The Media Landscape A GROUPM PUBLICATION OCTOBER 20192 | MEDIA LANDSCAPE OCTOBER 2019 GroupM 3 World Trade Center 175 Greenwich Street New York, NY 10007 USA All rights reserved. This publication is protected by copyright. No part of it may be reproduced, stored in a retrieval system, or transmitted in any form, or by any means, electronic, mechanical, photocopying or otherwise, without written permission from the copyright owners. Every effort has been made to ensure the accuracy of the contents, but the publishers and copyright owners cannot accept liability in respect of errors or omissions. Readers will appreciate that the data is up-to-date only to the extent that its availability, compilation and printed schedules allowed and is subject to change.3 | MEDIA LANDSCAPE OCTOBER 2019 INTRODUCTION 4 WHAT DOES THE DATA TELL US? 6 THE GREAT DISRUPTION 10 IF CONTENT IS KING, WHO WEARS THE CROWN? 16 THE DREAM OF THE 90S IS ALIVE: CONVERGENCE 2.0 21 INDIFFERENCE MAKES THE DIFFERENCE 27 THE CONTINUING RELEVANCE OF MEDIA AGENCIES 33 CONTENTS4 | MEDIA LANDSCAPE OCTOBER 2019 INTRODUCTION5 | MEDIA LANDSCAPE OCTOBER 2019 INTRODUCTION The overall intent of this paper is to view the media landscape through the prism of the expenditure of large advertisers and to examine some of the key protagonists that impact media supply. Inevitably this leads us to comment on the role of media agencies, like ours. In this introduction we highlight the facts as we see them and address our own role in the system. Our starting point was that large advertisers faced challenges that were different from all advertisers challenges. Our methodology was simple: Perform an analysis of the spending of GroupMs clients in our top 15 markets during 2018 to dig deeper into where the money is going, and isolate the unique challenges of large advertisers. We adjusted to recognize major merger activity late in 2018, mostly impacting the data for The Walt Disney Company, Comcast, AT rather, it demonstrates the long-tail/short-tail disparity and the companys direct relationships with large advertisers on its platform. Zee Network in India ranks 18th. Altogether, the top 20 suppliers represent less than half of our global billings, with hundreds of others accounting for the remainder. When considered by media type, 43% of billings in our top 15 markets are TV, including the digital delivery of legacy TV companies; 37% of billings are digital, which includes search, social, video and display for all sources, excluding legacy TV; 7% are print; 6% are out-of-home; and 4% are cinema. 43% of billings in our top 15 markets are TV, including the digital delivery of legacy TV companies.9 | MEDIA LANDSCAPE OCTOBER 2019 In aggregate then, it turns out the world is every bit as complex as we might expect. Some additional observations follow: Video as a single format remains dominant. Within that, full- length programming remains the first choice of context. Its not surprising that video tops investment, given that it is a high-cost option but also a massive driver of customer/prospect activity in every other channel. Single-market players (especially in video) remain extraordinarily important to advertisers. Google and Facebook are every bit as dominant in digital overall, but account for less than half of digital display and video. As for the “third forces” in digital, all of Amazon, Microsoft and Snap are important and growing, but remain fractional players. Just as significant is The Trade Desk, the only meaningful global competitor to Google as a programmatic intermediary. Advertising as a share of total marketing in Asia, at least for our clients, appears to be a significantly smaller part of total promotional spend than in Europe and North America. The current decade wont be the decade of Latin America; Televisa (at 37) is the only seller from the region in the top 50. (GroupM does not operate in Brazil.) Among legacy newspaper companies, only News Corp ranks in our top 30. It is joined by Associated Newspapers (UK) and The New York Times in the top 100. WHAT DOES THE DATA TELL US? Video as a single format remains dominant. Within that, full-length programming remains the first choice of context.10 | MEDIA LANDSCAPE OCTOBER 2019 THE GREAT DISRUPTION11 | MEDIA LANDSCAPE OCTOBER 2019 THE GREAT DISRUPTION These are dangerous days for advertisersat least those who have used television as the foundation of their communication strategy. With shifts in viewing habits, commercial impressions in the most viewable, highest attention media are in free fall across the world. The problem is universal and if the viewing behavior of younger audiences is a harbinger, things are not going to get better. The simple truth is that Google and Facebook on the one hand and Netflix on the other have structurally undermined a century-old economic model: the former two companies by advertising-led monetizing