Network TV's (Not So Big) Threat From Online Video A Deep Dive

EQUITYRESEARCH RBC Capital Markets, LLC
David Bank (Analyst)
(212) 858-7333
david.bank@rbccm.com
Nicholas Caplan (Associate)
(212) 428-6412
nicholas.caplan@rbccm.com
Kristina Warmus (Associate)
(212) 428-6622
kristina.warmus@rbccm.com
Leo Kulp (Associate)
212 301 1457
leo.kulp@rbccm.com
June 26, 2014
Network TV's (Not So Big) Threat
From Online Video: A Deep Dive
Putting The Online Video Advertising Market In
The Context Of Network TV
• Proprietary Analysis And Industry Channel Checks Suggest The
Online Video Advertising Market Poses Little Threat To The
Traditional Network TV Ecosystem—Limitations on premium inventory,
unfavorable pricing, and lower reach across broad demos keep Online
Video Advertising from being a mass substitute for Network TV.
• Overall, The Premium Online TV Advertising Market (The One That
Could Pose A Threat To Traditional Network TV) Is Too Small To Cause
A Secular Shift—Some key data points:
• We estimate that 16% of total Online Video Advertising minutes
could be classified as "premium" (suitable contextually and in
production quality for Network TV Advertisers).
• Of this "premium" advertising, we think more than 50% comes from
publishers that are simply an "Online Extension Of The Traditional
Ecosystem" (e.g., Hulu).
• We estimate that a first-run episode of The Big Bang Theory
generates nearly as many premium ad minute equivalents (A18-49)
as a week of YouTube does (across all ages, but considering only ads
watched to completion).
• Based on the identified publishers, total premium online video
inventory, excluding inventory controlled by the traditional media
players, is equal to ~10% of A18-49 Broadcast Network advertising
minutes and less than 1% of P2+ Cable Network inventory.
(Remember, Cable programs its networks 24/7 and keeps almost
100% of its inventory while Broadcast Networks program part of the
day and don't control all of the inventory.)
• The Biggest Beneficiaries Of The Growth In Premium Online Video
Advertising Are…The Media Conglomerates That Operate Traditional
TV Networks—We believe that more than 50% of Premium online video
advertising minutes reside on the "Online Extensions Of Traditional
Platforms" such as CBS.com, ABC.com, and Turner.com.
Priced as of prior trading day's market close, EST (unless otherwise noted).
All values in USD unless otherwise noted.
For Required Conflicts Disclosures, see Page 53.

Table of Contents
Investment Highlights ..........................................................................................................3
Understanding Digital Advertising In The Context Of Traditional TV Advertising..................6
First: Let’s Discuss The Profile Of Usage And Ad Spend Growth Relative to Traditional TV ......6
Then: We Need To Understand The Make Up Of The Digital Ad Environment .......................15
We Believe The Potential Impact Of Digital Video On The TV Ad Business Is
Probably Smaller Than Many Investors Think.....................................................................20
Reach May Limit The Use Of Digital, But It Certainly Has A Role To Play.................................20
We Believe There Is Less Premium Digital Video Ad Inventory Than Inventors Might Think ..24
Comparables ......................................................................................................................46
Appendices.........................................................................................................................48
Network TV's (Not So Big) Threat From Online Video: A Deep Dive
June 26, 2014 2

Investment Highlights
The Online Video Advertising Marketplace Does Not Appear To Us To Be Poised To Disrupt
The National TV Advertising Marketplace Anytime Soon—Our proprietary analysis and
channel check discussions indicate that there simply is not a sufficient amount of premium
online video inventory to support a significant negative secular impact on national television.
Further, the even more limited availability of inventory of online premium long-form video,
the kind that can support 30-second spots adjacent to and within video content, further
suggests the competitive threat to national TV is limited.
Comparing The Online Video Ad Market To National TV Requires A Number Of
Adjustments To Come Up With Like For Like Comparisons—The total number of online
content minutes available in the United States in any given month (~230 billion minutes per
month today, on desktops and laptops alone) might seem staggering. But, to compare this
figure to its equivalent in the TV market, it is necessary to consider two additional factors.
First, according to our channel checks, only “premium” content—the kind of content major
marketers would feel comfortable advertising in—should be considered. Second, advertising
minute equivalents—the actual advertising time that can be supported in an impression—
rather than the number of content minutes, is what actually matters. TV can support 16
commercials that are 30 seconds in duration during one of its “impressions,” a half hour TV
show. On the other hand, the average online video, which is nearly four minutes in length,
can support, maybe, a single 15-second spot.
The Total Amount Of Premium Inventory Is Actually Very Small, Relative To Television—We
estimate that only around 9% of total online video content minutes and approximately 5% of
total advertising minutes are Premium and provided by “Digital Players Out Of The
Traditional Ecosystem”. This results in a total “apples to apples” comparison of monetizable
advertising minutes for online video from “Digital Players Out Of The Traditional Ecosystem”
that is only about 20% of total broadcast (Big 4) A18-49 primetime inventory, or less than
10% of total broadcast network inventory (both small subsets of TV). To look at it another
way, it is roughly equal in time to three days of broadcast network TV on from the Big 4
every month, and this is only for viewers ages 18-49, it would be substantially smaller for
total audience viewership. For more context, it represents 0.4% of the total P2+ cable TV
inventory (remember, cable networks retain virtually all of their inventory 24 hours per day
while broadcast networks control a limited amount of inventory, over only part of the day).
Pricing Is Also Keeping Online Video Advertising From Becoming A Bigger Threat—Channel
sources consistently tell us that a key catalyst for making premium online video advertising a
more competitive substitute for traditional network TV advertising would be favorable
pricing. Much as network cable's ability to take share from broadcast network advertising
was contingent on its ability to lower advertiser’s overall CPMs—while increasing gross
ratings points and impressions—online video must also probably offer favorable pricing. Our
current sense from the channels is that premium online video is not being priced at a
material discount to network TV (including cable and broadcast network TV) and in some
cases is even being sold at a premium CPM. While this presents less of a barrier in attracting
native "digital" money to premium online video advertising, it will likely be a point of
contention as online video advertising seeks to take share from more traditional network TV
advertisers.
Much Is Made of YouTube As a Competitor For National TV Dollars, But We Do Not Think It
Makes A Dent—We start our analysis with YouTube’s self-reported 6 billion minutes of video
viewed per month, globally. We then assume 20% of these views are in the U.S., the average
video is four minutes long, only roughly 20% of content views are of “premium” content,
June 26, 2014 3

75% are in TrueView (skippable ad environment), and 25% of the skippable ads are watched.
As a result, we estimate the TV ad minute equivalent audience from YouTube is only about
2% of total broadcast A18-49 primetime inventory (a small subset of TV itself). For more
context, it represents well under a percent of the total P2+ cable TV inventory. Finally, we
estimate that, in the average month, all of YouTube provides less than 50% of the number of
minutes of advertising created by Judge Judy, and if we were to only consider “premium”
YouTube ad views, this share would fall to below 10%. We pursue a bottom-up approach, in
order to consider the reasonability of current ad loads on YouTube, and to avoid
underestimating the total potential inventory of premium digital advertising, if the major
digital publishers are running ad loads that are significantly below what seems like a sensible
level.
The Biggest Beneficiary Of The Limited Opportunity To Substitute Traditional TV
Advertising Dollars With Online Video Advertising Is… The Traditional TV Network
Ecosystem—In our analysis, of the premium sources of digital video ad inventory we are able
to identify, we estimate that roughly two thirds of ad minutes come from publishers that are
an “Online Extension Of The Traditional Ecosystem” (e.g. ABC.com, CBS.com, Turner.com).
Another source, although we believe their dataset does not include some large publishers
that are part of the “Online Extension Of The Traditional Ecosystem”, put this number at
around 50%. Yes, there are some larger “Digital Players Out Of The Traditional Ecosystem”
(e.g. AOL, YouTube, MSN, etc.) for which shifting ad budgets toward would constitute
something more than just moving ad dollars from one hand to another. However, shifting
money to a large proportion of premium digital inventory available would still keep the
money “in the TV ecosystem”.
Even If There Was More Premium Inventory, Channel Sources Continue To Tell Us Online
Video Isn’t Yet A Real Substitute—Reach characteristics, particularly outside of much
younger skewing demos, simply underperform relative to TV. Advertisers need to buy far
more impressions in online advertising generally, in order to achieve the same audience
reach. Our channel sources indicate that online video can increase the overall effectiveness
and reach most TV advertising campaigns, particularly with respect to lighter TV viewing
Millennials, when added to the advertising mix. However, as a mass reach vehicle on its own,
online video remains an impractical solution due to inventory and reach limitations, along
with the more limited amount of long-form content contextuality.
Monetization Coming Out Of Online Funnel—Our views with respect to the competitive
landscape for online video are largely in the context of potential cannibalization of traditional
network TV dollars. While we see online video advertising’s potential to disrupt traditional
network TV as limited, we also get the sense from our channel checks that traditional digital
money is likely increasing its pace of growth. However, for today, we think the growth is
driven less by shifting of dollars from network TV to online video, and more by the
cannibalization of existing digital platforms (traditional display, in particular—though display
is still growing overall) into online video. While this is an anecdotal observation, we have
heard it consistently enough in the channels to believe it is true, at least for the moment.
There Is A Broader Threat To TV Than Just Online Video And That Is Online Advertising As A
Broader Category—Our work in this report primarily centers on the potential impact on the
competitive landscape of an emerging premium online video ecosystem versus the
traditional network TV ecosystem. However, over time, we would expect broader online
publishers (Facebook, etc.) to put pressure on network TV budgets. However, we just do not
see a material enough impact, given our channel checks, to believe the ecosystem is being
impacted yet. Most of our industry sources indicated that it is possible 1-2% of broader TV
budgets could be susceptible at sometime over the next few years (nobody is sure when it
June 26, 2014 4

starts or if it has started yet for that matter), but we do not view a competitive dynamic like
that as a seismic shift.
More Time Is Being Spent With Digital Media, But This Hasn’t Caused A Material Decline In
Time Spent With Traditional TV—While digital has taken a bigger share of the time spent
consuming media, actual hours spent watching TV has remained relatively flat. We would
anticipate investors asking, “How is it possible that hours spent with TV has remained
roughly flat, while time spent with digital has grown substantially (by 2.6 hours/day) since
2010?” We demonstrate that time spent across all media platforms has grown by 1.4
hours/day (creating what we can think of as a new digital daypart in some ways), while time
spent with platforms other than TV and digital has declined by 1.2 hours/day (representing a
shift of time out of these media to the new digital daypart). This allows time spent with
digital media to grow significantly while time spent with traditional TV has remained roughly
flat since 2010.
June 26, 2014 5

