The 2nd Screen: Transforming video consumption

Transcription

1 the intersection and the 2 nd Screen Society present: First Quarter, 2013: Are we on track? The 2nd Screen: Transforming video consumption by enabling companion experience applications and content everywhere April 7, 2013 Licensed document, do not copy, share or distribute Page 1

2 1. First Quarter, 2013 update. The first 3 months of 2013 has been explosive for 2 nd Screen. Apps have improved, new apps have continued to launch, clear evidence of growth in the revenue associated with the market can be seen, and the convergence of 2 nd Screen companion experiences and 2 nd Screen viewing experiences has continued. In this brief summary, I am going to make references to our published research ( 2 nd Screen: Transforming Video Consumption, a 252-page report published during our 2 nd Screen CES on January 7 th ), as well as to blogs and conferences we have hosted and attended during the last 3 months. However, the information should be relatively coherent if you have been paying attention to the space even a little bit. If you are attending today s 2 nd Screen NAB, you will have the opportunity to buy discounted copies of the Executive Summary, Market Starter Pack, or the Full Report as required. I have also included the introductory Executive Summary below for your reading clarity. a) Market Trends. Perhaps the best way to gauge where the market is headed to look back at the predictions we made in the report (page 77 and in our blog on New Year s Eve) and to see if we are on track: a. The "digital land grab" continues, marked by consolidation, failure, and improved user experiences. Well Viggle didn t successfully complete the acquisition of GetGlue, but the market itself has continued to consolidate. Dijit did acquire Miso, giving the consumer branded NextGuide app which excels in the To Discover segment a strong head start on developing its features To Enhance the consumers viewing experience after they have found a show. Additionally, zeebox continues to develop its consumer feature set out as have other app notables (Yap.TV launched v.4.0, Turner launched a new March Madness app that was even better than last year, and the Super Bowl, the Grammys and the Academy awards all got their own bespoke app experiences for second screen). b. Social feeds will be a feature, not the experience. There has been a decent amount of debate in the blogosphere and at conferences, led by industry thought leaders Alan Wolk and Jesse Redniss. Twitter is perhaps the best and most used tool for Social TV, but Social is only one component of the second screen experience, being aptly rounded out by the features making up the To Control, To Discover and To Enhance Licensed document, do not copy, share or distribute Page 2

3 segments. I am sure this debate will continue as Social TV continues to enjoy continued growth and press. c. "Discovery" will become a household word. Well, we re making progress, but we re not there yet. Expect DirecTV, Dish, and Time Warner Cable all to make announcements around their platform discovery in the coming months and for start-ups like BuddyTV, Dijit (NextGuide), Yap.TV and Matcha to continue their progress as well. While Digitalsmiths continues to make progress in the Pay TV and CE space, larger industry service providers have been making their push (Kit Digital, Gracenote) as well. d. Tablet and smartphone usage reports will become about activities related to the TV. Nielsen launched a social measurement service (after buying SocialGuide) and Twitter bought BlueFin. More and more the statistics are pointing to behaviors while watching TV (shopping, looking for a show to watch, voting, etc). Expect this trend to continue. It is no longer a question of whether or not people use a second screen but rather what they are doing with them. e. Studios and networks save money, apps grow in 2 directions. We saw announcements around CES where CBS Connect and Fox Now are consolidating multiple shows into their consumer facing app. More importantly, we predicted that these branded content apps would create alliances with 3 rd party apps like NextGuide and ConnecTV to expand their reach by syndicating their official metadata and content to promote a quality branded experience and today Hardie Tankersly from Fox will be on stage to discuss exactly that. f. Gamification will begin to lose favor with the press and consumers, only to begin to add value again towards the end of Perhaps it is a bit too early to weigh in on this trend. g. Amazon and ebay will engage in a battle for the Second Screener's M-Commerce. While Amazon is making progress with its X-ray feature for Kindle, there has not yet been a push from them on commerce and Watch with ebay is still massively under marketed. h. Cloud-based digital lockers will finally be taken seriously by consumers and the rest of the ecosystem. There has not yet been evidence of discovery platforms scanning or presenting results from the UltraViolet locker service, but there are now 11m accounts on record and Saffron Digital announced an end-to-end service in partnership with Akami for UltraViolet retailers. Progress. i. Device makers will jump into second screen with both feet. Samsung certainly is all in on the concept, launching several second screen efforts to drive real connectivity amongst their smart phones, tablets and Smart TVs. Expect Nokia, HTC, and Motorola to come to the party soon. j. ACR and the battle of the digital video ecosystems. Prior to CES, there had already been market rumors of Netflix working their streaming ecosystem towards a second screen platform. Now that DIAL (owned by Netflix) is out in the open and supported by Google, there is a real possibility that an open API system will decrease the cost and complexity for 3 rd party apps to connect to devices in the living room including Smart Licensed document, do not copy, share or distribute Page 3

