Marketplace or Sony
Entertainment Network are not taken into account in the current market figures, which constitutes a
serious omission and therefore does not fully reflect the real market values and shares.

In order to assess competitiveness and market structure, the analysis needs to be based on the
market figures of all players which have entered the market. When this note was drawn up, the
problem of reliable figures appeared to be of concern and the general opacity of the on-demand
audiovisual services market in Europe means there is a need for more transparency (be it of financial
figures, revenues, current catalogues or subscriber/uses numbers – data which are available for other
audiovisual sectors such as TV, cinema and music) in order to be able to better understand and
analyse these emerging but already important markets.
8.2.1 Market shares United Kingdom
The data shown in this section were taken from the British Video Association (BVA) Yearbook 2013
and elaborated by Kantar Worldpanel.

 Digital retail market

The digital retail market was worth £96 million in 2012, an increase of 20% compared to 2011
according to the latest IHS figures.

Table 19 United Kingdom digital retail market shares 2012 in % value, 2012 (total value £96
million)

Service %
iTunes 81.90%
Blinbox 11.80%
Sony Entertainment Network 2.20%
Xbox Live Marketplace 1.20%
Other 2.90%
Source: BVA Yearbook 2013/Kantar Worldpanel

Figure 2 United Kingdom digital retail market shares, 2012 in % value

Retail market shares (£96 million) -

1.20%
value 2012 in %
2.20% 2.90%

11.80%
iTunes
Blinbox
Sony Entertainment Network
Xbox Live Marketplace
Other
81.90%

Source: BVA Yearbook 2013/Kantar Worldpanel

On the digital retail market, Apple’s iTunes is over-dominant according to Kantar Worldpanel figures,
with a market share of over 80% in 2012, and two players (Apple and Tesco’s Blinkbox) have over
90% of the retail market (highly concentrated, Concentration ratio: CR 2= 93.7% - oligopoly)
Table 20 GB - Digital retail market shares 2012, in % volume

Service %
iTunes 74.90%
Blinbox 17.80%
Sony Entertainment Network 2.90%
Xbox Live Marketplace 1.70%
Other 2.70%
Source: BVA Yearbook 2013/Kantar Worldpanel

Figure 3 GB - Digital retail market shares 2012 by volume

Retail market shares 2012 by % volume

2.70%
2.90% 1.70%

17.80%

74.90%

iTunes Blinbox Sony Entertainment Network Xbox Live Marketplace Other

Source: BVA Yearbook 2013/Kantar Worldpanel

 Digital rental market shares 2012

The digital rental market was worth £196 million in 2012 (excluding subscriptions, SVoD), an
increase of 23% compared to 2011. When subscriptions are added, the market was worth £362
million, up by 65%. The SVoD market was worth £84 million in 2012, an increase of over 2000%
compared to 2011 (Netflix launched in December 2011 and Sky Now in July 2012). TV based rental
services (TV VoD) dominate the sector, with a market worth £241 million in 2012.

Table 21 GB- Digital rental market shares 2012 by volume – Total VoD
Total VoD
Service Share
LOVEFiLM 31.40%
Netflix 24.20%
Total Sky 18.70%
Total Virgin Media 8.20%
BT Vision 5.10%
iTunes 4.60%
Blinkbox 2.50%
Other 5.30%
Source: BVA Yearbook 2013/Kantar Worldpanel

 Total VoD includes subscription services

Figure 4 GB - Digital rental market shares 2012 by volume - Total VoD

Digital rental market shares 2012 by volume - Total VoD

2.50% 5.30%
4.60%
LOVEFiLM
5.10%
Netflix
31.40% Total Sky
8.20% Total Virgin Media
BT Vision

18.70% iTunes
Blinkbox
24.20%
Other

Source: BVA Yearbook 2013/Kantar Worldpanel

[Market shares by volume: As these shares are given in terms of volume and not value, an actual
assessment of market concentration cannot be carried out. (However, here again, the market
would have been highly concentrated, C4=82.5%, if these market shares by volume related to
market shares by value)].
  iVoD

Table 22 GB - Digital rental market shares by volume 2012 - iVoD

Internet-VoD (iVoD)
Service Share
iTunes.co.uk 39.10%
Blinkbox 21.40%
Sony Entertainment Network 6.80%
Google Play Store 7.50%
Xbox Live Marketplace 4.90%
HMV 2.70%
Film4oD 4.10%
Acetrax 3%
Total Virgin Media 1.80%
Other 8.70%
Source: BVA Yearbook 2013/Kantar Worldpanel

Figure 5 GB - Digital rental market shares 2012 by volume - iVoD

Digital rental market shares 2012 by voulme - iVoD

1.80%
8.70%
3% iTunes.co.uk
4.10% Blinkbox
Sony Entertainment Network
2.70%
39.10% Google Play Store
4.90% Xbox Live Marketplace
HMV
7.50%
Film4oD
Acetrax
6.80%
Total Virgin Media
Other
21.40%

Source: BVA Yearbook 2013/Kantar Worldpanel

[Market share by volume: As these shares are given in terms of volume and not value, an actual
assessment of market concentration cannot be carried out. (The market would have been medium
concentrated, C4=74.8% if these market shares by volume related to market shares by value)].
 SVoD

Table 23 GB - Digital rental market shares by volume 2012 – SvoD

Service Share
LOVEFiLM 55.20%
Netflix 42.60%
BT Vision 1.10%
Other 1.10%
Source: BVA Yearbook 2013/Kantar Worldpanel

Figure 6 GB - Digital rental market shares 2012 by volume - SVoD

Digital rental market shares by volume 2012 - SVoD

1.10% 1.10%

LOVEFiLM
42.60% Netflix
BT Vision
55.20% Other

Source: BVA Yearbook 2013/Kantar Worldpanel

Combined Subscriber base of over 2 million for the three services (Netflix, LOVEFiLM, BT Vision)
as stated in the BVA Yearbook. SVoD market value 2012: £84 million (+ 2000% year-on- year growth)
according to Kantar Worldpanel.

[Market shares by volume: As these shares are given in terms of volume and not value, an actual
assessment of market concentration cannot be carried out. (The market would have been highly
concentrated, C2=97.8%, if these market shares by volume related to market shares by value)].
  TV VoD

Table 24 GB - Digital rental market shares 2012 in Volume – TV VoD

TV-VoD
Service Share
Total Sky 59,70%
Total Virgin Media 25,80%
BT Vision 14,20%
TalkTalk TV 0,30%
Source: BVA Yearbook 2013/Kantar Worldpanel

Figure 7 GB - Digital rental market shares 2012 by volume – TV VoD

Digital rental market shares by volume 2012 - TV VoD 2012

0.30%

14.20%

25.80%
59.70%

Total Sky Total Virgin Media BT Vision TalkTalk TV

Source: BVA Yearbook 2013/Kantar Worldpanel

[Market shares by volume: As these shares are given in terms of volume and not value, an actual
assessment of market concentration cannot be carried out. (The market would have been highly
concentrated, C3=99.7%, if these market shares by volume related to market shares by value)].
8.2.2 Market shares Germany
Figure 8 Germany - Market shares of TVoD services (1 half 2012)

Market share of TVoD in HY1 2012

0.5%
in %
1%
8%
2% Maxdome

6% iTunes
0.5% 27% T-Home Videoload
Sky
10% Media Markt
Unitymedia
Kabel Deutschland
Playstation Network
19% 26% Alice
Other

Source: GfK Panel Service Germany, 2012; n=652 VoD/PpV, evaluation period January to June 2012, revenues in %

In Germany, the leading TVoD services are ProSieben’s Maxdome and iTunes in the transactional
video on-demand segment, followed by Videoload, a subsidiary of Deutsche Telekom, accessible on
the Internet as well as on DT’s IPTV services and Sky, operated by Sky Deutschland. Unitymedia and
Kabel Deutschland are the two leading cable operators. Note that SVoD offerings are not included in
these market shares.

78
Goldmedia 2013 statistics and forecast for 2018

Goldmedia published on 3 February 2014 a market forecast and press release concerning the VoD
market in Germany.

Here are the statements and projections:

- At the beginning of 2014, there were around 50 VoD services in Germany

- Overall turnover of the market in 2013: €163 million (projected to be worth around €449
million in 2018 with the arrival of a big SVoD player according to Goldmedia)

- TVoD (rental): €73 million in 2013

- EST (download-to-own): €57 million in 2013

- SVoD: €33 million in 2013

78
http://www.goldmedia.com/presse/newsroom/vod-forecast-2018.html#c12800 press release on the Video-on-Demand
Forecast 2018, Goldmedia
 - No specific data on the AVoD market.

- Around 4 million users, 8 digital rentals and 6 digital sell-throughs on average.

Figure 9 VoD market in Germany 2007-2018 (projection based on the expectation that one big
SVoD player will win/arrive on the German market

79
Source: Goldmedia 2014

79
http://www.goldmedia.com/uploads/media/Goldmedia_VoD-Forecast_2007-2018_Big_Player_Szenario_print.jpg
8.2.3 Market shares France
Table 25 France - Ranking of VoD services by % of customers 2011-2012

2012 Rank 2011 2011

1 La VoD d'Orange 37.9% 1 34.0%
2 CanalPlay 27.4% 2 25.6%
3 Club Vidéo (SFR) 20.0% 3 18.4%
4 MyTF1VoD 18.7% 4 14.6%
5 iTunes Store 17.0% 5 13.5%
6 Pass M6 12.7% 7 9.7%
7 Free Home Video 12.5% 6 12.2%
8 Video Unlimited (Sony) 5.7% 8 4.2%
9 Video Futur 5.3% 10 2.4%
10 Virgin Mega 4.6% 9 3.4%
11 Xbox Video 3.5% 11 2.0%
Other services 17.4% - 16.5%
Source: CNC-Harris Interactive, 15 years and more

Internet users who have stated that they pay for watching movies and TV shows through on-demand services. Read as: in 2012, 37.9% of consumers stated that they paid
in order to watch a programme on Orange’s VoD service.

Table 25 gives the result of a survey (statements by consumers who said that they had paid for on-
demand services). Those surveys attempt to reflect market situations but should be interpreted with
care as they are based on own statements and should not be extrapolated to assess a market
situation.

Figure 10 France – VoD market figures 2007-2011

Source: GfK Retail and Technology, Le marché de la VoD en France, NPA Conseil, Novembre 2011
The GfK 2013 press presentation of the cultural goods market in France estimated the overall French
80
VoD market to be worth €245 million in 2013, a decrease over the €252 million for 2012 . These
figures are to be interpreted with care as GfK does only take into account VoD services established in
France and only includes 15 services. A service like Apple’s iTunes, believed to be leader on the EST
market, or the Xbox Video Marketplace and Sony’s Entertainment Network is therefore not taken into
account (please refer to the note for table 26 for further details). The decrease in the French VoD
market in 2013 should therefore be viewed with caution as methodological explanations can be given
for this.

Table 26 French VoD market, in EUR million

2009 2010 2011 2012 2013*

Revenue of VoD services sold in France 97 152 219 252 245
Year-on-year change 75% 44% 15%

Note: In order to measure the VoD market in France, the GfK/NPA Barometer aggregates the total of sold or rented items
from 15 generalist VoD platforms established in France (Bouygues Télécom, CanalPLay VoD, Darty Box, Free, MyTF1,
Numericable, Orange, SFR, Vidéo Futur, Virgin Media). Therefore, VoD services such as Apple's iTunes, established in
Luxembourg, are not taken into account.

* from GfK/NPA press presentation, Feb 2014 Source: GFK Barometer

Source: GfK Barometer as cited in “CSA: Rapport81 au Gouvernement sur l’application du décret n°2010-1379 du 12 novembre
2010 relatif aux services de médias audiovisuels à la demande”, page 12

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1379-du-12-novembre-2010-relatif-aux-services-de-medias-audiovisuels-a-la-demande-SMAD
Subscription on-demand audiovisual
services
SVoD – Executive Summary

 Subscription video-on-demand services are services which allow subscribers by paying a flat rate
to access an SVoD service and consume unlimited video content.
 There are two main types of SVoD service: Over-the-top (OTT) services provided mainly by pure
Internet players and the SVoD services of pay-TV channels and networks.
 Since 2010, OTT SVoD services (essentially those of Netflix and Amazon) have met with huge
success on European and international markets, which had led to a tremendous increase in
subscribers (e.g. +113.8% for international subscribers for Netflix in 2013) (section 1)
 Market data are scarce. This note essentially deals with the SVoD offerings of players in the
EU-5 and the Nordics.
 The USA is the country where OTT SVoD services have the largest subscriber base and can
therefore accumulate the necessary financial resources to enter new, international markets.
 As with other Internet based businesses, size matters and the first-mover advantage is also on
the strategic OTT SVoD market.
 In 2012, the worldwide OTT SVoD market accounted for $4.7 billion with 66 million
subscribers (over 50 million in the USA, an increase of 50% compared to 2011). (Section 2.2)
 The OTT SVoD market in Western Europe is estimated at $575 million in 2012, representing
11% of worldwide SVoD subscribers (7 million). In Eastern Europe, the OTT SVoD market is
estimated at $255 million, with 7% of worldwide subscribers (4 million).
 The world-wide OTT SVoD market is estimated to generate $8 billion in revenue by 2017, with
more than 120 million worldwide subscribers.
 In the United Kingdom, the SVoD market was worth £84 million in 2012, an increase of over
2000% compared to the £3.8 million generated in 2011 before the entry of Netflix and Amazon
LOVEFiLM.
 Netflix UK (42.6% market share) and Amazon’s LOVEFiLM(55.2% market share) have formed a
duopoly on this market with a combined market share of 97.8%, leaving a mere 1.1% to BT Vision
and 1.1% to the rest of the players (Sky Now, wuaki.tv), and set to grow to £160 million in 2013.
 Scandinavia is another thriving OTT SVoD and pay- SVoD market with several players competing
with one another.
 Germany has four main SVoD services: LOVEFiLM (Amazon), Watchever (Vivendi), Maxdome
(Pro7) and Videoload (Deutsche Telekom)
 France has two main SVoD providers: Canal Play and FilmoTV, each with200 000 subscribers.
 Spain and Italy are mostly served by pay-SVoD but have factors for further growth.
 The rapid adoption of SVoD by consumers is based on several growth drivers (section 2.3):
o The proliferation of connected devices
o The service is offered anytime, anywhere and on any device (ATAWAD)
o Exclusive licensing
o Attractive content libraries through licensing deals with major studios and networks
o Original programming financed by the major players (Netflix, Amazon and Hulu)
o Personalised viewing experiences for the individual subscriber
 Release windows are playing an important role for SVoD providers and determine how attractive
their content library is to subscribers. France, with the longest window for movies for SVoD
services (36 months), lags behind the rest of Europe in SVoD adoption.
 Increasingly, OTT SVoD providers are challenging established pay-TV channels and networks
on their turf, as illustrated by Netflix surpassing HBO in the number of subscribers in the USA.
 The question for the near future will be whether “cord cutting” (abandoning traditional pay-TV for
OTT SVoD) will become more widespread or whether co-existence between the two services will
be established.
9 Types of services

Subscription based video on-demand services can be classified into two broad categories: pure over-
the-top services and SVoD offerings from TV networks & channels and telecommunications groups.
SVoD services give subscribers access to a catalogue of movies and TV shows which they can watch
unlimited at will through a subscription fee (which generally between €5 and €10 per month). The main
challenge is access to premium content in order to differentiate their services by agreeing exclusive
licences with rightholders. The rise of Netflix and Amazon Instant Video (formerly LOVEFiLM in the
United Kingdom and Germany) has shown that SVoD services, with a range of interesting content of
consistent quality, can appeal to customers as they are a less expensive way to access content on an
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“all you can watch” basis . Who are the main players on the SVoD market?

We have distinguished three main groups of SVoD players by their core business, TV/Media groups,
telecommunications groups and OTT players such as Amazon, Netflix and Wukaki.tv.

– OTT SVoD players (Netflix, Amazon, Wukaki.tv, FilmoTV, etc.)

– SVoD services of TV groups and networks (HBO GO Nordics, CanalPlay, etc.)
– SVoD services of telecommunications groups (BT Vision, Club SFR, etc.)

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As is also the case with subscription streaming music services like Deezer, Spotify and Pandora. The subscription based
business model could be sustainable, as a study by Kurt Salomon points out ( http://www.forum-
avignon.org/sites/default/files/editeur/Etudes_Kurt_Salmon_Forum_Avignon_2013.pdf).
10 Subscription video on demand (SVoD)
10.1 What is a subscription video-on-demand
(SVoD) service?
Subscription video on demand (SVoD) services allow subscribers, who pay a monthly flat fee
(which varies normally between €5€ and €10 a month for pure Internet players), to view an unlimited
amount of content, which is generally but not limited to videos, movies or TV shows. They can freely
decide what, when and often where and on which devices they want to view the content. In contrast to
transactional video on demand or electronic sell-through, titles are not billed individually. Furthermore,
most services are streamed directly to the subscriber’s device.

The main competitive arguments of SVoD services are the quality of the content in their catalogues,
the relative cheapness of the subscription compared to traditional pay-TV, personalised viewing
experiences (recommendation of video content based on the consumer’s preferences). Recently, with
the success of Netflix in the USA and Europe, the shift has also been towards the exclusivity of
content and original programming and the fact that the video content can be consumed anywhere, on
any device and at any time.

Netflix is certainly the most internationally successful player on the SVoD market, demonstrated by
its recent surpassing of HBO with regard to the number of subscribers in the USA. However, other
players are eager to enter this promising market and the competition for paying customers has been
underway since 2010. The two main categories of SVoD players are pure Internet players, known as
over-the-top SVoD services (OTT) and SVoD services operated by pay-TV players. Free-to-air
television channels, special-interest channels, content producers and retailers of DVDs and Blu-ray
discs have also started to enter this market.

The OTT players have brought about the unprecedented success of SVoD, with most of the rapid
subscriber growth coming from one player, Netflix (in the US between Q1 2012 and Q1 2013 +24.5%
subscribers, internationally +113.8% for the same period). This success has forced other players with
the necessary financial resources to acquire and even produce content to enter the market. This note
will give an overview of the actual situation, the main players and the on-going developments of those
players.

We decided to mainly focus on the OTT players in the main European markets for SVoD services
(GB, Nordics, DE, and FR). Those are the players which have enabled the growth of the SVoD sector,
so we believe it is important to focus on them.

The note first gives an overview of the main OTT players and SVoD services of pay-TV channels
before trying to outline the European SVoD market. As is so often the case with the on-demand
audiovisual services markets, concrete and free data are rare available due to the poor
communication of financial information by the players concerned. We will, however, try to provide a
picture of the market and how it may evolve. Section 2 will give a more precise picture of the main
drivers of the growth of SVoD services, as well as of exclusivity licences for video content and original
production, ATAWAD, and release windows and their crucial importance for the success of SVoD
services.
 10.1.1 Main SVoD players in EU-5 and Nordics
This section briefly presents the main OTT SVoD services and the SVoD services of traditional pay-
TV channels in the EU-5 and Nordics. The following table lists the main SVoD players by country. A
full listing of all SVoD players can be found in the annex. A recent strategy of pay-TV providers,
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imitating the TV Everywhere incentive by the American pay-TV and cable operators, is to offer their
programming to their subscribers on any device and on-demand. As these premium pay-TV channels
have more recent movies, are not under the constraint of release windows and negotiate streaming
rights when acquiring a programme in the pay-TV windows, these services can also be considered
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subscription on-demand, part of a pay-TV subscription (e.g. Canal + à la demande in France).
Although not truly SVoD services as such, these offerings are an attempt by pay-TV groups to render
their services more attractive to their customers in order to stop “cord-cutting”.

Table 1 Main SVoD services in EU-5 and Nordics

OTT pay-TV/Teleco
Canal Play, Canal à la demande, Orange
FilmoTV, Pass Videofutur, MUBI, Jook
France Cinema Series Go, Pass Cinéma SFR, (M6
Video, Dailymotion kids +, Vodeo Pass
Pass)

United Netflix, LOVEFiLM , wuaki.tv, Animax,

Sky Now, BT Vision
Kingdom Picture Box Films (NBCU)

Sky GO, Sky Anytime, Videoload (DT)

Germany LOVEFiLM , Watchever (Vividendi),
Maxdome (Pro7)

Filmnet (C More Entertainement/TV4),

Netflix, HBO Nordic, MUBI, Voddler,
Nordics Viaplay (MTG), Telenor, Canal Digital,
Film2Home, TriArt
YouBio (TDC)

Premium Play (Mediaset), Cubovision

Italy (Telecom Italia), Sky on Demand,
OnDemand (3 Italia)

Spain wuaki.tv (Rakuten), YouZee Nubeox (Planeta), yomvi (CanalPlus)

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Figure 1 USA- Number of Channels with TV Everywhere

For copyright reasons this figure cannot be reproduced in the public version of this report

Source: IHS Inc., October 2013

Without comprehensive market share data, an assessment of market strength is difficult so we will
try to rely on reports from journalists, IHS Screen Digest data and information gathered from
85
consulting groups (report by Arthur D. Little, “Over-the-Top Video – First to scale wins” and by
IDATE). However, as so often on the web, size matters (larger subscriber base, financial resources for
content acquisition and the amortisation of investments, such as technical platforms, application
development and R&D expenses) and it is therefore no surprise that the first movers and those with a
larger subscriber base seem to dominate the market.

In order to convince potential customers to subscribe to a SVoD service, the extent diverse content
of video libraries and the relative cheapness of the service compared to traditional pay-TV remain the
main arguments. The first-mover advantage is crucial in the market for securing rights (exclusivity
rights even more), rights which allow for a richer and more attractive video library. By attracting
enough subscribers and stabilising their revenues as a result, OTT SVoD services have recently been
able to adopt an even more ambitious strategy: producing original content. The players that have
managed to do so are all American OTT SVoD providers: Netflix, Amazon and Hulu (not yet available
in Europe). Also, as all the following figures are based on 2012, it is no longer correct that LOVEFiLM
86
is still present in Scandinavia as it left those markets in August 2013 . Also, HBO GO has been
present in Scandinavia since 2013 with its OTT service HBO GO (in partnership with Persifal
International.

As Figure 2 shows, the main US SVoD players began their international expansion throughout
2012, Netflix by growing domestically, giving it both the scope and the financial assets to expand into
promising European markets. ,, Netflix entered another EU market, the Netherlands in September
87
2013 . Amazon expanded its Amazon Instant Watch SVoD service by acquiring the DVD rental and
SVoD service LOVEFiLM in 2011 for £200 million. HBO has expanded its offering, being already
present in Eastern Europe. However, an interesting fact worth noting is that HBO GO in the Nordics is
available as a strictly OTT service, in contrast to the USA, where the subscriber must still sign up to
HBO’s pay-TV service in order to access HBO GO. Figure 8 gives an overview of the main US
services, TVoD, SVoD and AVoD, launched as of 2012 in Europe.

85
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http://www.screendigest.com/news/2013_06_lovefilm_exits_the_nordics/view.html
87
http://www.dutchnews.nl/features/2013/09/netflix_launches_into_a_crowde.php
 88
Figure 2 Global presence of US players in 2012

Table 2 lists the main characteristics of these US SVoD services in their home country. It can be
seen from this table that having an extensive catalogue and a subscription price below $10 a month is
common to all three, so the services are competing with each other on the basis of original content,
exclusive movies and TV show licences, as well as by moving more and more into traditional pay-TV.

Table 2 Main US SVoD services and catalogues 2012

Name Price Titles Catalogue

Amazon Prime Instant Video $79/year 18 000 TV: past seasons /Movies: back catalogue
TV: pas seasons + catch-up TV + 1 day/Movies:
Hulu Plus $7.99/month 54 000
back catalogue
TV: past seasons /Movies: from 28 days after
Netflix $8/month 20 000
DVD release
Source: IDATE Digiworld 2012

However, Europe also has a few European players operating on their national SVoD markets. As
we will see in the next sections, market size and conditions are not homogenous throughout Europe.
The markets where SVoD seems to have the most success and subscribers are the United Kingdom
and the Nordics, followed by France, Italy and Spain. Figure 1 provides a picture of the main SVoD
services in Europe.

In the United Kingdom, Sky Now, operated by BSkyB, can obtain SVoD streaming rights for most of
the films released on its pay-TV channels and acts as a complement to the Sky Go service already
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available to Sky subscribers . Although it has not yet done so, the BBC, through its affiliate BBC
90
Worldwide, is thinking of transforming its iPlayer into a SVoD service for international markets .

The Nordic countries, where the market is characterised by good broadband connections and a

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Scwaiger.pdf
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http://www.screendaily.com/news/digital/sky-names-svod-service-now-tv/5039544.article
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http://www.theguardian.com/media/2013/oct/18/bbc-worldwide-netflix-amazon-hulu#!
good telecommunications infrastructure, high GDPs and widespread use of new technologies among
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the population , the SVoD market is attractive to players and is therefore more competitive.
Accordingly, a larger number of players than on the other European markets have entered the SVoD
service market. Table 3 gives the main OTT SVoD players in the Nordics (IHS Screen Digest) to which
we have added some other players in Figure 1.

As already pointed out, LOVEFiLM is no longer operating in the Nordics and HBO GO Nordics is
missing from these figures, which were edited in 2012. However, the fact that LOVEFiLM exited the
92
market after the arrival of Netflix and that HBO Go is struggling in its competition with Netflix and the
other SVoD players may indicate that this market seems to be more competitive than others in
Europe, no doubt mainly due to the extensive catalogue offered by Netflix and local pay-TV players.
SVoD services are also provided by local broadcasters such as TV2 Sumo in Norway and TV2 Play in
Denmark, which we do not discuss in this short note on OTT SVoD services.