Understanding Digital Advertising In The Context Of Traditional TV Advertising
First: Let’s Discuss The Profile Of Usage And Ad Spend Growth
Relative to Traditional TV
There has been significant investor concern for years regarding the potential disruption that
digital advertising could create in the traditional TV advertising ecosystem. With growth in
digital ad spend having increased from roughly $11 billion in 2009 to an estimated $28 billion
in 2014E, compared to a TV ad base of $51 billion in 2009, it is easy to see why this may have
been a concern.
Exhibit 1: Despite Strong Growth In Digital Ad Spend, Ad Spend For TV Has Remained Strong
Annual U.S. Ad Spend
Annual Growth Rate
10,866
12,919
15,462
17,965
22,667
27,702
32,787
37,673
42,942
48,282
54,029
51,156
55,312
58,554
60,458
63,064
65,000
67,527
69,810
72,088
74,125 76,055
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
2009A 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E
AdSpend($mm)
National and Local Digital Media National and Local TV
2009-14E CAGR for
National and Local
TV: 4.9%
2009-14E CAGR for
National and Local
Digital Media: 20.6%
18.9%
19.7%
16.2%
26.2%
22.2%
18.4%
14.9%
14.0%
12.4% 11.9%
8.1%
5.9%
3.3% 4.3%
3.1% 3.9% 3.4% 3.3% 2.8%
2.6%0%
5%
10%
15%
20%
25%
30%
35%
2009A 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E
YoYGrowth
National and Local Digital Media National and Local TV
Note: National TV includes Network Broadcast TV (English & Spanish-Language, National Syndication, and National Cable TV). It excludes incremental
advertising revenues from Olympics. Local TV includes Local Cable and Local Broadcast TV. It excludes local political advertising. Digital/Online includes
Video, Social, Display/Rich Media, Search, Classifieds, Email as for both Mobile and Desktop. Internet Yellow Pages, Mobile Search, and Mobile Classifieds
are included in Other Digital.
Source: Magna Global estimates, RBC Capital Markets
June 26, 2014 6

This said, looking at recent history, advertising growth rates for both National TV and Local
TV have remained consistent.
Further, looking forward through industry forecasts—which foresee digital growth
continuing at a significant pace—we have to ask ourselves, how big of a threat is digital to TV
ad spend going forward.
Exhibit 2: U.S. Ad Spend By Media
Annual U.S. Ad Spend: Local v. National
Annual Growth Rate
0
10,000
20,000
30,000
40,000
50,000
60,000
2009A 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E
AdSpend($mm)
National TV Local TV National Digital/Online Media Local & Other Digital
Despite growth in digital, National and Local TV ad
spend have grown in recent years.
2009-14E CAGR for
Local TV: 4.7%
2009-14E CAGR for
National TV: 5.0%
7.7%
6.7%
3.4%
4.6%
2.8% 3.3% 2.5% 2.4% 1.9% 1.6%
9.0%
4.2% 3.0% 3.7%
3.6% 5.1% 5.0% 4.9% 4.5% 4.5%
22.1%
18.1%
11.1%
23.0%
17.8%
14.3%
12.8%
11.9%
10.8% 10.2%
15.5%
21.4% 21.7%
29.3%
26.3%
21.9%
16.6%
15.7%
13.7% 13.2%
0%
5%
10%
15%
20%
25%
30%
35%
2009A 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E
YoYGrowth
National TV Local TV National Digital/Online Media Local & Other Digital
Note: National TV includes Network Broadcast TV (English & Spanish-Language, National Syndication, and National Cable TV). It excludes incremental
advertising revenues from Olympics. Local TV includes Local Cable and Local Broadcast TV. It excludes local political advertising. Digital/Online includes
Video, Social, Display/Rich Media, Search, Classifieds, Email as for both Mobile and Desktop. Internet Yellow Pages, Mobile Search, and Mobile Classifieds
are included in Other Digital.
Like digital ad spend, time spent with digital media has also grown significantly in recent
years. We think the increase in time spent with digital has supported strong growth in digital
ad spend. We have certainly seen an increase in the share of a consumers time spent with
digital. Exhibit 3 captures this increase, showing the estimated share of time spent with
digital increasing from 29.6% of total time spent with media in 2010 to 47.1% in 2014.
June 26, 2014 7

Exhibit 3: Share Of Time Spent With Digital Relative To Other Media Platforms Has Increased
Substantially In Recent Years
YoY Growth Rate:
'10-14E CAGR: 0%
29.6%
33.8%
38.5%
43.4%
47.1%
40.9%
40.4%
39.2%
37.5%
36.5%
14.9%
13.9%
13.0%
11.9%
10.9%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013 2014
Digital (incl. Mobile) TV Radio Print Other
The increase in
hours spent with
digital is coming
from two sources:
1. A decline in time
spent with non-TV
or digital media
Time spent with TV over the past
half decade has been roughly flat,
despite the fact that time spent
with digital has increased
ShareOfTimeSpentByPlatform
Note: eMarketer estimates as of April 2014; P18+; multitasking counted under each category
Source: eMarketer, RBC Capital Markets
Additionally, over the last several years we have seen the gap between the share of time
spent with TV and the share of ad dollars spent on TV advertising increase. Some have
interpreted a gap between these metrics as an indicator that there may be an opportunity or
risk for a given platform to gain or lose share. We certainly consider this quantitative
approach as one part of our analysis, but note that not all platforms are equal.
Exhibit 4: Comparison Of Share Of Consumer Time Spent Versus Share Of Ad Spend By Platform
3%
5%
37%
21%
19%
11%
4%
2%
1%
47%
12%
9%
10%
20%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Online Video Mobile Video TV* Digital: Online
(ex-video) +
Other
Digital: Mobile
(nonvoice) (ex-
video)
Radio Print
Share
2014
Time Spent (share) Ad Dollars Spent (share)
9.8%
1% 0%
44%
27%
4%
16%
8%
1% 0%
46%
10%
1%
12%
30%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Online Video Mobile Video TV* Digital: Online
(ex-video) +
Other
Digital: Mobile
(nonvoice) (ex-
video)
Radio Print
Share
2010
Time Spent (share) Ad Dollars Spent (share)
Yes, the gap between share of time spent and dollars spent for TV has grown, but we
would argue that this is not a complete analysis. And that, we should consider both (1)
changes in absolute time spent, and (2) inherent differences between the platforms
gaining and losing share. For the latter question, we specifically want to know, if the
time spent "share taker" can be a share taker of TV ad dollars.
2.0%
Note: Analysis excludes time measured on "other" media, because there is not a matching ad spend item to pair it against. Share of time spent for P18+. Methodology based on kpcb.com/internet-trends
presentation, but we further segment the data here and update it for 2014 estimates.
*TV ad dollars excludes political and incremental Olympic advertising
Source: eMarketer estimates, Magna Global estimates, RBC Capital Markets
Interestingly, while digital has taken a bigger share of the time spent consuming media,
actual hours spent watching TV has remained relatively flat.
June 26, 2014 8

We would anticipate investors asking, “How is it possible that hours spent with TV has
remained roughly flat, while time spent with digital has grown substantially (by 2.6
hours/day)?”
In Exhibit 5, we lay out how the increase in hours spent with digital has come from two
primary sources:
1. A decline in time spent with non-TV or digital media platforms, and
2. Growth in total time spent with media across all platforms (in some ways a new
daypart for digital has been created).
Thus, we could answer this question by identifying specifically where the 2.6 hours/day of
digital consumption has come from since 2010. Time spent across all media platforms has
grown by 1.4 hours/day (creating what we can think of as a new digital daypart in some
ways), while time spent with platforms other than TV and digital has declined by 1.2
hours/day (representing a shift in time out of these media to the new digital daypart).
June 26, 2014 9

Exhibit 5: Time Spent By Media Platform: Digital Has Grown But TV Has Remained Roughly Flat
Time Spent By Platform Time Spent Across Platforms
Summary
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
HoursADay
2010 2011 2012 2013 2014
20%
19%
15%
10%
4%
1%
-2%
-1% -2%
-2%
-7%
-7%
-11%
-13%
-17%
-19%
-18%
-24%
-29%
-31%
YoY Growth Rate*:
'10-14E CAGR: 0%
10.8
11.3
11.8 12.1 12.2
0
2
4
6
8
10
12
14
2010 2011 2012 2013 2014
HoursADay
Growth in total hours indicates what is, at
least partially, the creation of a new daypart
for digital media consumption.
4.4 hrs/day 4.6 hrs/day 4.6 hrs/day 4.5 hrs/day 4.5 hrs/day
3.2 hrs/day
3.8 hrs/day
4.5 hrs/day 5.2 hrs/day
5.8 hrs/day
3.2 hrs/day
2.9 hrs/day
2.6 hrs/day
2.3 hrs/day
2.0 hrs/day10.8 hrs/day
11.3 hrs/day
11.8 hrs/day
12.1 hrs/day 12.2 hrs/day
0.0 hrs/day
2.0 hrs/day
4.0 hrs/day
6.0 hrs/day
8.0 hrs/day
10.0 hrs/day
12.0 hrs/day
14.0 hrs/day
2010 2011 2012 2013 2014
TV
Digital (incl. Mobile)
Everything Else
How is it possible that hours spent with TV has remained
roughly flat, while time spent with digital has grown
substantially (by 2.6 hours/day)?
It's possible because
hours spent across all
these media platforms
has grown by 1.4 hours
and the time spent with
platforms other than TV
and digital has declined
by 1.2 hours.
Increase of 0.1 hours/day
TV
The increase in
hours spent with
digital is coming
from two sources:
1. A decline in time
spent with non-TV
or digital media
platforms
2. Growth in total
time spent with
media across all
platforms (in some
ways a new daypart
for digital has been
created).
Time spent with TV has been
roughly flat over the past half
decade, despite the fact that time
spent with digital has increased
substantially.
* YoY Growth Rate charts are not drawn to scale relative to one another, they are merely provided to give a sense of the growth trends for the respective items.
June 26, 2014 10

In light of the continued strength in TV viewership, the strength in TV ad spend is less
surprising. Particularly if we assume, that TV offers something different than digital. This
does not seem like an unfair assumption when comparing TV advertising to display and
search advertising, where we would argue that the relatively unexciting nature of the
content (fixed, no sound) would make it less useful when building/maintaining a brand
identity. (On the other hand, display and search advertising may be an ideal advertising
medium for more transaction-based campaigns—for example, one where a retail store is
trying to get individuals who have previously browsed their site back to complete a
transaction.)
However, while TV consumption and ad spend have remained resilient in recent years,
what we really want to know is - will this dynamic hold in the future?
The strength of TV advertising over recent years (with the benefit of offering advertisers a
way to reach the eyes and ears of consumers) against a backdrop of massive display and
search ad inventory would support the assertion that display and search advertising is not a
substitute for typical TV advertising. Unlike for display and search, growth in ad spending on
online video over the past five years has been relatively small.
June 26, 2014 11

