The Changing Environment of Video Advertising

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1 WhitePaper The Changing Environment of Video Advertising Video. Personal. Everywhere.

2 White Paper Introduction While the technology industry today moves in evolutions, not revolutions, you d be hard-pressed to find anyone who disagrees that the ways in which people watch and interact with video content are changing. The introduction of ubiquitous broadband, enhanced viewing experiences on Internet platforms, and devices that enable this content anywhere, has caused a fundamental shift in the landscape. The extension of video to new platforms has had a profound effect on consumers as eyes are shifting to new screens and causing advertisers to rethink their approach to video advertising. This white paper will focus on the factors contributing to the shift in video, the changing advertising environment, discuss new trends in video advertising and review the latest SeaChange advertising solution focused on creating additional monetization opportunities in the new environment. About SeaChange SeaChange International, a market leader in video advertising, has been a provider of world-class video advertising solutions since SeaChange has pioneered a number of advertising technology advancements as well as award winning advertising technologies including a Cable & Satellite International Award for a dynamic advertising solution delivered to Virgin Media and an IBC award for advertising innovation. With a history of delivering innovative advertising solutions to some of the world s largest service providers, SeaChange consistently enables them with the necessary tools to help them monetize their content in today s environment.

3 The Adoption of New Screens The explosion of mobile devices, coupled with a number of cloud and content technologies, have made a true TV Everywhere experience possible. In 2011, smartphone/tablet sales rose 68% and for the first time, outpaced PC sales. The popularity of tablets is growing at a rapid rate within the US, with a sales growth of 247% in 2011; already eclipsing more than 20 million devices sold.¹ Amazon itself has sold an average of 1 million Kindle Fire tablets per week since their introduction at the end of How People Watch TV/Video How People Watch TV/Video (Millions of Viewers, ages 2 and up) (Millions of Viewers, ages 2 and up) Traditional TV Internet Timeshifted TV Mobile Figure 1 Nielsen Figure 1 Nielsen It is clear that digital content has become a large part of consumers daily mobile usage. During the last three months of 2011, 26.3 million mobile consumers viewed video on a mobile device.² Furthermore, 1.2 billion people aged 15 and older watched billion videos online during October 2011.³ The staggering amount of video consumed is a clear result of consumers ability to access content regardless of their location. Video consumption on Internet-connected devices, while not necessarily rivaling traditional TV, is changing the way people consume their content. 1 canalys 2012 ² ³

4 White Paper Increase in viewing time within the home ⁴ +36.9% Mobile Video Users +13.8% Timeshifting Time Spent Among All TV Homes +7.1% Internet Video Time Spent Among Users 100 Million Americans Watch Online Video per Day Up 43% Since 2010 ⁵ Shifting Video Advertising Trends The growth in Internet video and the influx of Internet-connected devices are increasing video consumption via non-traditional platforms. Americans streamed a total of 43.5 billion videos in December 2011, which is up 44% since December It is now estimated that the average viewer currently watches 239 online videos per month. As a result of the shift, the video advertising volume is rising faster than total videos streamed. Video ad volume is up 20% from last year and now serves over 7.1 billion ads annually.⁶ The movement towards new screens and the growth in the popularity of Internet video has developed a natural inclination for advertisers to reach consumers on these new platforms. According to a recent advertising report, US online video ad spending is expected to grow 43.1% in 2012.⁷ In 2011, mobile advertising grew 65% ($1.23 billion) from 2010 totals. Advertisers are continuing to find the value in employing multiple screens for their advertising campaigns to reach additional audiences, as well as interact with consumers. ⁴ Nielsen Q vs. Q Comscore video metrix ⁵ ⁶ ⁷