Table 3 Main subscription online movie services in the Nordic region 2012
For copyright reasons this figure cannot be reproduced in the public version of this report

Source: IHS/ Screen Digest 2012

In Germany, the market seems to be dominated by three SVoD players: LOVEFiLM, Maxdome
(owned by Pro7 and also offering a TVoD service) and Watchever (Vivendi) with an SVoD offering
from Videoload on top of its TVoD service (owned by Deutsche Telekom). The SVoD services all
belong to large media or telecommunications groups who can accordingly invest in movie and TV
show licences.

Table 4 Main SVoD services in Germany

Maxdome Watchever Lovefilm.de Videoload

Duration 1 month 1 month 1 month 1 month
Cancel. period 14 days none 1 day 10 days
Subscription rate 6.99 8.99 6.99 4.99
Movies available ≈3 000 n.a. ≈1 200 250*
* changes every month

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 Finally, the markets where none of the three big American SVoD services has yet arrived, although
9394 95
rumours on the arrival of Netflix in Spain , France and Italy have been circulating, are those where
there are strict release windows (France), thus making it hard to offer a new and interesting video
catalogue, or which do not yet have the necessary telecommunications infrastructure or sufficiently
high GDP or where content is held by pay-TV groups. Spain’s Japanese-owned wuaki.tv (acquired in
96 97
2012 by the Internet giant Rakuten ) has now expanded to the British market (in 2013 ) and plans on
98
entering France in 2014 . In France and Spain, Canal + group is offering an SVoD service: Canal
99
Play in France (formerly Canal Play Infinity) and yomvi in Spain (launched in 2011 ). In Italy, where
the main consumption of VoD is still via TV platforms and not online as figure 3 indicates, Mediaset
and Telecom Italia seem to be the biggest SVoD providers on the market through their Premium Play
and Cubovision services.

Figure 3 Online video versus TV VoD in Italy 2007-2012

Fi

Source: European Audiovisual Observatory/IHS Screen Digest

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http://variety.com/2011/tv/news/netflix-preps-euro-launch-in-2012-1118039987/
95
http://www.bfmtv.com/economie/netflix-coupe-court-aux-rumeurs-arrivee-france-551414.html
96
http://thenextweb.com/insider/2012/06/13/japanese-e-commerce-giant-rakuten-buys-spanish-video-on-demand-firm-wuaki-
tv/
97
http://www.hollywoodreporter.com/news/japans-rakuten-launches-online-video-636926
98
http://www.pcinpact.com/news/80966-svod-netflix-et-amazon-devances-en-france-par-rakutenwuaki.htm
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http://www.prisa.com/en/sala-de-prensa/canal-launches-yomvi-a-new-connected-way-to-enjoy-tv-2/
10.2 US OTT SVoD market
The SVoD market really started to expand in the USA with the transition of Netflix’s DVD rental-by-
100
mail business to subscription streaming in 2007 and then in 2010 when the company offered a
101
streaming-only option (Watch Instantly). Since 2010, the number of subscribers and the revenues of
the SVoD market in the US have risen exponentially, as Figures 4 and 5 show.

Figure 4 Online video markets in the US HY2 2010 - HY1 2012, in USD billion

1.2
$ bn
1

0.8

0.6

0.4

0.2

0
S2 2010 S1 2011 S2 2011 S1 2010
Electronic Sell-Thru VoD SVoD

Source: IDATE Digiworld 2012

Figure 5 Netflix subscribers – US streaming, US DVD, inter. streaming 2010-2013, in million

35
29.17 29.81
30 27.15
25.1
23.41 23.94
25 21.67
20

15

10 7.14 7.75
6.12
3.62 4.31
5 3.07
1.86
0
Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013

US Streaming US DVD International Streaming

Source: Netflix Annual and Quarterly reports & press releases

100
https://signup.netflix.com/MediaCenter/Timeline
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 The rise in the SVoD market in the US not only came from Netflix but also from its two competitors,
102
Hulu Plus (the SVoD service of the advertising-financed Hulu VoD service launched in June 2010 )
103
and Amazon (Amazon does not disclose the number of its “prime members” . It is interesting to note
that Amazon offers its SVoD service to these members who for $79 a year get free shipments when
they make purchases on Amazon.com, an example of bundled services with the two services adding
value to customers). Figure 6 shows that the Hulu Plus service was also very popular on the market,
with the number of subscribers hitting the 4 million mark in 2013, two and a half years after the launch.

Figure 6 Hulu Plus subscribers 2010-2013

Hulu Plus Subscribers

in millions
5

0
Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013
Source: Press releases, Company reports

If we take a look at market share figures for TV shows in the US, the market domination of Netflix is
evidenced by Figure 7, even though Hulu Plus and Amazon Prime gained a small share between 2012
and 2013. Why base the market shares on TV shows rather than movies or both categories? A recent
104
survey by GfK of subscribers of these services found out that 81% preferred TV shows to movies
(even 96% for Hulu, 77% for Netflix and 79% for Amazon Prime).

Figure 7 OTT SVoD market share for TV shows in the US 2012-2013, in % of shows streamed

100% 93% SVoD market shares for TV shows

89% in % of shows streamed
80%

Q1 2012 Q1 2013
60%

40%

20% 10%
7%
1% 2%
0%
Netflix Watch Instantly Hulu Plus Amazon Prime

Source: MarketingCharts.com

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103
http://www.vulture.com/2013/07/streaming-scorecard-amazon-prime.html
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Figure 8 Use of paid OTT video providers in the US 2012, in % of users of paid OTT services

90 84 82
80

70

60

50

40

30
22
20 17 15 16

6 8
10

0
Netflix Amazon instant iTunes Hulu Plus
Video

Q1 2012 Q3 2012

Source: 451 Research

Number of Netflix subscribers also paying for Amazon

Instant Video
in %
20 18
14
15
10
5
0
Q1 2012 Q3 2012
Source: 451 Research

If we look at the percentage of users who pay for OTT video overall, we see that Netflix still
dominates the others but Amazon Instant Video in this chart is outpacing Hulu Plus as this market
share is no longer only based on TV shows.

With this lightning-fast success of SVoD services in the US the past three years, what is the
situation in Europe? As we have seen, SVoD is quite recent and a shift from the USA to Europe
always takes some time. However, first indications are that the situation and the subscription service
are as appealing to European customers at they were to Americans when the first services appeared.
The next section will assess the market situation in Europe. As the market is still in its infancy, market
numbers are scarce.
10.3 Main market numbers available for Europe
In Europe, market figures available on revenues, subscribers and additional data are scarce. In the
last section, we saw that US and European players have entered the SVoD market in reaction to the
success of those services in the US. For customers, SVoD is a cheaper alternative to TVoD, even if
the most recent movies will not be in SVoD catalogues and can be a complement to or a substitute for
pay-TV.
105
In 2012, according to a study by IHS , SVoD viewing represented 1 in every 7 minutes of online
long-form viewing. MRG, Research and Markets, stated in its 2013 report “Worldwide Over-the-Top
106
Subscription Video on Demand Market ” that the Western European OTT SVoD market generated
$575 million in revenue, representing 11% with 7 million subscribers. The situation in Eastern Europe,
with many more local players and domestic content, had revenues of $255 million or 7% of the
worldwide market and 4 million subscribers. The worldwide OTT SVoD market is projected to reach $8
billion by 2017 with more than 120 million subscribers, and therefore almost doubling in 5 years.

107
Table 5 MRG,- Research and Markets OTT SVoD market study 2012
Research and Markets "Worldwide OTT SVoD Market"

Market 2012 % of WW OTT SVoD market Subscribers

North America n.a. n.a. 50 million (+50%)
Western Europe $575 million 11% 7 million
Eastern Europe $255 million 7% 4 million
Asia $225 million 5 million
WW market $4,7 billion 66 million
Source: Researchandmarkets, 2013

Further data for the United Kingdom can be found in the hard-copy release of the BVA Yearbook
2013. The SVoD market was worth £84 million in 2012, an increase of over 2000% (in 2011, the SVoD
market was worth £3.8 million), mainly driven by the entrance of Netflix (and Sky GO).

Looking at market shares, Netflix and Amazon’s LOVEFiLM form a duopoly with a share of the
SVoD market of 55.2% for LOVEFiLM and 42.6% for Netflix (an impressive 97.8% of the total SVoD
108
market!), leaving only 1.1% to BT Vision and 1.1% to the rest of the players. Deloitte predicts for
2013 a market value of £160 million (€190 million) with an increase compared to 2012 of 167%. As we
can see from those figures, the UK SVoD market is striving ahead and gaining more subscribers but
seems to be dominated by two US players.

Figure 9 shows the subscriber numbers for Netflix and LOVEFiLM in Europe but the withdrawal of
LOVEFiLM from the Nordic countries has impacted on the current validity of these figures. According
109
to the most recent figures , Netflix has 1.2 million subscribers in the UK and LOVEFiLM 2.5 million.

Another country for which SVoD figures were released (free of charge, of course) is France, where
110
SVoD is estimated to have been worth €27 million in 2012 according to GfK and NPD figures. Canal
Play and FilmoTV (Wild Bunch) are each reported to have around 200 000 subscribers. Media release
windows as well as the absence of one of the two US players Netflix and LOVEFiLM may explain this

105
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106
http://www.researchandmarkets.com/reports/2698525/worldwide_overthetop_subscription_video_on
107
http://www.theconvergence.tv/2013/11/06/ott-subscription-vod-market-to-8-billion-by-2017/
108
http://www.digitaltveurope.net/100602/uk-svod-revenues-to-reach-e190-million/
109
http://www.journaldunet.com/media/expert/53362/svod--qui-sera-le-prochain-netflix-francais.shtml
110
http://www.telecompaper.com/news/tf1-puts-svod-plans-on-hold-report--948785
notable difference with the UK. Another interesting point is that TF1 and M6 have decided this year not
to launch their planned SVoD service as the investment required over €50 million and, as we can see,
111
the market conditions probably do not yet exist to make such an investment profitable .

Figure 9 European subscribers to Netflix and LOVEFiLM in 2012

3

2.5

1.5

0.5

0
Q1 Q2 Q3 Q4

Netflix LoveFilm

An IHS chart, figure 11, shows the still enormous difference in online video-on-demand
consumption between the US and the rest of the world. As stated in MRG’s report on the worldwide
OTT SVoD market, SVoD services accounted for 43% of the online video market, but internationally
this share drops to only 6% (the US being the most competitive with 25 OTT SVoD services).

Figure 10 Online video market by business model, USA 2012, in %

For copyright reasons this figure cannot be reproduced in the public version of this report

Source: IHS Electronics & Media

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Figure 11 Online video market by business model, international markets, 2012, in %
For copyright reasons this figure cannot be reproduced in the public version of this report

Source IHS Electronic & Media

As we have seen, the success of SVoD in the USA was mainly due to OTT players. Before we look
at market projections, figure 12 shows a breakdown of the video-on-demand market between
managed networks (TV VoD platforms) and OTT services (including all business models, not only
those specific to SVoD – TVoD, SVoD, EST, DTR). The situation for the OTT distribution of video is
more favourable in Germany, where over 50% of the market is distributed over the top. In the United
Kingdom, around 60% of video-on-demand services in 2012 were distributed through managed
networks and 40% OTT (however, with the arrival of Netflix and its success the figures will certainly
have changed). In France, the market for OTT video services represented only less than 30% of the
on-demand video market. It might be assumed that, without an appealing content offering, customers
still rely on the on-demand video services provided by their pay-TV or TV distributors (IPTV, cable TV,
SatTV). The arrival of a major player might have an impact on this imbalance between OTT and
managed networks, as it most certainly had in the UK after the arrival of Netflix and Sky GO and the
explosion (+2000%) of the OTT SVoD market.
Figure 12 Breakdown in FR, GB and DE of the video-on-demand market between managed
networks and OTT, 2012
100%
90%
80%
70%
60%
50% Managed
40% OTT
30%
20%
10%
0%
France UK Germany

Source: IDATE estimates

IHS Screen Digest published a forecast in 2013 for the years 2012-2016 for OTT SVoD movie
revenues in EU-17 (figure 18).

This figure shows expected growth in revenues through more attractive offers and widespread OTT
SVoD adoption. The EU-17 market is, if predictions prove true, set to rise from not even €10 million in
2011 to over €180 million in 2016 which, we believe, no longer seems likely in view of the MRG figures
and Deloitte’s study on the UK market (the UK SVoD market alone is expected to be worth €190
million in 2013). As we do not know how those figures were projected, this difference cannot be
explained (perhaps it can by excluding all TV show transactions but the differences still seem
112
enormous to us). Figures 13, 14 and 15 are taken from the study “Why territories matter ” by Oliver
Bomsel and Camille Rosay.

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Figure 13 SVoD OTT movie revenues in 17 EU countries 2004-2016, in EUR million

For copyright reasons this figure cannot be reproduced in the public version of this report

Figure 14 SVoD OTT movie subscribers in 17 EU countries, 2004-2016, in EUR million

For copyright reasons this figure cannot be reproduced in the public version of this report
Figure 15 Total subscription revenue – SVoD + pay-TV in 17 EU countries 2004-2016, in EUR
million

For copyright reasons this figure cannot be reproduced in the public version of this report

Figure 16 shows a breakdown of worldwide consumer revenues (sales excluding VAT/sales taxes)
for paid-for movies and TV content between all distribution methods (digital/physical, rental/retail,
SVoD Digital subscription). Accordingly to this chart, SVoD will continuously rise from 2012. This is in
line with the most recent figures given at the beginning of this section, although, once again, we do not
know about the methodology and projection scenario.

Figure 16 Consumer revenue on paid-for-movie and TV content 2007-2016

For copyright reasons this figure cannot be reproduced in the public version of this report

Subscription video on-demand services have, as this section has demonstrated, a bright future
ahead of them. The flat fee for “all you can watch” appeals to customers and, as Kurt Salmon has
113 114
pointed out , constitutes a stable business model (compared to music subscription services such
as Deezer and Spotify). The next section will focus on the growth drivers and keys to the success of
SVoD services and providers, both from the demand side (AWATAD – anywhere, anytime, any device
– the proliferation of connected devices, high broadband speeds, binge watching) and from the supply
side (exclusive licensing, original content, release windows).

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pdf
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10.4 Growth drivers of SVoD services
What are the growth drivers behind the tremendous expansion of OTT SVoD services (see Figure
17) in the last two years? Clearly, the low price compared to traditional pay-TV appeals to subscribers,
but in our view OTT SVoD services fulfil other consumer expectations. In a world where connected
devices proliferate and high broadband speed permits smooth OTT video consumption, consumers
expect to be able to view their video content on whatever devices they choose to and therefore have
115
multiscreen options offered them when deciding to subscribe to an OTT SVoD service for a
116117
personalised viewing experience . Also, selecting an SVoD service is based on the content that
118
the service has in its content library, (non-exclusive but increasingly exclusive content or even
original programming (and first pay-TV windows). The fact that the video library contains recently
produced content is fundamental to convincing potential customers, which is why release windows are
an important issue for SVoD services. The use of big data to analyse viewing habits, recommend
119
content to subscribers and even acquire/produce original content is also one of the factors for the
success of the big SVoD providers.

Figure 17 Percentage of people in the US who use or subscribe to OTT SVoD

% of people in the U.S. who use or subscribe to video

streaming services
40% 38%

35%
31%
30%
25%
20%
15% 12% 13%
9%
10% 7%
6%
4%
5%
0%
Netflix Hulu Hulu plus Amazon Instant
Video

2012 2013

Source: Nielsen

115
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http://www.cinemablend.com/television/Netflix-Offers-Subscribers-Television-Experience-60527.html
117
http://www.dailytech.com/Netflix+Introduces+Profiles+for+Individualized+Streaming+Experience/article33094.htm
118
http://www.reuters.com/article/2012/12/07/us-netflix-studios-licensing-idUSBRE8B613420121207
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Netflix has created over 76 000 microgenres of movies in order to identify user appreciation and recurring patterns in movie
consumption http://www.theatlantic.com/technology/archive/2014/01/how-netflix-reverse-engineered-hollywood/282679/
 120
Figure 18 Netflix’s revenue and subscriber forecast 2012-2017

Changes in Netflix subscriber base worldwide in millions

50
44 47
45 41
39
40 36
35
30
Evolution of Netflix
25 24 subscriber base world-
20 wide
15
10
5
0
2012 2013 2014e 2015e 2016e 2017e

Source: Forecast by Kurt Salmon, Netflix annual reports

Changes in Netflix's total and streaming revenue worldwide

($ billion)

12
10.4
10
8.2 7.9
8
6.5
6.1
6 5.1 4.8
4 3.7
4 3.6 3.3

0
2012 2013 2014e 2015e 2016e 2017e

Total revenue Streaming revenue

Source: Forecast by Kurt Salmon, Netflix annual reports

The SVoD world champion is Netflix, which managed to reach this position by continuously
adapting its strategy to deliver the service that its customers want and expect. If we look at the
projections made by Kurt Salmon based on Netflix data, we see that Netflix is expected to have
around 47 million subscribers by the end of 2017 and to generate around $10.4 billion that year. The
first-mover advantage and the fact that in 2007, when Netflix started its streaming business,
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pdf
rightholders did not value streaming rights contributed to the expansion of its business. However, this
success is not only explained by these two factors but also by Netflix’s ability to adapt to changing
consumer habits and expectations and by its ability to innovate. The entrance of several big players in
the SVoD business be it in Europe or the US, made it clear there would be intense competition for
licensing rights, original programming and innovation in order to offer the best consumer experience.
What are the main keys of success for and SVoD service to succeed?

The following section will present the main drivers of the rapid adoption of SVoD by customers in
the USA, and where available, in Europe in order to see what strengths and market conditions are
needed to succeed on the SVoD service market. The first section stresses the importance of licensing
deals, and the second gives an overview of original content produced by Netflix, Hulu and Amazon.
Section 3 shows the proliferation of connected devices, the importance of those devices in the viewing
of video content and the relationship between broadband Internet and the presence of one of the big
streaming players, while the final section stresses the importance of movie release windows for an
attractive SVoD catalogue.

10.4.2 Exclusive licenses and licensing deals

Licensing deals with major studios for their content are essential to any SVoD business. In order to
reach those deals, it is clear that size and financial clout matter. Basically, SVoD service providers are
engaged in a battle for (exclusive or non-exclusive) licensing deals for movies, TV shows and, more
recently, children’s programmes in order to distinguish themselves from competitors [differentiation
through exclusive content].

It was not possible to unravel the opaque exclusive licensing deals, where the licensing terms are
121122123124125
rarely made public, in the timeframe available. Industry and news reports (Netflix ,
126127128 129130131132133
Hulu and Amazon being the main players in this field) indicated many exclusive
134
licensing deals made over the past year between the major SVoD services and rightholders .
Exclusive deals are crucial as they constitute a commercial argument for customers, and losing a
licensing deal can cause an SVoD provider to lose a huge part of its content library, be it exclusive or
135
general content (Netflix lost over 1 800 titles in May 2013 by not renewing its license with MGM,
Warner Bros. and Universal). Although we cannot list all licensing deals made in the past few years,
we can say that the sector is very dynamic and competitive and that the three major SVoD services
136
are in a fierce battle to gain exclusive licences and, if they cannot obtain those licenses, for the
streaming rights of non-exclusive content.

American licensing deals are already very numerous due to the scarcity of quality content that
appeals to customers and constitutes a commercial argument. Obtaining information on such deals for
the European market is even harder. In Europe, most deals are territorial and apply only to a particular
country. Also, news journals and the industry have up to now reported more on American than on
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http://ipjournal.law.wfu.edu/2013/02/exclusive-licensing-netflix-disney-deal-sets-new-standard-for-future-releases/
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http://www.foxbusiness.com/industries/2013/08/20/netflix-scores-exclusive-licensing-deal-with-weinstein-brothers/
123
http://techcrunch.com/2013/01/14/netflix-signs-multi-year-licensing-agreement-with-turner-broadcasting-and-warner-bros-
television/
124
http://venturebeat.com/2013/06/17/netflix-signs-licensing-deal-for-new-dreamworks-animation-tv-content/
125
http://www.deadline.com/2013/07/cbs-netflix-extend-licensing-deal/
126
http://www.tvguide.com/news/cw-hulu-streaming-agreement-1039136.aspx
127
http://www.hollywoodreporter.com/live-feed/cbs-heads-hulu-multi-year-386376
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http://variety.com/2011/tv/news/fox-renews-hulu-licensing-pact-1118038960/
129
http://www.deadline.com/2013/11/amazon-prime-reaches-multi-year-licensing-deal-with-a24/
130
http://wallstcheatsheet.com/stocks/cbs-and-amazon-renew-game-changing-licensing-deal.html/
131
http://www.multichannel.com/distribution/amazon-mgm-expand-licensing-agreement/146220
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http://online.wsj.com/news/articles/SB10001424053111903461104576457903964131950
133
http://www.hollywoodreporter.com/news/amazon-viacom-ink-multiyear-licensing-562460
134
http://www.hollywoodreporter.com/news/lionsgate-make-more-tv-shows-561179
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http://www.adweek.com/news/technology/netflix-loses-1800-titles-license-deals-expire-149067
136
http://money.cnn.com/2013/06/04/technology/amazon-viacom/
 European licensing deals, so we are unable to give a precise overview of the licensing deals for SVoD
services targeting Europe.

However, we have managed to obtain an overview of the exclusive licensing deals of the Modern
Times Group for Scandinavia and Central and Eastern Europe (Table 6), for pay-TV, free-to-air TV
and SVoD. In this table, the first thing that is obvious is the territorial component of the exclusive
licensing deals made by the MT Group (deals for Scandinavia are not valid for CEE and vice-versa,
TV content seems easier to license than the films of the big six studios).

Table 6 Exclusive content deals Modern Times Group Scandinavia and CEE 2012

Pay TV Free TV SVoD

CEE & CEE & CEE &
Scandinavia Scandinavia Scandinavia
Baltics Baltics Baltics
NBC Universal,
Fox X X X X X -
Hollywood studios

Walt Disney X X - X X -
Sony Pictures X - X - X -
under under
MGM negotiation X negotiation - - -
under
Warner Bros negotiation - - - X -
Paramount - X X X - -
HBO - X -
TV content

Endemol - X X
FremantleMedia - X X
CBS - - -
Nordisk Film X X X
Local

Scanbox X X X
Source: MTG capital markets day presentation

A look at studio content rights for the first pay-TV window in Europe (Table 7), shows that the
situation seems to vary throughout Europe but the majority of content rights belong to national pay-
TVs (first pay-TV window). In is interesting to note that in the United Kingdom and Spain, one national
player (Sky and Prisa TV) is in a monopoly situation for content from the six major studios and that, in
most cases, content rights from those studios for the first pay-TV window are still in the hands of two
national players (except for Poland where four players divide those rights up between themselves. The
only OTT SVoD that has exclusive rights to one of the six major studios is LOVEFiLM in Germany.
Table 7 Studio content rights belonging to national pay-TV players, 2012
Exclusive content rights from 6
Country Player
major studios
Canal + 5/6
France
Orange 1/6
UK Sky 6/6
Sky Deutschland 5/6
Germany
LOVEFiLM 1/6
Spain Prisa TV 6/6
Europe

Sky Italia 4/6

Italy
Mediaset 2/6
Sweden & C More 3/6
Norway Viasat 3/6
TVN 2/6
HBO 2/6
Poland
Canal + 1/6
Cyfrowy 1/6
Movie Central 3/6
North America

Canada
Netflix 1/6
HBO 3/6
USA Starz 1/6
Epix 2/6
x/6: Exclusive contracts for x out of 6 Hollywood major studios
Majors: Paramount, Sony Pictures, Universal, Walt Disney, 20th Century Fox, Warner Bros
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Source: Screen Digest, Arthur D. Little

Acquiring exclusive content is becoming more and more important as players try to distinguish
themselves from their competitors. However, exclusive rights seem to be only part of the success
equation in this business. Content acquisition is also crucial in order to have a rich and diversified
video library that appeals to customers. Pay-TV operators are, of course, still the financial powerhouse
on the market for content acquisition and content rights but the new entrants of the ilk of Netflix and
Hulu are slowly catching up. Of course, this will not come overnight, but by expanding their subscriber
base and accumulating the necessary financial clout needed for content acquisition through this
expansion; those players are starting to challenge pay-TV channels on their home turf.

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Figure 19 US content spending by pay-TV and SVoD services

US pay-TV subscribers
in millions, Q3/2011
80 76
70
60 51
50
50
40 33
30
20
10 6
0
Pay-TV Cable pay TV: Satellite pay IPTV pay TV: OTT Video*:
Networks: Comcast, Time TV: DirecTV, AT&T, Verizon Netflix, Hulu,
Hbo/Cinemax, Warner, DISH Hulu+
Starz, Charter,
Showtime, EPIX Cablevision,
Others

138
Source: Salter Group, Arthur D. Little Analysis , Investor relations

*subscribers as per Q4 2011

US content spending by selected players

in bn USD 2010-2012
12
9.8
10
8.7
7.9
8 7.4

4
2
2 1.6
0.9
0 0.3 0.3 0.5
0
Comcast DirecTV HBO Netflix Hulu

2010 2011 2012

139
Source: Salter Group, Arthur D. Little Analysis , Investor relations

*subscribers as per Q4 2011

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http://www.adlittle.com/downloads/tx_adlreports/TIME_2012_OTT_Video_v2.pdf
 Figure 19 shows that spending on content by the major cable pay-TV players (Comcast at $7.9
billion) and satellite pay-TV players (DirecTV at $9.8 billion) by far exceeded that of Netflix ($1.6
billion) and Hulu ($500 million) in 2012, but Netflix is definitely getting close to HBO ($2 billion) in this
connection. In 2013, Netflix (30 million subscribers) overtook HBO (28.7 million in the USA) in terms of
subscribers and, if we look at Netflix’s current and long-term obligations in figure 20, the trend is
upwards for its content acquisition.