Exhibit 6: Growth In Digital Ad Spend Has Been Dominated By Search And Display
Digital Ad Spend
Share of Digital Ad Spend
1,036 3,974 10,235
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
2009A 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E
AdSpend($mm)
Search Total Display Total (excludes Online Video, includes Social)
Online Video Total Other Total (Lead Gen, Classifieds, Email)
Increase in Online Video Ad
Spend Between 2009A and
2014E Would Be $2,937mm.
Increase in Online Video Ad
Spend Between 2014E and
2019E Would Be $6,261mm.
Based On The Presented Estimates
The Increase In Online Video Ad
Spend Would Be 2.1x Higher For
2014E -2019E Than 2009A -2014E
.
47% 47% 50% 53% 53% 54% 54% 55% 56% 56% 57%
31% 32% 30% 29% 28% 28% 28% 27% 27% 26% 25%
5% 5% 6% 7% 7% 8% 9% 10% 11% 11% 12%
17% 16% 14% 12% 11% 10% 9% 8% 7% 6% 5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2009A 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E
ShareOfTotalDigitalMediaAdSpend
Search Total Display Total (excludes Online Video, includes Social)
Online Video Total Other Total (Lead Gen, Classifieds, Email)
Given the historical strength of TV advertising despite substantial growth in display and
search advertising, we would assert that a focus should be placed on any competitive threats
that may be more of a direct substitute for TV advertising. We think digital video advertising
could, perhaps, be this threat, and thus, we will analyze it in more detail in this piece.
Viewership of digital video remains in its relative infancy (total digital video ad market is
estimated by Magna Global to be around $4 billion in 2014 vs. TV (national and local) of
approximately $65 billion), which could explain the strength of ad spend allocated to
June 26, 2014 12

traditional TV over recent years. While digital (including non-video) now occupies more of a
consumers time than TV, consumer time spent with digital video, specifically, is still only a
fraction of the time spent watching traditional TV.
Exhibit 7: Time Spent By Media Platform: Online And Mobile Digital Video Viewership Is Still
In Its Relative Infancy
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Online Video Mobile Video TV Digital Video Combined
HoursADay
2010 2011 2012 2013 2014E
4%
1%
-3%
-1%
YoY Growth Rate*:
'10-14E CAGR: 0%
100%
75%
5% 0%
167%175%
50%
150%
93%
52%
25%
Yes, the gap between share of time spent and dollars spent for TV has grown, but we would
argue that this is not a complete analysis. And that, we should consider both (1) changes in
absolute time spent, and (2) inherent differences between the platforms gaining and losing
. For the latter question, we specifically want to know, if the time spent "share taker"
can be a share taker of TV ad dollars.
* YoY Growth Rate charts are not drawn to scale relative to one another, they are merely provided to give a sense of the growth trends for the respective
items.
Although, we would certainly recognize that usage of digital video skews towards younger
consumers.
Exhibit 8: Younger Adults Spend More Time Watching Video Online
11
15
0
5
10
15
20
All Ages A18-34
TimeSpentWatchingVideos
Online
(Hours/Month,desktoponly)
Source: comScore From TV to Total Video report, RBC Capital Markets
June 26, 2014 13

Key Question: At A High Level, Is There Room For Both Digital And Video Advertising To
Grow?
With dollars from online video expected to grow significantly over the next several years, we
want to capture how much of a threat digital video really is. Below we present two different
estimates for digital video ad growth. Some variation may be driven by differences in
estimates, but notably the chart on the left only considers in-stream video advertisements
while the chart on the right also includes in-banner and in-text video ads.
Exhibit 9: Digital Video Ad Spend
Growth In Online Video Advertising: In-Stream Only
$1.81bn $2.33bn $2.78bn $3.21bn $3.80bn $4.36bn $4.97bn $5.59bn $6.26bn
$0.04bn
$0.10bn
$0.40bn
$0.77bn
$1.23bn
$1.76bn
$2.39bn
$3.12bn
$3.98bn
$1.85bn
$2.43bn
$3.18bn
$3.97bn
$5.03bn
$6.12bn
$7.36bn
$8.71bn
$10.24bn
$0.00bn
$2.00bn
$4.00bn
$6.00bn
$8.00bn
$10.00bn
$12.00bn
$14.00bn
$0.00bn
$2.00bn
$4.00bn
$6.00bn
$8.00bn
$10.00bn
$12.00bn
$14.00bn
2011 2012 2013 2014 2015 2016 2017 2018 2019
Mobile
Desktop
28.8%
19.5%
15.3%
18.4%
14.9% 14.0% 12.4% 11.9%
91.3%
61.1%
42.4%
36.0%
30.6%
27.5%
31.2% 31.0%
24.8% 26.6%
21.6% 20.3% 18.3% 17.5%
0%
20%
40%
60%
80%
100%
120%
2011 2012 2013 2014 2015 2016 2017 2018 2019
YoY Growth Rates
Note: Data from April 2014
Growth In Online Video Advertising: In-Stream, In-Banner, and In-Text
$3.52bn
$4.45bn
$5.26bn $5.83bn $6.46bn $6.83bn
$0.66bn
$1.44bn
$2.38bn
$3.42bn
$4.38bn
$5.44bn
$2.00bn
$2.89bn
$4.18bn
$5.89bn
$7.64bn
$9.25bn
$10.83bn
$12.27bn
$0.00bn
$2.00bn
$4.00bn
$6.00bn
$8.00bn
$10.00bn
$12.00bn
$14.00bn
$0.00bn
$2.00bn
$4.00bn
$6.00bn
$8.00bn
$10.00bn
$12.00bn
$14.00bn
2011 2012 2013 2014 2015 2016 2017 2018
Mobile
Online
Combined
26.4%
18.2%
10.8% 10.7%
5.8%
118.2%
65.3%
43.7%
28.0%
24.3%
44.5% 44.6%
40.9%
29.7%
21.1%
17.1%
13.3%
0%
20%
40%
60%
80%
100%
120%
2011 2012 2013 2014 2015 2016 2017 2018
YoY Growth Rates
Note: Data from March 2014
Source: Magna Global estimates (data on the left), eMarketer estimates (data on right), RBC Capital Markets
We will focus on in-stream advertising, since we consider it the most comparable form of
digital video advertising relative to traditional TV advertising. We would further note that,
although we do not know the frequency with which it occurs, we would not consider in-
stream video ads that auto-play (potentially off the screen, and/or with muted audio) as
comparable to traditional TV advertisements either.
Before we take an impression based approach to trying to determine if digital video is a likely
threat to traditional TV advertising, we first want to take a high level approach and ask if,
based on industry ad estimates estimated digital video ad growth would threaten traditional
TV advertising.
In the analysis below, we demonstrate how much of a threat digital video ad spend is, based
on industry forecasts. What may be surprising to some investors to see is that: if we assume
combined video ad spend over the next five years of 4% (below the nearly 6% growth we saw
in the prior five years), as modeled forecasted digital video ad spend CAGR of roughly 10%
would still leave room for traditional TV ad spend growth of 2.5%.
June 26, 2014 14

Exhibit 10: Given Industry Estimates For Digital Video Ad Growth, How Much Room Is There Left For Traditional To Grow
Analysis For 2009-14E Period Analysis For 2014-19E Period
2009 2014
TV Ad Spend* 51,156 TV Ad Spend* 65,000
+ Digital Video Ad Spend 1,036 + Digital Video Ad Spend 3,974
Combined 52,192 Combined 68,974
Assume 5-Yr CAGR Of 5.7% Assume 5-Yr CAGR Of 4.0%
2014 2019
Which Would Mean Combined 68,974 Which Would Mean Combined 83,917
2009-14 2014-19
And Total 5-Yr Growth Of 16,782 And Total 5-Yr Growth Of 14,943
- Growth In Digital Video Ad Spend 2,937 - Growth In Digital Video Ad Spend 6,261
So Growth In TV Could be 13,844 So Growth In TV Could be 8,682
This Would Mean TV Could Still Growth At A CAGR Of 4.9% This Would Mean TV Could Still Growth At A CAGR Of 2.5%
Event With A CAGR For Digital Video Ad Spend Of 30.8% Event With A CAGR For Digital Video Ad Spend Of 20.8%
Scale matters. Even if Digital Video Ad Spend were to grow at a 20.8% CAGR, TV Ad Spend
could still grow at 2.5% if Combined Video grows at 4.0% because total size of Digital is so
much smaller than TV.
This conclusion does assume that there is no
cannibalization of TV advertising from digital advertising
other than digital video.
*TV Ad Spend includes National Network Broadcast TV (English & Spanish-Language), National Syndication, and National Cable TV, Local Cable and Local Broadcast TV. It excludes incremental national advertising
revenues from Olympics and local political advertising.
Source: Magna Global estimates, RBC Capital Markets estimates
Then: We Need To Understand The Make Up Of The Digital Ad
Environment
Earlier in this report, we outline at a high level, based on industry estimates, why we think
fast growth in digital video advertising would not preclude at least solid growth in traditional
ad spend. However, to really understand what the risk could be if industry growth proves to
be significantly higher than industry forecasts, we need to have an understanding of the
make-up of the digital ad environment.
One key question is where is growth in digital video advertising going to come from? If the
growth in digital video is driven primarily by increased digital viewership of content owned
by the players that are an “Online Extension Of The Traditional Ecosystem,” a shift in ad
spend platform would not necessarily change who eventually receives the revenue. Pricing
and ad load remain important variables, but the content owners either have direct or
indirect (based on the price they charge for their content) control over them. Accordingly, we
would note that some digital video publishers, such as Hulu and other online Full Episode
Players (FEPs), rely largely on content owned by the traditional large cap media content
owners.
Looking at FreeWheel data, we can see that, for at least their dataset, approximately 50% of
ad views were on content published by the players that are an “Online Extension Of The
Traditional Ecosystem”. We believe FreeWheel data represents a fairly large proportion of
premium content, which is the ad inventory set we are concerned with. (In the sidebar, we
discuss some of the concerns we have with extrapolating directly from these results to the
entire ecosystem of digital advertising.)
June 26, 2014 15

Exhibit 11: Video Ad Views By Publisher Type Under FreeWheel Dataset (probably largely
based on premium content) – Q3/13
Programmer/
MVPD
53%
Digital Pure-
Play
47%
We would not consider views shifting from
Traditional TV to these types of publishers a
threat. In our opinion, this is mostly moving
ad spend from one hand to another.
We would consider views shifting from
threat. This could result in ad spend moving
out of the ecosystem.
Digital Players Out Of
The Traditional
Ecosystem
Online Extension Of
The Traditional
Ecosystem
FreeWheel defines the two categories as follows:
Programmers/MVPDs: “■Generate majority of their advertising revenue from linear TV services ■Offer diverse content mix on IP-based environments”
Digital Pure-Plays: “■Generate majority of revenue from IP-based environments■ Aggregate third-party content and/or are developing original content”
Source: FreeWheel Video Monetization Report Q3 2013, RBC Capital Markets
There is a meaningful difference in ad load by content type. On average, premium online
video—as defined by comScore: appears to be largely made up of publishers of traditional
content (e.g. Hulu and other FEPs)—carries an ad load approaching that of TV. For comScore
defined premium online video, approximately 16% of total video time is occupied by
advertising, compared to around 23% for TV. On the other hand, the average amount of time
dedicated to advertising for comScore defined non-premium online video is only around 5%.
According the FreeWheel, the
source data is U.S. based and
“represents video that is rights-
managed: aggregate monetization
data for professional content from
FreeWheel’s customers, and does
not reflect trends for user-
generated content.” In addition,
this data set “comprised over 75
billion video views and 60 billion
video ad views in 2013”.
(FreeWheel Video Monetization
Report Q3 2013 and Q4 2013)
Compared to comScore’s estimate
of approximately 233 billion video
ad views in 2013, this is a fairly
large number relative to the entire
ecosystem (even considering the
fact that our comScore metric does
not include mobile). That said, it
does leave plenty of room for bias
in the same to affect the
conclusion. However, working in
favor of any conclusion we draw is
the fact that the data is based on
“professional content” which is the
segment we believe to be most
competitive with premium
advertising, and thus it is this
segment of online video content
that we are really concerned with.
June 26, 2014 16

