MEDIA =

DISTRIBUTION DISRUPTION @
TORRID PACE

KP INTERNET TRENDS 2017 | PAGE 151

 Digital Leaders =

Transforming Media With

Better User Experiences +

Lower Prices…Data + Scale

KP INTERNET TRENDS 2017 | PAGE 152

Music = Why Streaming?
Access / Choice / Discovery / Personalization / Mobile / Fewer Ads

Reasons for Paying for Music Importance of Streaming Product

Streaming, 12/15 Features, 12/15
Free Trial Size of
42%
Convert Catalog

Get Rid New Music

29% Discovery
of Ads
Multi-Device
Mobile Listening
27%
Access
Support
Artists
Listening
24% Keep Up
Choice
with Hits
Recs from
Friends / 22% Curation
Family / Recs
Simultaneous
Bundled 21% Music Videos
Build
Offline Playlists
19%
Listening
Share
Playlists
Viewed Ad 9%
0% 20% 40% 60% 80% 100%
Very Fairly Not much Not at all

Source: Goldman Sachs Research, BPI

Note: BPI Survey as of 12/15, n=1,000 (UK only). Questions: “Why did you decide to pay for a music streaming subscription?” and “Thinking
about music streaming, to you, how important are the following?” KP INTERNET TRENDS 2017 | PAGE 153
Video = Why Cord-Cutting?
Lower Price + Convenience

Reasons for Cutting Pay-TV Service, Q4:16

Too Expensive 80%

Use an Internet
48%
Streaming Service

Use Antenna to Get

27%
Basic Channels

Like to Binge Entire

Seasons via 19%
Streaming

Dropped Cable Upon

13%
Moving / Relocating

Bulk of Viewing is
Streaming Service 11%
Original Content

Source: TiVo Q4 2016 Video Trends Report

Note: Survey includes 18+ year olds in USA and Canada, n=3,079. Other categories omitted include “Not My Choice,” “Share SVOD Login,”
“Moved In With New Roommate,” “Other.” KP INTERNET TRENDS 2017 | PAGE 154
Digital Evolution of
Music + Video =

Ramping Rapidly…

KP INTERNET TRENDS 2017 | PAGE 155

Recorded Music = Revenue +11% After 16 Years of -4% Annual Average Growth…
Subscription & Streaming @ 52% of Revenue vs. 0% Thirteen Years Ago, USA

Recorded Music Revenues by Format ($B), USA, 1973-2016

$20
Subscription & Streaming
Download & Synchronization
Physical
Recorded Music Revenues ($B)

$15

$10

$5

$0
1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015

Source: Recording Industry Association of America

Note: “Subscription and Sttreaming” includes paid subscriptions (full and limited tier), SoundExchange, ad-supported streaming and other digital.
“Download & Synchronization” includes download single / album, kiosk, download music video, ringtone / ringback, and synchronization. KP INTERNET TRENDS 2017 | PAGE 156
“Physical” includes LP / EP, vinyl single, 8-track, cassette (full / single), CD / CD single, music video, DVD audio and SACD.
Spotify = Catalyst for Internet-Driven Evolution of Music Industry…
0 Æ 50MM Paid Subscribers / 126MM MAUs in <9 Years…

Spotify Subscribers (MM) & Revenue (€MM), 2008 – 2016*, Global

Q4:16 Monthly ARPU = €5.80 ($6.10)
60 €3,000

50 €2,500

Spotify Global Revenue (€MM)

Spotify Paid Subscribers (MM)

40 €2,000

30 €1,500

20 €1,000

10 €500

0 €0
2008 2009 2010 2011 2012 2013 2014 2015 2016*
Spotify Paid Subscribers Spotify Global Revenue

Source: Spotify
* Subscribers as of 3/2017, when Spotify announced they had reached the 50 million subscriber mark.
KP INTERNET TRENDS 2017 | PAGE 157
…Spotify = 20% of Global Music Industry Revenue vs. 0% in 2008

Spotify Subscribers (MM), 2008 – 2016*, Global

Q4:16 Monthly ARPU = €5.80 ($6.10)
60 30%

50 25%

Spotify as % of Global Music Revenue

Spotify Paid Subscribers (MM)

40 20%

30 15%

20 10%

10 5%

0 0%
2008 2009 2010 2011 2012 2013 2014 2015 2016*
Spotify Paid Subscribers (MM) Share of Global Music Revenue (%)