5 Initial Success of Internet and TV Ad Mix The integration of ads into new screens and platforms is providing the opportunity to reach extended audiences with impressive results. A recent study done by Nielsen affirmed the value in combining online and TV advertising as a complimentary pair during campaigns. During a sample campaign, the study showed an improved reach of approximately 6 million+ people through the Internet but not on the TV, equaling a 7% increase. Other results included: Improved the frequency in which viewers saw the ads (those exposed 3+ times rose by 31% and those exposed 6+ times rose by 52%) Reduced the overall cost-per-view by 11% Improved the brand recall by 36% During another sample study by Nielsen to further determine the effectiveness of multi-screen advertising, a sample group provided similar results. After showing the sample group a number of videos and advertisements, they were questioned about a particular ad for Volvo. All viewers were shown each commercial the same number of times but some viewers saw it on a TV, while others saw it on a variety of screens including TV, PC, mobile, etc. The results showed: Recall rate for those who saw it on multiple screens = 74% Recall rate for those who saw it on TV alone = 50% Those viewing on multiple screens recalled more details about the ads The Evolution of Multi-Screen Advertising The advancements in multi-screen ad delivery are increasing at a rapid rate and can be measured by a number of technology hurdles that are paving the way towards a new advertising environment. Until now, the major issues facing multi-screen deployments in general were basic technical issues allowing content to become available on multi-screen devices such as tablets, smartphones and the web. In addition, there are three major formats that need to be supported including Apples HLS, Adobe HDS and Microsoft Smooth Streaming. It is thought there will be four natural progressions for MSV (Multi-Screen Video) advertising in which overall ad engagement will progress. These include: 1. Retransmission The first basic step was the ability to take content that was linear, time-shift TV or video-on-demand (VOD) and make that available on all the devices in all the formats that are listed above. In the past year, the number of content distributors in the US that were retransmitting has increased from five in 2010 to 55 in 2011.

6 White Paper Awareness (Aided Recall) ⁸ "From the list below, do you recall seeing any advertisements for the following brands?" % Indicating Aided Recall of Volvo Ad 74% 50% Ad Exposure: TV Only Ad Exposure: TV + PC + Phone + Tablet 2. Replacement Ads The next step is to take the retransmitted content and replace the ads that are in the payload, in the case of linear TV, or putting in a different ad payload in the case of VOD. This step has the natural advantage of allowing the content distributor or content creator the ability to monetize the multi-screen retransmissions that they have already undertaken. There are two different ways that the ads can be monetized: A new ad opportunity can be sold. This is the traditional ad model for a scheduled ad that can be sold by the content provider and/or the content distributor just on a new medium. or A coordinated ad can complement the ad that is being aired on the big screen. This could be the same exact ad or it could be a different ad emphasizing the same content. ⁸

7 3. Targeting/Addressability VOD advertising and time-shift TV have always been targetable based on the fact that each individual user is delivered an individual IP stream for the content they are viewing, even on traditional TVs. However, traditional linear TV has been limited to targeting that is based on the local region where the ads are being replaced. This is due to the cost of doing the ad insertion, as well as cost of the network, as linear streams are distributed in multicast form to conserve bandwidth. This creates a major opportunity to target the ads in multiple ways that go well beyond the local region or zone where the end user is located. Traditional marketing demographics, user behavior analysis, and category preferences can be used to serve more relevant ads to specific audiences. 4. Coordinated Multi-screen Ads While the majority of video is still consumed on a TV within the home, the increase in second screen usage while watching TV has created an opportunity for new technologies, such as companion apps for smartphones or tablets. This allows consumers to interact with the content or advertisements in a more in-depth and coordinated manner, without interrupting the viewing experience on the big screen. To categorize the opportunities there are: Companion ads smart device in conjunction with TV viewership Coordinated ads smart device is the destination for video and there are coordinated banners, etc. The model below shows the projected evolution of multi-screen advertising. Targeted & Addressable Coordinated Multi-screen Replacement Retransmission We Are Here!

8 White Paper The Influence of The Cloud The emergence of the cloud has enhanced the ease at which consumers can quickly and easily access video content. In the process, cloud computing has provided several benefits to organizations and consumers alike who have adopted the technology to gain cost savings, increased storage, flexibility and mobility among others. The growth in the popularity of the cloud has had a significant effect on the way that people are storing and consuming content. In 2011, 1.8 zettabytes of content were uploaded or replicated through the cloud. (For perspective, it would require 57.5 billion 32G ipads to store the same amount of content.) Due to the projected increase of cloud storage, this number is expected to reach 966 exabytes by The emergence of cloud CDNs as a common video delivery method, along with the advances in video streaming, have enabled a true TV Everywhere experience that provides consumers easier access to video than ever before. Solution SeaChange Infusion The SeaChange Infusion Advanced Advertising Platform is the foundation for the new breed of both linear and VOD advertising operations. Born from the transition of high quality video content from the television to a vast array of new devices, Infusion manages tens of thousands of linear channels and millions of VOD subscribers, and provides personalized, dynamic advertising insertions through an open, standards-based, enterprise-class software platform. The solution represents the transformation of SeaChange s worldleading technologies to support increasingly web-centric and virtualized data centers. It provides an open platform supporting the latest technologies and standards and delivers extensive flexibility. Infusion Advantages Increased scalability handles up to 150,000 insertion channels Compliance with new standards including SCTE-130, IAB VAST, VPAID and new security standards Innovative open advertising architecture (ADS, ADR, CIS, POIS) is able to connect with other third-party components and partners Targeted multi-screen ad insertion capabilities on Android, Apple and Windows platforms Comprehensive web-based monitoring tools and real-time reporting Monetization platform campaign management tools for targeted linear/ VOD advertising campaigns