4 TVs and set top boxes. Additionally, companies like Flingo are creating white label ACR ecosystems for smart TVs and other digital video devices, allowing the ecosystem owners to go to market quickly with a synchronized content capability. Watch this space closely. b) Market sizing. We took a bold stance in our research report (page 55) on revenue in the 2 nd Screen space, claiming that 2012 had already seen $490m of attributable revenue from this market segment and the we expected the market to reach $5.9B by When I stood on stage at CES to discuss this, I saw a lot of disbelief in the crowd. We walked the room through the breakdown of mobile and online video advertising ($6B growing to $17B) and m-commerce ($76B growing to $158B) and out logic for the incredibly small sliver of those markets that will be captured by 2 nd Screen experiences in the living room (forgetting the opportunities in the convergence place between companion and viewing experience). Right out of the gate, Super Bowl 47 had press for CBS Interactive claiming to have sold $10-12m in advertising for the 2 nd Screen along. Then the stats for living room shopping while watching TV started to pour in from various analytic agencies (very high percentages of smartphone and tablet owners are shopping while watching TV). Throw in the content syndication model for apps sponsored by the NBA and MLB, and you quickly get a sense that this market is on a strong upward trend. c) Consumer app experience. To round out the Q1 view, we should look at what applications have significantly improved their feature set. This is important because no matter what the revenue or business model is for a particular app experience or ecosystem, if the consumer isn t engaged and using the app on a regular basis, there is no opportunity to attract revenue. a. Events. The Super Bowl (Keynoted today by Jason Kint), the Grammys and the Academy Awards all got their own bespoke app from their network sponsors. March Madness upgraded their amazing 2012 experience to deliver an even more eye-popping 2013 app. I would expect the Masters to double down on their strong 2012 showing and deliver an event better experience next week. b. 3 rd Party Apps. zeebox has continued to develop new feature sets for its app. Yap.tv launched its 4.0 version and a Microsoft s Xbox SmartGlass continued to expand its presence by launching an exclusive experience for The Hobbit. c. Network apps. Fox Now, CBS Connect, USA Anywhere and Bravo Now continue to improve their app experiences, with Fox and NBC distributing their metadata to 3 rd party apps to improve their branded content consumer experience across multiple apps. HBO Go continues to invest in its converged 2 nd Screen companion and viewing experience app as Game of Thrones hits its 3 rd season. Licensed document, do not copy, share or distribute Page 4

5 d. Sports apps. The NBA continues its great 2 nd Screen season, cleaning up on the Social side of the experience set and the MLB is just underway with a new set of features for MLB At Bat (presented on stage today by Joe Inzerillo). e. Finally, converged experiences are continuing to be a trend, helping consumers manage the transition from the living room scenario where a companion experience is desirable and a mobile scenario where a viewing experience is what is required. March Madness and HBO Go leverage the authenticated Pay TV network for their video experience and I am expecting the Masters to do the same next week. MLB and the NBA give you the opportunity to have a lite statsonly experience for free and a paid subscription for viewing out of market games. With significant advertising and subscription revenue at stake here (and the converged experience being highly desirable by consumers), expect this significant industry trend to continue despite its increased development costs. Expect sports apps and premium branded subscription TV to lead the way forward here. So a relatively short but very action-packed summary for nearly 100 days of market activity. We are looking forward to continuing the conversation today at 2 nd Screen NAB, through a few webinars over the coming weeks, at our 2 nd Screen Summits in NYC on June and IBC in September, and, of course, through our blog and Twitter activity Look out for the next major update on this comprehensive report on June 27 th in NYC. Licensed document, do not copy, share or distribute Page 5

6 the intersection and the 2 nd Screen Society present: The 2nd Screen: Transforming video consumption by enabling companion experience applications and content everywhere 8 th January 2013 Licensed report. Do not share, copy, or distribute. Page 1

7 Contents 1. Executive summary Introduction: why second screen matters Clarifying the concept of second screen a. Second screen (companion screen) b. Second screen as a viewing screen (multi-screen) nd screen as a companion screen a. History and hype cycle i. The driver for the emergence of companion screens ii. A 5 year old industry iii. 2010: the year everything accelerated iv. Today the sector is transforming into a more mature industry v. Second screen and the Hype Cycle b. Second screen as a companion screen: Market overview i. Segmentation by functionalities: 5 types of companion apps with different focuses and sponsors ii. Segmentation by applications providers iii. A brand New Industry Ecosystem c. Customer demand, business models and market sizing i. Customer demand and usage Users Usage Engagement and purchase rate ii. Business models Re-using existing content or service in a different environment Commerce (Targeted) Advertising iii. Market sizing Overview market size nd screen market dynamic Second screen market key components and evolution d. Case studies Licensed report- do not copy, share or distribute Page 2

8 i. Features ii. Seamless Discovery iii. Simple iv. Stimulating v. Social vi. The App Graveyard? e. Success factors, recent development and future trends i. What makes an application successful? Key success factors ii. What makes an application successful? Two related debates - single vs. multi debates iii. Recent developments and trends for the companion screen market Recent development: Companion screen for new markets Looking at the future of the second screen market Technology i. Integration with other devices and services ii. Content recognition and linked functions iii. Mobile commerce facilitators Some potential game changers Multiplication phase ending and into the consolidation phase? Revenue development Market trends over the next months The "digital land grab" continues, marked by consolidation, failure, and improved user experiences Social feeds will be a feature, not the experience "Discovery" will become a household word Tablet and smartphone usage reports will become about activities related to the TV Studios and networks save money, apps grow in 2 directions Gamification will begin to lose favor with the press and consumers, only to begin to add value again towards the end of Amazon and EBay will engage in a battle for the Second Screener's M-Commerce Cloud-based digital lockers will finally be taken seriously by consumers and the rest of the ecosystem Licensed report- do not copy, share or distribute Page 3