Source: Spotify, IFPI 2017 Global Music Report

* Subscribers as of 3/2017, when Spotify announced they had reached the 50 million subscriber mark.
KP INTERNET TRENDS 2017 | PAGE 158
Spotify = Users Listen to 41 Artists per Week, +40% (vs. 1/14) Owing to…
Recommendation Engine (Data + Algorithms)

Spotify
Unique Artists Listened to Per Week, Average, Global, 1/14-1/17

50
Unique Artists Listened to per Week

40

30

20

10

0
1/14 1/15 1/16 1/17
Time

Source: Spotify

KP INTERNET TRENDS 2017 | PAGE 159

Network TV* Minutes Delivered = 2011 Top 5 Networks -10% Average…
Netflix +669% Over 5 Years, USA…

Monthly Minutes Delivered By Network Group, USA, 2010/11-2015/16

400

11% 14% 1% 21% 35% 30% 16%

1% 33%
Monthly Minutes Delivered (B)

300

669%

200

100

0
NBC Disney 21st Netflix CBS Time Viacom Discovery A&E ESPN
Universal Century Warner
Fox

2010-2011 (through Feb) 2015-2016 (through Feb)

Source: Matthew Ball – REDEF Original 3/14/16, Nielsen, Sandvine, Netflix, SNL Kagan, BTIG
Note: Inclusive of Broadcast + Basic Cable + Premium Cable, C7 Live + VOD + DVR. Does not account for multiple viewers (i.e. unique minutes
delivered) or TV everywhere (though note that even if every TV Everywhere stream started in 12/15 was completed and 1 hour long, KP INTERNET TRENDS 2017 | PAGE 160
consumption would have increased national TV time by only 1.9%).
Netflix = Catalyst for Internet-Driven Evolution of Video Industry…
95MM Streaming Subscribers in 10 Years…

Netflix Subscribers (MM) & Quarterly Revenue ($MM), 2/99 – 3/17, Global
Q1:17 Streaming ARPU per Month = $9.14

100 $3,000
9/99 1/07 9/11
DVD Subscription Streaming DVD /

Netflix Quarterly Revenue ($MM)

Launch Launch Streaming Split
80 $2,400
Netflix Paid Subscribers (MM)

60 $1,800

40 $1,200

20 $600

0 $0

Netflix Paid Subscribers (MM) Netflix Quarterly Revenue ($MM)

Source: Netflix
Note: Netflix subscription DVD service launched 9/1998. Data before Q3 2001 represents all subscribers because paid subscribers not broken
out. Netflix split streaming subs from DVD subs in Q3 2011; graph shows only streaming subs thereafter. ARPU shown ex-DVD. KP INTERNET TRENDS 2017 | PAGE 161
…Netflix Streaming =
From 0% to >30% of Home Entertainment Revenue in 10 Years, USA

Netflix Subscribers, 2009 – 2017*, Global

Q1:17 Streaming ARPU per Month = $9.14

100 50%
1/07 9/11

Share of USA Home Entertainment Revenue (%)

Streaming DVD /
Launch Streaming Split
80 40%
Netflix Paid Subscribers (MM)

60 30%

40 20%

20 10%

0 0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*
Netflix Paid Subcribers (MM) Share of USA Home Entertainment Revenue (%)
Source: Netflix
Note: Share represented by Netflix domestic streaming revenue over total home entertainment revenue in USA. Domestic streaming not broken
out as individual segment until 2012. Netflix split streaming subs from DVD subs in Q3 2011; graph shows only streaming subs thereafter. KP INTERNET TRENDS 2017 | PAGE 162
* Q1:17 represents Netflix annualized domestic streaming revenue figure. ARPU shown ex-DVD
Google Pioneered Search / Find / Obtain (SFO) for Content + Products…
Netflix + Spotify Pioneered Search / Find / Serve Up (SFS) for Media

From Give to Get…With Data + Algorithms

98MM Different Netflixes... 126MM Different Spotifys…

$1B cost savings / year ~5B Discover Weekly streams in

from recommendations (12/15) <1 year post-launch (5/16)