Moreover, the increase in subscriber numbers projected in figure 23 will allow Netflix to increase its
140
content spending over the coming years. The outbidding by Netflix of HBO in the acquisition of
House of Cards shows a trend that is likely to repeat itself as Netflix is now in direct competition with
141
HBO for original content and first pay-TV windows for series and even movies .

142
Figure 20 Netflix’s content obligations 2010-2012

Netflix's streaming content obligations

in USD billion
6

5
2.3 2.3
4 1.7 1.9 2.1
1.4
3
1.1
2
0.7 3.1 3.3 3.4
2.7 3 2.9
1 0.5 1.8
1.2
0.7
0
Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013

Long Term Obligations Current Obligations (due in < 1 year)

Source: Netflix annual and quarterly reports, Netflix press releases

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http://www.hollywoodreporter.com/news/netflix-outbids-hbo-david-fincher-167882
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http://www.hollywood.com/news/movies/55038991/will-netflix-original-movies-be-successful
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http://www.hackingnetflix.com/investor_relations/
Figure 21 Netflix’s 200 most watched video content compared to availability on Amazon, Hulu,
143
Redbox

Source: Netflix

Figure 21 shows the availability of Netflix’s Top 200 videos (100 TV shows and 100 movies) on the
competing services Amazon, Hulu Plus and Redbox. From this figure, it appears that Netflix has
managed to secure exclusive licensing deals for a significant proportion of its most-watched videos,
stressing yet again the importance of exclusive licensing deals. Amazon, for example, only has 73 of
this top 200, Hulu 27 and Redbox a mere 12. Of course, not all content in the Netflix’s Top 200 is
under exclusivity rights but it seems that Netflix was more successful than its competitors in securing
those rights.

In Europe, we managed to find a comparison between Netflix and LOVEFiLM in the United
Kingdom, where they form a duopoly, as we saw in the previous section (97.8% of the £84 million UK
SVoD market, a market expected to be worth £160 million in 2013 by Deloitte). Out of a catalogue of
1668 films, 1399 titles are exclusive to Netflix (83.8%). For LOVEFiLM’s 3284 movie titles, 3015 are
exclusive (91.8%). Regarding TV titles, Netflix has the exclusive rights to 78% of its 412 titles and
LOVEFiLM 70% of its 300 TV titles. This once again stresses the importance of exclusive streaming
rights in this player’s opinion. The question of what access players smaller than these two giants have
to titles remains unanswered.

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 144
Table 8 Netflix and LOVEFiLM :catalogue comparison in the UK 2012

On On On
Netflix LOVEFiLM both Exclusive to Netflix Exclusive to LOVEFiLM
Films 1 668 3 284 269 1 399 3 015
TV Titles 412 300 90 322 210
TV seasons 925 589 210 715 379
Note: Film vs TV classifications are set by Netflix and LOVEFiLM . A number of documentaries that were only ever shown on TV are classed as films because they were
one-off specials rather than a series. This is considered valid in the same way as straight-to-DVD releases are classed as films.

Source: TechCrunch

With regard to the availability of recent movies on those two services in the United Kingdom,
although LOVEFiLM has a larger choice of titles in its library (3284 versus 1668); Netflix seems to
have had the more recent selection in the past few years (from 2010). As LOVEFiLM has established
for longer than Netflix on the British market, it has certainly had an advantage in securing rights before
the arrival of its competitor but the situation seems to have changed in the year of Netflix’s entry into
the UK market.

145
Figure 22 Netflix’s and Lovefilm’s movies compared by release date

Source: TankTop Movies

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http://techcrunch.com/2013/01/18/netflix-u-k-has-far-more-tv-shows-series-than-lovefilm-instant-but-amazons-on-demand-
service-has-twice-as-many-films/
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10.4.3 Investment in original content
As the previous section demonstrated, licensing rights, especially exclusive rights, are essential to
SVoD services. A subscriber is in search of attractive content (premium content) and the fact that one
service might have more exclusive titles than another can be a commercial argument. Being in
competition with each other as well as with more and more other players (pay-TV), the three major
American SVoD services have since 2012 started their own original programming, thus mimicking the
pay-TV channels. TV shows are currently what those SVoD providers are investing in and not original
146
movies as these shows seem to have more success (81% of SVoD users preferred to watch TV
147
shows), allowing for “binge viewing” (viewing multiple episodes of a show at one time).

The first to really invest heavily in original content was Netflix with Lilyhammer (the second season
was released on Netflix in October 2013), made by the Norwegian producer Rubicon TV AS and then
by reliving Arrested Development, a show cancelled by Fox after three seasons but having a huge fan
148 149
base . The real success came with House of Cards, for which it paid $100 million upfront for two
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seasons (26 episodes or almost $4 million per episode) and won three Emmy awards , the first time
ever for an online TV show (HBO won its first Emmy after 25 years with Sex and the City in 2001).
Continuing to pursue this strategy, Netflix’s next original series was Orange is the New Black. As
Netflix does not release viewing figures, one can only guess as to the success but on it would seem
151152
from various reports that both shows were a success among viewers and helped to gain new
153
customers , thus helping it to overtake HBO in terms of subscriber numbers. With the success of its
first original shows, Netflix is continuing on this path and planning a second season for Orange is the
154 155156
New Black . It is also planning on adding other original programmes and even movies .

One game changer to the traditional TV industry is that Netflix releases all of the season of its
original TV shows on the same date, allowing subscribers to binge-watch. In fact, Netflix’s CEO Reed
157
Hastings thinks that the broadcasting industry builds a lot on “managed dissatisfaction” which he
wants to eliminate.

“Hastings, the CEO of Netflix, has a name for this prison and what it does to the people trapped inside
it: managed dissatisfaction. The traditional entertainment ecosystem is built on it, and it's a totally
artificial concept," says Hastings. "The point of managed dissatisfaction is waiting. You're supposed to
wait for your show that comes on Wednesday at 8 p.m., wait for the new season, see all the ads
everywhere for the new season, talk to your friends at the office about how excited you are." If it's a
movie, he adds, you wait till the night it opens, you wait for the pay-channel window, you wait for it to
come to cable. Waiting means pent-up demand, millions of people watching the same thing at the
same time, preferably at night, when they're pliant with exhaustion and ready to believe they need the
158
stuff being hawked in all those commercials. Waiting, Hastings says, is dead.”

Amazon and Hulu, copying Netflix’s original-content strategy of, have also commissioned their own
159
original content TV shows in the past two years. Amazon , through its affiliate Amazon Studios, has

146
http://www.homemediamagazine.com/digital-evolution/survey-svod-users-prefer-tv-shows-movies-30931
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http://articles.latimes.com/2013/feb/01/entertainment/la-et-ct-binge-viewing-20130201
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http://www.cleveland.com/tv-
blog/index.ssf/2013/05/arrested_development_returns_after_7_years_thanks_to_ardent_fans_and_netflix.html
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http://www.thewire.com/technology/2013/02/economics-netflixs-100-million-new-show/61692/
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http://www.theverge.com/2013/9/22/4759754/netflix-challenges-the-tv-establishment-with-emmy-wins-for-house-of
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http://www.forbes.com/sites/afontevecchia/2013/10/21/netflixs-awesome-shows-bring-in-more-subscribers-as-profits-
quadruple-in-q3/
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http://mashable.com/2013/10/21/orange-is-the-new-black-netflix-most-watched/
153
http://business.financialpost.com/2013/10/21/netflix-q3-2013-subscribers/?__lsa=61e9-6025
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http://www.deadline.com/2013/06/netfilx-renews-orange-is-the-new-black-for-second-season/
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http://variety.com/2013/biz/news/netflix-to-preem-movies-the-same-day-they-bow-in-theaters-1200796130/
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http://variety.com/2013/digital/news/theater-owners-might-kill-movies-warns-netflixs-sarandos-1200765818/
157
http://www.gq.com/entertainment/movies-and-tv/201302/netflix-founder-reed-hastings-house-of-cards-arrested-development
158
http://www.gq.com/entertainment/movies-and-tv/201302/netflix-founder-reed-hastings-house-of-cards-arrested-
development#ixzz2lxoRHKoG
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http://www.theverge.com/2013/11/26/5147796/betas-how-amazon-is-rethinking-the-way-television-is-made
 160
had customers vote on pilots (released online in April 2013 ) and pitches of future TV shows and
movies to see which had the most appeal to subscribers. The submission of scripts was open to
everyone (700 test movies, 14 000 movie scripts and 2 700 series were submitted) and finally 14 TV
show pilots were selected. The idea behind letting consumers vote is explained by Simon Morris, chief
marketing officer of LOVEFiLM UK “It was the logical next step in a consumer-focused company.
Amazon’s DNA is data and using data to drive the service. Amazon’s goal is to be the world’s most
161
consumer-centric company.” In November 2013, Amazon released the first three episodes of Alpha
162
House and Betas, but differs from Netflix in that the whole seasons are not released at once but
163
according to the traditional broadcast model, that is to say one every week .
164
One essential similarity between the two companies is that they employ user data in order to
“predict” which shows will be the most appealing to subscribers and meet with success. This use of
such data is new, as it can provide the “whole picture” in contrast to sample groups and general
audience data used in the broadcast model. The use of data, which neither Netflix nor Amazon
communicates, can help to diminish risks. Netflix, which has a higher market share than Amazon, has
an advantage in the use of big data to select new original programming. Those companies also use
big data to recommend shows to their subscribers, based on previous viewing and similar viewings of
other subscribers. This new method of discovery is also a very important part of the success of these
services, as users need some help in discovering shows and movies unknown to them.
165
Hulu Plus also invests in original programming and co-financing shows and eight shows have
166
been announced up to now . Hulu being a joint venture between NBCUniversal (Comcast), Fox
Broadcasting Company (21st Century Fox) and Disney-ABC Television Group (The Walt Disney
Company) also has access to TV shows from these channels. The fact that the company was up for
167
sale in 2013 and then finally held on to by the owners , which injected $750 million for further
development, shows that these big TV groups have seen advantages in Hulu’s current business
168
model of and future signs of growth (the final three bidders were DirecTV, AT&T and Chernin Group
and Time Warner Cable and the owners expected to sell Hulu for $2 billion, an amount which unlikely
to be reached).

Figure 31 gives an overview of original content of the three players. The pace of development is so
rapid in this sector that new projects have been announced since this table was produced, but no
further details have been given.

The move to invest in original shows can be explained by Figure 32, which shows the importance of
original programmes for users when selecting a SVoD service. For 63%, original content is
“very/somewhat” important but if we look at younger age groups we see it is “very/somewhat”
important for 66% of 18-24-year-olds and “important” for 72% of 25-34-year-olds.

Another explanation is that in the battle for original content, where there is not only competition
between SVoD services but also with well-established pay-TV channels and groups, acquiring one’s
own original content is a differentiator. By doing so, SVoD providers are more and more entering the
turf of pay-TV channels and starting to compete with them. In the long term, as early signs show
(section 3, cord-cutting and the fall in the number of pay-TV subscribers), the cheaper offerings of
SVoD providers, the use of big data and the acquisition of exclusive licensing rights coupled with
investments in original content could mean a serious threat to traditional pay-TV. Also, as we have
seen, the innovation in the release strategy and the fact that videos can be seen anytime, anywhere

160
http://variety.com/2013/digital/news/amazon-studios-releases-pilots-online-1200387487/
161
http://screenrant.com/amazon-tv-series-pilots-vote/
162
http://www.cinemablend.com/television/Amazon-Studios-Director-Explains-Decision-Take-Netflix-All-Once-Approach-With-
Original-Series-60427.html
163
http://business.time.com/2013/11/05/amazon-wants-you-to-actually-leave-your-house-instead-of-binge-watching-its-shows/
164
http://www.marketplace.org/topics/tech/amazon-may-have-alpha-house-netflix-has-data
165
http://www.bloomberg.com/news/2013-07-31/hulu-targets-binge-viewers-with-full-release-of-original-series.html
166
http://www.tv.com/shows/misfits/community/post/hulu-announces-three-new-original-series-including-an-animated-witness-
protection-sitcom-and-puts-dates-on-several-more-137530088505/
167
http://online.wsj.com/news/articles/SB10001424127887324879504578601840989680844
168
http://variety.com/2013/biz/news/hulu-sale-called-off-disney-nbcu-and-21st-century-fox-hold-on-to-tv-site-1200562049/
and on any device (ATAWAD - next section) will entice more potential customers.

One question that will need to be addressed is the future of European SVoD services and access of
European content to those services. As the example of the United Kingdom demonstrates, the two
American SVoD services, Netflix and LOVEFiLM, have split the market up between them. With their
size and financial clout, European competitors will struggle to acquire licensing rights, and with more
and more exclusivity deals, the “premium” content seems promised to the players with the most
financial resources.

Table 9 Original programming of Netflix, Hulu Plus and Amazon Prime 2011-2013
Figure 23 Importance of original programming when selecting an SVoD service, USA 2013

Importance of original programming when selecting an SVoD

service, according to US Internet users, by age, June 2013
120%

100%
11% 8% 14%
15%
23%
80% 20%
23% 23% Not at all important
23%
60% 29% Not very important
44% Somewhat important
40% 45% 37% 40%
Very important
32%
20%
28% 25% 23%
21% 16%
0%
18-24 25-34 35-49 50-59 Total
Note: ages 18-89
Source: PricewaterhouseCoopers (PwC), “Consumer Intelligence Series: Video Content Consumption”, September 1, 2013, as quoted by eMarketer

10.4.4 ATAWAD – Any time, anywhere, any device

Added to the explanation for the success of SVoD providers such as Netflix and Amazon through
exclusive and original content is the fact that these services allow subscribers to enjoy a personalised
viewing experience, which is made possible through three main characteristics, known by the acronym
169
ATAWAD :

1. Any time: subscribers can access their video content through their SVoD service and consume as
much as they want of it at their personal convenience and are no longer forced to wait as in the
case of linear TV.
2. Anywhere: with the increase in mobility brought about by tablets and smartphones, the
consumption of video content is made possible at any place. Adapting to this increase in mobility in
our society, SVoD enables video to be consumed for as long as a subscriber has a connection to
the web (which in our modern world is tending more and more to be everywhere).
3. Any device: the monopoly of the television set is over in a world where connected devices (smart
phones, tablets, games consoles, and dongles) are almost part of every household. Through
continuous innovation, including the development of apps, the main SVoD providers enable their
subscribers to access their services from the device of their choosing. (Pay-TV providers operating
on a managed TV platform have long resisted this move. The TV Everywhere initiative of American
and European channels reflects the change in their mindsets and the desire to adapt to these new
consumer demands).

Connected devices – anywhere and any device

Recent years have seen the steady adoption of smartphones and mobile Internet usage among
Europeans. As Figure 24 shows, there were 77.2 million mobile Internet users in the EU-5 in 2013, of
whom 29.9% were mobile phone users.

169
http://www.paristechreview.com/2013/04/30/business-model-vod/
Figure 24 Mobile Internet users and penetration in EU5 2009-2015

Mobile Internet users and penetration in EU-5, in millions

and % of mobile users
100 94
85.7
77.2
80 67.9
58.3
60 47.6
40 34.7 29.9 32.5
23.5 26.8 35.1
20
19.7
14.7
0
2009 2010 2011 2012 2013 2014 2015

Mobile Internet users % of mobile users

Note: mobile phone users of any age who access the Internet from a mobile browser or an installed application at least once a month; excludes SMS, MMS and IM;
includes France, Germany, Italy, Spain and the UK

Source: eMarketer, Feb 2011

This increasing adoption of smartphones, and access to the Internet ”on the move” is accompanied
by an increase in the number of people who watch videos or TV on their mobile phone (Figure 25).
The change year-on-year (2012-2013) for the EU-5 represented an increase of 112%. SVoD services
that make it possible to watch videos on smartphones will benefit from this development.

Figure 25 Year-on- year growth of smartphone users watching video or TV in EU-5,

170
2012-2013

170
http://www.frandroid.com/actualites-generales/163733_video-smartphone-en-succes-en-europe
 The smartphone usage is not the only change in European habits. Tablets enable mobility while
improving the screen size, therefore making them the device of choice for accessing long-form
audiovisual content (Figure 26).

171
Figure 26 Tablets – installed bases in EU-5

Tablet market in Europe - installed bases

million units
10
8
6
4
2
0

2010 2011 2012f

Sources: Deloitte, GfK, IDC, Bitkom, Netconsulting, Assinform

Figure 26 shows the rapid penetration of tablets in the EU-5. The United Kingdom, where only a
little more than 1 million tablets were installed in 2010, saw this number skyrocket to over 8 million in
2012. The other EU-5 countries saw a similar increase in the installed bases of tablets in just 2 years
and this trend in continuing. Looking at Figure 27, in 2012 15.5% of smartphone owners also owned a
tablet. The possession of multiple connected devices is likely to increase in Europe over the next few
years, and SVoD services which permit a continued viewing experience through these connected
devices will benefit from this trend.

Figure 27 Percentage of European smartphone owners that also have a tablet, EU-5, 2012

% of European smartphone owners that also have a tablet

EU-5, 3 -month average, Sept 2012

Germany 12.8%

France 15.1%

Italy 15.1%

Spain 16.9%

United-Kingdom 17.7%

Europe 15.5%

0.0% 5.0% 10.0% 15.0% 20.0%

Source: comScore, Data Gem, MobiLens

171
http://www.icopartners.com/blog/archives/2887
 172
Figure 28 Long-form video viewing by device, Q2 2013, USA

Long-form video viewing by device, Q2 2013, USA

30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%
Desktop Mobile Tablet Connected TV

10-30 min 30-60 min >60 min

173
Source: Ooyala Q2 Video Index report , Business Insider, November 2013

Regarding usage on connected devices, figure 29 shows that the major VoD services, be it Apple,
Amazon or Netflix, as well as pay-TV channels and networks, have adapted to this trend. The only
method of access that is still out of reach for SVoD services are the managed TV platforms, although
174 175
Netflix has concluded a deal with Virgin Media in the United Kingdom , Com Hem in Sweden and
176
Waoo! in Denmark for inclusion on TiVO and set-top boxes. This could be a major disruption as it
would mean that SVoD can coexist with pay-TV and enter the walled garden of managed TV
platforms.

Figure 29 Multiscreen of US on-demand services

Managed
TV Internet PC Smart TV Tablets Smartphones
Amazon - X X X X
Apple iTunes - X X X X
Hulu - X X X X
Netflix starting X X X X

Comcast X X X X X
AT&T X X X X X
HBO Go X X X X X

172
http://www.businessinsider.com/video-consumption-mobile-tablets-tvs-2013-11
173
http://go.ooyala.com/wf-video-index-q2-2013.html
174
http://variety.com/2013/digital/news/netflix-virgin-media-stock-reed-hastings-cable-1200609377/
175
http://www.telecompaper.com/news/com-hem-to-offer-netflix-through-tivo-service--976750
176
http://www.hollywoodreporter.com/news/netflix-strikes-third-pay-tv-652479
Looking at the devices used to access Netflix, Hulu and the iPlayer in 2011, we can see that the
dominant device was the PC, even though for Netflix it already represented not even half of all
streams (42%). Netflix has been investing heavily in app development to permit the best viewing
experience. Added to this, Netflix has offered a prize to developers for an algorithm which could
177178
improve movie recommendations by 10% . It has also hired an army of developers to program
179
apps for Smart TV platforms and connected devices (over 800 platforms ) to improve the user’s
experience. The R&D costs are prohibitive for smaller players.

Figure 30 Device mix of Netflix, Hulu, iPlayer, March 2011

Device mix Netflix, Hulu & iPlayer, March 2011

As % of total streams
100%
89%
90% Netflix
80% 70% Hulu
70% iPlayer
60%
50% 42% Connected TV
40%
30% 25%
20%
20% 14% 13% 16%
12% 11%
10% 3%
3% 2% 2%
6%
2% 5% 3% 3% 2%5% 3% 2% 2%
3% 2% 1% 0%
0%

For Netflix & Hulu > 100% due to usage of multiple devices by respective users. Note: game console usage on iPlayer (6%) was allocated 50/50 to PS3 and XBox 360.

Source: Nielsen 2011, BBC, Netflix, Arthur D. Little analysis

The development of dedicated apps for each connected-device platform and optimising the viewer
experience has worked for Netflix when we look at how subscribers access the service (figures 31 and
32). The PC is still the most used device, but games consoles connected to TVs, tablets and Blu-
ray/DVD players already make up almost 30% each. Smartphone and connected boxes are also
devices of choice for Netflix subscribers.

177
http://www.wired.com/business/2009/09/bellkors-pragmatic-chaos-wins-1-million-netflix-prize/
178
http://mashable.com/2009/06/26/netflix-prize/
179
http://gigaom.com/2013/08/01/making-tvs-smart-part-two/
Figure 31 Devices Netflix and Hulu subscribers stream 2012 – 2013

Figure 32 Devices used by US subscribers to access Netflix’s streaming service

Devices that US Netflix streaming subscribers use to access Netflix streaming

service, June 2013, % of respondents

Other 6%
TV via another device 12%
TV via an Apple TV or Roku Box 23%
Smartphone 26%
TV via Blu-Ray/DVD 29%
Tablet 37%
TV via video game console 38%
PC 53%

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

Note: ages 18+; Netflix streaming was accessed via 2.2 devices on average

Source: Cowen and Company, “Original Content Survey II: Arrested Development”, July 2013 as cited by eMarketer 2013

Finally, the “any device” and “anywhere” possibilities of SVoD services have a brilliant future ahead
of them as devices continue their rapid adoption rate (figure 32) and global sales for Internet devices
are expected to continue their steep rise.
Binge viewing – anytime

Binge viewing is defined as watching several episodes of TV shows (or other content) in a single
session. As TV shows are serialised with the plot continuing over several episodes or even the entire
season, TV viewers in the traditional broadcasting model had to wait one week after another in order
to follow the action. This model is/was, as Netflix’s CEO Hastings has said, based on “managed
dissatisfaction”, i.e. making consumers artificially wait (and therefore become frustrated). This in order
to secure audience ratings, which constitute the basis of negotiations with advertisers (in the case of
free-to-air TV). To escape this model, an interested viewer had to buy a DVD box set of the season or
record and watch their TV show later. As they often have several seasons of a TV show, SVoD
services allow subscribers to watch as many as they want at the time they decide. This has brought
about a new phenomenon known as “binge watching”. Table 10 and figure 33 lead us to conclude that
this way of consuming TV series is most widespread among younger age groups, with 78% of 18-29-
year-olds and 73% of 30-39-year-olds having already binge-watched series. By releasing its original
series a season at a time, Netflix is targeting those TV viewers who want to find a model convenient
for them. As the Netflix business is not based on advertising and therefore on securing an audience
appealing to advertisers, this release model makes sense and could signal profound changes in
consumers’ expectations over the next few years.

Table 10 US: time-shifted TV viewers who have binge-viewed TV series, by demographics,

Feb 2013
Gender Age
Female Male 18-29 30-39 40-54 55+ Total
YES 63% 60% 78% 73% 58% 48% 62%
- Yes for older shows or past
23% 20% 24% 26% 19% 20% 22%
seasons of current shows

- Yes, for current seasons of shows 12% 12% 12% 12% 13% 10% 12%

- Yes to both 28% 28% 41% 35% 26% 18% 28%

NO 37% 40% 22% 27% 42% 52% 38%

Note: ages 18+ Source: Harris Interactive, “The Harris Poll” as cited in press release, April 8 2013 & eMarketer 2013

Figure 33 Binge viewing in the US by age groups

Binge viewing most common among Gen Y Aware of Term

77-79% of 18 to 29 year old shave binge-viewed Have Binge-Viewed
90%
79% 77%
80% 70%
67% 67%
70%
60% 56%
52%
50% 40%
40% 34% 36%
28%
30% 22% 22%
18%
20%
10%
0%
All 13 to 17 18 to 24 25 to 29 30 to 34 35 to 39 40 to 49

Source: MarketCast as cited by Researchscape.com

Table 11 Ways US Internet users have watched time-shifted TV series, Feb 2013
Ways that US Internet users have watched time-shifted TV series by Demographic,
Feb 2013
% of respondents in each group
Gender Age
Male Female 18-29 30-39 40-54 55+ Total
On-demand 42% 40% 47% 45% 41% 35% 41%
-On-demand service through a
cable TV provider
34% 33% 40% 38% 33% 29% 34%

-On-demand service through a 9% 9% 12% 9% 10% 7% 9%

satellite TV provider

Hulu/Hulu Plus/Netflix
41% 39% 71% 60% 33% 19% 40%
streaming

-Netflix 29% 31% 60% 47% 24% 12% 30%

-Hulu or Hulu + 23% 21% 44% 30% 17% 11% 22%
TiVo or other recording
37% 37% 27% 46% 40% 36% 37%
device

Purchasing, renting or
33% 26% 46% 36% 28% 19% 29%
borrowing episodes on DVD

Downloading free of charge 18% 17% 27% 24% 16% 10% 17%
Other paid or free
14% 12% 22% 16% 12% 6% 13%
streaming services
- Other free streaming
13% 11% 22% 15% 11% 6% 12%
services
-Other paid streaming
2% 1% 2% 1% 2% 1% 1%
service
Amazon 11% 10% 17% 18% 8% 6% 10%
-Amazon Prime free
9% 8% 14% 15% 6% 4% 8%
streaming content
-Amazon video on demand
5% 5% 8% 8% 4% 3% 5%
(not free)
iTunes 9% 8% 17% 12% 7% 4% 8%
Other 5% 3% 4% 4% 4% 4% 4%
None of these 19% 24% 11% 10% 22% 33% 22%
Any of these 81% 76% 89% 90% 78% 67% 78%
Note: n= 2496 ages 18+ / Source: Harris Interactive, “The Harris Poll” as cited in press release, April 8 2013 & eMarketer 2013

Finally, table 11 indicates that SVoD streaming services were on track to surpass on-demand on
managed platforms (cable or satellite) in the US in 2013. 41% access-on-demand TV series on a
managed platform while 30% already use Netflix and 22% Hulu. It is interesting to note that various
forms of time-shifted viewing co-exist and consumers settle for the method convenient for them.