Exhibit 12: Ad Load By Minutes For TV And Online Video
Advertising
23.2%
Content
76.8%
TV
Advertising
15.8%
Content
84.2%
comScore Defined Premium Online Video
Advertising
5.0%
Content
95.0%
comScore Defined Non-Premium Online Video
Advertising
5.4%
Content
94.6%
Online Video Average
Doesnot align with the
definitionof Premium
we will use elsewhere
in this report
Note: Premium Online Video as determined by comScore appears to be largely made up of publishers of traditional content (e.g. Hulu and other FEPs)
Source: comScore Video Metrix, March 2014 for Online Data, TNS Media Intelligence for TV Data, via comScore From TV to Total Video report, RBC Capital
Markets
If we look at the number of ads in longer-form content, which believe skew toward
“premium” compared to the average ad, we can see that the number of ads per mid-roll
break has also trended up over the past year.
Exhibit 13: If We Narrow Our Scope To Longer Form Content With Mid-Roll Breaks We Can
See That Number Of Ads Per Mid-Roll Break Has Increased In The Past Year
2.7 2.7
3.2 3.1
3.3
0
1
2
3
4
5
6
7
1Q13 2Q13 3Q13 4Q13 1Q14 Linear TV
AdsPerBreak
5-7
Ads Per Mid-Roll Break For Digital
Online ads per mid-roll break has
grown meaningfully over the past
year
We Believe Longer Form Content With Mid-Roll Breaks - The
Subject Of This Chart - Is Generally Content That Is Part Of The
“Online Extension Of The Traditional Ecosystem”
June 26, 2014 17

Within the FreeWheel data set, which we have previously noted is probably a better proxy
for the universe of premium digital video advertising than the all-digital video advertising; we
can see how the type of content varies with the nature of the publisher. Within this dataset,
just over 50% of ad views for traditional programmers came from long-form content, while
this metric is only 13% for digital pure-play. We would note that this might be particularly
important considering the fact that our industry sources have indicated that many
advertisers seem to think 30-second ads give them the ability to do things that they cannot
do shorter ads and that longer-form ads are probably more suited than short-form ads for
30-second ad spots. 15-second spots or skippable ads may be more appropriate for short-
form content.
Exhibit 14: Video Ad Views BY Content Duration Under FreeWheel Dataset (probably largely based on premium content)
Traditional Programmer/MVPD Digital Pure-Play Combined
Short-Form
40%
Mid-Form
7%
Long-Form
53%
Short-Form
78%
Mid-Form
9%
Long-Form
13%
Short-Form
58%
Mid-Form
8%
Long-Form
34%
Note: Data for Traditional Programmer/MVPD and Digital Pure-Play is based on 1Q14, but combined is calculated from this data using ad views by publisher type from 3Q2013. Short-form: 0-5 mins, Mid-form: 5-20
mins, Long-form: 20+ mins
Source: FreeWheel Video Monetization Report Q1 2014 and Q3 2014, RBC Capital Markets
In addition to the more traditional publishers having content that skews longer-form, which
may be more suitable for longer ads, they also appear to run significantly higher ad loads on
longer form content. However, we would note that this data is from Q2/13, and these ad
loads could have shifted some since then.
Exhibit 15: The Number Of Ads On Each Long-Form Video Is Significantly Higher For Videos
That Are An “Online Extension Of The Traditional Ecosystem” Than For Videos That Are Of
“Digital Players Out Of The Traditional Ecosystem”
11.9
1.0
0
2
4
6
8
10
12
14
Linear + Digital Publishers Digital Pure-Play
NumberOfAdsInEachVideo
Note: For 2Q13
Source: FreeWheel Video Monetization Report Q2/13, RBC Capital Markets
June 26, 2014 18

There does not appear to be a similar differentiation within short-form video, where
monetization rates are relatively similar for both types of content players. Although we
would note again that, this data is from Q3/13, and ad loads could have shifted some since
then.
Exhibit 16: The Share Of Short Form Videos With A Pre-Roll Ad Is Pretty Similar For Videos
That Are An “Online Extension Of The Traditional Ecosystem” And For Those That Are Of
“Digital Players Out Of The Traditional Ecosystem”
51%
45%
0%
10%
20%
30%
40%
50%
60%
Programmers + MVPDs Digital Pure-Play
ShareOfShort-FormVideos
WithAPre-Roll
Note: For 3Q13
Through this section, we have attempted to demonstrate that the platforms that are an
“Online Extension Of The Traditional Ecosystem” are set up to have a significant role in the
future of online video, and that their content is particularly well suited to carry video
advertisements.
In the preceding section, we attempted to take a very high-level approach to gauge the
threat that online video might pose to the traditional TV advertising ecosystem. Through the
process we demonstrated that in a solid overall video ad environment, 20% growth in digital
video ad spend could still leave room for traditional TV ad spend to grow.
In the following section, we attempt to take an inventory-focused approach to understanding
what is actually available out there for advertisers. We will demonstrate that once you
exclude non-premium advertising
1
and digital advertising on content that is simply an
“Online Extension Of The Traditional Ecosystem” there simply is not that much digital
inventory left out there for the major TV advertisers to shift spend to.
1
We will use the term non-premium to refer to advertising that we do not think is truly competitive with TV
advertising.
June 26, 2014 19

We Believe The Potential Impact Of Digital Video On The TV Ad Business Is
Probably Smaller Than Many Investors Think
Reach May Limit The Use Of Digital, But It Certainly Has A Role
To Play
As we have previously written, our industry sources have generally indicated to us that
digital advertising faces challenges obtaining the reach of TV—thus, digital advertising
campaigns will tend to reach the same group of consumers time and time again, with the
identical message (a frequency tool). Contrastingly, TV advertising’s best attribute may be
reach (especially for network TV). As a result, we believe TV remains the go-to outlet to
reach a broad cross-section of the population. This is not to say we do not believe digital
advertising is a complement to a traditional TV ad campaign. We think the optimal allocation
of ad dollars probably does include an allocation for digital. We are simply saying that we do
not see these two products as a “material” substitutes.
Another way to look at the challenges digital faces in matching the reach of linear TV is to
compare the reach of campaigns on each platform. Nielsen demonstrated the difference in
reach as a function of ad impressions for both national TV and digital, as presented in Exhibit
17. Although a limited number of high impression digital campaigns are presented, it does
appear that the reach for these campaigns lags that of high-impression national TV
campaigns.
The analysis in Exhibit 17 includes video and display. While there may be some discrepancy
between ability to achieve high reach for a pure digital video campaign versus a digital
video+display campaign—we assume the latter will serve as a good proxy, but admit that
there is a lack of availability of detailed data on the reach of digital video specifically.
June 26, 2014 20

Exhibit 17: Nielsen Comparison Of Campaign Reach Across Platforms (Digital includes Video And Display)
The highlighted digital ad campaign appears to reach just over
60% of the U.S. population through approximately 10B ad
impressions, while a campaign with a similar number of
National TV impressions appears to reach almost 90% of the
U.S. population.
For High Reach Campaigns: It Takes Fewer
Impressions To Achieve The Same Reach
When Advertising Through U.S. National
Television, As Opposed To U.S. Digital
Advertising (Display + Video)
Source: Chart on left copied from Nielsen’s Advertising & Audiences: State of the Media report for May 2014, emphasis on right added by RBC
June 26, 2014 21

Nielsen does, however, highlight that “digital provides incremental reach and the
opportunity to reinforce advertiser messages across platforms with increased frequency.”
2
This attribute of digital is demonstrated through a couple cases below.
Digital Advertising Can Be A Good Compliment To Traditional TV Advertising
There are a number of case studies provided by industry sources to support the argument
that digital advertising can increase the reach of a campaign. Below we present a relatively
simple example for a single night of Monday Night Football, where we can see that adding
digital increases the reach of an airing.
Exhibit 18: Reach Of A Monday Night Football Game On ESPN
0
5
10
15
20
25
30
Reach-Men18+(mm)
TV Added Reach-Digital Added Reach-Radio
Viewers reached through
TV:21.1mm
+ Added Reach From
Digital: 4.2mm
+ Added Reach From
Radio: 2.2mm
Note from source: "MNF program on TV, 7P-12A time period on all other platforms"
Source: ESPN Analysis of Nielsen and Project Blueprint data, 9/16/2013, via - cimm-us.org, RBC Capital Markets
For a more generalized example, we present a sample of results from the YuMe Reach
Calculator below.
3
This example demonstrates some cases where the introduction of digital
video advertising can improve the reach of an entire campaign.
2
Nielsen’s Advertising & Audiences: State of the Media report for May 2014
3
The YuMe Reach Calculator is a simulator “created by YuMe and powered by Nielsen. Using a proprietary database
on device ownership and usage, [it] predicts unduplicated multi-device reach.”; yumecalculator.com
June 26, 2014 22

Exhibit 19: Simulated Increase In Reach From Allocating Part Of A Fixed Budget To Digital
Share Allocated To Digital: 30% Share Allocated To Digital: 30%
14% to Computer, 8% to Mobile, and 8% to Tablet 30% to Computer, 0% to Mobile, and 0% to Tablet
6.6%
13.4%
20.0%
26.7%
10.8%
19.1%
27.4%
34.4%
0%
5%
10%
15%
20%
25%
30%
35%
40%
5 10 15 20
Reach
If 100% TV
If 70% TV and 30% Digital
Assumptions and/or Unknown details underlying this analysis would give us pause before extrapolating
these specific conclusions to a marketing plan. For example, we don't know the underlying adjacent content
for the digital advertisement or the ad loads on such content. If this is not comparable to TV, the CPM for
each media type would not be representative of the true value of each impression. But, this does indicate
that there are, at least some and probably many, cases in which adding at least some digital video to a
marketing plan maximizes reach/effectiveness.
6.6%
13.4%
20.0%
26.7%
9.0%
17.0%
24.7%
31.0%
0%
5%
10%
15%
20%
25%
30%
35%
40%
5 10 15 20
Reach
If 100% TV
If 70% TV and 30% Digital
We would not
Traditional TV
threat. In our
ad spend from
consider views shifting from
threat. This could result in ad spend moving
Data based on yumecalculator.com. The YuMe Multi-Screen Reach Calculator is based on Nielsen data and a database of "device ownership and usage".
YuMe notes that "...reach calculations are based on typical device CPM and frequencies, and allocated based on device ownership and usage levels to
define multi-screen reach and overall unduplicated reach."
Source: RBC Capital Markets
The above examples support our previous comments that digital can be used to increase
reach and align with what we have heard from our industry sources.
June 26, 2014 23