Source: Netflix; Spotify; Michelle Ufford, “Data-Driven at Netflix”, talk given at PASS 10/31/16; Gomez-Uribe and Hunt (both Netflix), “The Netflix
Recommender System: Algorithms, Business Value, And Innovation”, ACM Transactions on Management Information Systems 6.4, 12/15
Note: Netflix estimated cost savings due to improved engagement and reduction of monthly churn, driving lower need for subscriber acquisition KP INTERNET TRENDS 2017 | PAGE 163
cost in the future.
 Digital Evolution of
Music + Video =

Multiple Approaches…

KP INTERNET TRENDS 2017 | PAGE 164

Facebook / Instagram / Snap =
Mobile Video Traffic Share Gainers Over 4 Years…
Share of Downstream Video Traffic (%), North America, 2H 2016
40%

35%

30%

25%

20%

15%

10%

5%

0%
YouTube Facebook Instagram Snap Netflix iTunes Google HTTP / Other
Cloud SSL -
Other
2012 2016

Source: Sandvine Global Internet Phenomena Report (2H 2012 and 2016)

KP INTERNET TRENDS 2017 | PAGE 165

…Netflix / YouTube =
Fixed-Access Video Traffic Share Leaders

Share of Downstream Video Traffic (%), North America, 2H 2016

40%

35%

30%

25%

20%

15%

10%

5%

0%
Netflix YouTube Amazon iTunes Hulu Xbox One Facebook BitTorrent HTTP / Other
Video SSL -
Other
2012 2016

Source: Sandvine Global Internet Phenomena Report (2H 2012 and 2016)

KP INTERNET TRENDS 2017 | PAGE 166

Facebook (Facebook / WhatsApp / Messenger / Instagram) =
Video Ramping Across Platform

Facebook Platform MAUs, Global, Months Since Launch

2,500

Instagram
Facebook
2,000
WhatsApp
Facebook Messenger

1,500
MAU (MM)

1,000

500

0
0 12 24 36 48 60 72 84 96 108 120 132 144 156

Months Since Founding

Source: Facebook, Instagram, Whatsapp, Financial Times, TechCrunch

KP INTERNET TRENDS 2017 | PAGE 167

Snap = Ramping Original Short-Form Content

Snap ‘Original Shows’

Phone Swap Second Chance

10MM+ Views for 1st Episode, 5/17 8MM+ Views for 1st Episode, 5/17

Source: Snap

KP INTERNET TRENDS 2017 | PAGE 168

Generational Media Usage =

Chasm Increasing…

Shifts to Internet-Enabled
Media Continue

KP INTERNET TRENDS 2017 | PAGE 169

Mobile Device Time per Day =
+2x Over 2 Years…

Daily Time Spent by Media (Not De-Duped), USA, Q4:14-Q4:16

Q4:14 7:06 2:17

Q4:15 7:12 2:44

Q4:16 7:16 4:14

Analog Digital

Source: Nielsen Total Audience Report Q4:16

Note: “Analog” includes Live / DVR / Time-shifted TV, DVR / time-shifted TV, AM / FM radio, DVD / Blu-ray, and game consoles. “Digital” includes
Multimedia devices (viewing on Apple TV, Roku, Chromecast, smartphone, computer etc. connected to TV), internet on PC, video on PC, app / KP INTERNET TRENDS 2017 | PAGE 170
web on smartphone / tablet, and video on smartphone.
…Mobile Device Time per Day =
18-24 Year-Olds @ 49% Digital…65+ Year-Olds @ 13%, USA

Daily Time Spent by Media & Age Bracket (Not De-Duped), USA, Q4:16

18-24 4:35 4:27

25-34 5:42 4:42

35-49 7:17 5:19

50-64 9:09 4:41

65+ 9:49 1:30

Analog Digital

Source: Nielsen Total Audience Report Q4:16

Note: “Analog” includes Live / DVR / Time-shifted TV, DVR / time-shifted TV, AM / FM radio, DVD / Blu-ray, and game consoles. “Digital” includes
Multimedia devices (viewing on Apple TV, Roku, Chromecast, smartphone, computer etc. connected to TV), internet on PC, video on PC, app / KP INTERNET TRENDS 2017 | PAGE 171
web on smartphone, and video on smartphone.
Traditional Cable Conundrum =

Channels + Consumer Prices +

Programming Costs Rising…

Subscribers Falling

KP INTERNET TRENDS 2017 | PAGE 172

Pay TV Household Growth = -1.3% Average for Last 12 Quarters…
While Programming Costs >2x+ since 2006…