Broadband connections as a growth driver for SVoD services

 Up-to-date Internet infrastructures are a prerequisite for online video watching. Video is data-heavy,
needing high connection speeds in order to permit a normal viewing experience. We think that SVoD
providers select the markets they wish to enter on the basis of various factors (GDP, affluence, usage
of connected devices, Internet usage) and that the Internet infrastructure and broadband speed are
part of the selection variables. Netflix even publishes on its website a ranking of ISPs (Internet Service
180
Providers) based on their connection speeds stating that “We use the data associated with the
streaming experience to compare ISPs and give you monthly insight into which ISPs deliver the best
Netflix experience.”
This is why we thought it was necessary to include in the factors of growth and the international
expansion of SVoD services a section on broadband speed. If we look at figure 34, we see that
Netflix’s expansion in Europe corresponds with the countries in the Top15 worldwide based on
connection speed (the UK, Scandinavia, and the Netherlands).

Figure 34 Top 15 countries by average broadband connection speed, Q2 2013

Average broadband speed, Q2 2013

in Mb/s

Italie 4.9
Portugal 5.4
France 5.7
Spain 5.9
Poland 6.3
Slovak Republic 6.4
Hungary 6.5
Germany 7.3
Norway 7.4
Romania 7.5
Ireland 8
Denmark 8.1
Austria 8.1
Finland 8.1
Belgium 8.4
United-Kingdom 8.4
Sweden 8.4
Czech Republic 9.8
Netherlands 10.1
Switzerland 11

0 2 4 6 8 10 12
181
Source: Akamai, State of the Internet Report 2013

Taking a closer look at the Nordics, we see that for the bulk of Scandinavian households the
number of homes with broadband is high enough to permit a satisfying viewer experience when video
content is accessed online (figure 48). This may also explain the large number of SVoD providers in
the Nordic countries compared to other countries and why Netflix and HBO chose to enter the market

180
http://ispspeedindex.netflix.com/
181
http://www.akamai.com/dl/akamai/akamai_soti_q213_fr.pdf?WT.mc_id=soti_Q213_fr
where LOVEFiLM and local SVoD providers were already established. In conclusion, the success and
growth of SVoD services can be explained by various factors, both from the demand side, with
changing viewing patterns and more mobility, and from the supply side, with exclusive licences and
original programming and the continuous adaption to user expectations (ATAWAD). However, not
only: efficient Internet infrastructures are crucial to the success of SVoD services, because without a
satisfactory speed users would not be able to enjoy viewing their content.

Figure 35 Number of broadband households in the Nordics 2012

For copyright reasons this figure cannot be reproduced in the public version of this report

Source: IHS/Screen Digest

The final point we wish to make in this section on the “any time, anywhere and on any device”
philosophy is that it costs money to adapt and to be at the cutting edge. Netflix’s R&D expenses,
which mostly relate to programming, the recommendation system and infrastructure, reflect this
capital-intensive industry.

182
Figure 36 Netflix’s R&D expenditure

Netflix's R&D expenditure, in USD million

350

300

250

200

150

100

50

0
2007 2008 2009 2010 2011 2012
Source: Netflix annual accounts
App development, in particular for smart TVs, requires teams of programmers to ensure that the
subscriber will enjoy a satisfying viewing experience across every device. The fact that SVoD services
will represent 32% of the video market on smart TVs by 2016 is certainly encouraging Netflix to
183
carefully prepare for this future by updating and enhancing the user experience on these TVs.

182
http://blog.idate.fr/tag/vod/
183
http://allthingsd.com/20131112/netflix-gives-most-but-not-all-of-its-tv-viewers-a-new-look/
Figure 37 Connected TV turnover by service 2012

11%

20% 37% VoD

Ad Premium
SVoD
Ad short clips

32%

Source: IDATE, World Connected TV Market, February 2012

184
Figure 38 Development of market for video services on connected TVs 2011-2016

184
http://blog.idate.fr/le-marche-mondial-de-la-tv-connectee-2/
 185
Figure 39 Breakdown of video services on connected TVs by 2016

27%
31%
Ad premium
Ad short clips
SVoD
VoD

10%

32%

Source: IDATE, Service de veille TV conectée, Juillet 2012

186
Figure 40 Breakdown of the connected TV video market by territories in 2016
8%

3%

28%

Europe
North America
Asia Pacific
Latin America

61%

Source: IDATE, Service de veille TV conectée, juillet 2012

North America and Europe (figure 40) will constitute the major revenue generators for connected TV
video services in 2016 and this suggests there will be a more forceful entry of the main SVoD service
providers on European markets. Broadband speed, GDP and usage of connected devices and online
video consumption make Europe a target of choice in the battle for new subscribers. However,
providing an appealing service with premium content and a satisfying user experience on every device
and platform is a costly undertaking, which is why the players that are already well placed today and
generating income through high subscription fees will continue to play the primary role in the short and
medium term.

185
idem
186
http://blog.idate.fr/le-marche-mondial-de-la-tv-connectee-2/
Importance of release windows

Release windows are of major importance for SVoD services as they dictate how much recent
content (movie release windows do not apply to TV shows) can be in the catalogues, content which in
turn is a commercial argument for customers to subscribe to the service. The place of SVoD in the
release window of films is therefore a variable that can explain the success or otherwise of SVoD
services in Europe. The example of France, where SVoD services can only license movies three years
187188189
after their theatrical release, is one of the most restrictive in Europe. Recent discussions about
the possible reduction to 18 months after the theatrical release of SVoD release windows in order to
enhance the SVoD offering and stimulate demand demonstrate the importance of release windows.

Figure 41 Release windows for films in the UK, Germany, USA and France

187
http://lexpansion.lexpress.fr/high-tech/comment-le-rapport-bonnell-veut-relancer-la-vod-en-france_423031.html
188
http://www.youscribe.com/catalogue/tous/ressources-professionnelles/analyses-et-etudes-sectorielles/le-rapport-bonnell-le-
financement-de-la-production-et-de-la-2380086
189
http://www.lesechos.fr/entreprises-secteurs/tech-medias/actu/0203226003962-trois-propositions-qui-risquent-de-faire-couler-
beaucoup-d-encre-641213.php
11 Examples of the strategies of the main
players - Netflix

11.1 Netflix
[Report written in March 2013]

Netflix was the “world’s leading Internet television network with more than 33 million members in
over 40 countries” in 2012. The company provides for a flat subscription rate of $7.99 (€6.99/€7.99 in
Europe) an unlimited (streamed) amount of films and TV shows and, in the US, a rental service for
DVDs and Blu-ray discs. This was the situation in 2012 but Netflix’s core business model has shifted
since its foundation and adapted to the technological developments of our time. We propose to
describe the background of Netflix’s initial business model first of all and then analyse in more detail
the actual subscription video-on-demand (SVoD) service it offers its members. As Netflix only
expanded its business to Europe in 2012, the United Kingdom and Ireland being the first countries on
9 January, followed by the Nordic states Denmark, Finland, Sweden and Norway in October, scarce
data is currently available, so we will explain the general business model and financial figures before
giving a short overview of the business conducted in Europe.

11.1.1 Netflix’s background190

[The report was written in early 2013 and therefore does not take into account all the
important developments of 2013 – international expansion and original content]
Netflix Inc. was founded in 1997. In the beginning, its core business was the online rental of DVDs
in the USA. In fact, at that time, videos (mostly on VHS, it was the beginning of the DVD era) were
almost only rented in shops, the leading video rental company being Blockbuster in the USA.

The founder of Netflix, Reed Hastings, had considered that the increasing number of Internet-
connected homes and the rising number of DVD players in US households meant it was possible to
introduce an innovation in the video rental system that involved renting movies online, the DVDs being
mailed to the subscribers’ homes. The initial business model was that of a flat subscription fee ($19.95
per month, 3 DVDs out at the same time), customers could rent unlimited numbers of DVDs a month,
without due dates, late fees, shipping and handling fees. This business model was patented by Netflix
(the firm sued Blockbuster in 2006 for copying this model and settled out of court in 2007). The
company went public on May 29, 2002 by making an initial public offering and has since then been
quoted on the stock market (NASDAQ-NFLX). This is why figures have only been available since
2002.

Netflix dominated the online video rental market throughout the 2000s, having 7.5 million
subscribers in 2007 with an annual revenue of $1 205.3 million and a net income of $67 million. It also
mailed its billionth DVD to customers that year. As we can see from the graph below, customers found
the business model appealing as subscription rates rose between 88% and 51% throughout those
years.

190
(The sources of the financial data are Netflix’s annual reports, which can be found at: http://ir.netflix.com/annuals.cfm, and
Netflix’s press releases, which can be found at: https://signup.netflix.com/MediaCenter/Press)
Table 1 Netflix subscribers 2001 – 2007

Table 2 Netflix Revenue and Income 2001-2007

As we can see, in the beginning of Netflix’s operations the company did not manage to realise
profits (losses of $39 million and $20.9 million in 2001 and 2002). This is explained by the fact that
Netflix had to acquire heavily DVD content and also invest in marketing to gain new subscribers
(Marketing expenditure of $21 and $35.7 million in 2001 and 2002, 27.6% and 23.3% of total revenue
respectively). However, in 2003, the company reached critical mass by having over a million
subscribers and a significant DVD library. It was able to lower the importance of marketing in respect
to revenue and at the same time acquire more content, thus seeming more appealing to new
customers. 2003 marked breakeven year of with a net income of $4.4 million, rising revenues and a
cash-flow situation that permitted ongoing expansion.

The rise in the number of customers allowed Netflix to accumulate cash in order to acquire more
content for its DVD rental business. The amount of cash available rose at a steady level until 2007,
with a maximum of $400 million in 2006. This cash was invested each year in DVDs and, as we can
see, the gross DVD library (not taking in account the net DVD library which includes amortisation) rose
from $35 million in 2001 to $698.7 million in 2007.

Figure 1 Netflix key figures 2001-2007

Source: Netflix Annual reports 2002-2007

 One of the success factors, besides the large choice of DVD titles and the flat fee (without late fees)
and the one-business-day delivery, was also Netflix’s proprietary recommendation system, which
proposed to customers, in the light of their viewing history and that of similar viewers, other titles that
could be of interest to them. In 2006, the company launched the Netflix prize, promising $1 million to
the person/team that could achieve certain accuracy goals in recommending movies based on
personal preferences. in order to achieve that, Netflix released 100 million anonymous movie ratings
(the contest attracted more than 40,000 teams from 186 countries and the prize was finally awarded in
2009 to a team of seven researchers).

In 2007, Netflix had more than 90,000 DVD titles in its library and already offered 6,000 for
streaming. At that time, it had no issues with agreements or contracting deals with studios as it simply
acted as a rental business like others. It had to buy the DVDs from the studios and networks like every
other video rental business. As we will see in the next section, once it changed to streaming video
content, deals and agreements were much harder to reach as the studios and networks either had
their own services or contracted with other parties.

As the subscriber growth rate shows it grew at least 50% a year throughout 2001-2006, but in 2007
the growth rate and, therefore number new subscribers drop radically, being only at 19% whereas the
year before it was at 50%. Netflix realised that its online DVD rental business was becoming
“outdated” as viewers were changing their consumption style, which was becoming increasingly
digital. This drop in new subscribers must have been the “wake-up call” for Netflix to adapt to the new
methods of content consumption and provide digital content.

The importance of Internet usage among the American population, the growth in network capacities
with DSL coupled with the emergence of smartphones allowing for more mobility led to a shift in
Netflix’s business strategy in 2007. This is why in 2007, from when we will start to analyse Netflix in
more detail, the major shift in its business model occurred, namely the move from online rentals of
DVDs to video streaming for a subscription fee (subscription video on demand, SVoD).
11.1.2 Change of paradigm in Netflix’s strategy: The beginning of
streaming video content, the years 2008-2010

In its 2005 annual report, Netflix already thought about alternative video delivery, and the company
realised that the future lay in video downloading, similar to Apple’s iTunes. However, in 2007, with
increased network capabilities and a majority of US households connected to broadband Internet, the
decision was taken to offer its members video content through streaming, the service being named
“Watch Instantly”, for a flat-fee subscription - of $7.99 (at the beginning of streaming, the initial plan
was to offer one hour of streaming for each dollar spent per month but this billing model was quickly
dropped in order to acquire subscribers who were only interested in the streaming option).

In 2007, Netflix still offered more than 90,000 titles for its DVD online rental business compared to
only 6,000 titles available through streaming. The next year, the number of titles available for
streaming doubled to 12,000 (unfortunately, Netflix stopped communicating the figures after 2008).

The main differences in regard to content acquisition between a DVD rental business and a
streaming business are that DVDs are acquired through direct purchases and revenue sharing
agreements whereas streaming content requires Netflix to reach licence agreements with the studios
or networks for a defined period of time. Thus, negotiations can be more difficult as copyright holders
may have other licence agreements or exploit their content themselves through VoD services. It is
therefore important to reach a significant size (subscribers, revenues, market share) to be able to
negotiate exclusive content rights and licence agreements. Netflix only entered the SVoD market in
2007 so the first years of negotiation proved difficult.

We choose to focus on the years 2008-2010 because at that time Netflix was only conducting its
business in the USA before expanding internationally with its streaming offer. The first country was
Canada in September 2010, followed by Latin America and the Caribbean in September 2011.

It was also not until 2011 that Netflix started to make a distinction and split streaming (available in
all countries where it is present) and online DVD rentals (only in the USA) into separate plans, so it
seems to us that, as far as video-on-demand services are concerned, the years of interest are 2011
and 2012, in respect of which we are at least able to provide international figures for Netflix’s
streaming SVoD services.
Main financial figures and ratios

Table 3 Netflix P&L 2007-2010

Table 4 Netflix main financial ratios 2007-2010

Table 5 Netflix Balance sheet 2007-2010

Table 6 Netflix’s Content library

Figure 2 Netflix’s subscribers 2007-2010

The first effect in the paradigm shift – as we can see in the numbers above – was the rise in of
subscribers. Netflix managed by offering video content via two different delivery methods, streaming
and DVDs, to distinguish itself from competitors, such as:

 DVD rental outlets: Blockbuster, Movie Gallery, Redbox

 Internet movie and TV content providers: iTunes, Hulu, Amazon.com
 Video package providers with pay-per-view and VoD content: Time Warner, ComCast, Direct TV,
At&T, Verizon
 Entertainment video retail stores: Best Buy, Walmart, Amazon.com

The mix of streaming content and online DVD rentals delivered by mail proved to be an appealing
service for Netflix members. Also, in 2008 and 2009 Netflix managed to sign major partnership deals
with consumer electronics producers to allow their devices to stream Netflix videos, in addition to
computers, such as:

 Blu-ray players, home theatre systems and HDTVs : LG, Panasonic, Philips, Samsung, Sony,
Yamaha
 Games consoles: PlayStation 3 (Sony), Xbox 360 (Microsoft), Wii (Nintendo)
 Internet media players: Apple TV, Philips HD Media Player, Western Digital TV Live
 Smartphones and tablets: Apple, Android, Windows mobile

Those partnerships added more value and convenience for Netflix’s customers as it became easier
to watch videos increased. This also explains the major rise in subscribers between 2008 and 2010,
when the number of members more than doubled.

The next fact is that between 2007 and 2008, that is to say the time when Netflix changed its
business model, the company did not invest much in content acquisition as it had to prepare its
capabilities for the delivery of streamed video content. Revenue did not rise at the levels of the years
before or after and assets even shrank, whereas the company reduced its equity through stock
repurchase programmes, which was allowed by the Board of Directors until 2010 (a technique often
used to increase stock prices) and financed itself more through liabilities by issuing notes and by
incurring debt.

Also, Netflix had to sign licence agreements with studios and networks to offer its members video
content that they really wanted. The breakthrough for exclusive film rights for first-run video content
was finally reached in October 2008 when Netflix signed a deal with Starz Entertainment for over
2,500 titles for five years. This increase in the number of films to be streamed exclusively on Netflix
(after theatre and Pay-tv releases) came at no extra charge for members and also explains the
increase in subscribers in 2009 to 2010. Moreover, between 2009 and 2010 streaming content rose
from $104 million to $441 million while DVD content fell from $638 million to $627 million. This shows
Netflix’s shift of focus in order to be able to provide more streaming content to its members as DVD
rentals fell. In the year 2010, Netflix states that 85% of its 20 million subscribers had chosen the flat-
rate of $7.99 for unlimited, commercial free streamed video content.

Figure 3 Netflix key figures 2007-2010

Source: Netflix Annual reports 2007-2010

As we can see in the above graph, revenues, the cost of revenues and the content library increased
significantly from 2008. By offering more and more streaming content Netflix almost tripled its
subscriber base in four years (from 7.4 million in 2007 to 20 million in 2010). Facing increased
competition, both from multichannel video programming distributors with free TV Everywhere and VoD
content (TimeWarner, ComCast) and Internet movie and TV content providers (iTunes, Hulu, Amazon,
Google), Netflix had to improve business model to retain members and expand its customer base.
This was achieved, as we will see in the next section, by expanding its business internationally and by
being the first pure video-on-demand provider to produce its own exclusive content, acting as a pay-
per-view or TV channel.

Before expanding to Europe, Netflix installed its streaming services in a country which used the
same language and was close, i.e. Canada. However, as different licensing agreements governed the
content distribution in Canada (revenue for 2010 $3.6 million with 509,000 subscribers), Netflix could
not offer the same video content as in the US.

The main studios and TV Networks which agreed a licence deal with Netflix in order to stream their
video content are:

 Lionsgate
 MGM Studios
 Paramount Pictures
 Sony Pictures Entertainment
 Twentieth Century Fox
 Universal Pictures,
 Alliance Films
 Maple Pictures
 eOne
 Mongrel Global TV
 CBC
 FremantleMedia Enterprises
 CBS Corporation
– SHOWTIME
 Ultimate Fighting Championship
 Gaumont International Television
 Warner Bros. International Television Distribution

Netflix’s strategy to include films and TV shows from national broadcasters and film studios, as it did
for its debut in Canada, will be repeated in all the other countries to which it expanded its business.
11.1.3 Netflix 2011-2012: international expansion and original
programming
International expansion and licence agreements

Netflix, after having expanded to Canada, launched its streaming services in Central and South
America (segment Latin America for Netflix) and the Caribbean. Revenues in the international
segment (comprising Canada) rose to $82.8 million with a total of 1.4 million paying subscribers at the
end of 2011 in the international streaming business (compared to a revenue of $2 162.6 million in the
US) for a loss of $103.1 million. Netflix only started its European business in 2012, so it is still a little
too early to get pertinent data and a true business analysis. This is why we will only state the main
facts and figures.

 Licence agreements were signed with the following film studios and TV networks:
– Walt Disney Studios
– Paramount Studios
– Sony Pictures Television
– NBCUniversal International Television
– CBS Television
– MGM
– Lionsgate
– Summit
– Relativity
– BBC Worldwide
– TV Bandeirantes
– Televisa
– Telemundo
– TV Azteca
– TV Globo
– Caracol
– Telefe
– RCTV

 The United Kingdom and Ireland

The expansion to Europe began in 2012. On 9 January 2012 Netflix launched in the United
Kingdom and in Ireland. The subscription price was £5.99 in the UK and €6.99 in Ireland. It managed
to make deals with the following studios and TV networks for streaming their content:

– All3Media
– The BBC
– CBS
– Channels 4’s 4oD
– Disney UK and Ireland
– iTV
– Lionsgate UK
– MGM
– Miramax
– Momentum Pictures
 – NBC Universal
– Paramount
– Sony Pictures Entertainment
– Twentieth Century Fox
– Viacom International Media Networks
– RTE Digital
– Element Picture Distribution
– Warner Bros International Television Distribution

In March 2012, Netflix made “Just for Kids” available to households in the UK and Ireland.

On August 20 2012, Netflix announced that it had already one million members in the UK and
Ireland, stating that they were the fastest growing countries in its international expansion. In January
2013, Oric191 produced a study comparing the offering of Netflix and LOVEFiLM. This states that
Netflix offered 1,668 films in the UK and Ireland (compared to 9,153 in the US) and 925 TV seasons
(compared to 4,989 in the US), making a total of 2,593 titles (14,142 titles in the US).

 The Nordic countries: Sweden, Denmark, Norway, Finland

In October, Netflix opened its services to the Nordic European countries, starting with Sweden on
the 15th and followed by Denmark on the 16th, and Norway and Finland on the 17th. It made various
deals with TV and film studios from those countries.

The list of Netflix partners in the Nordic countries is as follows:

– Warner Bros
– Twentieth Century Fox
– Disney
– Sony Pictures Entertainment
– BBC Worldwide
– CBS Corporation
– ITV Studios Global Entertainment
– Shine International
– Nordisk Film Distribution
– AB Svensk Filmindustri
– Scanbox Entertainment
– Norsk Filmdistribujon

The subscription price is 79kr in Sweden, Denmark and Norway and €7.99 in Finland.

As we can see, Netflix adapted to national markets by bringing to its members video content from
their national studios as well as American video shows and films. However, as the example of the UK
and Ireland shows, making streaming agreements with producers and rightholders is difficult as their
strategies and distributors differ from one national market to another. Netflix managed, however, to get
major players on the market to join its streaming services.

At the end of 2012, international subscriptions were up 238% to 6.1 million members (note that this
number takes both Europe and South America and Canada into account). Revenues rose by 247% to
$287 million and losses were $389.3 million (compared to losses of $103.1 million in 2011 in the

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international streaming segment). There is no separation of either revenues or subscribers for Europe,
so a more precise assessment of Netflix’s members or turnover in Europe is not possible.

Netflix announced that it would not continue its international expansion any further as long as the
international streaming segment was making losses. Therefore, entry into the Spanish market (which
was long rumoured to be the first target market of Netflix’s European expansion) or France is not
planned for the near future.

In section 2.3 we will set out in more detail the financial consequences of the international
expansion for Netflix’s revenues, profits and main financial ratios. Netflix has chosen Luxembourg to
establish its European headquarters, as have Apple and Microsoft. As the European businesses only
launched in 2012, the only financial information available is that in Netflix’s preliminary annual report at
EDGAR online.

However, we have the annual accounts of Netflix Luxembourg S.à.r.l. for 2011 (before the
European business was launched) from the Registre de Commerce et des Sociétés. As the European
business is conducted form Luxembourg, we can give “scarce” information. The assets for Netflix
Luxembourg S.à.r.l. were €7,701,126.40, consisting mainly of prepayments (€6,796,009.26),
intangible assets (€842,245.74) and cash at the bank (€62,072.94) financed through non-subordinated
debts payable after less than one year (€7,941,996.76). Losses for 2011 were €252,592.79. These
figures do not mean much as Netflix did not operate at that time and merely show the preparation of
the business to be conducted in the UK, Ireland and the Nordics.

Original programming and US market share in 2011/2012

Original programming
In addition to the international expansion of Netflix, the main “game changer” was the production of
original content, a first for a VoD service. By taking this step Netflix had to make big investments,
which were unprecedented for a pure VoD player, but by producing its own original content the
company acted like traditional pay-TV networks such as HBO or Showtime.

The first TV show to be produced by Netflix was Lilyhammer, which aired on NRK1 (Norway) in
January 2012 and was a huge success, with a record audience of 995,000 viewers (a fifth of Norway’s
population). The show was then made available on Netflix US in February 2012. All eight episodes of
the first season were available, thus breaking with the traditional TV show schedule where you have to
wait a week (or more) for the next episode. CEO Reed Hastings refers to this as ”breaking up with the
system of managed dissatisfaction”. “The traditional entertainment ecosystem is built on it, and it's a
totally artificial concept," he says. "The point of managed dissatisfaction is waiting. You're supposed to
wait for your show that comes on Wednesday at 8 p.m., wait for the new season, see all the ads
everywhere for the new season, talk to your friends at the office about how excited you are if it's a
movie, you wait till the night it opens, you wait for the pay-channel window, you wait for it to come to
cable. Waiting means pent-up demand, millions of people watching the same thing at the same time,
preferably at night, when they're pliant with exhaustion and ready to believe they need the stuff being
hawked in all those commercials. Waiting is dead.”192

This statement shows what Netflix’s change of paradigm and strategy is really about: to change
who, what, when, where, why and how we watch video content. We think that it is very important to
underline this fact as Netflix really positions itself as a market disruptor, willing to challenge the big TV
networks and studios on their own turf by innovating and turning the linear TV model into an innovative
non-linear model. Before producing its own content, Netflix naturally made many changes, be they in
the online DVD rental business or the streaming business, but by offering its own content that people
want to watch it could really change the face of television as we know it.