9 9- Device makers will jump into second screen with both feet ACR and the battle of the digital video ecosystems nd screen as a viewing device: content everywhere a. History and enablers b. Market evolution c. Market overview i. Services ii. Viewing screen and companion app: the double second screen or convergence of the second screen experiences iii. Content: the differentiator Library size Content deals Original content iv. Competition with broadcasters, premium channels and Pay TV operators v. Availability on devices and Ultraviolet On every screen Ultraviolet Catch-up TV i. Market size ii. Discovery & Metadata Discovery, search and recommendation Metadata iii. Recent developments and trends Appendix Part a. Presentation of the authors Appendix Part a. Detailed review of top 50 apps i. AT&T U-Verse. (@Uverse) ii. BuddyTV. (@BuddyTV) iii. Comcast Xfinity TV. (@XFINITY_TV) iv. ConnecTV. (@ConnecTV) v. Dijit. (@dijitdotcom) Licensed report- do not copy, share or distribute Page 4

10 vi. DirecTV. 143 vii. Fanhattan. 146 viii. i.tv 148 ix. Matcha. 149 x. NextGuide. 151 xi. Shazam. 153 xii. Xbox SmartGlass 154 xiii. SOA Gear 157 xiv. TVplus. 158 xv. TWC TV. 159 xvi. Viggle. 161 xvii. Yap.TV. 163 xviii. zeebox US. 165 xix. The Amazing Spider-Man Second Screen App xx. Boxfish Live Guide. 169 xxi. Bravo Now. 170 xxii. CBSSports. 172 xxiii. The Dark Knight Rises: Second Screen Experience (on Xbox SmartGlass and Blu-ray Disc) xxiv. Discovery Channel xxv. ESPN ScoreCenter XL. 176 xxvi. GetGlue. 177 xxvii. Grimm: The Essential Guide xxviii. IMDb Movies & TV xxix. IntoNow. 181 xxx. The King's Speech xxxi. March Madness xxxii. The Masters Golf Tournament. 188 xxxiii. Miso. 191 xxxiv. MLB At Bat. 193 xxxv. NBA Game Time. 194 xxxvi. NFL ' xxxvii. OWN. 196 Licensed report- do not copy, share or distribute Page 5

11 xxxviii. Peel. 198 xxxix. Rovi - What's on TV xl. ShoSync. (@SHO_Network) xli. SocialGuide. (@Social_Guide) xlii. The Score. (@thescoreapp) xliii. Disney Second Screen: TRON LEGACY Edition xliv. Tunerfish. (@tunerfish) xlv. TVGuide. (@TVGUIDE) xlvi. USAAnywhere. (@USAAnywhere) xlvii. The Walking Dead - Walkers Kill Count xlviii. Watch with ebay. (@ebay) xlix. Yahoo! Sportacular. (@Sportacular) l. What's On TV? By Zap2it. (@Zap2it) Appendix Part 3 UltraViolet Title Count i. IMDB Top 100 Film Titles, Q4, i. Rentrak Top 50 Titles Q4, Appendix Part 4 Infographics i. Second Screen by the numbers Q4 and i. Digital video by the numbers Q4 and ii. Second screen by the numbers London Olympics- Summer iii. Digital Video by the numbers- Summer iv. Second screen by the numbers Q v. Second screen by the numbers January Appendix Part a. Lexicon for the 2 nd Screen Appendix Part a. An Updated View of which Second Screen Apps to Watch in 2012 October 29, b. A follow-on summary of the Second Screen apps reviewed so far January 29, c. UltraViolet marches onward, but can it succeed? October 22, d. Analyzing the Disney - Netflix Deal December 6, e. How available (really) are top TV shows in the digital video world? September 4, f. Building critical title mass for digital video services May 31, Licensed report- do not copy, share or distribute Page 6

12 13. Appendix- Part 7- footnote and references Licensed report- do not copy, share or distribute Page 7