We Believe There Is Less Premium Digital Video Ad Inventory
Than Inventors Might Think
In this section we size the amount of premium video ad inventory available across digital
platforms (desktop/laptop and mobile) on an inventory (total number of minutes viewed)
basis. We will demonstrate how small the scale of the true competitive threat from digital
video really is compared to traditional TV. Key highlights:
 We estimate that all of the domestic premium digital video advertising offered from
YouTube (total minutes viewed, all demos) is equivalent in scale to 0.5 days/month of
Big 4 Network primetime advertising for adults 18-49.
 We estimate that all of the domestic premium digital video advertising offered from the
entire set of “Digital Players Out Of The Traditional Ecosystem” (i.e. excluding sites that
are an “Online Extension Of The Traditional Ecosystem”, such as Hulu) is equivalent in
scale to 6.1 days/month of Big 4 Network primetime advertising for adults 18-49. This
would be less than 10% of total broadcast network inventory (still a small subsets of TV).
 We estimate that all of the domestic premium digital video advertising offered from
YouTube (total minutes viewed, all demos) is equivalent in scale to 0.04% of advertising
minutes created across the entire cable universe
†
for all demos (P2+).
 We estimate that all of the domestic premium digital video advertising offered from the
entire set of “Digital Players Out Of The Traditional Ecosystem” (i.e. excluding sites that
are an “Online Extension Of The Traditional Ecosystem”, such as Hulu) is equivalent in
scale to 0.4% of advertising minutes created across the entire cable universe
†
for all
demos (P2+).
 We also compare estimated aggregate premium digital video ad minutes created by
YouTube and across the Internet as a whole with a couple shows with high viewership to
help understand the true scale of these platforms today. We estimate that total
premium ad minutes from digital video is 93% of ad minutes created by Judge Judy
(though we would certainly concede that Judge Judy inventory is probably on the less
premium end of the TV advertising scale). Further, we show that YouTube premium ad
minutes is roughly equal to the number of ad minutes created by the first run of The Big
Bang Theory, in a month where the show is in season. This analysis does not include ad
minutes created by reruns.
To Gauge The Size Of The Digital Video Threat, We Start With An Estimate Of The
Scale Of YouTube
Despite what sounds like a massive amount of digital video viewership, YouTube reports six
billion hours of video are watched per month, YouTube’s scale is not particularly large
compared to traditional TV.
We derive an estimate for minutes of advertising on YouTube that could be considered a
truly competitive threat to traditional TV advertising on the following pages (and present a
summary in Exhibit 23). First, we have to discount the number of hours spent watching video
to consider only domestic views. Only around 20% of total YouTube traffic is from the U.S.
Additionally, a large percentage of the videos may not be on content deemed by advertisers
as “premium” content, in an industry where context can still be quite important. We do not
believe advertisers would consider a pre-roll ad for a cat video comparable to advertising
next to Modern Family or an NFL game. In our baseline scenario, we assume that only 20% of
†
Does not include Broadcast Networks
Why Do We Start With
YouTube?
 It is large and accounts for a
significant part of total digital
video viewership.
 It is not based on content that is
an “Online Extension Of The
Traditional Ecosystem” (like Full
Episode Players/Hulu), although
this type of content does exist
on the platform.
 It is fairly well understood. Not
only does YouTube provide
some data, but also, most
individuals have a sense of the
site. Although, we would urge
against extrapolating from
anecdotal usage behavior.
 YouTube provides statistics that
include mobile usage.
comScore’s data may be more
recent and provide a direct
count for other video
publishers, but it’s online video
measurement only includes
desktop usage. We think it
makes sense to start with a
cross-platform perspective.
 Doing a bottom-up analysis—
rather than just using comScore
data—gives us the opportunity
to make sure the numbers
“make sense” and to think
about what impact a change in
some of the important
underlying assumptions would
be.
June 26, 2014 24

views would be able to take premium ad dollars—although, as we describe in the callout box
below, this may be too high an estimate. Considering the comments below, our “best guess”
might fall in the range of 5-10%, but we employ some conservatism here and assume 20%.
Further, we perform a sensitivity analysis at higher levels to consider the alternate direction
of error.
Further complicating matters is the fact that not all videos/viewings will have ads, we assume
28% do. This is based on estimates from comScore that there were 3,063 million ads viewed
and 11,020 million videos viewed on Google Sites in March 2014 (see Exhibit 20).
Exhibit 20: Calculation Of The Percent Of YouTube Video Views With Ads
Google Sites Video Ads (mm) 3,063
÷ Google Sites Videos (mm) 11,070
Assumed share of videos with ads 28%
Our analysis implies a longer average ad length (including the impact of
skipped ads), than is implied by the presented comScore data. This wou
indicate to us, that at least for this portion of the analysis, we are more
Notes From comScore:
“A video is defined as any streamed segment of audiovisual content, including both progressive downloads and live streams. For long-form, segmented
content, (e.g. television episodes with ad pods in the middle) each segment of the content is counted as a distinct video stream. Video views are inclusive
of both user-initiated and auto-played videos that are viewed for longer than 3 seconds.”
“Video ads include streaming-video advertising only and do not include other types of video monetization, such as overlays, branded players, matching
banner ads, etc.”
Source: comScore March 2014 U.S. Online Video Rankings, RBC Capital Markets
Additionally, ads that utilize TrueView, which allows them to be skipped, may not play for
long enough to be considered a view by advertisers (though comScore may still count them).
To start, we note that YouTube has said that “75% of our in-stream ads are… skippable”.
4
Additionally, while we have not located specific commentary from YouTube on skip-rates,
TubeMogul’s Brett Wilson has said that “15% to 25% of skippable online video ads are
viewed to completion.”
5
Combining this information, we estimate that 43.8% of ads started on YouTube are viewed to
completion (as presented in Exhibit 21).
4
http://www.youtube.com/yt/press/statistics.html
5
http://www.tubefilter.com/2013/06/10/skippable-online-video-ads-percentage-completion-
rate/#sthash.Hr0l3a5j.dpuf
What is “Premium Advertising”?
Not all advertisements are created equal. We argue that ads on certain platforms and adjacent to certain
content can be significantly more valuable than others. The need for “premium advertising” may be particularly
important for large advertisers (e.g. CPG multinationals) who care what the adjacent content is. We would
argue that a spot next to a cat video on YouTube would not be as attractive as a spot on Network TV.
It is difficult to know where to draw the line between premium and non-premium advertising. However, for
simplicity, we assume that Google’s use of Google Preferred can give us some insights. According to Adweek,
Google Preferred “allows brands to target pre-roll ads against the top five percent of the most popular content
in areas like entertainment and food”. While this number is not necessarily fixed, we assume it is reflective
either of what fraction of advertising Google believes is premium or what they believe advertisers, at the
present time, would be willing to pay premium dollars for. Of course, this definition/cutoff can change over
time and we think YouTube is probably focusing more on the quality of content—demonstrated in part by the
launch of channels, such as one for DreamWorks Animation, and in developing/promoting talent in premium
verticals such as Rosanna Pansino, in Cooking, and Bethany Mota, in Fashion. Accordingly, we use 20% as our
baseline to capture some potential growth or inaccuracies in this simplification and to employ a little
conservatism.
June 26, 2014 25

Exhibit 21: Calculation Of Share Of Ads Viewed To Completion
Share Of Ads That Are Skippable 75.0%
x Share Of Skippable Ads That Are Viewed To Completion 25.0%
Share Of Ads That Are Skippable But Viewed 18.8%
+ Share Of Ads That Are Not Skippable 25.0%
True-View Skip Adjustment (% of ads viewed to completion) 43.8%
Would imply effecti
were skipped after 5
comScore data. We
conservative in our
Source: youtube.com, tubefilter.com, RBC Capital Markets
We also use comScore data to estimate the duration of the average video view, as laid out
below.
Exhibit 22: Estimate Of Duration Of Each Video View On Google Sites
Total Unique Viewers (000)
x Minutes per Viewer 294
Total Content Video Minutes (000)
/ Videos (000)
Minutes per view 4.13
155,613
45,750,222
11,069,548
We assume an average ad length of 30
seconds, this is less than the average
effective ad length from comScore
because comScore includes duration of
skipped ads. ??do they??
Would imply effective ad duration of 10.2 seconds if skipped adds
were skipped after 5 seconds, which is higher we estimate from
comScore data. We could be a little high for average duration or
conservative in our estimate of frequency of skipping ads.
Notes From comScore:
“A video is defined as any streamed segment of audiovisual content, including both progressive downloads and live streams. For long-form, segmented
content, (e.g. television episodes with ad pods in the middle) each segment of the content is counted as a distinct video stream. Video views are inclusive
of both user-initiated and auto-played videos that are viewed for longer than 3 seconds.”
“Video ads include streaming-video advertising only and do not include other types of video monetization, such as overlays, branded players, matching
banner ads, etc.”
Source: comScore March 2014 U.S. Online Video Rankings, RBC Capital Markets
According to these baseline assumptions, we would estimate that all of YouTube would offer
only 123 million minutes of premium U.S. advertising per month (excluding any ads that are
not viewed to completion).
We demonstrate a way to “sanity check” this analysis in Appendix 1: Check Of Assumptions
For YouTube Premium Ad Inventory Analysis (and this analysis leads us to think our analysis
may be somewhat conservative on the whole, compared to today, but not all assumptions
are necessarily conservative).
June 26, 2014 26

Exhibit 23: YouTube Premium Ad Inventory Analysis – Only Counting Ads Viewed To Completion
YouTube Premium Ad Inventory Analysis - Only Counting Non-Skipped Videos
Total Video Watched (mm hours/month) 6,000
x minutes/hour 60
Total Video Watched (mm minutes/month) 360,000
÷ Average Video View Length (minute)* 4.00
Total Videos Watched (mm/month) 90,000
x Percent Of Total Traffic From U.S. 20%
Total YouTube Videos Viewed In The U.S. (mm/month) 18,000
x Percent Of Domestic Videos Viewed That Can Take Premium Ad Dollars 20.0%
Premium Videos Viewed In The U.S. (mm/month) 3,600
x Percent of Videos With An Ad 28%
Premium Videos Viewed In U.S. Where An Ad Is Shown (mm/month) 1,008
x True-View Skip Adjustment (% of ads viewed to completion) 43.8%
Premium Videos Viewed In The U.S. With Entire Ads Watched (mm/month) 441
x Average Ad Length (minutes, when not skipped) 0.28
Premium Advertising Watched On YouTube (mm minutes/month) - complete views only 123
From
YouTube
Prior calculation indicated 4.13
minutes/view but we assume 4.00
minutes/view to be a little
conservative.
From Earlier
Calculation
From Earlier
Calculation
We Discuss Our
Thought Process In
Detail Above
Vs. comScore 2Q13-1Q14 desktop ad mins for Google of
306mm/mo. which gives premium cross-platform mins of
102mm/mo. assuming desktop is 60% of total and 20% is
premium. Remember, our YouTube est. only counts ads
viewed to completion.*
Vs. comScore 4Q13-1Q14 U.S. desktop content mins for
Google of 67,600mm/mo. which gives total global mins of
563,333mm/mo. assuming desktop is 60% of total and
domestic is 20% of the total.*
Implies 17 second ad length on average when not
skipped. This seems reasonable to us, as we have
observed that non-skippable ads tend to be of the
15 second variety, which will more often be
viewed to completion. See the Appendix for
further checks.
*YouTube says on its Web site that “Mobile makes up almost 40% of YouTube's global watch time”. But, we are not sure share of watch time that comes from mobile would transfer directly to the domestic
market. This calculation is broken out in Appendix 1: Check Of Assumptions For YouTube Premium Ad Inventory Analysis.
Source: YouTube, comScore, RBC Capital Markets estimates
Given the large number of assumptions, and to consider a future that may look different
than today, we also perform a sensitivity analysis. Take, for example, a more negative overall
scenario, such as one where we assume:
 Thirty billion videos are viewed per month (perhaps from organic growth looking
forward, and/or if our assumptions are incorrect, remember given variance between our
bottoms up analysis and comScore assumptions, the number of videos viewed should
really be considered relative to our assumptions rather than an independent estimate
for this total),
 50% could take premium ad dollars,
 43% have ads, and
 59% of ads are viewed to completion.
In the above scenario, we estimate that that all of YouTube would offer 1,061 million
minutes of premium U.S. advertising per month.
June 26, 2014 27