192
GQ, February 2013, “And the Award for the Next HBO Goes to…, http://www.gq.com/entertainment/movies-and-
tv/201302/netflix-founder-reed-hastings-house-of-cards-arrested-development#ixzz2OZDxINjS
 It was the next show that really showed the strength of this new model: in February 2013, Netflix
made available “House of Cards”, starring Hollywood actors Kevin Spacey and Robin Wright, directed
by David Fincher and produced at a cost $100 million for two seasons of 13 episodes each. The first
season of the show was also released in its entirety on one day, thus changing the traditional TV show
schedule once again. The show was produced exclusively for Netflix by Media Rights Capital.

The other original content produced that year by Netflix and that will be made available to
subscribers is Arrested Development (three seasons existed on Fox Network before the show was
cancelled; Netflix produced the fourth season), Bad Samaritans (original content produced by Fox
Digital Studios and distributed exclusively by Netflix), Derek (Channel 4/Netflix), Hemlock Grove
(Gaumont International Television), Narcos (Gaumont International Television), Orange is the new
Black (Lionsgate Television) and Turbo: F.A.S.T. (DreamWorks Animation/20th Century Fox). On 27
March 2013, Netflix announced that it had bought another show, Sense8, a sci-fi series produced by
Georgeville Television and the studio JMS and to be available in 2014193.

Netflix will be the first to “air” these shows as it has exclusive distribution deals with the studios.
Normally, such high value shows are produced for pay-TV channels (HBO or Showtime, for instance)
or major television networks and then aired on other networks or made available on DVD or VoD
services. The fact that you have to be a member of Netflix if you want to watch them on their first
“airing” is increasing the fear of people “cutting the cord” (the cable subscription cord) as exclusive
content is no longer the “apanage” of expensive pay-TV channels.

Netflix also struck a major deal with the Walt Disney Company in 2012. Starting in 2016, the Walt
Disney Company will make available its theatrically released feature films in the pay-TV windows. This
deal will make available to Netflix members films produced by Disney, Walt Disney Animation Studios,
Pixar Animation Studios, Marvel Studios and Disneynature. It shows how important Netflix has
become by outbidding pay TV channels for the first run of films (the financial terms and conditions of
this deal were not released). The deal also included a multi-year catalogue agreement and Disney
direct-to-video releases starting in 2013.

As of 2012, Netflix had made exclusive pay-TV deals with the following studios:

– Relativity Media (and Rogue Pictures)

– DreamWorks Animation (in 2013, after the expiration of its deal with HBO)
– Open Road Films
– Film District
– The Weinstein Company
– Walt Disney Studios Motion Pictures (Walt Disney Pictures, Walt Disney Animation Studios,
Disneynature, Pixar, Lucasfilm, Marvel Studios)

Netflix made distribution deals (non-exclusive) to stream content with the following other
companies:

– Universal Studios
– Time Warner (Turner Broadcasting Systems, Warner Bros Television – Cartoon Network,
Warner Bros Animation, Adult Swim)
– Disney’s ABC Television Group
– DreamWorks Classics
– Kino International
– CBS Television Distribution

Even though these deals are of major importance, Netflix suffered a setback when the Starz

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to-create-sense8-200215501.html
Network did not renew its deal with it in 2012 and took some high-value content in the Netflix
catalogue. Another setback was when Epix signed a deal with Amazon, Netflix’s direct competitor, in
September 2012, having previously signed a 5-year deal with Netflix under which content was
exclusive to Netflix for a period of two years (Epix films, including films from Paramount Pictures, MGM
and Lionsgate, came to Netflix 90 days after their premiere on Epix).

By entering into exclusive distribution contracts, and even duplicating pay-TV networks on shows,
Netflix radically changed the existing original-content distribution system and attacked the cable and
pay-TV networks on their own turf (bringing exclusive content to their customers). As CEO Hastings
sees it, cable TV companies are his “biggest worry”, which is quite surprising for an all-online VoD
service. This partly explains the huge investments made in original content. However, as we will show
in the financial part of this section, Netflix had to make tremendous investments and enter into
commitments with content producers, thus obliging the company to attract more members in order to
break even and then make a profit. The objective of its international expansion is clear: to broaden the
customer base in order to amortise heavy investments, even though the international business
segment is not yet profitable.

Market share in the US

Netflix’s market share is not yet available for Europe, which is no surprise as business only started
in 2012, but in the US Netflix has, since its streaming debut in 2007, made a major leap forward and
dominate the market, be it for SVoD or VoD in general.

Figure 4 Netflix traffic in the USA 2010-2012

194
Source: Sandvine

194

http://www.sandvine.com/downloads/documents/Phenomena_1H_2012/Sandvine_Global_Internet_Phenomena_Report_1H
_2012.pdf page 22
 A study by Sandvine shows that Netflix accounts for almost a third (32%)of all peak downstream
traffic (and 28% of aggregated traffic) in the United States, thus making Netflix the largest single
source of traffic on fixed-access networks by far. This percentage is very large, but with 25 million
streaming members it demonstrates the importance and success of the service in the US considering
that YouTube accounts for 14.8% of peak downstream traffic. Another fact shown is that in order to be
able to expand its streaming services throughout the world Netflix needs one prerequisite: bandwidth.
Streaming content consumes a lot of bandwidth, and in high definition even more, which is why Netflix
also has to adapt to national Internet infrastructure. The Nordics, with a large proportion of households
connected to broadband, are ideal countries to which to expand. The table below shows the
importance of Netflix for downstream traffic, ranking even before YouTube, normal web-browsing or
BitTorrent traffic (Torrent applications are largely used for file transfer, with mostly illegal video content
being exchanged). iTunes, a direct competitor, accounts for only 3.92% compared to Netflix’s 33%.

Table 7 Top 10 peak period applications in North America – Fixed access

195 and GigaOM196

Source: Sandvine, 2012

195

http://www.sandvine.com/downloads/documents/Phenomena_2H_2012/Sandvine_Global_Internet_Phenomena_Report_2H
_2012.pdf
196
http://gigaom.com/2012/11/07/based-on-network-traffic-alone-netflix-handily-beats-amazon-hbo-hulu/
Figure 5 Revenue share in the US online movie market in %

For copyright reasons this figure cannot be reproduced in the public version of this report

Source: IHS Screen Digest June 2012

Table 8 Online movie market share in the US in 2011

For copyright reasons this figure cannot be reproduced in the public version of this report

Looking at Netflix’s revenue share on the US online movie market, it appears that from, only 0.5% in
2010 compared to 60.8% for iTunes at that same time, it rose to 44% while that of iTunes fell to 32.3%
in 2012. This big rise is proof of the success and appeal to its members of Netflix’s streaming service
(in 2009, Netflix did not offer a separate streaming service as it was coupled with movie DVD rentals,
which is why the market share for that year was 0%). The flat fee of $7.99 for unlimited video content
compared to iTunes’ $1.99 to $5.99 for movie rentals seems for VoD to be customers the better deal
as Netflix also offers exclusive content that people want to see. Relying on those figures for market
share and downstream traffic, it appears to us that up now the shift in Netflix’s business strategy from
online DVD rentals to offering streaming content has been a highly tactical move, and for the moment
Netflix has taken the lead. As its members pay a flat fee, it can count on a steady cash flow, which
allows it to make further investments in the decisive area of the exclusive content, which people want
to view.

Financial figures

Netflix’s revenues rose between 2010 and 2011 by almost 50%, which is not surprising when we
look at the company’s market share in 2011 and its aggressive entry into the VoD market through
heavy investments (the cost of revenues rose by 50% and the net content library rose from $181
million in 2010 to $919 million in 2011, and the non-current library rose even more spectacularly from
$180 million to $1,046 million in 2011). The profit margin remained stable between 2010 and 2011 at
around 7% but fell heavily in 2012, the year Netflix really expanded internationally, to 0.48%. Net
profits fell from $226.1 million in 2011 to just under $17.2 million in 2012. look at the ratios and their
variation between 2011 and 2012, se see that, while the gross margin shrank by 10 points (36.3% in
2011 to 27.2% in 2012) the operating margin fell from 11.7% to 1.3% in 2012, thus reflecting higher
revenue costs ($2,039.9 million in 2011, $2,625.9 million in 2012) and lower revenue growth, which
amounted to only 12.6% from 2011 to 2012 ($3,204.6 million in 2011, $3,609.3 million in 2012). Those
figures evidence the heavy content investments and deals made by Netflix, as well as the cost of its
international expansion. The licensing deals and investments in original content made (such as House
of Cards for more than $100 million for two seasons of 13 episodes) are reflected in the increase in
the gross content library (not taking amortisation into account) by 58% between 2011 and 2012 (from
$3.1 billion to $5 billion). These continuous investments are also reflected in the return on assets and
equity, which fell from 16.3% in 2010 to 0.43% in 2012 for the ROA and from 55.3% in 2010 to 2.3%
for the ROE.
Table 9 Netflix’s revenues and net Income 2010-2012

(Gross profit for 2012 calculated by the OBS)

Table 10 Netflix’s main financial ratios

Even though the financial ratios shrank dramatically, the satisfaction for Netflix, and confirmation
that its investments are for the long term, can be seen in the increase in the number of subscribers,
which went from 20 million members in 2010 to 35.48 million in 2012, rising by 63.11% in 2010, 31.2%
in 2011 and 35% in 2012. Netflix’s content and business model are convincing more and more
customers at the international level. Moreover, the number of international subscribers rose from 1.4
million at the end of 2011 to 6.1 million in 2012, an increase of 335%, which shows that the service
offered appeals to potential customers in many countries.
Table 11 Netflix’s subscribers 2010-2012

Table 12 Netflix’s balance sheet 2010-2012

Regarding the deals Netflix has signed with various content producers, we can see that the
company has invested a huge amount of money (around $5.6 billion, with $2.2 billion for 2013 and
$2.7 billion for the period of 2013 to 2015) to secure exclusive content over the next five years. This
puts Netflix under pressure to monetise those investments and gain more and more customers as it
needs to broaden its customer base to be sure to earn enough from subscriptions. The total streaming
fees for content can be gathered from the total amount of content liabilities –$1.6 billion in 2011 and
$2.4 billion in 2012, an increase of 45%.

Table 13 Streaming content obligations in 2012

Source: Netflix Annual report 2012

Table 14 Netflix content library 2011-2012

Table 15 Netflix segment information 2012

In regard to the separation of Netflix’s three business segments of (Netflix has only undertaken this
separation of these segments since 2012) we can see that the international business streaming
segment ,while only accounting for 7.9% of total revenues, represents 18.1% of revenue costs and
41.5% of marketing costs. The profit of the US streaming segment ($349 million) is offset by the loss
of $389 million in the international streaming segment, while the DVD rental business is still making
about 31% of consolidated revenues. However, as Netflix states in its 2012 annual report, “As
technology has changed and consumer preference has shifted, we have seen subscribers move away
from DVD rental and toward streaming their video content”. This shows that the DVD rental segment,
while still profitable, is in the long term condemned to a slow demise. (However, members are still
attached to this service, as the Qwikster episode showed in 2011, when Netflix announced that it
would separate its streaming business, which would continue under the name of Netflix, and its DVD
rental business, renamed Qwikster. Members who wanted both services were to pay more. Following
the announcement in September 2011, many members cancelled their subscription and the Netflix
share price fell from an all-time high of $299 to $74.88197198. Netflix had to cancel its plans and

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Qwikster was aborted in October 2011before it had even seen the light of day).

The marketing costs at that high level for the international business segment might seem abnormal
but as Netflix is entering new markets where established competitors like iTunes or LOVEFiLM are
already present, it has to market and promote its services strongly, which explains the high marketing
expenses for 2012. The company’s marketing campaign proved to be efficient as it managed to add
around 5 million new subscribers to its international business and, as the example of the UK and
Ireland shows, it appeals to its customers (1 million members in less than four months after the initial
launch).

The investments made and to come are heavy and Netflix must expand and gain new customers to
increase its profits. As we have seen, profits fell heavily due to the company’s international expansion
and acquisition of new content. Having secured these deals and established business in new
countries, Netflix must now capitalise on those investments. As the US market data shows, Netflix has
managed in only two years to take a decisive lead (for now) in the online movie market. In Europe, the
company will face more competition, where national markets are fragmented and also have different
cultures and languages to which Netflix has to adapt. The UK and Ireland proved to be the
experimental stage as Netflix did not have to adapt to a different language, and its first real test was
the Nordic countries. By offering content from national producers and film studios, Netflix showed that
it is well aware of the challenge that lies ahead. New expansions are not planned, as its objective is to
break even in the international segment before making new investments and expanding to other
countries. To compete with a highly international firm such as Apple whose iTunes Store offers films
from national producers in many European countries (in Europe, Apple only sells TV shows in
Germany, France and the UK), Netflix will have to expand further.

198
http://www.huffingtonpost.com/2011/10/10/qwikster-netflix-mistake_n_1003367.html
Summary of Netflix’s main data 2007-2012

Figure 6 Netflix’s main financial data 2007-2012

Netflix financial in USD million

6 000,0

5 000,0

4 000,0 Revenues
Total cost of revenues
Gross profit
3 000,0
Operating income
Net Income
2 000,0 Content library, gross

1 000,0

0,0
2007 2008 2009 2010 2011 2012

Figure 7 Netflix’s main financial data 2007-2012

Netflix financial data in USD million

6 000,0

5 000,0

4 000,0 Revenues
Total cost of revenues
Gross profit
3 000,0
Operating income
Net Income
2 000,0 Content library, gross

1 000,0

0,0
2007 2008 2009 2010 2011 2012
Figure 8 Netflix subscribers 2007-2012

Netflix - Subscribers (in thousands)

40 000

35 000

30 000

25 000

20 000 Subscribers

15 000

10 000

5 000

0
2007 2008 2009 2010 2011 2012

As the charts visually confirm, the real surge in Netflix’s business was between 2010 and 2012,
confirming the market share from IHS Screen Digest. Revenues, gross content library value and
subscriber numbers rose strongly while profitability on all levels (gross profit; net income and operating
income) fell. This, once again, demonstrates the company’s long-term vision. By carrying out heavy
investments it is preparing for the battles yet to come. As its initial DVD rental business is in decline
and has only a few years left before it is wound down, Netflix is seeking growth in the SVoD market.
For the moment, the investments have been made and the future has been prepared through long-
term deals such as those made with Walt Disney and through its own exclusive content production.
We now have to see how the competition will react and try to counter the rise of Netflix. It is still too
early to analyse Netflix’s position in the European VoD market. Its success in the US shows that the
company is definitely a major player in the VoD market, even more so after having made major deals
for exclusive content. The company is positioning itself more and more as a pay-TV network, offering
exclusive content and making deals with film producers for the first broadcast window, which was
normally reserved for pay-TV networks. However, we have seen that this shift in its strategy has a
high cost associated with a high risk. Netflix has now entered into taken medium- and long-term
commitments with content producers, which are forcing the firm to expand and sign up more and more
members to comply with the terms of the deals and find the level of profitability it was used to in the
past.

The VoD market is more and more competitive and occupied by competitors like Apple, Amazon or
Google, which have much higher spending power, but Netflix has taken the lead for now. It is the
undisputed leader on the US online film market, but will it be able to maintain this lead internationally?
For now, it has put a stop on more international expansion as it first wants to break even in the newly
entered markets before thinking about the next countries to invest in. 2013 will no doubt be a good
indication for Netflix of how its streaming services position themselves in Europe, where it faces
competition from national and international players.
On-Demand audiovisual services of
public broadcasters
12 Services financed by public funds
In addition to the on-demand services financed by payments or by advertising there are also
services financed by public funds or by public organisations. The MAVISE database identified at 15
March 2015 525 on-demand audiovisual services provided by public organisations, 494 of them
established in the EU.

Table 1 On-demand audiovisual services provided by public bodies established in the EU

(December 2013)
Branded channels 268

Catch-up TV 153

Archives 19

VoD generalist 11

Video news page 9

VoD documentary 9

VoD fiction 7

VoD films 5

VoD children 3

VoD music 3

VoD short movies 1

Others 7

Source European Audiovisual Observatory from MAVISE database

Services provided by public bodies are not necessarily free of charge and funded by public funds:
some public telecommunications operators provide pay-VoD services on their IPTV system, while
some of the VoD services provided by broadcasters or public video libraries may be subject to
payment or partly financed by advertising.

The possibility for public bodies, especially public broadcasters, to provide paid services or services
financed by advertising or other forms of commercial communication has been a matter of debate for
199
several years and has been treated in different ways by regulators and courts. For example, in
France, public broadcasters are authorised to provide pay-VoD services and to include advertising in
their catch-up TV services. In Germany, by contrast, public broadcasters cannot provide pay-VoD
services and cannot post advertising on their websites, including catch-up TV services. In the UK,
Channel 4 is authorised to provide a pay-VoD service, while access to the BBC iPlayer is free in the
UK, although the global version of the service is accessible by subscription.

The possibility of providing free-of-charge on-demand services financed by broadcasters’ public

revenues may also be matter for discussion, in particular with reference to the European

199
See, for example, Nikoltchev S. (ed.), The New Public Service Remit, IRIS plus 2009-6, European Audiovisual
Observatory, Strasbourg, 2009
Commission’s Communication on state aid. In some countries, the creation of these types of service
may be submitted to the value-test procedure.

Table 2 Provision of on-demand audiovisual services by public broadcasters in the EU

(March 2014)

Apps in
Branded online
Internet VoD
channel Own stores
website(s) Archives catalogue Game
(Youtube, VoD DTT Satellite Cable IPTV (Google
with website on iTunes console
Dailymotion service Play,
videos Store
) iTunes
Store)
AT ORF Yes x X X
Dailymotion,
BE RTBF Yes X X X Sony PSP X
Youtube
BE VRT Yes Youtube X X X
BE BRF Yes Youtube
BG BNT Yes Youtube
CY CyBC Yes Youtube
CZ CT Yes Youtube X
DE ARD Yes Youtube X X
DK DR Yes X X X X
DK TV2 Yes Youtube X X X
EE ERR Yes X Youtube X X X
ES TVE Yes X Youtube X
FI YLE Yes Youtube X
France - Dailymotion,
FR Yes X X X X X
Télévisions Youtube
Dailymotion,
FR INA Yes X X X x X
Youtube
FR ARTE France Yes Youtube X X
Youtube
XboX,
GB BBC Yes X (around 100 X X X X X
PSP, Wii
channels)
XboX,
GB Channel 4 Yes Youtube X X X PSP, Wii X
GR HPRT/NERIT No
HR HRT Yes Youtube X
HU MTVA Yes Youtube X
IE RTE Yes X Youtube X Xbox, PSP X
IT RAI Yes Youtube
LT LRT Yes Youtube
LV LTV Yes Youtube X _
MT PBS Yes Youtube
NL NPO Yes Youtube X X
PL TVP Yes Youtube X x X
PT RTP Yes Youtube X X
X (on
RO TVR Yes Youtube X
Youtube)
SE SVT Yes Youtube X X X
SI RTVSLO Yes Youtube X
SK STV Yes Youtube X
Source: European Audiovisual Observatory / MAVISE database

Catch-up TV services provided by public broadcasters on their own websites

All public broadcasters in the EU (with the exception of the Greece’s HPRT created in 2013 after
the closure of ERT) provide at least one website with videos. Most of these videos are recently
broadcast programmes but they may also be promotional material for programmes to be broadcast in
the coming days. In a sense, all public broadcasters provide an on-line catch-up TV service, the scope
and volume of which may, however, vary from one or two of videos disseminated on the website to a
full-blown system such as the BBC iPlayer.
 It should be noted that in most cases public broadcasters’ catch-up TV services are not geolocated,
except when they provide programmes with commercial potential on the international market (which is
the case, in particular of the BBC programmes).

Public broadcasters’ archive websites

The number of broadcasters providing a website with video archives of old programmes is much
smaller. We have identified the Estonian ERR, the Spanish RTVE, the BBC and the Irish RTÉ.

In France, the archiving function is operated by the Institut national de l’audiovisuel (INA), which
operates on its own website both a free and a paid service, as well as 14 different branded channels
on YouTube, one branded channel on Dailymotion, an SVoD service accessible on cable and IPTV
distribution platforms and a branded catalogue on iTunes Store.

In Belgium’s French Community, RTBF has delegated to a private company (SONEMA) the
operation of a open-access archive website.

In Romania, TVR provides a branded archive channel on YouTube.

Branded channels on open platforms (YouTube, Dailymotion, etc)

The other most common kinds of on-demand audiovisual services provided by public broadcasters
are branded channels on YouTube and Dailymotion. Almost all public broadcasters (with the exception
of Austria’s ORF, Greece’s HPRT and Denmark’s DR) have at least one branded channel on
YouTube. The BBC has more than a hundred of these channels. France Télévisions, ARTE and RTBF
also operate branded channels on Dailymotion.

As public broadcasters are in general not fighting for advertising on their own website, they are less
subject than private broadcasters to the “own platform vs. YouTube” dilemma. Uploading part of their
content on YouTube is a way of attracting a large proportion of the public, in particular young people.

RAI was probably the first European public broadcaster to make systematic use of YouTube, and
the comScore data for 2013 illustrate the crucial importance of the open platform for the broadcasters’
own platforms.

In the UK, the BBC provides around 60 branded channels on YouTube, but the audience on the
open platform is much smaller than that using the BBC iPlayer or the videos on the various BBC
websites.
 Broadcasters’ catch-up TV services on TV distribution platforms

In addition to their own websites and branded channels on YouTube, a large number of public
broadcasters provide catch-up TV services through TV distribution platforms. We have identified 13
broadcasters providing catch-up TV services through IPTV platforms and 12 broadcasters providing
catch-up services on cable. Catch-up TV services of the French public TV channels are provided to
Canalsat subscribers through a hybrid set-top box, while in UK the catch-up TV services of the BBC
and Channel 4 are delivered via the Freesat platform. The possibility of using DTT platforms for on-
demand catch-up TV services is used by DR in Denmark and by SVT in Sweden, through the operator
Boxer. Very few public broadcasters provide their catch-up service through video games consoles: the
BBC iPlayer and 4oD are accessible on the Xbox 360, the Sony PSPs and Nintendo Wii. The RTÉ
catch-up TV services are accessible on Xbox 360 and .PSP, while the RTBF service is accessible only
on the Sony PSP.

Almost all public broadcasters provide Apps that allow access to their catch-up TV services on
tablets and mobiles (through the iTunes Store, Google Play Store or, less frequently, through the
Windows Store). A number of public broadcasters have also developed applications for Smart TV
stores.

Public broadcasters’ commercial VoD services

Only the French public broadcasters (France Télévisions and ARTE France) provide their own pay-
VoD website in the country. The ARTE VoD service provided by ARTE France is not geolocated and
is therefore accessible worldwide. However, access to individual programmes of the services is
geolocated in accordance with the rights obtained by the broadcasters.

Two public broadcasters operate pay-VoD services accessible only outside the country: the BBC
operates the BBC iPlayer Global and TV5 Monde operates two different VoD services, one with
French-speaking films, the other with documentaries.

Various public broadcasters operate branded catalogues through the iTunes Store: ORF, ARD, the
BBC, Channel 4 and France Télévisions.
 On-demand audiovisual services provided by public bodies that are broadcasters

The public broadcasters are not the only public bodies providing on-demand audiovisual services.
With the roll-out of video online, various categories of public bodies have created on-demand
audiovisual services financed by their own budgets:

 Film archives: various national film agencies have created open-access websites that
provide access to part of the national film heritage. They do this on their own website (like
the Polish Filmoteka Museum or the Czech or Swedish Film Institute) or through a
branded channel on YouTube (as is the case with the British Film Institute or the
association of various public film archives co-ordinated by the Deutsches Filminstitut
under the label film archives online).

 Cultural organisations: some important cultural organisations (such as la Cité de la

Musique in France), public libraries in the Netherlands.

 Universities: some universities have set up web-TV channels, which include video news
on their activities or scientific documentaries.
Sample study on the presence of
selected European works in VoD
providers catalogues
13 Sample study
13.1 Introduction
Methodology and Limits of the survey

The aim of this note is to analyse the catalogues of the main VoD service providers in EU 27
regarding the presence of European films. As an exhaustive catalogue analysis demanded an
extensive investment of time and manpower, we decided to do the analysis through a sample of 50
movie titles. We tested therefore the VoD catalogues on the availability of the 50 selected movies. The
sample in itself is not statistically significant (VoD providers have between 2000 and 50 000 movies
in their catalogues therefore our sample represents only 0.1% to 2.5% of the entire catalogues).
Therefore all assumptions, hypotheses and analysis made in this note are only valid within the limits of
our sample and cannot be generalized or extrapolated with regard to the strategies of VoD
providers concerning European movies and license agreements. The findings of our analysis
should rather be seen as indications and assumptions that need to be verified in an exhaustive
catalogue analysis. Furthermore, the results are only valid for the considered time period (July to
September 2013).