of intent and social interaction in the absence of content, and the latter one by monetization of content in the absence of advertising. In the former instance, massive outflows of cash combined with a diversion of attention from print media eviscerated the legacy publishing model. In the latter, the creation of an appetite for ad-free video diverted time, attention and money from traditional television. Enabled by the ubiquity of cheap broadband, Netflix led the over-the- top (OTT) revolution that threatens to undermine the business model of ad-supported television. As the third decade of the 21st century begins, the question is: How long can these companies continue to thrive? Consider the following: At the heart of Googles business is a trifecta of unique characteristics: A monopoly on intent and search in most regions A virtual monopoly on ad-supported short-form video Control of the infrastructure of the 75% of digital advertising not controlled by Facebook These activities and Googles market position are reinforced by signals from Gmail, Maps, the Google Play Store, the Chrome browser and the Android operating system. At the heart of Facebooks business is an equally compelling collection of attributes: A monopoly on social actions in most regions A near monopoly on messaging in Western markets, with market shares far in excess of Twitter and Snap A share of social advertising exceeding 80% These activities and Facebooks market position are reinforced by both consumer opt-in and the companys ubiquitous view of identity enabled by “log in with Facebook” and the presence of Facebook pixels on publisher, advertiser and commerce sites alike. The simple truth is that Google and Facebook on the one hand and Netflix on the other have structurally undermined a century- old economic model.12 | MEDIA LANDSCAPE OCTOBER 2019 Netflix is as disruptive but less dominant. The company has what may be a durable market share but a less clear path to meaningful profits, as content costs continue to rise and producers wrestle with the choice between vertical integration of production and distribution and becoming content arms dealers with a focus on the highest bidder. We discuss Netflix specifically later. The position of these three companies in the West, at least, seemed impregnable only two years ago. Now they continue to grow in both volume and share, but at decelerating rates and with clear vulnerabilities that may demand or impose significant change. In the case of Google and Facebook, the data assets that laid the golden egg of targeted advertising are now questioned. Do they know too much? Are they reliable custodians? Is the method of acquisition an invitation to social harm? Has the resultant market dominance acted as a brake on competition and innovation? Is power that was conventionally the province of the state safely transferred to the enterprise? In short, what competition has failed to disrupt is now the bulls-eye of regulatory interest across the world. It seems that those regulators have identified consumer harm, the enablement of criminality and the undermining of democracy as sufficient reason to demand radical change. The UK government published a white paper (a prelude to regulation) entitled “Online Harms” in April 2019. The problem for Google and Facebook is that the efficiencies inherent in global technology standards are no protection at all against local and enforceable regulation in everything from data use to definitions of free speech and tax treatment. The regulatory swirl also impacts the “big bets” of the big players: specifically, Facebooks Libra cryptocurrency project, which, in spite of high-minded ambition, has been greeted with guarded suspicion by some and unguarded incredulity by others. Aside from these specifics, there seems to be little appetite for these companies to become more powerful than they are today. Its worth stepping back and asking how Google and Facebook achieved their market positions, and why they became so attractive to advertisers. Most succinctly, the answer is this: Google and Facebook provided market-beating utility with zero economic or technological friction, which disrupted highly inefficient legacy markets in information and communication. They did so with quality and speed sufficient to engender exponential growth, and with that growth erected insurmountable barriers to competitive market entry. In the case of advertising specifically, Google and Facebook were able to leverage active and passive intent and behavior signals at super scale on and off network in a way that created value for the biggest advertisers and, most importantly, for millions of businesses and enterprises. THE GREAT DISRUPTION Google and Facebook provided market-beating utility with zero economic or technological friction, which disrupted highly inefficient legacy markets in information and communication.