Exhibit 24: YouTube Premium Ad Inventory Sensitivity
Premium Advertising Watched On YouTube (mm mins/month) | complete ad views only
Percent Of Domestic Videos Viewed That Can Take Premium Ad Dollars 5.0% 5.0% 10.0% 20.0% 30.0% 40.0% 50.0%
Percent of Videos With An Ad 13.0% 18.0% 23.0% 28.0% 33.0% 38.0% 43.0%
True-View Skip Adjustment (% of ads viewed to completion) 28.8% 33.8% 38.8% 43.8% 48.8% 53.8% 58.8%
Average Ad Length (minutes, when not skipped 0.28 0.28 0.28 0.28 0.28 0.28 0.28
6,000 3 5 15 41 81 137 212
10,000 5 9 25 69 135 229 354
14,000 7 12 35 96 189 320 495
18,000 9 15 45 123 243 412 637
22,000 12 19 55 151 297 503 778
26,000 14 22 65 178 351 595 920
30,000 16 26 75 206 405 686 1,061
TotalYouTube
VideosViewedIn
TheU.S.
(mm/month)
Source: RBC Capital Markets estimates
June 26, 2014 28

We Then Estimate The Amount Of Premium U.S. Digital Ad Inventory From “Digital
Players Out Of The Traditional Ecosystem” Across The Entire Internet
Of course, YouTube is not the only provider of video advertising on the Internet. According to
comScore, Google Sites (for which YouTube accounts for the vast majority of video views),
was responsible for 31% of content video minutes and 4% of total video ad minutes in 2013.
The discrepancy between share of content minutes and ad minutes does not surprise us
since the ability to skip ads, as provided on YouTube, would be expected to depress the
number of ad minutes given similar content minutes and ads served per minute.
Exhibit 25: Google Sites Contribution To Total Online Video And Ad Minutes
Total Content Video Minutes Total Ad Minutes
Google
Sites
31%
Rest Of
The
Internet
69%
Google
Sites
4%
Rest Of
The
Internet
96%
Based on 2013 monthly average for home and work locations (i.e. excluding mobile)
Source: comScore, RBC Capital Markets
On the next several pages, we attempt to estimate the amount of premium inventory across
the entire Internet. However, there are a number of complexities to consider when doing
this.
First, YouTube allows some ads to be skipped. This should increase the value of ads actually
viewed (started), but would depress the number of ad minutes relative to the online
ecosystem as a whole. When we think about YouTube versus the entire Internet, we have to
decide if we should compare ad starts or ad minutes. We do recognize that comparing starts
may make sense when trying to control for relative quality (since we would assume ad
minutes are more valuable if they could have been skipped). However, we do recognize that
the actual number of minutes may be more reflective of how advertisers might think about
their willingness to pay (thinking about :30-second equivalents may be more comparable to
traditional). Further, comparing based on number of minutes is a more conservative
assumption for our following analysis. Thus, we chose to focus on relative ad minutes viewed
in our analysis.
Second, just as we considered both premium and non-premium content on YouTube, the
other digital publishers could be similarly segmented. We can split this content both
between publishers (e.g. we consider content on Hulu premium, but we do not consider
content on Dailymotion premium) and within a single publisher (we make a simple
assumption for the share of YouTube ad views that are on premium content).
We recognize that the distinction between premium and non-premium is imprecise, and that
some of the publishers we have categorized as non-premium, do serve ads for major
traditional advertisers. This analysis is not intended to be a precise categorization of
publishers, but a simple analysis to gauge the size of digital ad inventory that is competitive
June 26, 2014 29

with traditional linear TV advertising. At the end of the analysis, it should be clear that
reclassification of a couple publishers would not be sufficient to change the conclusion of this
analysis.
We address how we think about premium in more detail earlier in this piece (starting on
page 24).
Third, we want to exclude content that is simply an “Online Extension Of The Traditional
Ecosystem”. We do not consider the shift of eyeballs from ABC Network to ABC.com a risk.
Although ad load and pricing may vary somewhat (and it is possible ad revenue could decline
somewhat as a result), ABC would still be capturing the same number of views and through
TV Everywhere offering a higher utility product. (This may help drive affiliate/retrans fees;
see Appendix 4, which demonstrates the recent growth in ad views occurring in an
authenticated environment on longer-form content for the traditional TV programmers).
In Exhibit 26, we attempt to identify the major premium publishers and capture (either
through comScore estimates, or our own) the relative number of ad minutes each provides.
Given the quickly declining scale, and our conversations with industry sources, we believe
that the vast majority of “all other” ad minutes could be categorized as non-premium. Of
course, we are certainly missing some premium ad views, but our sensitivity analysis later
should demonstrate that the inclusion of any missed advertising should not impact the
conclusion of this analysis.
June 26, 2014 30

Exhibit 26: Breakdown Of Ad Minutes By Source – Desktop Only
Breakdown Of Total Ad Minutes
Google Sites
Share Of Total Ad Minutes 2.8%
RBC Assumed Share That Is Premium 20.0%
Share Of Total Ad Minutes That Is Premium 0.6%
Share Of Total Ad Minutes That's Non-Premium 2.3%
AOL
Share Of Total Ad Minutes 13.1%
RBC Assumed Share That Is Premium 20%
Share Of Total Ad Minutes That Is Premium 2.6%
Share Of Total Ad Minutes That Is Non-Premium 10.5%
Share Of Total Ad Minutes That Are Premium
AND From “Digital Players Out Of The
Traditional Ecosystem”
Google Sites: premium 0.6%
AOL, Inc.: premium 2.6%
Yahoo Sites 0.8%
Microsoft Sites 0.8%
VEVO 0.2%
Maker Studios Inc. 0.1%
Total - Premium Digital Players 5.1%
Share Of Total Ad Minutes That Are Premium
AND From An “Online Extension Of The
Traditional Ecosystem”
ABC Television 1.2%
Hulu 4.6%
Viacom Digital 0.8%
Turner Digital 0.4%
CBS Interactive 1.3%
ESPN 1.7%
Comcast NBCUniversal 0.8%
Weather Company, The 0.1%
Total - Premium Traditional Players 10.9%
Premium
Total - Premium Digital Players 5.1%
Total - Premium Traditional Players 10.9%
Total Premium 16.1%
Breakdown Of Identified And Estimated Premium Ad Minutes Non-Premium
Total 83.9%
ABC Television
1.2%
Hulu
4.6%
Viacom Digital
0.8%
Turner Digital
0.4%
CBS Interactive
1.3%
ESPN
1.7%
Comcast NBCUniversal
0.8%
Weather Company, The
0.1%
Yahoo Sites
0.8%
Microsoft Sites
0.8%VEVO
0.2%
Maker Studios Inc.
0.1%
Google Sites: non-premium
2.3%
Google Sites: premium
0.6%
AOL, Inc.: non-premium
10.5%
AOL, Inc.: premium
2.6%
All Other
(mostly non-premium)
71.2%
Top 14 identified 'potentially premium'
sources account for 28.8% of ad
minutes online
But many of these sites are
supported largely by content
that is part of the "Online
Extension Of The Traditional
Ecosystem"
While our industry sources indicate the majority of the remaining 71.2% minutes are not
premium and thus not a TV ad substitute for big, traditional linear TV advertisers, there are
some sites that serve premium content and are not identified in our list.
Not all of the content on
Google Sites and AOL Sites
would be deemed premium by
our definition.
ABC Television
7.4%
Hulu
28.9%
Viacom Digital
4.9%
Turner Digital
2.4%CBS Interactive
7.9%
ESPN
10.6%Comcast NBCUniversal
5.0%
Weather Company, The
0.8%
Yahoo Sites
5.3%
Microsoft Sites
5.0%
VEVO
1.3%
Maker Studios Inc.
0.6%
Google Sites: premium
3.5%
AOL, Inc.: premium
16.3%
It might not be fair to consider all of
Microsoft Sites and Yahoo Sites
premium, but we do for simplicity.
Based home and work locations (excludes mobile); includes a combination of comScore and RBC Capital Markets estimtes
June 26, 2014 31

Scaling Up To Estimate Premium Ad Minutes Available On The Entire Internet
Knowing the share of digital video that comes from YouTube and other “Premium Digital
Players Out Of The Traditional Ecosystem,” we are able to estimate the scale of the
competition from online video across the Internet.
When estimating the amount of premium advertising from “Digital Players Out Of The
Traditional Ecosystem,” we will start with our estimate of minutes of advertising from
YouTube. However, for a clear comparison, we will consider all ad minutes (not just those
where an ad was viewed to completion).
To measure this, we first have to calculate the average ad length while considering both ads
that are skipped and ads that are not skipped—based on the same assumptions we
presented first in Exhibit 23. (In our prior analysis, we only considered ads that were not
skipped).
Exhibit 27: Calculation Of Average YouTube Ad Length Included Ads That Are Skipped Before Completion
Implied By Our YouTube Premium Inventory Analysis
Average Ad Length (minutes, when not skipped) 0.28
Seconds/Minute 60
Average Ad Length (seconds, when not skipped) 17 Assumed Average Ad Length (seconds, when skipped) 5
x True-View Skip Adjustment (% of ads viewed to completion) 43.8% x % of ads NOT viewed to completion 56.3%
Weighted Ad Length For Ads Viewed To Completion 7 Weighted Ad Length For Skipped Ads 3
+ Weighted Ad Length For Skipped Ads 3
Average Ad Length Including Shorter Skipped Ads (seconds) 10.2
indicated 4.13
ut we assume 4.00
Source: comScore (March 2014), RBC Capital Markets
Once we have estimated the average ad duration, we can calculate the total premium ad
minutes on YouTube including the contribution from ads that are skipped. Here we estimate
that there are 171 million minutes/month of premium advertising including the contribution
from skipped ads. This compares to our estimate in Exhibit 23 of 123 million minutes/month
of premium advertising, excluding the contribution from ads that are not viewed to
completion.
June 26, 2014 32