The movie titles were selected on the basis of two criteria; critically acclaimed films (“quality“) and
200
films successful at the box office (commercial success). The sample can be considered as
“valuable“ video content in the eyes of the customers (box-office success of European blockbusters)
and critics (European Film Award). For the critically acclaimed film sample, we choose the last 25
201
European Film Awards in the category “Winner – European Film” since the creation of this Award
(1988). For the most successful films in the box office, we choose to select the Top 25 European
202
Blockbusters by admissions since 1996 through the LUMIERE database , data which we completed
203
by adding the gross box office, when available, as stated by IMDb . Three of the films in the EFA
Award list (The Full Monty, Le fabuleux destin d’Amélie Poulain, La vita è bella) were also among the
Top 25 European Blockbusters therefore we decided to replace them in the European blockbuster list
with the following three European blockbusters on the list as given by LUMIERE (Le diner de cons,
(T)raumschiff Surprise – Periode 1, Taken 2). The selection of titles is listed in table 1 (European
blockbusters) and 2 (EFA Winners) (pages 6 and 7).
204
We carried out the research of the titles that was possible to do from France for pan-European
205
players: Apple’s iTunes movies stores (Electronic sell-through – EST/TVoD) and Microsoft’s Xbox
206
video marketplaces (EST/TVoD) and 4 different VoD service providers in France:

 1 Subscription Video on-Demand provider (SVoD), Canal Play Infinity, available on multiple
platforms (owned by French pay-TV broadcaster Canal +)
 1 Transactional Video on-Demand provider (TVoD) on IPTV, Orange VoD (owned by French
telecommunications company Orange-France Télécom)
 1 TVoD on the Open Internet, Univers Ciné (independent)
 1 Global VoD service provider, Sony Entertainment Network (owned by Sony)

We also searched for means of prominence for European works. As Article 13 of the Audiovisual
200
Measured by admissions in EU27 as given by Lumiere
201
http://www.europeanfilmawards.eu/en_EN/archive
202
http://lumiere.obs.coe.int/web/search/
203
http://www.imdb.com/
204
Research carried out in July and August 2013, results only valid for this time period
205
26 movie stores in EU 27, no iTunes movie store available in Romania
206
12 Xbox video marketplaces in EU 27 (AT, BE, DE, DK, ES, FI, FR, GB, IE, IT, NL and SE)
Media Service Directive, AVMSD, does not stipulate any, 6 means of prominence were selected by us
and searched for on the different VoD services. Those means of prominence are:
 European films on homepage
 European/National film section
 Search function for European films
 Recommendation for European films
 Special offers on European films
 Presence of trailers presenting European films

Due to geo-localization restrictions and closed platforms, researching the sample in European VoD
providers’ catalogues was “outsourced“. A questionnaire was made in Excel comprising our sample
titles (original and in English) and asking the respondents to check for the presence of the films in the
selected VoD providers catalogues, prices (rent or purchase for EST/TVoD service providers, monthly
subscription fee for SVoD providers), language versions (original version, dubbed version, subtitled
version) and means of prominence for European works. The questionnaire was sent out to the
European Film Agency Research Network (EFARN), on a voluntary basis, in all member states with
the request to check the availability of the 50 selected movie titles in the catalogues of the main 6 VoD
service providers in their countries (and, if possible, on different platforms such as IPTV, Open
Internet, cable and satellite and of different business models – SVoD, EST/TVoD).

At the end of September 2013, 6 answers were received. The EFARN members who responded are
those of Belgium (French and Flemish communities), Germany, Denmark, Italy, the Netherlands and
Poland. The research in the catalogues of national VoD providers was carried out between the 15th of
August and the 25th of September 2013. Three out of the six answers we received were those of the
VoD providers themselves (in Belgium, Denmark and the Netherlands) and means of prominence
were searched for in 3 countries (Denmark, France and Italy).

Extent of analysis

The results can be analysed in order to draw assumptions on the respective market power of the
players involved with regard to movie licensing and content deal negotiations. As those deals are
confidential, no confirmation of assumptions can be made. Also, with respect to national transpositions
of Article 13 of the Audiovisual Media Services Directive, the findings should only be seen as
indicative and should not be generalized. Our analysis is only valid for the chosen sample and no
definite conclusion with regard to the presence of European movies in VoD catalogues can be made
based on our analysis (our sample represents only between 0.1% and 2.5% of the total of movies that
can be found in the catalogues of VoD providers).

Also, as we only received 6 answers to the questionnaire, the analysis is very limited. We need
more answers (especially from more important markets like the United-Kingdom and Spain) in order to
confirm our first assumptions and to improve the analysis. A next step would be to compare the
findings with an equivalent sample of American films (like the last 25 Oscar winners and the Top 25
blockbusters for the same time period) in order to assess if there are significant differences in the
respective catalogues of national and pan-European players. Another interesting correlation would be
to see the “life“ of the movies from their cinema release to DVD to pay-TV by the numbers (admissions
which we have through LUMIERE, sales of DVD/VHS for older movies, audiences on pay-
TV/advertising financed TV) and to search for correlations between the presence of titles in catalogues
and their commercial success. Therefore, this note serves only as an indication through the findings,
observations and an assumption made and not as a general assessment of the presence of European
movies in VoD catalogues.
The 50 Movies sample

Table 1 The 25 European blockbusters

Admissions1 Gross3 in
Year Production Original Movie title
Total EU 27 national $ MIL
2012 GB / US SKYFALL 44 464 388 15 945 446 1 109
2011 FR INTOUCHABLES 39 775 583 21 414 629 351
2001 GB / US BRIDGET JONES'S DIARY 29 029 836 9 723 791 172 (7)
1999 GB / US NOTTING HILL 28 206 327 7 419 281 363
2008 FR BIENVENUE CHEZ LES CH'TIS 25 511 247 20 488 339 164 (8)
1997 GB / US BEAN: THE ULTIMATE DISASTER MOVIE 24 610 209 4 588 253 232
2002 FR / DE ASTÉRIX & OBÉLIX : MISSION CLÉOPÂTRE 21 568 619 14 313 876 111
1999 FR / DE / IT ASTÉRIX ET OBÉLIX CONTRE CÉSAR 20 735 290 8 745 213 n.a.
1997 FR LE CINQUIÈME ÉLÉMENT 20 658 138 7 696 617 264
GB/US/FR/D
2004 BRIDGET JONES: THE EDGE OF REASON 19 560 087 7 943 695 110 (7)
E/IE
2008 GB SLUMDOG MILLIONAIRE 16 667 974 5 820 652 191 (5)
2003 GB / US LOVE ACTUALLY 15 460 165 7 543 045 245
GB/FR/DE/U
MR. BEAN'S HOLIDAY
2007 S 14 727 660 4 378 026 217
2001 ES / US THE OTHERS 14 395 223 6 356 779 210
2001 DE DER SCHUH DES MANITU 13 905 986 11 719 160 81
2003 GB / US JOHNNY ENGLISH 13 778 649 4 041 542 157
FR / DE / ES
ASTÉRIX AUX JEUX OLYMPIQUES
2008 / IT 13 502 542 6 812 378 83 (10)
2000 GB / FR BILLY ELLIOT 12 433 972 3 893 407 109
2000 FR TAXI 2 12 214 697 10 239 220 n.a.
2004 FR / CH LES CHORISTES 11 917 515 8 356 492 n.a.

2006 DE / ES / FR PERFUME: THE STORY OF A MURDERER 11 047 765 5 589 217 132
2006 FR LES BRONZÉS 3: AMIS POUR LA VIE 10 797 463 10 223 008 n.a.
1998 FR LE DINER DE CONS 10 716 740 9 238 220 n.a.
2012 FR TAKEN 2 10 440 956 2 904 902 376
2004 DE (T)RAUMSCHIFF SURPRISE - PERIODE 1 10 372 090 9 150 736 80 (12)

1: Source - LUMIERE database lumiere.obs.coe.int

2: Also part of the Top 25 Box-office ranking
3: Source - IMDb http://www.imdb.com
(4): Only USA, NL & IT available
(5) (6): Only USA & GB
(7): Only USA, GB, IT & ES available
(8): FR, CH, BE
(9): ES & USA
(10): FR & IT
(11): DE, ES & USA
(12): DE

Please note that Le Diner de Cons, Taken 2 and (T)raumschiff Surprise – Periode 1 are
respectively number 26, 27 and 28 on the Top European blockbusters list by admissions in EU27.
However, as The Full Monty, Le destin fabuleux d’Amélie Poulain and La vita é bella were both part of
the EFA and European blockbusters list, we decided to integrate them in our sample in order to have
50 different movie titles.
Table 2 The 25 European Film Award winners
Admissions1 Gross3 in
Year Production Original Movie title
Total EU 27 national $ MIL
1997 GB THE FULL MONTY2 24 550 188 11 096 718 244
2001 FR / DE LE FABULEUX DESTIN D’AMELIE POULAIN2 19 999 974 8 516 391 57,7 (7)
1997 IT LA VITA E BELLA2 19 612 396 5 726 295 229
2003 DE GOOD BYE, LENIN! 10 632 563 6 574 961 77
1999 ES / FR TODO SOBRE MI MADRE 7 703 145 2 581 391 22 (9)
2006 DE DAS LEBEN DER ANDEREN 7 218 804 2 371 327 77
2002 ES HABLE CON ELLA 6 763 943 1 364 009 50
FR / DE /
THE GHOST WRITER
2010 GB 4 580 560 1 048 701 74

2000 DK/FR/SE/D DANCER IN THE DARK 3 403 709 202 782 40

E/NO/NL/IS
2008 IT GOMORRA 3 358 122 1 747 859 35
DE / AT / FR
DAS WEISSE BAND
2009 / IT 2 337 311 668 825 2,4 (6)
FR / AT / DE
CACHÉ
2005 / IT 1 681 765 517 258 n.a.
DK/SE/FR/D
MELANCHOLIA
2011 E/IT 1 481 055 56 687 n.a.
AMOUR
2012 FR / DE / AT 1 440 481 619 650 9,5 (4)
2007 RO 4 LUNI, 3 SAPTAMANI SI 2 ZILE 1 064 364 89 339 n.a.
2004 DE/TR GEGEN DIE WAND 791 141 1 619 814 n.a.
DK/SE/FR/N
BREAKING THE WAVES
1996 L 298 608 2 980 848 7 (11)
1998 FR TOPIO STIN OMICHLI n.a. n.a. n.a.
GB / ES /
LAND AND FREEDOM
1995 DE n.a. n.a. n.a.
1994 IT / FR / CH LAMERICA n.a. n.a. 5
1992 IT / CH / FR IL LADRO DI BAMBINI n.a. n.a. n.a.
1991 FR/RU УРГА n.a. n.a. n.a.
1990 IT PORTE APERTE n.a. n.a. n.a.
1990 GB RIFF-RAFF n.a. n.a. n.a.
1988 PL KROTKI FILM O ZABIJANIU n.a. n.a. n.a.

1: Source - LUMIERE database lumiere.obs.coe.int

2: Also part of the Top 25 Box-office ranking
3: Source - IMDb http://www.imdb.com
(4): Only USA, NL & IT available
(5) (6): Only USA & GB
(7): Only USA, GB, IT & ES available
(8): FR, CH, BE
(9): ES & USA
(10): FR & IT
(11): DE, ES & USA
(12): DE

Please note that the following movies are also considered as Top 25 European blockbusters: The
Full Monty, Le fabuleux destin d’Amélie Poulain and La vita é bella.
13.2 European movies in VoD catalogues:
Sample results & Analysis
13.2.1 Overview of results
Table 3 Sample movie titles found by numbers in VoD providers catalogues

Table 4 Percentage of sample movies found in VoD providers catalogues

Table 5 National VoD providers by country

The national VoD providers are ranked by numbers of sample movies in their catalogues. Figures in red show national “high score” for each category (Total sample, EFA
movie sample & blockbuster sample).

Looking at the above results, several observations can be made.

Observations on the general availability of our sample:

– Out of the 35 national VoD providers surveyed, only 4 (or 11.4%) have more than 40% of our
sample movies (DE: Videoload & Maxdome, DK: TDC, FR: Orange VoD - 3 services owned by
a telecommunications company and one by an audiovisual group, Maxdome belonging to the
ProSieben group).
– 4 countries (BE, IT, NL and PL) do not have a national VoD provider which has at least 33% of
our sample. The first national VoD provider in BE, Univers Ciné (independent), has 18% of our
sample titles, the first one in IT, Chili TV (independent), has 16%, the first in NL, Ximon
(independent), has 22% and in PL the first national VoD catalogue, vod.pl (Axel Springer
Group/Onet – media group), has 26% of our sample in its catalogue.
– Apple’s iTunes movie stores have a larger percentage of our sample than the first national VoD
provider in 5 countries (BE, DE, FR, IT, NL). With regard to those findings, chapters 2.2 and 3.1
 assess this situation.
– Only in two countries, Denmark and Poland, the first national VoD provider has a higher
percentage of our sample than iTunes
– The ranking by country of national VoD providers with the highest percentage of the sample is
the following:
4. Germany with Videoload and 58% of the sample (28% EFA & 88% European blockbusters)
5. Denmark with TDC and 48% of the sample (44% EFA & 52% European blockbusters)
6. France with Orange VoD and 42% of the sample (44% EFA & 40% European blockbusters)
7. Poland with vod.pl and 26% of the sample (24% EFA & 28% European blockbusters)
8. The Netherlands with Ximon and 22% of the sample (28% EFA & 16% European blockbusters)
9. Belgium with Univers Ciné and 18% of the sample (32% EFA & 4% European blockbusters)
10. Italy with Chili TV and 16% of the sample (24% EFA & 16% European blockbusters)

– The ranking by country with regard to the highest percentage of the sample in national iTunes
catalogues is:
1. Germany with 72% (56% EFA & 88% European blockbusters)
2. France with 60% (44% EFA & 76% European blockbusters)
3. Italy with 40% (48% EFA & 32% European blockbusters)
4. Belgium with 34% (28% EFA & 40% European blockbusters)
5. The Netherlands with 28% (28% EFA & 28% European blockbusters)
6. Denmark with 22% (20% EFA & 24% European blockbusters)
7. Poland with 10% (4% EFA & 16% European blockbusters)

207
– Microsoft’s Xbox movies marketplaces have a small percentage of our sample (between 6%
and 10%) with European blockbusters being more represented than EFA films (only 1 film, also
considered an European blockbuster The Full Monty)

Observations on the availability of European Film Awards movies:

– EFA films are more often found than European blockbusters in the catalogues of the first
national VoD provider in 4 countries: BE, FR, IT and NL
– On the other side, EFA films outweigh European blockbusters in only one national iTunes
catalogue, Italy (and are as often found as European blockbusters in the Netherlands with 7
titles for each category)
– No national VoD provider has at least 50% of our EFA sample titles (and only iTunes Germany
has above 50% of the EFA sample)
– Independent VoD providers as the Belgian Univers Ciné, the Dutch Ximon and the Italian Chili
TV have a much larger part of EFA films than other VoD providers (owned by a telecom
company/broadcaster; Orange VoD also has a more EFA films, 11, than European
blockbusters, 10)

Observations on the availability of European blockbuster movies:

– Apple’s iTunes movie stores have a larger part of blockbusters in their catalogues than EFA
movies (with the exception of IT) as does Xbox
– The European blockbusters sample outweighs the EFA sample in the catalogues of the first
national VoD provider only in Germany, Denmark and Poland
– National VoD providers in Italy have a very small percentage of the European blockbusters

207
Microsoft being considered as an electronic distribution platform by the Luxembourg’s authorities for mainly US studios this is
in line with our findings. For a more precise analysis of Xbox videos please refer to Chapter III.2
 sample (0%-8%) and seem to favor EFA films.
– German, Polish and Danish national VoD providers have a larger sample of European
blockbusters than EFA films for the first two national VoD providers

Means of prominence used by national VoD services

Means of prominence were only searched for in 3 countries, Denmark, France and Italy. We
searched for six means of prominence for European works which are:

 European films on homepage

 European/National film section
 Search function for European films
 Recommendation for European films
 Special offers on European films
 Presence of trailers presenting European films

The mean of prominence for European works most often found on VoD services is the presence of
European films on homepages. Regarding the national transposition of Article 13 of the AVMS
Directive, only the French transposition requires specific means of prominence: European films on
homepage and the presence of European film trailers. All 4 VoD service providers (and iTunes as
Chapter 3.1 shows it) respect this requirement.

When observing the national transpositions of Article 13 of the AVMS Directive, the situation in the
3 countries is the following:
208
 Denmark : Obligation to promote by appropriate means the production of and access to
European works. Report to the national regulator. No share or means of prominence requirements.

209
 France : Prominence through a presence on homepage and trailers of European and French
works. Financial contribution. A minimum share of 60% for European works and 40% for French
works in catalogues.

210
 Italy : Either a share of at least 20% for European works in catalogue or a financial contribution of
5% of the turn-over generated by on-demand audiovisual content. Obligation to gradually promote
the production of and access to European works.

Another mean of prominence often found in VoD services (at least for Denmark and France) is a
National/European film section. From Table 6 we can observe that Italian VoD providers only put
European films on their homepage as unique mean of prominence (except Rai Cinema).

A recommendation system and search function for European works and special offers on European
works are the means found the least in the 3 countries. As only France specifies means of prominence
for European works (and those obligations are respected by the national VoD providers), we cannot
draw more assumptions or observations with regard to the results. Here again, more answers from
different countries are needed in order to extent the analysis and look for the impact of the national
transpositions of Article 13 of the AVMS Directive.

As homepages change often, the results of this survey are only valid for the considered time period.
Also, as the answers of Denmark are those of the VoD service providers themselves, the findings
should be considered carefully (inflation of positive answers?).

208
Order 100 of 28/01/2010, as last amended on 23/08/2012 on registration-based broadcasting activities and on-demand
audiovisual broadcasting activities.
209
Décret n° 2010-1379 du 12 novembre 2010 relatif aux services de médias audiovisuels à la demande .
210
Decreto Legislativo n°44 Article 16 and Allegato A alla Delibera n. 188/11/CONS 6 April 2011.
Denmark

Table 6 Means of prominence - Denmark

Means of prominence Denmark

Netflix HBO Nordic TV2 Play Viaplay TDC
European films on homepage YES YES YES YES YES
European/National film section NO YES YES YES YES
Search function for European films NO NO YES NO YES
Recommandation for European films YES NO YES YES NO
Special offers on European films NO NO YES NO NO
Presence of European film trailers YES NO NO NO NO

The answers received from Denmark are those of the VoD providers.

France

Table 7 Means of prominence - France

Means of prominence France

Orange VoD Sony Enter. Univers Ciné Canal Play
European films on homepage YES YES YES YES
European/National film section YES YES YES NO
Search function for European films NO NO YES NO
Recommandation for European films NO NO YES NO
Special offers on European films NO NO NO NO
Presence of European film trailers YES YES YES YES

Italy

Table 8 Means of prominence - Italy

Means of prominence Italy

Chili TV Cubovision Sky on demand Mediaset Premium My Movies Rai Cinema
European films on homepage YES YES YES YES YES NO
European/National film section NO NO NO NO NO NO
Search function for European films NO NO NO NO NO NO
Recommandation for European films NO NO NO NO NO NO
Special offers on European films NO NO NO NO NO NO
Presence of European film trailers NO NO NO NO NO NO

After having briefly exposed our main findings, the next section tries to analyse the findings.
Analysis can be made on various grounds. We chose to analyse the results with regard to market
forces by grouping the surveyed countries in 3 categories in order to assess the competition of
national VoD providers with, what seems to be a dominant market player, iTunes.
13.2.2 Analysis of results

Looking at the general results and observations made above, we decided to divide countries
surveyed in three categories based on the availability of the sample in the catalogues of national VoD
providers and of national iTunes movie stores in order to assess the relative market forces of national
VoD providers regarding their competition with iTunes. Of course, multiple methods of analysis are
possible; we choose what seemed to us being a relevant point of view, assessing market forces in
license negotiations. As Figure 1 demonstrates, Apple is the dominant global player when it comes to
TVoD services world-wide through the presence of the company in over 100 countries. Therefore,
analysing our findings in European markets through the competition between Apple and national VoD
providers seems relevant as Apple is in a position to negotiate global deals for movie licensing. Also,
Microsoft being an important global player (of less importance than Apple with regard to the presence
of the service by number of countries) we analysed the findings in Chapter III.2 (in the annexes). A
short summary of the national transpositions of Article 13 of the AVMS Directive is inserted with the
aim of observing any correlation between national regulations and findings (the sample and the
findings are inconclusive in this regard).

Figure 1 Big 4 TVoD services available world-wide by number of countries

For copyright reasons this figure cannot be reproduced in the public version of this report
Category 1 – Catalogues of national VoD providers and iTunes have above 40% of
the sample movies

Figure 2 Number of sample titles found in VoD Catalogues in Germany

DE - Titles found in catalogue per VoD provider

40
36
35

30 29
Number of titles found

25 24

20

15
12

10
7

5 4
1
0
0
iTunes Xbox Videoload Maxdome Watchever LOVEFiLM Sky Unitymedia
VoD provider

Figure 3 Number of sample titles found in VoD Catalogues in France

FR - Titles found in catalogue per VoD provider

35

30
30

25
Number of titles found

21
20

15

10
10
6
5
5
2

0
iTunes Xbox Orange VoD Sony Enter. Univers Ciné Canal Play
VoD provider

In this category, national VoD providers (for the first ranked) have more than 40% of our sample
and iTunes as well. In France this is the case of Orange VoD with 42% (21 titles) of our sample. In
Germany, two national VoD providers are in this case, Videoload owned by Deutsche Telekom (with
58% of the sample, 29 titles) and Maxdome (with 48% of the sample, 24 titles) owned by
ProSiebenSat.1 Media. Apple is in both markets confronted with competition for customers by big
players (telecom companies and broadcasting groups) for valuable European content. Those
companies can match Apple’s financial resources in order to license valuable European movies. As
those markets are among the most important VoD markets in Europe, it is no surprise that the players
try to have a competitive advantage through video content (in our case movies).

When looking at the other national players, in France Sony has a faire share of our sample with 10
titles (Sony is not a national player per se but also a pan-European player like Apple) but Univers
Ciné, an independent TVoD provider, and Canal Play Infinity, the SVoD service of the Canal Plus
Group, one can observe that those services do not have many of our sample movies, 12% (6 titles) for
Univers Ciné and only 4% (2 titles) for Canal Play Infinity. The lack of financial resources for Univers
Ciné as an independent to compete with the other players for highly valuable content can be
assumed. For Canal Play Infinity, as it is a SVoD service, the accent is less on valuable content but
rather on a large library. Also, release windows in France (3 years after the cinema release for SVoD)
might play a role in this issue. Canal Plus group has a TVoD service, Canal Play, which has more
European blockbusters than the SVoD service but we wanted to analyse the offer on a French SVoD
service and with over 200 000 subscribers Canal Play Infinity is the most used in France.

In Germany, the two TVoD players Videoload and Maxdome (which proposes also a SVoD service
for 7.99€/month), are operated by important groups with the financial resources to acquire highly
valued titles by the customers. Two SVoD services, LOVEFiLM (6.99€/month) with 14% of the sample
and Watchever (8.99€/month) with 24% of the sample have an equilibrium between EFA films and
European blockbusters and have a fair share of the sample compared to other national players in
surveyed countries.

The national transpositions of Article 13 of the AVMS Directive are very different in the two
countries. Germany does not yet have any concreted measures implemented whereas France has a
211
large arsenal of regulatory transpositions. In fact, France requires :

– Requirement in share in catalogues: 60% European works and 40% of French works
– Financial contribution (in percentage of turnover):
o SVoD between 12%-26% of turnover (depending on number of films in catalogues
with regard to the cinema release)
o TVoD: 15% of turnover
– Prominence: Substantial share on homepage and trailers for European and French works

The 2 transpositions being completely different, the findings are inconclusive regarding the impact
of regulatory methods for European works and national transposition of Article 13 of the AVMS
Directive.

211
Décret n° 2010-1379 du 12 novembre 2010 relatif aux services de médias audiovisuels à la demande.
Category 2 – Catalogues of national VoD providers have under 25% and iTunes
above 25% of the sample movies

Figure 4 Number of sample titles found in VoD Catalogues in Belgium

BE - Titles found in catalogue per VoD provider

18 17

16

14
Number of titles found

12

10 9
8
8

6
4 4
4 3

0
iTunes Xbox Univers Ciné Telenet Belgacom VOO
VoD provider

Figure 5 Number of sample titles found in VoD Catalogues in Italy

IT - Titles found in catalogue per VoD provider

25

20
20
Number of titles found

15

10
8
6

5
3 3
2 2
1

0
iTunes Xbox Chili TV Cubovision Sky on demand Mediaset My Movies Rai Cinema
Premium
VoD provider
Figure 6 Number of sample titles found in VoD Catalogues in the Netherlands
NL - Titles found in catalogue per VoD provider

16
14
14

12 11
Number of titles found

10 9 9

8 7

4 3

0
iTunes Xbox Ximon Videolandondemand Moviemaxonline KPN
VoD provider

In this category, iTunes has more sample movies in the respective national catalogues than the first
national player which all have fewer than 25% of our sample movies.

– BE: iTunes 34% of sample (28% EFA, 40% European Blockbusters) and Univers Ciné 18% of
sample (32% EFA and 4% European blockbusters)
– IT: iTunes 40% of sample (48% EFA, 32% European Blockbusters) and Chili TV 16% of sample
(24% EFA and 8% European blockbusters)
– NL: iTunes 28% of sample (28% EFA, 28% European Blockbusters) and Ximon 22% of sample
(28% EFA and 16% European blockbusters)

All three first national players share the fact that they are independent VoD providers. Univers Ciné
is a joint-operation by European producers, Ximon is partly owned by the EYE and Film Institute and
Chili TV is a joint-stock company with 41% of the stock owned by Fastweb. The findings also show
that those national players have a larger proportion of the EFA movies sample than of the European
blockbusters sample. Assuming that demand for European blockbusters is higher from a consumer
point of view than for EFA films and that therefore licensing European blockbuster is more expensive
than for EFA films, an assumption could be that those independent player lack the financial resources
to match Apple for highly valued European content.