13 1. Executive summary Social TV, Second Screen and TV Everywhere are discussed every day in the media but there is still little agreement on what those concepts really mean and on how to best approach them in terms of actual consumption, best practices, business models and market sizes. In this report, we set out to study and analyse the market place from both the consumer s and the company s perspective and deliver a comprehensive view on both. We believe the market is mature enough to be worth a full research report notwithstanding the fact that it is still experiencing incredible weekto-week changes. In a very short period of time, we ve seen: The rapid success of zeebox both in the UK and in the US (investment from BskyB, Comcast, Viacom, HBO and ShowTime) that is likely to continue in both territories and Australia The quickly announced consolidation of the two largest subscriber-base apps in the industry with Viggle and GetGlue, (nearly 4.5m potential combined subscribers if successful) The rapid deployment over a matter of weeks of new video discovery app NextGuide quickly taking a lead position in the marketplace, (less than 10 weeks) A large number of apps descent into both the app graveyard and the life support ward as either poor consumer experiences or weak businesses models stop them short of their ambitions A few facts help realise how significant this market is The Social TV market would be an $8 to $12 billion market in 2020 according to several analysts 1 3 months after launch, zeebox (a market leading second screen app in the UK and US) was valued at 100m ($150m) in January The North American market has the highest penetration of TV Everywhere services with 86% of North American Pay TV subscribers now having access to some type of TV Everywhere offering 3 First we focus on the definitions. We believe there are 2 aspects of second screen Second screen as a companion screen: the term companion screen or companion app describes applications (on a smartphone, tablet, PC) that provide functionalities designed to improve the TV viewing experience. In that context, second screen applications are intended to be a complement to a first screen (usually a TV set). Examples include: zeebox, Getglue, BuddyTV, Miso, etc. Second screen as a viewing device (Multi-screen): In that case, second screen means a CE device (tablet, a smartphone, a PC) on which video content is consumed. Here the second screen is a TV Everywhere Growth, Solutions, and Strategies North America (2nd Ed.) - Parks Associates - April 2012 Licensed report- do not copy, share or distribute Page 8

14 device that replaces the first screen (the TV set). Examples include Tablet, smartphones, netbook, on which services such as Netflix, Hulu, BBC iplayer, etc., are used A- 2nd screen as a companion application: The key drivers for the rise of companion applications include the explosion of connected devices, the recognised importance of multitasking (with 77% of TV viewers saying they use a companion screen while watching TV 4 ) and the ability for TV to drive conversations in the office, at home, with friends etc. Our research shows that the companion app industry started in January 2007 (before the iphone or the ipad) with the launch of BeeTV and 2011 were the turning points for the industry as the number of app dramatically increased, the ipad was launched and the number of deals (M&A and financing round) exploded. From 2011 onwards, the multiplication phase is turning into a consolidation phase for start-ups. At the same time established media players are joining as companion applications have become a must have. Technology components for second screen app are at various advancement stages as described in our hype cycle. Besides the hype cycle, we also believe some technology developments will be very significant such as the ACR (automatic content recognition) systems war and the system level second screen platform from Xbox SmartGlass. 4 Licensed report- do not copy, share or distribute Page 9

15 We then broke the companion app market into 5 segments based on the apps main functionalities: 1. To control (the TV or living room devices)- e.g. Dijit, Fios, Xfinity, TWC TV, DirecTV, ATT 2. To discover (something to watch in either guide, search, recommendation or discovery mode). E.g. Fanhattan, Matcha 3. To enhance (additional information, games, shopping, etc.). E.g. SOA gear, Viggle, ConnecTV, ESPN score centre, March Madness, the Dark Knight 4. To share (during the show, after the show, to check a trusted friend s viewing history). E.g. USA Anywhere, Getglue, IntoNow, Bravo. 5. To multi-task (apps that provide a strong combination of the above 4 functionalities). E.g. zeebox, Buddy TV For each segment we ranked the best app. We reviewed more than 200 applications and scored each of them according to 5 criteria: simple, seamless, discovery, stimulating, social. The best ones for each segment are the examples mentioned above. In terms of application providers: Pay TV operators, CE and Game Consoles manufacturers, are the primary providers of apps in the To Control segment. Content creators (movie studios, broadcasters, sports leagues) and E-commerce firms are the main players in the To Enhance segment. Independent third party developers (often start-ups) are the main providers of applications for the To Discover, To Share and To Multitask segments. The growth of the industry has given birth to a new ecosystem: the most important players include brand and advertising agencies, metadata and recommendation engines, synchronisation technology, third party app creators, ecommerce. We then looked at the market in terms of numbers. The largest applications have users bases of several millions (Getglue, Zeebox). The largest app by users is the recently announced merger by Getglue and Viggle with 4.5m users (assuming the acquisition is successful). We also looked at the growth of 5 large apps (Miso, Britain s got talent, zeebox, IntoNow and Getglue/Viggle). Between Q1 and Q3 2012, their total number of users grew 128% from 4.2m to 9.6m. With zeebox now in 3 countries (expect a strong growth in the US) subscribers numbers will keep growing for them as well as for other leading apps. Leading applications report dynamic user bases: Getglue/Viggle 1.5m active users, zeebox 300K to 400K active users (rumoured to be approaching 1m in the US already). On users engagement, this quote from Time Warner Research Council summarise our findings: The data collected [using biometric monitoring and eye tracking to measure viewer engagement] revealed that viewer engagement while connecting with a friend over social media was 1.3 times higher than that of viewers watching alone and not using social media. Also, viewer engagement among those using a second- screen app is 1.2 times higher than among those viewing without a social app. We identified 3 business models for companion applications: 1- Re-using content or service in a different environment (to improve customer experience or for additional monetisation): e.g. The King s speech, Virgin media 2- Mobile commerce: e.g. zeebox, SOA Gear, Watch with EBay 3- Targeted advertising and sponsorship: e.g. Getglue, Shazam, zeebox, Viggle Licensed report- do not copy, share or distribute Page 10