Exhibit 28: YouTube Premium Ad Inventory Analysis – Counting Ads Viewed To Completion And Those That Are Skipped
YouTube Premium Ad Inventory Analysis - Including Time With Skipped Videos
Average Ad Length Including Shorter Skipped Ads (seconds) 10.2
÷ 60 seconds/minutes 60.0
Average Ad Length Including Shorter Skipped Ads (minutes) 0.17
x Premium Videos Viewed In U.S. Where An Ad Is Shown (mm/month) 1,008
Premium Advertising Watched On YouTube (mm minutes/month) - incl. skipped 171
Calculation of Premium Videos Viewed In U.S. Where Ad Is Shown (mm/month)
Total Video Watched (mm hours/month) 6,000
x minutes/hour 60
Total Video Watched (mm minutes/month) 360,000
÷ Average Video View Length (minute)* 4.00
Total Videos Watched (mm/month) 90,000
x Percent Of Total Traffic From U.S. 20%
Total YouTube Videos Viewed In The U.S. (mm/month) 18,000
x Percent Of Domestic Videos Viewed That Can Take Premium Ad Dollars 20.0%
Premium Videos Viewed In The U.S. (mm/month) 3,600
x Percent of Videos With An Ad 28%
Premium Videos Viewed In U.S. Where An Ad Is Shown (mm/month) 1,008
Basis
Vs. comScore 2Q13-1Q14 desktop ad mins for
Google of 306mm/mo. which gives premium
cross-platform mins of 102mm/mo. assuming
desktop is 60% of total and 20% is premium.*
Also remember, in our prior analysis only
counting ads viewed to completion, Premium
Advertising Watched On YouTube was 123mm
mins/mo.
market. This calculation is broken out in Appendix 1: Check Of Assumptions For YouTube Premium Ad Inventory Analysis.
Source: YouTube, comScore, RBC Capital Markets
Once we calculate the total minutes of premium ads watched on YouTube (including minutes
of ads watched to completion and ads skipped before completion), we can increase this
number based on the share of total premium ad minutes from “Digital Players Out Of The
Traditional Ecosystem” that come from YouTube (Exhibit 29). This will allow us to estimate
the total minutes of premium advertising watched across the Internet as a whole.
Why do we scale up our estimate for YouTube, rather than work directly from comScore
viewership estimates? Several reasons:
1. comScore data is only provided for desktop viewership, so either way we would have to
make an unknown assumption. In this case, we have to estimate the relative number of
premium ad minutes that come from YouTube versus other “Digital Players Out Of The
Traditional Ecosystem” and assume that we can extrapolate this ratio as measured for
desktop to cross-platform. If we just used comScore data, we would have to assume the
relative number of views from mobile/tablet versus desktop/laptop for each of the
premium “Digital Players Out Of The Traditional Ecosystem” or for the group as a whole.
2. Additionally, we are being conservative. Going through the step-by-step derivation
based on what we think are sensible assumptions, and then scaling up, gives us a higher
total ad minutes estimate than simply using comScore numbers (see Appendix 1: Check
Of Assumptions For YouTube Premium Ad Inventory Analysis and Appendix 2: Check Of
Assumptions For Total Internet Premium Ad Inventory Analysis). Even if this does not
align with the answer we would get using comScore, which might be more correct, we
are trying to highlight the fact that even if we are wrong in our assumptions by a
significant margin, the impact from digital premium advertising from “Digital Players Out
Of The Traditional Ecosystem” is still very small. We want to be conservative.
3. In addition, maybe most importantly, in the end our goal is to determine how much of a
threat digital video is to the traditional large cap media players. If the inventory of ad
minutes was depressed because some major “Digital Players Out Of The Traditional
Ecosystem” adopted a policy resulting in lower than optimal ad loads, there may not
appear to be a threat today. However, in such a case, we would not accurately assess
what the scale could be if a different policy was adopted that increased inventory. Thus,
such an approach could result in a situation where the premium content could be
June 26, 2014 33

enough to create a threat, but our analysis would not identify this because it was not
being fully monetized.
Although we prefer the analysis presented here for our purposes, we do present, in Appendix
2: Check Of Assumptions For Total Internet Premium Ad Inventory Analysis, the methodology
to derive a different estimate directly using comScore data and a different set of
assumptions. The analysis presented there can serve as a “sanity check” on our conclusions
here (and this secondary analysis leads us to think our primary approach may be somewhat
conservative on the whole, compared to today, but not all assumptions are necessarily
conservative).
Knowing the relative size of YouTube compared to the rest of the digital video environment
allows us to scale up our bottom-up assumptions for YouTube (assuming ad minutes remain
constant between these publishers). We also want to keep in mind that YouTube accounts
for a significantly higher share of content minutes than ad minutes. Thus, we think it is
unlikely publishers other than YouTube are under-monetizing their content relative to
YouTube. This analysis gives us an estimate that 1,541mm minutes per month of premium
digital advertising is watched in the U.S.
Exhibit 29: Thought Process Behind Scaling Up Ad Inventory From YouTube To Estimate Premium Video Advertising Minutes On
The Entire Internet
Share Of Total Ad Minutes That Are Premium AND From “Digital Players Out Of The Traditional Ecosystem”
All Premium "Digital Players Out Of The Traditional Ecosystem” 5.1%
/ Google Sites: premium 0.6%
Multiple to Estimate Entire Premium Internet from YouTube Base 9.0x
Premium Advertising Watched On YouTube (mm minutes/month) - incl. skipped 171
x Multiple to Estimate Entire Premium Internet from YouTube Base 9.0x
Premium Advertising Watched On The Internet (mm minutes/month) - incl. skipped 1,541
The reasons for taking this approach rather than using
comScore data are explained in the preceding
paragraphs.
Vs. comScore 2Q13-1Q14 desktop ad mins for online of
8,822mm/mo. which gives premium cross-platform mins.
of 756 assuming desktop is 60% of total and 5.1% is
premium. Remember, our first YouTube estimate only
counted ads viewed to completion.*
market. This calculation is broken out in Appendix 2: Check Of Assumptions For Total Internet Premium Ad Inventory Analysis
Below we present a sensitivity analysis, intended to capture either a larger percentage of
total minutes qualifying as premium from “Digital Players Out Of The Traditional Ecosystem”
or growth in the total number of content minutes.
Exhibit 30: Total Internet Premium Ad Inventory From “Digital Players Out Of The Traditional Ecosystem” Sensitivity
Premium Advertising Watched On The Internet (mm mins/month)
Multiple On YouTube Baseline Premium Ads Of 171mm mins/mo. 3.0x 5.0x 7.0x 9.0x 11.0x 13.0x 15.0x
Share Of Total Ad Mins That Are Premium and from “Digital Players Out Of The Traditional Ecosystem” 1.7% 2.9% 4.0% 5.1% 6.3% 7.4% 8.6%
137,027 247 410 573 736 899 1,062 1,225
187,027 337 559 782 1,004 1,227 1,449 1,672
237,027 427 709 991 1,273 1,555 1,837 2,119
287,027 517 858 1,200 1,541 1,883 2,224 2,566
337,027 607 1,008 1,409 1,810 2,211 2,612 3,013
387,027 697 1,157 1,618 2,078 2,539 2,999 3,459
437,027 787 1,307 1,827 2,347 2,867 3,387 3,906
Total Content Minutes For The Entire Internet In 2013 From comScore (Desktop Only, mm mins/month) 226,752
÷ Assumed Share Of Video Views From Desktop* 79%
Implied CONTENT VIDEO Minutes For The Entire Internet In 2013 (All Devices, mm mins/month) 287,027
ImpliedContent
VideoMinutesFor
TheEntireInternet
(AllDevices,mm
minutes/month)
Basis
*Based on 1Q14 data from FreeWheel, we discuss the characteristics of this dataset earlier in this report
Source: comScore, FreeWheel Video Monetization Report Q1 2014, RBC Capital Market
June 26, 2014 34

Digital Premium Video Advertising Is Relatively Small In Scale Even When
Compared To Just A18-49 Viewership For The Big 4 Networks (Which Is A Small
Subset of TV)
Without any comp set, the contribution from YouTube, and from the Internet as a whole,
may seem like a lot. However, we estimate that the Big 4 Networks provide a total of 7.721
billion minutes of advertising per month in primetime for just the A18-49 demo.
Our baseline estimate for the number of premium ad minutes (complete views only) on
YouTube is 123mm minutes per month (derived in Exhibit 23). The contribution from
YouTube is just 1.6% of the total minutes of advertising offered from the Big 4 in Primetime
for A18-49.
Our baseline estimate for the number of premium ad minutes across the entire Internet is
1,541mm minutes per month (derived in Exhibit 29). The contribution from the entire
Internet is just 20% of the total minutes of advertising offered from the Big 4 in Primetime
for A18-49 (a small subset of TV itself). Assuming primetime only accounts for approximately
46% of the total A18-49 audience, we can extrapolate from our estimate of viewership in
primetime to total day. Such an estimate, would result in the prediction that just 9% of the
total minutes of advertising offered from the Big 4 in Total Day for A18-49 are created across
the Internet (considering only premium digital advertising).
June 26, 2014 35

Exhibit 31: Monthly Minutes Of Advertising From The Big 4 Networks Combined Compared To Premium Advertising On
YouTube Across The Internet As A Whole (Excludes Advertising Sold By The Affiliates)
Calculation Of The Total Minutes Of Advertising Viewed By A18-49 In Primetime On The Big 4
Minutes of advertising per primetime hour on each channel allocated to Programming 50.0
Minutes of advertising per primetime hour on each channel allocated to the Affiliate 2.5
Minutes of advertising per primetime hour on each channel allocated to the Network 7.5
A18-49 rating (for the Big 4 networks combined, primetime)* 8.6
x Viewers per rating point (mm) 1.2696
Total Viewers Across Big 4 Networks On Average (mm, PT) 10.9
x Minutes of advertising per primetime hour on each channel allocated to the Network 7.5
Total Minutes Of Advertising Shown On The Big 4 Networks (mm) 81.9
x Hours of primetime per day (3 hours/day except 4 hours on Sunday) 3.1
Total Minutes Of PT Advertising On The Big 4 Networks (mm/day) 257.4
x Days/Month 30.4
A18-49 PT Advertising Viewed On The Big 4 Nets (mm minutes/month) 7,721
÷ Share Of Total Day Audience That Is In Prime Time 46%
A18-49 TD Advertising Viewed On The Big 4 Nets (mm minutes/month) 16,785
*based on 2013 through 12/08
Calculation Of The YouTube Premium Ad Minutes Relative To A18-49 Primetime Ad Minutes On The Big 4
/ A18-49 PT Advertising Viewed On The Big 4 Nets (mm minutes/month) 7,721
Premium Minutes From YouTube/Primetime Minutes From The Big 4 Networks A18-49 1.6%
x Days/Month 30.4
Days Of "Network Prime Equivalent" On YouTube/Month 0.5
Calculation Of The YouTube Premium Ad Minutes Relative To A18-49 Total Day Ad Minutes On The Big 4
/ A18-49 TD Advertising Viewed On The Big 4 Nets (mm minutes/month) 16,785
Premium Minutes From YouTube/Total Day Minutes From The Big 4 Networks A18-49 0.7%
x Days/Month 30.4
Days Of "Network Total Day Equivalent" On YouTube/Month 0.2
Calculation Of Total Premium Digital Ad Minutes Relative To A18-49 Primetime Ad Minutes On The Big 4
/ A18-49 PT Advertising Viewed On The Big 4 Nets (mm minutes/month) 7,721
Premium Mins Watched On The Internet/Primetime Mins From The Big 4 Nets A18-49 20.0%
x Days/Month 30.4
Days Of "Network Prime Equivalent" On The Entire Internet/Month 6.1
Calculation Of Total Premium Digital Ad Minutes Relative To A18-49 Total Day Ad Minutes On The Big 4
/ A18-49 TD Advertising Viewed On The Big 4 Nets (mm minutes/month) 16,785
Premium Mins Watched On The Internet/Total Day Mins From The Big 4 Nets A18-49 9.2%
x Days/Month 30.4
Days Of "Network Total Day Equivalent" On The Entire Internet/Month 2.8
We assume roughly 75% of this
advertising would be allocated to
the Network during primetime,
with the remainder going to the
local station.
From Earlier
Calculation
*Based on Live+7 day ratings, which we would expect to exceed C3 ratings. Although, this gap would be reduced somewhat by a shift to C7 ratings.
Source: Nielsen, Vogel, tvbythenumbers.com, RBC Capital Markets
It is worth nothing that some people may think that the contribution from the total Internet
does not seem all that small (the 20% number may stand out). However, we stress that this
metric is comparing all premium advertising on the Internet to just a small fraction of
viewership on TV (only four channels, for roughly three hours a day, and only including adults
between the age of 18 and 49). If all we do is consider the entire day, at the network level,
the percentage of network ad minutes equivalent to the total amount of premium digital
advertising created across the Internet would be reduced to 9%. When considering the
relative metrics, the 20% actually seems pretty small. Further, when we think about potential
disruption going forward, what we really care about is growth. If this 20% were growing by
June 26, 2014 36