9 SeaChange Nitro SeaChange AdFlow SeaChange Infusion Opportunity for Service Providers With the shifting video landscape leading to new screens, service providers are uniquely positioned to succeed in successfully growing their advertising business. They have the necessary content rights, as well as the distribution infrastructure, including an existing traffic and billing system. The local advertising system already in place can provide the base to sell ads in the multi-screen video space. Advertising on multiple screens provides a new opportunity to capitalize on additional ad revenue from subscribers viewing on any platform regardless of their location. Inserting ads on multiple devices delivers a whole new range of opportunities to make ads more effective through ad targeting based on demographics, viewer habits, genres, subscriptions, etc. New advertising business models can also create opportunities for third-party ad decisions that provide an environment suited for ad bidding and additional monetization opportunities. Multi-Screen Advertising of the Future Since the introduction of interactive video technologies, consumers have proven to be more willing to engage in interactive media than the industry had originally estimated. The initial acceptance of second screen usage will remain a new area of opportunity to better retarget and engage consumers

10 White Paper in a controlled environment. Consumers second screen usage, mixed with the advertisers push to coordinate ads across screens, lends itself of the video advertising future as shown below. As an example, imagine you re watching a popular TV show from the comfort of your couch and there s a TV ad for a Samsung mobile phone. The companion application could detect that you re watching The Office and that a Samsung commercial is playing on your TV set. The companion app could in turn show you an interactive version of the Samsung ad on your tablet that allows you to see additional videos of the phone, download a coupon, find the nearest store that carries it and tell your friends you re going mobile phone shopping. This type of interactivity can drive more interactive engagement while keeping the TV viewing experience pristine. Service providers with an existing SeaChange Spot ad insertion system and an existing back office that streams to ipads and smartphones are uniquely suited for easy upgrade options.

11 86% of mobile Internet users are using their devices while watching TV 9 Conclusion The changing video environment continues to increase consumer dependency on connected devices due in a large part to the convenience of video content. As a result, advertisers have shifted the way they approach traditional video advertising. The growth of multi-screen advertising and the recent success stories are validating the value in placing video ads on multiple platforms. Meanwhile, Telcos and MSOs are uniquely suited to benefit from the numerous advertising opportunities available to their current infrastructure and subscriber base. SeaChange International, a global leader in advertising solutions, can deliver a next-gen solution capable of comprehensive multi-screen ad targeting and play a key role in driving new revenue opportunities in the cable and Internet space. 9

12 About SeaChange International One of the largest software companies in the world, SeaChange International (Nasdaq: SEAC) enables transformative multi-screen video services through an open, cloud-based, intelligent software platform trusted by cable, IPTV and mobile operators globally. Personalized and fully monetized video experiences on any device in the home and everywhere are the product of the Company s superior back office, advertising, content and in-home device offerings. SeaChange s hundreds of customers comprise many of the world s most powerful media brands including all major cable operators in the Americas and Europe, and the largest telecom companies in the world. Headquartered in Acton, Massachusetts, SeaChange is TL 9000 certified and has product development, support and sales offices around the world. Visit SeaChange International, Inc. 50 Nagog Park, Acton, MA USA T F _ SeaChange International, Inc. SeaChange Infusion is a trademark and SeaChange is a registered trademark of SeaChange International, Inc. All other trademarks and registrations are property of their respective companies. While every effort is made to ensure the information given is accurate, SeaChange does not accept liability for any errors or mistakes which may arise. All features,specifications, system requirements and/or compatibility with third party products described herein are subject to change at any time without notice.

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