16 We evaluated the market for second screen companion experiences to be $490m in This includes $350m in advertising and $140m for mobile commerce. Capitalising on the very high user engagement and the rise of connected devices and mobile-commerce, we expect the second screen companion app market to grow very fast (12x) to reach $5.9bn by 2017 with mobile-commerce becoming nearly equivalent to advertising. Looking at 200 applications, we identified 3 key success factors: a compelling user experience, a large community target, and utility. On the other hand, instability, a narrow user base and visual saturation negatively impact an app. There are two mono vs. multi debates going on in the second screen app industry. The first is special purpose vs. multi-purpose. Should an app be excellent in one functionality or should it be more like a Swiss army knife? Most applications are moving towards offering multi-function services to differentiate themselves from their competition. The other debate is about content dedication. Should an application be dedicated to one show or even one channel or should it cover every show on every network? This debate is still going on as application providers have different strategies. Broadly speaking, content creators (studios, sports leagues) and broadcasters provide one application per show, film or event (Britain s Got Talent, Wimbledon, March Madness), while sports leagues are mostly aggregating at league level. Some networks already provide an application per branded channel (M6, HBO, USA, Discover, Bravo). Finally, most of the providers with no ties to content creation/ distribution provide applications that cover all shows and networks (Get Glue, zeebox, BuddyTV). Finally we looked at the future trends of second screen as a companion screen. First, we see companion screens entering new territories specially the video game market where the 3 major console manufacturers (Wii/ Nintendo, X-box/ Microsoft and PlayStation/ Sony) announced and launched a form of companion screen in Microsoft SmartGlass being the more advanced and the WiiU coming out with dedicated hardware. We then looked at mid-term trends; we believe the second screen will be changed by improved technology (integration with more devices and services, more content recognition, and more mobile commerce facilitators). We believe large social networks (Facebook, Twitter) will not immediately enter this sector directly but will want to participate through their platforms. We believe the current multiplication phase will slow dramatically for start-ups but will continue for established media groups. As a consequence, a consolidation phase for start-ups will take place. Finally we believe there will be an explosion in revenues for second screen companion apps. In a specific section looking at immediate trends over the next 18 months, we have identified 10 elements impacting the 2 nd screen ecosystem, the more prominent being: discovery becoming a household word, Amazon and EBay will engage in a battle for 2 nd screen mobile-commerce, CE device manufacturers will jump into 2 nd screen with both feet, and ACR will become a the next digital video ecosystem battlefield. B- 2nd screen as a viewing device (or multi-screen), We first looked at the history of 2 nd screen as a viewing device. It shows how the decade prepared the growth of the sector with the launch of major brands and services (Netflix, itunes, YouTube) and the beginning of broadband was the turning point: the launch of Apple App store and Video for itunes followed by other content and application stores together with increased broadband penetration and speed and the explosion of video capable connected devices made the market grow rapidly as numerous services launched and the subscribers bases of the largest players grew in the tens of millions. Licensed report- do not copy, share or distribute Page 11

17 The (online video) services to be consumed on second screens are very diverse. 4 major types stand out: 1) catch-up TV generally provided by broadcasters (BBC iplayer), 2) VOD services provided by start-ups or pay-tv operators (Netflix, Comcast), 3) online movie stores provided by technology or retail companies (itunes, X-box/ Zune, Vudu, Amazon), and 4) sharing sites originally provided by start-ups (YouTube, Vimeo). Pushed by intense competition, content is the major industry differentiator. Content library sizes are a major part of the unique selling proposition of any service. Content deals with content owners (film and TV studios, sports leagues) are the single biggest expense of online video service providers. The rush to original content is becoming a must have to avoid the cost of Hollywood or major sport league contracts. Studios consider online video services both as a threat (piracy, loss of established revenue stream with premium channels) and as an opportunity (more demand for their content). As a consequence they have adapted their content window schedule to incorporate VOD and streaming. Pay TV operators and premium channels are worried by the rise of new players, who may compete with them for the viewer s dollars and attention. Our analysis shows that online video service providers are a complement rather than a competition to Pay TV operators, broadcasters and premium channels. This is especially true when considering the growth in revenues and number of subscribers that happened in both sectors (Pay TV and online video services) in the US since the launch of Netflix-streaming services in However, there is intense competition for the same content (films, TV and sports content)- remember that in the last Disney content deal, Starz lost to Netflix. Online video services were born on PCs, then they grew rapidly on tablets and smartphones, and now their ultimate goal is to dominate the TV because of the viewing habits around this device. Since there are relatively few connected TVs, digital video retailers have adopted a 2-step tactic: 1) to be available on devices that can be connected to the TV (game consoles, set top boxes, Blu-ray players) and 2) to be available on as many second screen devices as possible (tablets, smartphones, netbooks, laptops, etc.). Ultraviolet, a technology available to the consumer since 2012, is supporting this movement of making sure purchased content can be viewed on multiple brands of devices. Measured regularly by many well-regarded companies, the 2 nd screen as a viewing device (multi-screen) market is valued at $12.8bn in 2012 and will grow to $24.1bn in Its main components are paid-for online service (e.g. subscription to Netflix) and advertising (on mobile TV or on catch-up-tv services). As a result of the high volume of content being available from many providers (Pay TV, online video services) on many devices (Ultraviolet) and platforms, the viewer is often overwhelmed by making a decision about what to watch. To solve this problem, a number of companies offer content discovery services that help the viewer find something enjoyable to watch. Clever algorithms, data from social networks, recent ratings and reviews together with a huge quantity of scene-level metadata coming from the videos themselves power the new services. They have become a must have to complete and every online video provider now has some form of it. Looking at future for this market we believe these 4 major trends will occur: 1- Leading online video service providers will grow but will be challenged (by more competitors and by traditional media groups), 2- Media groups will make their strengths felt (by bidding aggressively for content, by launching their own online video service, by buying online video service providers), Licensed report- do not copy, share or distribute Page 12