25% a year, then each year the ecosystem would only be adding premium digital from
“Digital Players Out Of The Traditional Ecosystem” equivalent to 5% of the total minutes of
advertising offered from the Big 4 in Primetime for A18-49 (a small subset of TV itself).
Exhibit 32: Comparison Of Advertising Minutes Between YouTube And The Entire Internet With The Big 4 Networks
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Premium Advertising Watched
On YouTube - complete views
only
Premium Advertising Watched
On The Internet - incl. skipped
A18-49 PT Advertising Viewed
On The Big 4 Nets
A18-49 TD Advertising Viewed
On The Big 4 Nets
(mmminutes/month)
Percent of A18-49 PT
Advertising Viewed On
The Big 4 Nets: 2%
Percent of A18-49 TD
Advertising Viewed On
The Big 4 Nets: 1%
Percent of A18-49 PT
Advertising Viewed On The
Big 4 Nets: 20%
Percent of A18-49 TD
Advertising Viewed On The
Big 4 Nets: 9%
These numbers might seem a little high at first
glance but remember we are comparing all
premium across the entire internet vs. just
primetime A18-49 views on 4 channels during
roughly 3 hours a day.
Also remember: We have been pretty
conservative in most of our estimates, and thus,
even our baseline could overstate reality.
Note: Based on Live+7 day ratings, which we would expect to exceed C3 ratings. Although, this gap would be reduced somewhat by a shift to C7 ratings.
Below we present a sensitivity analysis for both the contribution from YouTube, and the total
amount of premium advertising online as a whole. Through the range presented in our
sensitivity analysis, the scale of YouTube relative to just primetime network TV for A18-49 is
quite small.
At the very high end of our range, the contribution might appear to some to be somewhat
more meaningful. However, we would disagree, and highlight, again, a couple key points:
1. First and foremost, we are comparing the entire Internet to just a small fraction of
traditional TV ad views. Keeping that in mind, even at the high end of our sensitivity, the
contribution from premium digital versus the entire TV ad universe probably is not that
large.
2. Additionally, it is worth keeping in mind that we think we have probably been fairly
conservative in our assumptions through this analysis. It is unlikely, in our opinion, that
the high end of the range presents even a somewhat likely scenario. However, even if
this scenario proved to be reflective of reality, as we describe above, the contribution
still is not particularly large.
June 26, 2014 37

Exhibit 33: Sensitivity On YouTube And Total Internet Premium Ad Inventory Compared To The Big 4 Networks In Primetime
Premium Mins From YouTube (complete views)/Primetime Mins From The Big 4 Nets
6,000 0.0% 0.1% 0.2% 0.5% 1.1% 1.8% 2.7%
10,000 0.1% 0.1% 0.3% 0.9% 1.8% 3.0% 4.6%
14,000 0.1% 0.2% 0.5% 1.2% 2.5% 4.1% 6.4%
18,000 0.1% 0.2% 0.6% 1.6% 3.2% 5.3% 8.2%
22,000 0.1% 0.2% 0.7% 2.0% 3.9% 6.5% 10.1%
26,000 0.2% 0.3% 0.8% 2.3% 4.6% 7.7% 11.9%
30,000 0.2% 0.3% 1.0% 2.7% 5.3% 8.9% 13.7%
Days Of "Big 4 Networks Prime Equivalent" On YouTube (complete views)/Month
6,000 0.0 0.0 0.1 0.2 0.3 0.5 0.8
10,000 0.0 0.0 0.1 0.3 0.5 0.9 1.4
14,000 0.0 0.0 0.1 0.4 0.7 1.3 2.0
18,000 0.0 0.1 0.2 0.5 1.0 1.6 2.5
22,000 0.0 0.1 0.2 0.6 1.2 2.0 3.1
26,000 0.1 0.1 0.3 0.7 1.4 2.3 3.6
30,000 0.1 0.1 0.3 0.8 1.6 2.7 4.2
Premium Minutes Watched On The Internet/Primetime Minutes From The Big 4 Nets
137,027 3.2% 5.3% 7.4% 9.5% 11.6% 13.8% 15.9%
187,027 4.4% 7.2% 10.1% 13.0% 15.9% 18.8% 21.7%
237,027 5.5% 9.2% 12.8% 16.5% 20.1% 23.8% 27.4%
287,027 6.7% 11.1% 15.5% 20.0% 24.4% 28.8% 33.2%
337,027 7.9% 13.1% 18.2% 23.4% 28.6% 33.8% 39.0%
387,027 9.0% 15.0% 21.0% 26.9% 32.9% 38.8% 44.8%
437,027 10.2% 16.9% 23.7% 30.4% 37.1% 43.9% 50.6%
Days Of "Network Prime Equivalent" On The Entire Internet/Month
137,027 1.0 1.6 2.3 2.9 3.5 4.2 4.8
187,027 1.3 2.2 3.1 4.0 4.8 5.7 6.6
237,027 1.7 2.8 3.9 5.0 6.1 7.2 8.3
287,027 2.0 3.4 4.7 6.1 7.4 8.8 10.1
337,027 2.4 4.0 5.5 7.1 8.7 10.3 11.9
387,027 2.7 4.6 6.4 8.2 10.0 11.8 13.6
437,027 3.1 5.1 7.2 9.2 11.3 13.3 15.4
ImpliedContent
VideoMinutesFor
TheEntireInternet
(AllDevices,mm
minutes/month)
TotalYouTube
VideosViewedIn
TheU.S.
(mm/month)
ImpliedContent
VideoMinutesFor
TheEntireInternet
(AllDevices,mm
minutes/month)
TotalYouTube
VideosViewedIn
TheU.S.
(mm/month)
These numbers might seem a little high at first
glance but remember we are comparing all
premium across the entire internet vs. just
primetime A18-49 views on 4 channels during
roughly 3 hours a day.
Also remember: We have been pretty conservative
in most of our estimates, and thus, even our
baseline could overstate reality.
June 26, 2014 38

Exhibit 34: Sensitivity On YouTube And Total Internet Premium Ad Inventory Compared To The Big 4 Networks For Total Day
Premium Mins From YouTube (complete views)/Total Day Mins From The Big 4 Nets
6,000 0.0% 0.0% 0.1% 0.2% 0.5% 0.8% 1.3%
10,000 0.0% 0.1% 0.1% 0.4% 0.8% 1.4% 2.1%
14,000 0.0% 0.1% 0.2% 0.6% 1.1% 1.9% 2.9%
18,000 0.1% 0.1% 0.3% 0.7% 1.4% 2.5% 3.8%
22,000 0.1% 0.1% 0.3% 0.9% 1.8% 3.0% 4.6%
26,000 0.1% 0.1% 0.4% 1.1% 2.1% 3.5% 5.5%
30,000 0.1% 0.2% 0.4% 1.2% 2.4% 4.1% 6.3%
Days Of "Big 4 Networks Total Day Equivalent" On YouTube (complete views)/Month
6,000 0.0 0.0 0.0 0.1 0.1 0.2 0.4
10,000 0.0 0.0 0.0 0.1 0.2 0.4 0.6
14,000 0.0 0.0 0.1 0.2 0.3 0.6 0.9
18,000 0.0 0.0 0.1 0.2 0.4 0.7 1.2
22,000 0.0 0.0 0.1 0.3 0.5 0.9 1.4
26,000 0.0 0.0 0.1 0.3 0.6 1.1 1.7
30,000 0.0 0.0 0.1 0.4 0.7 1.2 1.9
Premium Minutes Watched On The Internet/Total Day Minutes From The Big 4 Nets
137,027 1.5% 2.4% 3.4% 4.4% 5.4% 6.3% 7.3%
187,027 2.0% 3.3% 4.7% 6.0% 7.3% 8.6% 10.0%
237,027 2.5% 4.2% 5.9% 7.6% 9.3% 10.9% 12.6%
287,027 3.1% 5.1% 7.1% 9.2% 11.2% 13.3% 15.3%
337,027 3.6% 6.0% 8.4% 10.8% 13.2% 15.6% 17.9%
387,027 4.2% 6.9% 9.6% 12.4% 15.1% 17.9% 20.6%
437,027 4.7% 7.8% 10.9% 14.0% 17.1% 20.2% 23.3%
Days Of "Network Total day Equivalent" On The Entire Internet/Month
137,027 0.4 0.7 1.0 1.3 1.6 1.9 2.2
187,027 0.6 1.0 1.4 1.8 2.2 2.6 3.0
237,027 0.8 1.3 1.8 2.3 2.8 3.3 3.8
287,027 0.9 1.6 2.2 2.8 3.4 4.0 4.6
337,027 1.1 1.8 2.6 3.3 4.0 4.7 5.5
387,027 1.3 2.1 2.9 3.8 4.6 5.4 6.3
437,027 1.4 2.4 3.3 4.3 5.2 6.1 7.1
ImpliedContent
VideoMinutesFor
TheEntireInternet
(AllDevices,mm
minutes/month)
TotalYouTube
VideosViewedIn
TheU.S.
(mm/month)
TotalYouTube
VideosViewedIn
TheU.S.
(mm/month)
ImpliedContent
VideoMinutesFor
TheEntireInternet
(AllDevices,mm
minutes/month)
June 26, 2014 39

Digital Premium Video Advertising Is Even Smaller In Scale When Compared To
Total Viewership Across The Entire Cable Channel Universe For All Dayparts
We should really take a broader view of the comparable TV advertisement. While in the prior
section we just compared premium YouTube and total Internet video ad inventory with
network inventory, we should also compare digital ad inventory to total advertising on
traditional linear TV across all cable channels.
To perform this analysis, we look at the top 107 channels (Nick at Nite and Nickelodeon are
considered separate channels here) on cable across all dayparts and for all demos (P2+). An
example of this analysis for Nickelodeon is included in the analysis presented in Exhibit 35.
Across all cable channels, there are an estimated 345 billion minutes of cable advertisements
watched per month. YouTube’s estimated minutes of premium video advertising
contribution in our baseline scenario is only ~0.04% of this number. Even our estimate for
the number of Premium Advertising minutes generated across the entire Internet is only
around 0.45% of this number.
It is important to stress why this number is so much larger than the network ad minutes
generated in our analysis earlier in this report. First, even when looking at total day, only a
portion of the day is programmed by the network, and even of those hours, the network only
retains a percentage of advertising. Further, total viewership across all the cable channels is
higher than across the Big 4 Networks. Finally, in this analysis we look at all of the population
(P2+), while in our analysis relative to the Big 4 Networks, we look at A18-49, only capturing
a portion of the total viewership.
Also of note, in this analysis, we do not exclude the share of advertising allocated to the local
distributor. We estimate that this allocation is roughly 1 minute of advertising every 30
minutes (in our Nickelodeon example presented below, we are assuming there are roughly 8
minutes of total advertising everything 30 minutes.) If we were to remove this allocation, it
would reduce the number of advertising minutes, but in this case were are really trying to
capture the large volume of advertising that is already out there in the ad universe, and thus
want to take a broad view.
June 26, 2014 40

Network TV's (Not So Big) Threat From Online Video A Deep Dive

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