Pay TV Households (MM), USA, 2010-2016

120 5%

110
Total TV Channels Received in USA

3%

100

% Y/Y Growth
1%

90

(1%)
80

(3%)
70

60 (5%)
Q1:10
Q2:10
Q3:10
Q4:10
Q1:11
Q2:11
Q3:11
Q4:11
Q1:12
Q2:12
Q3:12
Q4:12
Q1:13
Q2:13
Q3:13
Q4:13
Q1:14
Q2:14
Q3:14
Q4:14
Q1:15
Q2:15
Q3:15
Q4:15
Q1:16
Q2:16
Q3:16
Q4:16
Pay TV Households (MM) % Y/Y Growth

Source: Nielsen Total Audience / Cross Platform Reports, US Census Bureau, St. Louis Federal Reserve FRED Database
Note: Pay TV households represented by Nielsen “Cable Plus” metric, which includes households who receive television via Wired Cable (No
Telco), Telco, or Satellite. “Programming Costs” includes total program and production costs for Cable and Other Subscription Programming KP INTERNET TRENDS 2017 | PAGE 173
firms, 2006-2015, as per US Census Services Annual Survey for Employer Firms ($25B in 2015, up from $12B in 2006).
…# TV Channels Watched <10% of Channels Received…
Pay TV ARPU 10-15x > Netflix…

Average TV Channels Received vs. Annual ARPU, Selected Platforms, 2016

Watched per Household, USA, 2008-2016
250 25%

DirecTV $1,439
Total TV Channels Received in USA

200 20%

Charter $1,131

% Watched
150 15%

100 10% Dish $1,064

50 5%
Comcast $997

0 0%
Pay TV
Netflix $103 Digital Platforms
TV Channels Received % Channels Watched

Source: Nielsen, Matthew Ball & Tal Shachar, REDEF Original 3/9/16, DirecTV, AT&T, Charter, Dish Network, Comcast
Note: TV channel data as of mid-year. DirecTV ARPU calculated by dividing the 2016 Video Entertainment revenue by the average number of Linear Video Connections
during 2016. Charter ARPU calculated by dividing 2016 Video revenue by average Video Residential Primary Service Units during 2016. Dish Network ARPU calculated
by multiplying the 2016 Pay-TV Average Monthly Revenue per Subscriber by 12. Comcast ARPU calculated by dividing the 2016 Residential Video revenue by the KP INTERNET TRENDS 2017 | PAGE 174
average Video Customers in 2016. Netflix ARPU is based off the Global Streaming revenue and average subscribers in 2016. All estimates are global.
 Digital Subscriptions =

Rising Owing to Massive

User Experience Improvements…

On-Demand / A La Carte Selection +

Choice / Personalization / Payment
Systems / 2-Way UGC / Mobile...
KP INTERNET TRENDS 2017 | PAGE 175
Media Evolution (1950-2017) =
Market of Millions Æ Market of One x Millions
Network Era Cable Era Digital Era
1950s-1980s 1980s-2010s Current
Cater to All / Broad Genres / Cater to Sub-Genres /
High Viewership / Focus on Programming / Power Users /
No Personalization Limited Bundle Choices A La Carte + Subscription

g
Digital Distributors

Digital Studios

Source: Amanda Lotz, The Television Will Be Revolutionized, New York: NYU Press, 2007, Wikimedia Commons, Google Image Commons,
Crunchyroll, Shudder, Fandor, Seeso, Cheddar, Fullscreen
KP INTERNET TRENDS 2017 | PAGE 176
Media = Distribution Disruption @ Torrid Pace

1) Digital Leaders = Transforming Media With Better User Experiences

+ Lower Prices…Data + Scale

2) Generational Media Usage = Chasm Increasing as Shifts to

Internet-Enabled Media Continue

3) Traditional Cable Conundrum = Channels + Consumer Prices +

Programming Cost Rising…Subscribers Falling

4) Digital Subscriptions = Rising Owing to Massive User Experience

Improvements (On-Demand / Selection + Choice / Personalization /
Payment Systems / 2-Way UGC / Mobile...)

KP INTERNET TRENDS 2017 | PAGE 177

THE CLOUD =

ACCELERATING CHANGE ACROSS

ENTERPRISES

ALEX KURLAND @ KLEINER PERKINS

KP INTERNET TRENDS 2017 | PAGE 178