18 3- Multi-platform, content portability and discovery will become standard (to improve customer experience and revenues) 4- Both premium and original content will be highly coveted as content will remain the main differentiator and will become even more expensive Licensed report- do not copy, share or distribute Page 13

19 2. Introduction: why second screen matters Second screen, Social media, multi-screen, TV everywhere are popular buzzwords in the media and technology industries these days. There are countless conferences, keynotes, articles and shows where they are discussed. But except for a small group of people, there is still little agreement on what those concepts really mean and on how to best approach them in terms of actual consumption, best practices, business models and market sizes. In addition to working with over 40 companies that are representative players of every part of the second screen ecosystem to come to agreement on an industry lexicon (see appendix, or visit we set out to study and analyse the market place from both the consumer s and the company s perspective and deliver a comprehensive report on both. Drawing on extensive market research, publications, interviews, and regular contacts with key industry executives, this research paper aims to deliver a clear view on all the aspects of second screen. After clarifying and segmenting Second Screen activities, highlighting in the process the two super segments which are routinely confused in the marketplace between viewing content on a tablet or smartphone or having a companion screen experience related to the content on the first screen, we will then offer our view of how the different markets are developing. In doing so, we will examine their history, review the key players (offering insight to consumer user experience and business model), market dynamics between small and large forces in the ecosystem, set market outlook and prospects, including laying out major trends for 2013, and finally put forth several representative case studies. Before going into further details, here are a few facts that will help you envision how important second screen is for the technology, advertising, sports and media companies and why it is vital for them to be ahead of the curve in adapting to changing consumer demand: - As a companion viewing experience screen, the still nascent market has very promising growth forecasts: o Social TV market would be an $8 to $12 billion market in 2020 according to several analysts 5 o 3 months after launch, zeebox (now a market leading second screen app in the UK and US) was valued at 100m ($150m) in Jan o 75% to 85% of TV viewers use other devices while watching TV 7, and while the majority of that activity today is not related to the content on the first screen, this major behaviour shift in the living room is a force to be reckoned with as an opportunity or threat o 40% of tablet and smartphone owners are using their devices while watching television daily, with more than 40% of their activity focused on social media, 29% of Licensed report- do not copy, share or distribute Page 14

20 25-34 year-olds engaged in shopping, and 40% of people aged using apps to enhance their TV viewing experience. (Nielsen) 8 o The recently announced intended merger between GetGlue & Viggle (2 US market leading second screen apps) has created a community of potentially more than 4.5m subscribers (Nov. 2012) 9 o No less than 15 apps were available to experience the 2012 SuperBowl 10 o More than 110 second screen apps were counted in early 2012 in the US only 11 and we have counted over 200 second screen apps for tablets and phones during Q4 of 2012 while preparing this report. - As an alternative viewing screen, the second screen (often referred to as multi-screen or TV Everywhere see appendix) is already a well-established habit: o The North American market has the highest penetration of TV Everywhere services with 86% of North American Pay TV subscribers now having access to some type of TV Everywhere offering 12 o The market for VOD (video on demand), pay per view and OTT revenues will double between 2011 and 2016 to reach $24bn 13 o The BBC iplayer received on average 190 million program requests per month in the first 6 months of o Netflix had more than 30m streaming members in December o 500 years of YouTube video are watched every day on Facebook 16 Clearly, the anecdotal and figure-based evidence above supports that a major consumer behavioural change is occurring in and out of the living room relative to TV viewing habits. Now we can move forward to the real question: how big is this threat or opportunity and where are the early signs of promise and failure? TV Everywhere Growth, Solutions, and Strategies North America (2nd Ed.) - Parks Associates - April PWC ir.netflix.com 16 Licensed report- do not copy, share or distribute Page 15