Also, the second VoD providers in those countries (by the presence of our sample in their
respective catalogues) are operated by larger groups. In Belgium, Telenet is owned by a telecom
group (Telenet), the Italian Cubovision is operated by Telecom Italia and the Dutch VoD services
Videolandondemand and Moviemaxonline are operated by The Entertainment Group which was
recently acquired by the RTL Group (65% of shares). These players have the financial resources to be
in competition for valuable European content but as we have found they are, at least for our sample,
not into a bidding contest with Apple. Is there a lack of commercial interest of those VoD providers for
our sample or are they more interested by assumingly “cheaper” (less demand from consumers, less
box office success, less critically acclaimed) European content? The small representativity of our
sample does not allow drawing any assumptions here. Another assumption could be that Apple has
managed to have exclusive deals for some of the movie titles, assumptions which cannot be validated
in this survey.

With regard to national transpositions of Article 13 of the AVMS Directive, we did not find any
correlations. In fact the 3 transpositions are here again different.
 In Belgium:

- Prominence requirements in the French community (attractive presentation of European works

212
and Belgian French works)

- General requirements to promote the production of and access to European work (Flemish and
213
German)

- No share requirements of European works

- Report all 4 years of the promotion of European works to national authority (German
community)
214
In Italy :
215
– A share of 20% for European works in catalogue or a financial contribution of 5% of turnover
– Non-linear audiovisual services shall gradually promote the production of and access to
European works

216
In the Netherlands :

– On-demand services should promote the production of and the access to European works

Regarding national regulation of on-demand services, the findings are inconclusive and do not let
us draw any assumptions on the impact of national regulations on the presence of European works in
VoD catalogues.

212
Recommandation du CSA du 24 juin 2010 relative à la mise en valeur des œuvres européennes et de la Communauté
française de Belgique dans les services de vidéo à la demande - Art. 46. (136).
213
Décret du 27 mars 2009 relatif à la radiodiffusion et à la télévision.
214
Decreto Legislativo n°44 Article 16 European audiovisual production.
215
Allegato A alla Delibera n. 188/11/CONS of 6 April 2011 - Art. 1 (3) 1.
216
Mediawet 2008 - Artikel 3.29c.
Category 3 – Catalogues of national VoD providers have more sample movies than
iTunes

Figure 7 Number of sample titles found in VoD Catalogues in Denmark

DK - Titles found in catalogue per VoD provider

30

25 24
Number of titles found

20
17

15

11
10
7
5
5
3

0
0
iTunes Xbox TDC Viaplay TV2 Play Netflix HBO Nordic
VoD provider

Figure 8 Number of sample titles found in VoD Catalogues in Poland

PL - Titles found in catalogue per VoD provider

14
13

12
11

10
Number of titles found

6
5

2
2

0 0 0
0
iTunes vod.pl ipla.tv iplex.pl tvnplayer.pl vod.tvp kinoplex
VoD provider

217
The two countries constitute, for now, an exception in our analysis . Apple’s iTunes has less of our
sample than the first two national players. When looking at the players involved, some explanation can
be given.

In Denmark, the first VoD provider, TDC is owned by a telecommunications company (TDC) and
Viaplay is operated by The Modern Time Group AB. Both players have the financial resources to
acquire valuable European content as the findings show. TDC has 48% of our sample with a higher
percentage of the European blockbusters sample (44% EFA and 52% European blockbusters) and
Viaplay has 34% of the sample (here again, a small advantage to European blockbusters with 36% of
the sample and EFA films 32%). Apple’s Danish iTunes on the other hand has only 22% of our sample
(second lowest in the 7 countries surveyed, the lowest being the Polish iTunes with 10%) with 20% of

217
Chapter III.1 gives assumptions on this particular market situation.
the EFA sample and 24% of the European blockbusters sample.

In Poland, the first national VoD provider, vod.pl, is owned by the Axel Springer Group which
acquired Onet and the second VoD provider, ipla.tv, is owned by CyFrowy Polsat. Vod.pl has 26% of
our sample (24% of EFA and 28% of European blockbusters) and Ipla.tv has 22% of the sample (12%
EFA and 32% European blockbusters) compared to iTunes’ 10% (4% of EFA 16% of blockbusters).

The findings let us draw two assumptions. The first is that there is an on-going competition for
valuable European content by the national players (at least the first two) in each country which have
the financial resources (or their parent company) to acquire valuable European content. The second
assumption one might draw is that maybe Apple does not see these markets as “essential’ in their
content licensing strategy. [This assumption is more exposed in Chapter 3]. The limitations of our
small sample does not let us verify or prove those assumptions, they are just a lead that would need
further investigation if of relevance.

With regard to national on-demand regulation, in this case again as before, the results are not
conclusive as both countries have different requirements.
218
In Denmark :

– On-demand audiovisual services shall use appropriate means to promote the production of and
access to European works
– Report for compliance to national regulator

219
In Poland :

– Promote European programmes and works produced in the Polish language

– Prominence: Identifying origin of programmes in the catalogue appropriately and provide the
possibility to search European and Polish works
– Provide information and materials promoting European programmes
– A share of 20% in the catalogue for European works and Polish works (but not for programmes
providing only non-European works)

The findings, in the limits of the sample, with regard to national regulation of on-demand audiovisual
services are here inconclusive.

218
Order 100 of 28/01/2010, as last amended on 23/08/2012 on registration-based broadcasting activities and on-demand
audiovisual broadcasting activities - Section 10
219
Broadcasting Act - Article 47f
Connected TVs and connected devices
14 Smart TV and Apps
Smart TVs are becoming more and more popular world-wide as constructors market aggressively
those devices. Smart TVs are TV sets with in-build Internet connectivity (Wi-Fi and/or Ethernet cable).
Almost every TV constructors markets them since 2012 under the general branding “Smart TV”
(before they were named “Connected TVs” or “Internet TVs”). The first constructor who named its
Internet connected TV as Smart TV was Samsung when it became clear that the 3D function of TVs
220
were not appealing to customers . The Smart TV branding was applied to identify premium TV sets
in order to have a new marketing strategy and to gain markets shares, surfing on the positive word
association customers had with their smartphones. It proved to be an effective strategy for Samsung
221
as the firm is still the market leader on Smart TVs world-wide with 26% as Strategy Analytics found
222
for the first quarter 2013 and 44,1% in Europe for the first semester 2013 as GfK states it.

But are Smart TVs really smart? This is a question that remains unanswered until now as
customers are not seeking primarily Internet connectivity when they decide to buy a new TV (but
rather decide on screen size, price and picture quality as the three main factors as the IHS Screen
223 224
Digest TV Smart TV Survey found out ) and even do not access content on their Smart TV
preferring tablets, internet set-top boxes or the computer as main means of access to online content.

Smart TVs are set to rise and will equip more and more households globally in the coming years as
the transition to more evolved TV sets takes place as we will see in the following section.

14.1 The Global Smart TV market

Accounting for 35% of all TV sets shipped in 2013, Smart TVs are set to rise to around 65% of TV
shipments by 2016 as Screen Digest Research Bulletin of February and March 2013 states (Figure 1
and 2). The yearly increase of shipments of Smart TVs according to those figures has been 15%
world-wide. As customers begin to replace their TV sets, which have an average replacement cycle of
7 years (Figure 3), Smart TVs find increasingly their ways into households. The actual up-take of
Smart TVs in 2012 is mainly driven by customers in China and Western Europe (Figure 5). Chinese
customers find much more free content on the Internet than European or American customers and
tend to buy Smart TVs where they are in control of the web browser as opposed to Europe where
225
most of the content comes from apps produced by VoD providers and broadcasters . Western
Europeans therefore adopt much more than the rest of the world Smart TVs with Set Maker controlled
226
browsers (Figure 5). In North America, the situation is different. Even if customers consume a lot of
on-demand content, this content is mostly paid for and provided through set-top boxes of cable
companies or by third-party hardware companies like Apple, Roku and TiVo (and soon Amazon and
maybe Intel). American customers therefore tend to less convinced by the necessity of buying a new

220
Informa statistics on Smart TV's, Blu-Ray Players, Game Consoles 2012 , “Smart rebranding of connected devices slows
ubiquity”, Informa 2012.
221
“Samsung Leads with 26 Percent of Global Smart TV Market Share in Q1 2013”, Press release 24th of July 2013,
http://www.strategyanalytics.com/default.aspx?mod=pressreleaseviewer&a0=5400
222
“Samsung maintains top spot in Europe's flat TV market”, Global Post, 19/08/2013,
http://www.globalpost.com/dispatch/news/yonhap-news-agency/130819/samsung-maintains-top-spot-europes-flat-tv-market
223
IHS Screen Digest TV Systems Service, report quoted in Report: Internet, 3-D Increasingly Important to U.S. TV Buyers
224
“Lack of 'conscious desire' holds back Smart TV use”, YouGov Connected TV Tracker 2013,
http://yougov.co.uk/news/2013/05/21/lack-conscious-desire-holds-back-smart-tv-use/
225
“Smart TV Shipments Grow 15% Worldwide in 2012, According to NPD DisplaySearch”,
http://www.displaysearch.com/cps/rde/xchg/displaysearch/hs.xsl/121017_smart_tv_shipments_grow_worldwide_in_2012.as
p
226
“Smart TV Growth For 2012 Pegged At 15%, But North Americans Still Slow To Adopt”, Tech Crunch 17th of October 2012
based on NPD Display Search Quarterly Smart TV Shipment and Forecast Report
TV for its Internet connection capabilities than other customers world-wide. It is also interesting to
notice that Smart TV penetration is the highest in Japan (Figure 5), just above 55% making Japan the
country where Smart TV penetration is the highest.

Figure 1 Worldwide Smart TV shipments 2010 – 2013

For copyright reasons this figure cannot be reproduced in the public version of this report

Source: Screen Digest, Research Bulletin February 2013

Figure 2 Worldwide Smart TV shipments 2010 - 2016

For copyright reasons this figure cannot be reproduced in the public version of this report

Source: Screen Digest, Research Bulletin March 2013

As Figure 2 shows it, the tipping point where Smart TVs shipments outweigh other TV sets is
projected to be in 2014 after Screen Digest’s predictions. For applications and in particular video apps
this means a wider presence on Smart TV platforms, especially if the industry effort to uniformed
software for App platforms in order to reduce platform fragmentation continues (section 1.2).

Figure 3 Average Age of TVs Replaced/To Be Replaced (in Years)

Brazil

China-Urban

China-Rural

UK

US

0 1 2 3 4 5 6 7 8

Average Age of TVs replaced a year ago

Average Age of TVs in HH planning to replace in 12 months

Source: NPD DisplaySearch Global TV Replacement Study , 2012

Figure 3 shows the average age of TVs to be replaced and replaced in 2011. The interesting fact to
notice is that customers anticipate replacing their TVs earlier than before. The cycle of replacement of
227
TVs was, according to NPD Display Research , 8.4 years and has been reduced nowadays (2012)
to 6.9 years on average (Table 1 elaborated by Gartner also shows this tendency). But this time
reduction in the replacement cycle is not due to Smart TVs but rather to the fact that customers are
increasingly replacing their old CRT TVs with newer flat-panel TVs. The study found out that the main
drivers for customers to replace their TV or buy a new one are is the desire to have a bigger screen

227

http://www.displaysearch.com/cps/rde/xchg/displaysearch/hs.xsl/120529_global_tv_replacement_cycle_falls_below_7_year
s_as_households_continue_to_replace.asp
size and improved picture quality (HD). TV prizes, although not in the top 3 drivers of buying a new
TV, remains important. The TV industry operates with laser sharp margins and therefore premium
features such as Internet connectivity is seen by the industry as an accelerator of replacement. But as
the study indicates, customers see those premium features not so important in their buying decision
and it remains questionable if Internet connectivity can be a real commercial argument for customers
(as the 3D feature demonstrated it to the industry before).

Figure 4 TV Purchase Drivers

For copyright reasons this figure cannot be reproduced in the public version of this report

Source: IHS Smart TV Consumer Survey, July 2012

The survey done by IHS on the purchase drivers of consumers who planned to buy a new TV in 2012
over the next years also shows that the purchase decision is mainly driven by price and the wish of a
larger TV. In this survey, the “Smart” feature of the TV only comes in the third place. But with the
eroding price of new technologies in TV sets (e.g. Smart TV) as Figure 5 and 6 shows it, more and
more consumers will opt for a Smart TV world-wide.

Figure 5 New TV tech life cycle

228
Source: Idate, “Les défis de l'électronique grand public, de l'entertainment et de la domotique”, July 2013

228
http://blog.idate.fr/tag/connected-tv/
Table 1 Gartner TV Market Replacement Mode

Source: http://info.arteris.com/blog/bid/85488/

Figure 6 Global Smart TV shipment 2011-20717

Smart TV Segment - Unit Shipment and ASP Forecast

300 $2,500.00

250 $2,000.00
200
$1,500.00
150
$1,000.00
100

50 $500.00

0 $0.00
2011 2012 2013 2014 2015 2016 2017

Unit Shipment (million) Average Selling Price (USD)

Note: All figures are rounded. The base year is 2012.

Source: Frost & Sullivan

As Figure 6 demonstrates it, from another source (Frost & Sullivan), Smart TV shipment are
expected to rise over the coming years and as always with a “new” technology, the average selling
price will continuously decrease.
Figure 7 Q2’12 Smart TV Shipments by Region (000s)

Q2 2012 Tv shipments in million & Smart TV penetration in %

4.5 70.00%
4
60.00%
3.5
50.00%
3
2.5 40.00%

2 30.00%
1.5
20.00%
1
10.00%
0.5
0 0.00%
China Western Eastern North Latin Asia Pacific Middle East Japan
Europe Europe America America & Africa

Basic Connected TV Smart TV - Set Maker Controlled

Smart TV - Consumer Controlled Penetration

Source: NPD DisplaySearch Quarterly Smart TV Shipment and Forecast Report

Figure 8 Smart TV Shipment Forecast 2011-2016

Worldwide Smart TV shipments (millions)

2011-2016
160
140
120
100
80
60
40
20
0
2011 2012 2013 2014 2015 2016

Basic Connected TV Smart TV - Set Maker Controlled Smart TV - Consumer Controlled

Source: NPD DisplaySearch Quarterly Smart TV Shipment and Forecast Report

Figures 7 and 8 give an overview of how the internet connectivity of Smart TVs is controlled. The clear
tendency is towards Smart TVs with user controlled browsers. In fact, consumers want to be able to
browse freely the web in order to find content (mainly video content) that suites their tastes.
“Consumer Controlled” Smart TVs allow this as opposed to “Set Maker controlled” TV sets where the
consumer has to evolve on the platforms designed by the constructor.

Figure 9 Q1 2012 Global Smart TV Shipments by Brand

Q1 2012 Global Smart TV Shipments by Brand

60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%

Source: NPD DisplaySearch Quarterly Smart TV Shipment and Forecast Report

Figure 9 gives an overview of the actual percentage of Smart TVs shipped by brand in regard to
overall TV shipment. Sony appears to be the brand which ships 50% of all its TV sets under the
“Smart TV” label. Decrease in production cost and the appearance of a new technology, the 4K TV
set, will certainly increase the percentage of Smart TVs shipped in regard to total TV shipment for
each brand.
14.2 The European Smart TV market
Trying to find precise and up-to-date Smart TV ownership figures for Europe is hard. The sources
are either contradictory, either not up-to-date. We only managed to find free published figures for 2011
and 2012, mostly of OFCOM’s Communications Report 2012 and from the YouGov Smart TV study of
2011 (Figure 13 and 14). While OFCOM finds an ownership of around 15% of Smart TVs in the UK
229
and France and 10% in Germany in 2012, a Concentra Marketing Research for GFU finds higher
adoption rates for 2013. Although we find the discrepancy between the figures high, as all those
statistics are produced through consumer survey, we find in necessary to communicate them.
230
Figures 10, 11 and 12 are extracted from OFCOM’s International Communications Report 2012 .

Figure 10 Claimed take-up of connected TVs and 3D-ready TVs 2012

Claimed take-up of connected televisions and 3D-reday TVs, Oct 2012

Take-up (%)
30% 28%

25%

20% 18%
15% 15%
15% 12% 13% 12%11%
9% 10% 9% 10% 10%9%
10% 8% 8%
5%
5% 3%

0%

Connected or Smart TV 3d-ready TV

Source: Ofcom consumer research October 2012. Base: Total sample size UK=1065, France=1016, Germany=1024, Italy=1015, US=1010, Japan=1004, Spain=1001,
China=1010. Q: Which of the following devices do you own and personally use?

As those figures are produced through surveys and not actual sales or shipment figures, those
figures should be interpreted with care. But as the UK figures (Figure 15) shows, the take up of Smart
TVs in Europe is growing. In the first quarter 2011, Smart TVs in the UK only had a market share of
17% and in the first quarter 2013, the market share had already risen to 28%. As the price of Smart
TVs decreases, the take-up and therefore the rise of Smart TV market share in European countries
will continue.

229
http://www.digitaltveurope.net/77992/european-smart-tv-adoption-rates-compared/
230
OFCOM International Communications Report 2012,
http://stakeholders.ofcom.org.uk/binaries/research/cmr/cmr12/icmr/ICMR-2012.pdf
Figure 11 Accessing TV content over the internet, by connected TV ownership

Accessing TV content over the internet, by connected TV ownership

Proportion of respondents that access online TV (%)
60% 57%

50% 44%
39% 37%
40%
31%
30% 27%
23% 24%
21%
20% 15% 17% 16%
13% 12% 11% 12%
9%
10% 3%
0%

Those who own a connected TV All respondents

Source: Ofcom consumer research October 2012. Base: Total sample size UK=1065, France=1016, Germany=1024, Italy=1015, US=1010, Japan=1004, Spain=1001,
China=1010. Q: Which of the following activities do you use your home internet connection for?

Figure 12 Take-up of DVR, connected TVs and 3D-ready TVs

Take-up of digital video recorders, connected TVs and 3D-ready TVs

Take-up (%)
45%
39%
40%
35% 32%
29% 28%
30% 27%
24%
25% 21% 22%
18% 19% 18%
20% 15% 15%
15% 12% 13% 12%
10% 10% 10%9% 11%
8% 9% 9% 8%
10% 5%
5% 3%
0%

DVR Connected or smart TV 3D-ready TV

Source: Ofcom consumer research October 2012. Base: Total sample size UK=1065, France=1016, Germany=1024, Italy=1015, US=1010, Japan=1004, Spain=1001,
China=1010. Q: Which of the following devices do you own and personally use?
Figure 13 Smart TV Owners November 2011

Smart TV Owners in Selected Countries, Nov 2011

% of respondents

US 9%
UK 10%
Germany 11%
Finland 12%

UAE/Saudi Arabia 13%

Sweden 13%

Denmark 15%

France 18%

0% 5% 10% 15% 20%

Note: TV that is able to be connected directly via Ethernet, cable or Wi-Fi.

Source: YouGov as cited in press release, Dec 14, 2011. Retrieved from eMarketer

231
Figure 14 Smart TV ownership in 2011 in Europe – YouGov study

100%

90%

80%

70%

60%
40%
50% 64% 67% 57% 59% 56%
69% 64%
40%

30%
24%
20% 8% 6%
10%
8% 7%
5% 8%
10% 18%
11% 12% 13% 13% 15%
10% 9%
0%
UK USA Germany Finland UAE & KOS Sweden Denmark France

Own Smart TV / Internet connected TV Intend to purchase next 12 months

Not sure/no intention to purchase

Which, if any, of the following devices do you own or intend to purchase in the next 12 months? – Smart TV/Internet connected television. Base % owners of Smart TV
(n=991 – 4 457) Source: YouGov

231
http://www.theguardian.com/media-network/media-network-blog/2012/feb/15/smart-tv-take-up
Figure 15 Smart TV sales and market share in the UK 2011-2013

Smart TV sales and market share in the UK

30% 28% 700

25% 600
23%
22%
21%
20% 500
20% 18%
17% 17%
15% 400
15%
300
10%
200

5% 100

0% 0
Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013

Market share (%) Sales Units (000s)

Source: GfK

232
The findings of the 2013 Concentra Marketing Research (the only 2013 survey we found
including the most of European larger countries).

“Germany trails behind other European countries in flat screen adoption but the UK is a laggard
among advanced markets in smart TV penetration, according to a survey of consumers.

According to the survey by Concentra Marketing Research for German consumer electronics trade
association the GFU, over a third of Germans, or 34%, have smart TVs, a higher proportion than the
UK, where only 21% have smart TVs. Higher proportions have smart TVs in France, with 42%,
Turkey, with 40% and Poland, with 36%. Other laggards include the Netherlands, with 26%, Spain,
with 26% and Italy, with 28%.

UK consumers that do have smart TVs are however more likely to connect them to the internet, with
86% hooking up. This compares with 79% of French smart TV owners, 76% of the Dutch and 73% of
Turks. Fifty-eight per cent of Germans with smart TVs connect them to the internet.

Smart TV functionality has a significant impact on decisions to purchase TVs in Turkey, Spain and the
UK. Price was a significant factor particularly in the Netherlands, Belgium and France, with fewer
Germans citing price as a significant factor.

Germany is trailing other countries in Europe when it comes to flat screen TV adoption, with 80% of
Germans now having a flat screen device in their homes compared with 91% of Britons.

Concentra Marketing Research surveyed 1,000 households in Germany and 7,000 in eight other
countries.”

As the sample surveyed by the Concentra Marketing Research is rather small (1000 households for
Germany) and was commissioned by a business association, those figures should be interpreted with
care.

232
http://www.digitaltveurope.net/77992/european-smart-tv-adoption-rates-compared/
14.2.2 The differences in statistics: Connected TV vs. Smart TV
As Smart TVs were named so in late 2011 and 2012, certain confusion still reigns between the 2
significations. This section is only to show that while the two terms design a TV set that can access
the web, either through an in-built Internet connection (Smart TV), either through a connected device
(internet Set-Top box, game console, dongles etc…), a difference exists in the equipment of
households in those two devices. We managed only to find statistics of this difference in the US
through eMarketer. While the US Connected TV households represented 29.3% of total households in
2013, those equipped with a Smart TV represented 18.8% in 2013. The difference projected for the
two terms for the years 2011 to 2016 is around 10 percentage points of total households and reflects
the choice of the customer: buy a Smart TV or render a TV smart through a connected device.

233
Figure 16 US Connected TV Households 2011-2016
US Connected TV Households, 2011-2016
60 50.0%
43.1%
50 38.7%
34.2% 40.0%
30.8% 31.0% 52.7
40 47
24.2% 30.0%
30
29.3%
41.3
17.5% 20.0%
20 22.5% 13.9%
18.2% 35.1 12.1%
10 21.6 26.8 10.0%

0 0.0%
2011 2012 2013 2014 2015 2016

Connected TV households (millions) % change % of total households

Note: households with at least one connected TV set, where at least one person of any age uses the internet through a connected TV at least once per month.

Source: eMarketer, January 2013

234
Figure 17 US Smart TV households 2011-2016

US Smart TV Households, 2011-2016

50 90.5% 100.0%
40 80.0%
80.7% 49.3% 40.2
35.9
30 60.0%
29.2
20 28.8% 29.5% 40.0%
8 15.2 22.6
18.8%
10 12.7% 32.8% 20.0%
6.7%
24.1% 23.2%
0 11.9% 0.0%
2011 2012 2013 2014 2015 2016

Connected TV households (millions) % change % of total households

Note: households with at least one smart TV set, where at least one person of any age uses the internet through a smart TV at least once per month

Source: January 2013

233
http://www.emarketer.com/newsroom/index.php/emarketer-quarter-households-tv-connected-internet/
234
http://www.emarketer.com/newsroom/index.php/emarketer-quarter-households-tv-connected-internet/
14.2.3 The global on-demand video market for connected TVs
Finding definitive numbers for the Smart TV on-demand video market was not possible. Idate
published projected figures for the global video service market on Connected TVs (difference between
Connected TV and Smart TV as stated in the section before). The global video service market is set to
rise to 2.5 billion euro in 2016 (Figure 18), with SVoD service taken nearly 1/3 of this market (32%),
followed by AVoD services (premium, e.g. long format) at 31%. VoD service (Transactional VoD) is
taken up 27% of this 2.5 billion € market and advertising financed short clips 10% (Figure 19).

235
Figure 18 Global Evolution of the video service market on Connected TVS 2011-2016

236
Figure 19 Ventilation of the global video service market on Connected TVs 2016

27%
31%
Ad premium
Ad short clips
SVoD
VoD

10%

32%

Source: IDATE, Service de veille TV conectée, Juillet 2012

North America will represent the main source of revenue unsurprisingly in 2016 with 61%, followed

235
http://blog.idate.fr/le-marche-mondial-de-la-tv-connectee/
236
idem
by Europe with 28% and Asia Pacific at 8%. This is in line with the actual situation on on-demand
video markets where US consumers are generating the most revenue for VoD service providers, be it
AVoD (YouTube, Hulu), TVoD (iTunes, Xbox, Vudu) or SVoD (Netflix, Amazon, Hulu Plus).

237
Figure 20 Ventilation of the global video service market in 2016 by geography
8%

3%

28%

Europe
North America
Asia Pacific
Latin America

61%

Source: IDATE, Service de veille TV conectée, juillet 2012

The global video service market is set to dramatically increase over the next 4 years if the projection
by Idate is right. As consumers equip themselves more and more with Smart TVs as the section
before has shown, VoD providers are taken advantage of this trend by proposing their services,
through an application on Smart TVs. This is a future source of revenue for VoD service providers and
leads towards the concept of TV as an app. But the prerequisite for this future to materialize is to have
widespread platforms for TV apps, the main obstacle being the cost of development and updating of
those apps. The fragmentation of Smart TV app platforms seems to be one of the major obstacles yet
to be overcome. The industry is making alliances in order to promote a common programming
standard (Smart TV Alliance, the European HbbTV standard, Android TV, Chinese Smart TV
platforms). This issue must be further analysed.