21 3. Clarifying the concept of second screen There is often confusion on what the term second screen encompasses. We believe the first fundamental segmentation required is between the concept of the second screen as a companion screen and second screen as a viewing screen (multi-screen or TV Everywhere). a. Second screen (companion screen) Here the term companion application or companion screen is an appropriate description. It describes companion applications (on a smartphone, tablet, PC) that provide functionalities designed to improve the TV viewing experience. In that context, second screen applications are intended to be a complement to a first screen (usually a TV set). Companion apps do not seek to replace the first screen, though it may sometimes compete with it for attention. At the start of 2012, Second Screen companion applications were mostly provided by start-ups that were more or less independent third parties (zeebox, Getglue, BuddyTV, Miso). By mid-2012, second screen apps were being created prolifically by content creators (films, TV series, sports leagues, major events). Now the space also attracts a large range of other companies including retailers (Watch with EBay), Pay TV Operators, Broadcast TV Networks, Game Consoles and CE device manufacturers. The functionalities of the applications are often focused on several of five major feature sets: 1. Simple. Enabling the consumer to more easily control the living room devices to watch their content, often launching content from the second screen to the first a sort of super universal remote function. 2. Seamless. Aiding the consumer in search and recommendation by allowing them to effortlessly search for a title across multiple sources of content (e.g. Live TV, Netflix, and itunes). Licensed report- do not copy, share or distribute Page 16

22 3. Discovery. Utilizing knowledge of the consumer including social networks, viewing history, content preferences, and available current programming to recommend content for viewing, often along 3 major use cases: a. Search. I know what I want to watch just help me find it. b. Recommendation. I just want to kill some time show me the best options for me to watch something right now. c. Discovery. I want to lean back and have you show me you something interesting something worthy of the time I have to invest that I wouldn t have normally found on my own. 4. Stimulating. Present information to me that is timely and relevant to the content I am viewing (actor bios, factoids, behind the scenes, sports scores, related music) or present related activities to me that I might tacitly enjoy (commerce, trivia) all to Enhance my TV viewing experience. 5. Social. Give me the tool sets to plug into my social networks (real and virtual) so that I can Share my viewing experience with others, discuss the experience after the fact, or gain trusted recommendations for future viewing. For the sake of clarity, please note that we exclude applications that are not mainly intended at improving TV viewing experience (e.g. Twitter and Facebook at least currently). This is not to say that they do not provide social functionalities for TV but these functionalities are simply not significantly targeted to TV. As a means to test our methodology, we do run many of those apps through our scoring process, the result of which is a very low score in all five-feature categories. We have also excluded experiences that do not exist in an app for a tablet or smartphone (excluding in effect web-app only experiences). b. Second screen as a viewing screen (multi-screen) If not used as a companion screen, the second screen can also be used as the primary viewing screen. In that case, second screen means a CE device (tablet, a smartphone, a PC) on which video content is consumed. The device then uses a service that provides the content (video on demand, pay per view, catch-up-tv, etc.). Generally, the content viewed on a viewing screen is not live TV (though it occurs more and more often with sports leagues subscriptions and it might quickly evolve with broadcasters and pay TV operators offering live streaming as well as the generalisation of 4G). Here the second screen is a device that replaces the first screen (the TV set). Licensed report- do not copy, share or distribute Page 17

23 The providers of the content for multi-screen viewing include the traditional media companies (broadcasters and pay-tv operators) and OTT digital video companies (Netflix, Hulu, itunes, Amazon Prime, Vudu, LoveFilm), as well as news and user-generated content (UGC) video sharing services (YouTube, Dailymotion, Vimeo, CNN, Huffington Post, AOL). In the next section of the document we will be looking at second screen companion apps in more detail: their history, the key players, the market trends, business model, details on our segmentation process, and the underlying technology. Licensed report- do not copy, share or distribute Page 18

24 d. Case studies i. Features We believe there are really 5 major features sets that drive consumers to pick up a device as their second screen in an attempt to add value to their first screen experience: 1. Finding something to watch (Discovery), 2. Determining where to watch it (Seamless content sourcing, often combined with Discovery), 3. Launching that content to your first screen (Simple), 4. Getting more information about the program, whether sport stats, actor bios, games, or commerce opportunities (Stimulating), and then 5. Sharing all of that and more with your friends (Social). So as we explore some of the better examples in the market place of strong apps, it helps to start with these consumer behaviour sets in mind. ii. Seamless Discovery Seamless Discovery. Finding something you really want to watch from the plethora of content aggregators. There are a number of apps trying to become your modern "TV Guide", but few are doing more than displaying the grid on your second screen or a giving you a list of lists (popular now, most watched by your friends, Emmy Winners). Additionally, the real challenge with a good Discovery experience is the integration of some level of personalization, combined with multiple sources of content (Seamless), all delivered through a clean and easy to navigate user interface (UI). - NextGuide. Having launched in late 2012, this app continues to provide real Discovery value through its interface and continued roll- out of additional Seamlessly integrated content sources (your local channel provider, itunes, Amazon, Hulu and Netflix). If the content is available on itunes, Hulu or Netflix, it will launch the content directly to your second screen (turning it into the viewing screen). It does a decent job of tracking what you've watched or "favorite-d" (thru their app or thru Facebook) and then updates your recommendations based on those preference changes. CEO Jeremy Toeman probably understands the UI/UX challenge of Discovery better than any other app executive out there. As a result, they are highly focused on understanding the different approaches consumers use to find content: content about a favourite band or sports team, filters to turn on and off for genres, content sources, and key attributes. They have excellent social integration in a manner that allows the consumer to decide which friends content tastes are right for you and which aren t. Our guess at what's next? Look for them to continue to roll-out more Seamless content sources, to begin integrating your local channel providers for Simple first screen integration, and to continue to refine and develop their metadata and discovery algorithm. More importantly, we think they will continue to focus on social Licensed report- do not copy, share or distribute Page 62

25 discovery features, allowing you to select those Facebook friends to weight more heavily in recommendations and allow a process to find out which content recommendations you might have in common so you can watch something together. - Matcha. This app continues to be a good Seamless Discovery tool even though your local channel provider (i.e. live TV) is not included in the experience. It delivers its real value by launching your chosen content to your second screen (making it the first screen) and developing pretty deep integration to Netflix and Hulu (can read your queues, tell you about soon to expire content, etc.). Our guess at what's next? Look for them to find a way to integrate live TV and to further refine their metadata and Discovery algorithm. iii. Simple Simple. Controlling your first screen world. For years, we picked up a device to turn the TV on (usually a simple remote), then typically used it for navigation of an on-screen guide, and then again to manipulate the TV to launch the channel or VOD content so that we can watch. Well, the living room is now anything but simple, with the ability for multiple devices to launch OTT apps, 3 rd party Discovery apps on the second screen, and Pay-tv operators launching their own answers to Netflix in their walled content gardens. Tying any of these experiences together creates consumer utility and utility drives usage. - BuddyTV. This app continues to set itself apart from the pack of second screen apps that allow you to control your first screen device world--buddytv. The app (for the ios, Android and GoogleTV) allows you to get personalized recommendations (Discovery) for content across a number of content sources (Seamless) and then allows you to launch that content to your first screen if you have AT&T, DirecTV, a TiVo DVR or a Google TV device. For Hulu, Netflix, itunes and Amazon, it launches that content when possible to your 2nd screen. CTO Bill Baxter continues to believe in their mantra to get you from opening the app to finding and launching the content you want to watch in 20 seconds. CEO Andy Liu recently described the challenge the consumer faces, taking on average 20 minutes or longer to choose something to watch with family members, only to feel like the resulting decision was suboptimal. Our guess at what's next? Watch for them to continue to integrate more MVPDs (Comcast Xfinity, Dish, Verizon are obvious misses), to further develop their recommendation algorithms, and launch a new UI (current ios app is focused on the iphone). - Xbox SmartGlass. Perhaps the surprise delivery of 2012, this journey started with Steve Ballmer announcing SmartGlass in Los Angeles in May to a very confused press community that couldn t keep the smartphone, tablet, and app vernacular separate in their heads. By June, Microsoft was demonstrating a few experiences for HBO s Game of Thrones and some of their games, but came out of the gates in October with a Licensed report- do not copy, share or distribute Page 63

26 serious platform for second screen that allows a system-wide content experience for music, video or gaming. Essentially, they took the leap of investment in OS-level synchronization early and have caught PS3, itunes and Netflix flat-footed (though Nintendo launched their WiiU with WiiTV and a second screen experience, the full functionality has yet to come to light). As discussed in other parts of this report, this is a serious game changer and will continue to attract amazing experience development from content creators (check out the Dark Knight Rises experience when you purchase the movie) and content partners alike (they announced NBA Game Time in mid-december). Our view of what s next? We expect them to step on the accelerator, and just as they have recently added 40 new content partners, we expect them to push their SDK and simple HTML 5 CMS platform to major music, video and gaming launches in 2013, drawing attention to this great experience. Lookout for more sports integration (aligns with their demographic) and hooks into the killer gaming second screen experience. Keep an eye on: Comcast Xfinity, DirecTV, Dish, and AT&T. All three major channel providers (MVPDs) continue to develop and improve their ability to add value via the second screen with better integration of control functionality, but they are will continued to be limited as a Discovery tool set since by their nature they are limited to providing content only from their own service. iv. Stimulating Stimulating. Delivering interesting and relevant information about the content on your first screen in everything from sports stats and actors biographies to games about the content and commerce opportunities. - zeebox. While having only recently launched in the U.S., this app has quickly gained the support of Viacom and NBCUniversal in the broadcast world and has already gained a strong consumer following with its quasi-discovery function (what's hot right now) and Zeetag feature allowing you to quickly and easily check out information on major keywords being derived during the viewing experience. CTO Anthony Rose has a very clear vision of where to take the app in both the UK and the US and is strongly focused on utility. Despite the debate on multi-function vs. special purpose, he believes that the more than consumer gains value with the app, the more they will use the app (like a network effect of features). It certainly helps that they have been very successful and smart in their approach with their investors, gaining equity infusion from BSkyB, Comcast, Viacom and HBO, and more importantly leveraging each of those relationships for marketing and distribution of the app. Our guess at what's next? Look for them to integrate Simple control features for your first screen with major CE manufacturers (Samsung is already integrated in the UK) and channel providers (Comcast Xfinity was already announced as a future feature) as well as to continue to develop their Discovery feature in terms of the UI and algorithm. We would also expect them to start to support DVR d content, since their primary sponsor are broadcast and premium TV networks and such a large percentage of those consumers use the DVR s. Perhaps more importantly, with content across 4 time zones in the US, they have to prevent social feed spoilers from ruining the experience or they will struggle to grow westwards. Licensed report- do not copy, share or distribute Page 64