237
http://blog.idate.fr/le-marche-mondial-de-la-tv-connectee/
 Table of tables

(December 2013) 29
Introduction Table 9 EU – Number of services by
distribution mode 30

1 Definitions 9 Table 10 EU – Number of services by

distribution mode (OTT only, TV
Table 1 On-demand audiovisual services - platforms, multiplatform) 31
Classification of on-demand Advertising-financed on-demand
audiovisual services 11
audiovisual services
Table 2 Technical arrangements for the
transmission of on-demand
audiovisual services 14 3 The online advertising market 37
Table 3 Availability of the main on-demand Table 1 Digital Ad Spending in Western
audiovisual services through Europe, by country, 2011-2017 40
platforms in Europe (January 2014) 16
Table 2 Digital Ad Spending Share in
Western Europe, by country, 2011-
2017 41
2 THE MAVISE DATABASE AND
THE CENSUS OF ON-DEMAND Table 3 Digital ad spending in Central &
Eastern Europe, by country, 2011-
AUDIOVISUAL SERVICES 18
2017 42
Table 1 Comparison between the number of
Table 4 Internet User Penetration in Central
on-demand audiovisual services
& Eastern Europe, by Country,
identified by the national regulatory
2011-2017 42
authorities and the MAVISE
database (2013) 19 Table 5 Internet user penetration in
Western Europe, by country, 2012-
Table 2 Services from non-European
2017 42
countries targeting Europe 20
Table 6 Net digital ad revenue share
Table 3 Number of on-demand audiovisual
worldwide, by company, 2011-2013 45
services by country of
establishment and by genre Table 7 Net Mobile Internet Ad Revenue
(February 2014) 21 Share Worldwide, by Company,
2011-2013 45
Table 4 Number of VoD services available
(all genres except Adult) in the EU Table 8 US TV* vs. digital video** ad
by country of establishment spending, 2011-2017 48
(February 2014) 22
Table 9 US TV* vs. digital** ad spending,
Table 5 Ownership of VoD services 2011-2017, in USD billions 48
available in the EU by country and
Table 10 Ad tactics in which US agency
by origin of parent (controlling)
executives expect to see the
company 24
highest and lowest growth, March
Table 6 Ownership of VoD services 2013 49
available in the EU by country and
Table 11 Mobile Internet ad spending in
by origin of parent (controlling)
Western Europe, by country, 2011-
company, in % 26
2017 52
Table 7 Number of legal VoD services
Table 12 Mobile phone Internet user
available by country in Europe
penetration in Western Europe, by
(December 2013) 27
country, 2012-2017 53
Table 8 Other types of on-demand
Table 13 Tablet user penetration in the EU-5,
audiovisual services in Europe
 by country, 2010-2016 53 2016 in % change 86
Table 14 Tablet user growth in the EU-5, by Table 33 Online video ad spend in the United
country, 2011-2016 53 Kingdom (2011-2012) 88
Table 15 Smartphone video/TV viewers in Table 34 US online video ad CPM by
the EU-5, by country, June 2013 % inventory tier 2010-2017 89
of change versus same period in
previous year 54
Table 16 Social network user penetration in 4 Types of advertising-supported on-
Western Europe, by country, 2011- demand audiovisual services 93
2017 56
Table 17 Social network user growth in
Western Europe, by country, 2011- 5 Audience data: comScore’s Video
2017 56 Metrix 94
Table 18 Facebook users in Western Table 1 GB – Summary key statistics 2013
Europe, by country, 2011-2017 57 (first 9 months) 96
Table 19 Social network ad spending per Table 2 GB – Annual monthly average
social network user worldwide, by 2008-2013 96
region, 2012-2015 57
Table 3 United Kingdom – Top 20 by
Table 20 Programmatic digital video ad visitors - September 2013 96
spending in the EU-5, 2012-2017 58
Table 4 United Kingdom - Top 20 by
Table 21 Programmatic video ad spending minutes - September 2013 96
share in the EU-5, 2012-2017 58
Table 5 DE – Summary key statistics 2013
Table 22 US and worldwide* programmatic (first 9 months) 97
display ad spending, 2011-2017 59
Table 6 DE - Annual monthly average 2008-
Table 23 Top 10 country rankings in 2012 in 2013 97
Europe by online advertising ad
Table 7 FR – Summary key statistics 2013
spend 70
(first 9 months) 98
Table 24 Online ad spend compared to total
Table 8 FR – Annual monthly average
ad spend 2008 -2014 France 71
2008-2013 98
Table 25 Online ad spend compared to total
Table 9 France – Top 20 by visitors -
ad spend 2008 -2014 Germany 72
September 2013 98
Table 26 Online ad spend compared to total
Table 10 France – Top 20 by minutes -
ad spend 2008 -2014 United
September 2013 98
Kingdom 73
Table 11 ES – Summary key statistics 2013
Table 27 Online ad spend compared to total
(first 9 months) 99
ad spend 2008 -2014 Italy 74
Table 12 ES – Annual monthly average
Table 28 USA – Net Online display ad
2010-2013 99
revenue of Top 5 ad-selling
companies 82 Table 13 Spain – Top 20 by visitors -
September 2013 99
Table 29 USA – Top online video content
properties ranked by unique video Table 14 Spain – Top 20 by minutes -
viewers 82 September 2013 99

Table 30 Top online video ad properties Table 15 IT – Summary Key statistics 2013
ranked by unique video viewers 83 (first 9 months) 100

Table 31 Online display ad spending in Table 16 IT – Annual monthly average 2010-

Western Europe by format 2011- 2013 100
2016 in € millions 85
Table 17 Italy – Top 20 by visitors -
Table 32 Online display ad spending in September 2013 100
Western Europe by format 2011-
Table 18 Italy – Top 20 by minutes -
 September 2013 100 Table 14 Poland - Consumer level digital
video and TV VoD, 2007-2012 124
Table 19 Netherlands – Top 20 by visitors -
September 2013 101 Table 15 Portugal - – Consumer level digital
video and TV VoD, 2007-2012 124
Table 20 Netherlands – Top 20 by minutes -
September 2013 101 Table 16 Spain - Consumer level digital
video and TV VoD, 2007-2012 125
Table 17 Sweden - Consumer level digital
Transactional video on-demand video and TV VoD, 2007-2012 125
services
Table 18 United Kingdom - Consumer level
digital video and TV VoD, 2007-
6 Types of transactional VoD service 104 2012 125
Table 19 United Kingdom digital retail market
shares 2012 in % value, 2012 (total
7 Strategies of selected international value £96 million) 127
players 105 Table 20 GB - Digital retail market shares
2012, in % volume 128
Table 21 GB- Digital rental market shares
8 VoD market statistics 117 2012 by volume – Total VoD 129
Table 1 Consumer level digital video and Table 22 GB - Digital rental market shares by
TV VoD 2010- 2012 IVF Yearbook volume 2012 - iVoD 130
in EUR million 117
Table 23 GB - Digital rental market shares by
Table 2 Europe – IVF Video Yearbook 2013 volume 2012 – SvoD 131
- Consumer level digital video and
Table 24 GB - Digital rental market shares
TV VoD, 2007-2012 120
2012 in Volume – TV VoD 132
Table 3 United States – IVF Video
Table 25 France - Ranking of VoD services
Yearbook 2013 - Consumer level
by % of customers 2011-2012 135
digital video and TV VoD, 2007-
2012 120 Table 26 French VoD market, in EUR million 136
Table 4 Belgium - Consumer level digital
video and TV VoD, 2007-2012 121
Subscription on-demand audiovisual
Table 5 Denmark - Consumer level digital
services
video and TV VoD, 2007-2012 121
Table 6 Finland - Consumer level digital
video and TV VoD, 2007-2012 121 9 Types of services 141
Table 7 France - Consumer level digital
video and TV VoD, 2007-2012 122
10 Subscription video on demand
Table 8 Germany - Consumer level digital
(SVoD) 142
video and TV VoD, 2007-2012 122
Table 1 Main SVoD services in EU-5 and
Table 9 Hungary - Consumer level digital
Nordics 143
video and TV VoD, 2007-2012 122
Table 2 Main US SVoD services and
Table 10 Ireland - Consumer level digital
catalogues 2012 145
video and TV VoD, 2007-2012 123
Table 3 Main subscription online movie
Table 11 Italy - Consumer level digital video
services in the Nordic region 2012 146
and TV VoD, 2007-2012 123
Table 4 Main SVoD services in Germany 146
Table 12 Netherlands - Consumer level
digital video and TV VoD, 2007- Table 5 MRG,- Research and Markets OTT
2012 123 SVoD market study 2012 151
Table 13 Norway - Consumer level digital Table 6 Exclusive content deals Modern
video and TV VoD. 2007-2012 124 Times Group Scandinavia and CEE
 2012 160 provided by public bodies
established in the EU (December
Table 7 Studio content rights belonging to
2013) 205
national pay-TV players, 2012 161
Table 2 Provision of on-demand audiovisual
Table 8 Netflix and LOVEFiLM :catalogue
services by public broadcasters in
comparison in the UK 2012 165
the EU (March 2014) 206
Table 9 Original programming of Netflix,
Hulu Plus and Amazon Prime 2011-
2013 168
Table 10 US: time-shifted TV viewers who Sample study on the presence of
have binge-viewed TV series, by selected European works in VoD
demographics, Feb 2013 175
providers catalogues
Table 11 Ways US Internet users have
watched time-shifted TV series,
Feb 2013 176 13 Sample study 211
Table 1 The 25 European blockbusters 213

11 Examples of the strategies of the Table 2 The 25 European Film Award

main players - Netflix 182 winners 214

Table 1 Netflix subscribers 2001 – 2007 183 Table 3 Sample movie titles found by
numbers in VoD providers
Table 2 Netflix Revenue and Income 2001- catalogues 215
2007 183
Table 4 Percentage of sample movies
Table 3 Netflix P&L 2007-2010 186 found in VoD providers catalogues 215
Table 4 Netflix main financial ratios 2007- Table 5 National VoD providers by country 215
2010 186
Table 6 Means of prominence - Denmark 218
Table 5 Netflix Balance sheet 2007-2010 186
Table 7 Means of prominence - France 218
Table 6 Netflix’s Content library 187
Table 8 Means of prominence - Italy 218
Table 7 Top 10 peak period applications in
North America – Fixed access 195
Table 8 Online movie market share in the Connected TVs and connected
US in 2011 196 devices
Table 9 Netflix’s revenues and net Income
2010-2012 197
14 Smart TV and Apps 229
Table 10 Netflix’s main financial ratios 197
Table 1 Gartner TV Market Replacement
Table 11 Netflix’s subscribers 2010-2012 198 Mode 232
Table 12 Netflix’s balance sheet 2010-2012 198
Table 13 Streaming content obligations in Table of tables 244
2012 198
Table 14 Netflix content library 2011-2012 199
Table 15 Netflix segment information 2012 199

On-Demand audiovisual services of

public broadcasters

12 Services financed by public funds 205

Table 1 On-demand audiovisual services
 Table of figures

Figure 10 Growth of - online display – display

Introduction excluding video ads – display
excluding video and mobile Europe
2012, in % 44
1 Definitions 9
Figure 11 Size of online video advertising by
country – Europe 2012 46

2 THE MAVISE DATABASE AND Figure 12 Online video share of display

THE CENSUS OF ON-DEMAND advertising, Europe 2012 46
AUDIOVISUAL SERVICES 18 Figure 13 Online video growth – Europe 2012 47
Figure 1 Number of VOD services available Figure 14 Likelihood of Media Buyers shifting
(all genres except Adult) in the EU more TV dollars to digital video
by country of establishment 23 according to senior US executives,
Figure 2 Figures for the ownership of VoD June 2013 47
services available in the EU by Figure 15 Factors that will affect the increase
country and by origin of parent in digital video spending according
company 25 to marketing professionals
Figure 3 EU-5, ownership of available VoD worldwide, April 2013 49
services by country and by origin of Figure 16 Branded video ad views worldwide,
parent company, in % 25 Q3 2012 - Q3 2013 50
Figure 17 Formats of digital video on which
marketing professionals worldwide
Advertising-financed on-demand
plan to increase spending, April
audiovisual services 2013 50
Figure 18 Ability of marketing professionals
3 The online advertising market 37 worldwide to achieve a better
share of awareness and
Figure 1 Total online advertising in Europe engagement with digital video than
2011-2012 38 TV*, April 2013 51
Figure 2 Format shares of online advertising Figure 19 Share of mobile display advertising
Europe 2011-2012 38 of total online display advertising in
Figure 3 Europe online ad format growth by Europe, 2011 & 2012 52
category 2011-2012 39 Figure 20 Social network ad spending in
Figure 4 Advertising market in Europe, by Western Europe, 2012-2015 in
medium 2012 39 USD billions, % change and % of
digital ad spending 55
Figure 5 Online market share of ad budgets
2006-2012 Europe 40 Figure 21 Social network ad spending in
Central and Eastern Europe, 2012-
Figure 6 Digital Ad Spending in Western 2015 in USD millions, % change
Europe, by Format, 2011-2017 in and % of digital ad spending 55
USD billions 41
Figure 22 Online advertising market
Figure 7 Total online ad spend by country worldwide 2012-2016 61
2012 43
Figure 23 Online advertising’s share of total
Figure 8 Share of online ad revenue by media by market 2012-2016 63
market in Europe 2012 43
Figure 24 Breakdown of online advertising
Figure 9 Growth of online display ads in market by segment worldwide 2012
Europe 2012, in % 44 and 2016 64
Figure 25 Breakdown of online advertising online display, Europe 2011 91
per-user revenue per year by
Figure 49 Video websites’ worldwide ranking
segment 2012 and 2016 65
by unique viewers in January 2013 91
Figure 26 Economic and ad growth 2011
Figure 50 Broadband household penetration
Europe 66
in USA and Western Europe 2000-
Figure 27 Europe online formats 2011 and 2014 91
2012 67
Figure 28 Europe online ad growth by format 67
4 Types of advertising-supported on-
Figure 29 Online ad format by share of total
demand audiovisual services 93
online advertising 68
Figure 30 Top 7 online advertising markets
represent a share of 75% 68 5 Audience data: comScore’s Video
Figure 31 Growth in European online Metrix 94
advertising market 69
Figure 1 GB – Unique Viewers – Monthly
Figure 32 USA: evolution of ad formats 2011 - data – 2008-2013 96
2012 76
Figure 2 GB – Videos per viewer – Monthly
Figure 33 USA – Advertising format share data – 2008-2013 96
2006-2012 77
Figure 3 GB – Time per viewer – Monthly
Figure 34 USA – Online ad revenue share by data – 2008-2013 96
number of companies 78
Figure 4 GB – Unique viewers – Annual
Figure 35 USA – Pricing model rises and falls monthly average 2008 - 2013 96
2011 - 2012 79
Figure 5 GB – Videos per viewer – Annual
Figure 36 USA – Internet ad revenues by monthly average 2008-2013 96
pricing model 80
Figure 6 GB – Time per viewer – Annual
Figure 37 USA – advertising revenue market monthly average 2008 - 2013 96
share by media 2011 80
Figure 7 DE - Unique Viewers – Monthly
Figure 38 USA – advertising revenue market data – 2008-2013 97
share by media 2005-2012 81
Figure 8 DE – Videos per viewer – Monthly
Figure 39 LUMA online display advertising data – 2008-2013 97
ecosystem 84
Figure 9 DE – Time per viewer – Monthly
Figure 40 Online display advertisement data – 2008-2013 97
industry structure 85
Figure 10 DE – Unique viewers – Annual
Figure 41 Europe: mobile display ads as monthly average 2008 - 2013 97
share of online display 86
Figure 11 DE – Videos per viewer – Annual
Figure 42 Video advertising as share of online monthly average 2008-2013 97
display ads in Europe 87
Figure 12 DE – Time per viewer – Annual
Figure 43 IP-delivered net video revenue by monthly average 2008 – 2013 97
market in € million 87
Figure 13 Germany - Top 20 by minutes -
Figure 44 US digital video ad spending 2011- September 2013 97
2017 88
Figure 14 Germany – Top 20 by visitors -
Figure 45 USA – online video reels in ad September 2013 97
revenue 89
Figure 15 FR - Unique viewers – Monthly data
Figure 46 Brand advertising as a share of – 2008-2013 98
online display, Europe 2008 90
Figure 16 FR – Videos per viewer – Monthly
Figure 47 Brand advertising as a share of data – 2008-2013 98
online display, Europe 2010 90
Figure 17 FR – Time per viewer – Monthly
Figure 48 Brand advertising as a share of data – 2008-2013 98
Figure 18 FR – Unique viewer – Annual 8 VoD market statistics 117
monthly average 2008 - 2013 98
Figure 1 Ranking of EU on-demand markets
Figure 19 FR – Videos per viewer – Annual by size 2010-2012 in EUR million 119
monthly average 2008-2013 98
Figure 2 United Kingdom digital retail market
Figure 20 FR – Time per viewer – Annual shares, 2012 in % value 127
monthly average 2008 - 2013 98
Figure 3 GB - Digital retail market shares
Figure 21 ES - Unique viewers – Monthly data 2012 by volume 128
– 2010-2013 99
Figure 4 GB - Digital rental market shares
Figure 22 ES – Videos per viewer – Monthly 2012 by volume - Total VoD 129
data – 2010-2013 99
Figure 5 GB - Digital rental market shares
Figure 23 ES – Time per viewer – Monthly 2012 by volume - iVoD 130
data – 2010-2013 99
Figure 6 GB - Digital rental market shares
Figure 24 ES – Unique viewers – Annual 2012 by volume - SVoD 131
monthly average 2010 - 2013 99
Figure 7 GB - Digital rental market shares
Figure 25 ES – Videos per viewer – Annual 2012 by volume – TV VoD 132
monthly average 2010-2013 99
Figure 8 Germany - Market shares of TVoD
Figure 26 ES – Time per viewer – Annual services (1 half 2012) 133
monthly average 2010 - 2013 99
Figure 9 VoD market in Germany 2007-2018
Figure 27 IT - Unique viewers – Monthly data (projection based on the
– 2010-2013 100 expectation that one big SVoD
Figure 28 IT – Videos per viewer – Monthly player will win/arrive on the German
data – 2010-2013 100 market 134

Figure 29 IT – Time per viewer – Monthly Figure 10 France – VoD market figures 2007-
data – 2010-2013 100 2011 135

Figure 30 IT – Unique viewer – Annual

monthly average 2010 – 2013 100
Subscription on-demand audiovisual
Figure 31 IT – Videos per viewer – Annual services
monthly average 2010-2013 100
Figure 32 ES – Time per viewer – Annual
monthly average 2010 - 2013 100 9 Types of services 141
Figure 33 NL - Unique viewers – Monthly data
– Aug/Sept 2013 101
10 Subscription video on demand
Figure 34 NL – Videos per viewer – Monthly (SVoD) 142
data – Aug/Sept 2013 101
Figure 1 USA- Number of Channels with TV
Figure 35 NL – Time per viewer – Monthly Everywhere 144
data – Aug/Sept 2013 101
Figure 2 Global presence of US players in
2012 145
Transactional video on-demand Figure 3 Online video versus TV VoD in Italy
services 2007-2012 147
Figure 4 Online video markets in the US
HY2 2010 - HY1 2012, in USD
6 Types of transactional VoD service 104
billion 148
Figure 5 Netflix subscribers – US streaming,
US DVD, inter. streaming 2010-
7 Strategies of selected international
2013, in million 148
players 105
Figure 6 Hulu Plus subscribers 2010-2013 149
Figure 7 OTT SVoD market share for TV
 shows in the US 2012-2013, in % of Figure 27 Percentage of European
shows streamed 149 smartphone owners that also have
a tablet, EU-5, 2012 171
Figure 8 Use of paid OTT video providers in
the US 2012, in % of users of paid Figure 28 Long-form video viewing by device,
OTT services 150 Q2 2013, USA 172
Figure 9 European subscribers to Netflix and Figure 29 Multiscreen of US on-demand
LOVEFiLM in 2012 152 services 172
Figure 10 Online video market by business Figure 30 Device mix of Netflix, Hulu, iPlayer,
model, USA 2012, in % 152 March 2011 173
Figure 11 Online video market by business Figure 31 Devices Netflix and Hulu
model, international markets, 2012, subscribers stream 2012 – 2013 174
in % 153
Figure 32 Devices used by US subscribers to
Figure 12 Breakdown in FR, GB and DE of access Netflix’s streaming service 174
the video-on-demand market
Figure 33 Binge viewing in the US by age
between managed networks and
groups 175
OTT, 2012 154
Figure 34 Top 15 countries by average
Figure 13 SVoD OTT movie revenues in 17
broadband connection speed, Q2
EU countries 2004-2016, in EUR
2013 177
million 155
Figure 35 Number of broadband households
Figure 14 SVoD OTT movie subscribers in 17
in the Nordics 2012 178
EU countries, 2004-2016, in EUR
million 155 Figure 36 Netflix’s R&D expenditure 178

Figure 15 Total subscription revenue – SVoD Figure 37 Connected TV turnover by service

+ pay-TV in 17 EU countries 2004- 2012 179
2016, in EUR million 156
Figure 38 Development of market for video
Figure 16 Consumer revenue on paid-for- services on connected TVs 2011-
movie and TV content 2007-2016 156 2016 179

Figure 17 Percentage of people in the US Figure 39 Breakdown of video services on

who use or subscribe to OTT SVoD 157 connected TVs by 2016 180

Figure 18 Netflix’s revenue and subscriber Figure 40 Breakdown of the connected TV

forecast 2012-2017 158 video market by territories in 2016 180

Figure 19 US content spending by pay-TV Figure 41 Release windows for films in the
and SVoD services 162 UK, Germany, USA and France 181

Figure 20 Netflix’s content obligations 2010-

2012 163
11 Examples of the strategies of the
Figure 21 Netflix’s 200 most watched video
main players - Netflix 182
content compared to availability on
Amazon, Hulu, Redbox 164 Figure 1 Netflix key figures 2001-2007 183

Figure 22 Netflix’s and Lovefilm’s movies Figure 2 Netflix’s subscribers 2007-2010 187
compared by release date 165
Figure 3 Netflix key figures 2007-2010 188
Figure 23 Importance of original programming
Figure 4 Netflix traffic in the USA 2010-2012 194
when selecting an SVoD service,
USA 2013 169 Figure 5 Revenue share in the US online
movie market in % 196
Figure 24 Mobile Internet users and
penetration in EU5 2009-2015 170 Figure 6 Netflix’s main financial data 2007-
2012 201
Figure 25 Year-on- year growth of
smartphone users watching video Figure 7 Netflix’s main financial data 2007-
or TV in EU-5, 2012-2013 170 2012 201

Figure 26 Tablets – installed bases in EU-5 171 Figure 8 Netflix subscribers 2007-2012 202
On-Demand audiovisual services of 2016 233
public broadcasters Figure 9 Q1 2012 Global Smart TV
Shipments by Brand 234

12 Services financed by public funds 205 Figure 10 Claimed take-up of connected TVs
and 3D-ready TVs 2012 235
Figure 11 Accessing TV content over the
Sample study on the presence of internet, by connected TV
selected European works in VoD ownership 236
providers catalogues Figure 12 Take-up of DVR, connected TVs
and 3D-ready TVs 236
Figure 13 Smart TV Owners November 2011 237
13 Sample study 211
Figure 14 Smart TV ownership in 2011 in
Figure 1 Big 4 TVoD services available
Europe – YouGov study 237
world-wide by number of countries 219
Figure 15 Smart TV sales and market share
Figure 2 Number of sample titles found in
in the UK 2011-2013 238
VoD Catalogues in Germany 220
Figure 16 US Connected TV Households
Figure 3 Number of sample titles found in
2011-2016 239
VoD Catalogues in France 220
Figure 17 US Smart TV households 2011-
Figure 4 Number of sample titles found in
2016 239
VoD Catalogues in Belgium 222
Figure 18 Global Evolution of the video
Figure 5 Number of sample titles found in
service market on Connected TVS
VoD Catalogues in Italy 222
2011-2016 240
Figure 6 Number of sample titles found in
Figure 19 Ventilation of the global video
VoD Catalogues in the Netherlands 223
service market on Connected TVs
Figure 7 Number of sample titles found in 2016 240
VoD Catalogues in Denmark 225
Figure 20 Ventilation of the global video
Figure 8 Number of sample titles found in service market in 2016 by
VoD Catalogues in Poland 225 geography 241

Connected TVs and connected Table of tables 244

devices
Table of figures 249
14 Smart TV and Apps 229
Figure 1 Worldwide Smart TV shipments
2010 – 2013 230
Figure 2 Worldwide Smart TV shipments
2010 - 2016 230
Figure 3 Average Age of TVs Replaced/To
Be Replaced (in Years) 230
Figure 4 TV Purchase Drivers 231
Figure 5 New TV tech life cycle 231
Figure 6 Global Smart TV shipment 2011-
20717 232
Figure 7 Q2’12 Smart TV Shipments by
Region (000s) 233
Figure 8 Smart TV Shipment Forecast 2011-
European Commission

On-demand audiovisual markets in the European Union

Luxembourg, Publications Office of the European Union

April 2014 – 253 pages

ISBN 978-92-79-38425-7
DOI 10.2759/51823
 KK-02-14-640-EN-N

DOI 10.2759/51823 ISBN 978-92-79-38425-7