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Straight Talk Media & Entertainment

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YouTube's ongoing growth and service evolution represents Google's most successful foray into visual entertainment yet. YouTube viewing on large-screen TVs is up 70 per cent year on year and is now responsible for around one-tenth of all YouTube viewing. YouTube's pay-TV OTT subscription service, YouTube TV, announced imminent compatibility with smart TVs and Android TV devices, expanding past its existing reliance on Chromecast to provide big screen viewing.

YouTube TV is competing in a very crowded market against competitors bundling subscription video services with fixed and mobile broadband. The market potential for such services is largely limited to cord nevers and new TV customers, with limited volumes of cord cutters currently looking to downsize from traditional TV subscriptions. YouTube TV is nonetheless available in the 50 largest urban locations across the US with locally relevant networks, and has enabled YouTube TV to build a nationwide footprint rapidly.

YouTube TV is also likely to control around two minutes of advertising per hour on the cable channels carried by the platform, similar to what other types of distributor are allocated. While the service will take time to scale, being able to sell nationwide campaigns, allied with advanced targeting (one assumes an organization with Google's capabilities could offer to brands), is a differentiated and valuable capability.

Technology titans such as Google, Amazon, and Facebook are going to marry their data and immense expertise in online behavior and spending, to targeting TV and streaming video advertising. This is a competition open only to those large enough to have the investment capability to develop infrastructure to dynamically insert targeted ads to on-demand and, especially, linear streams. While pay TV is investing heavily in addressable advertising capabilities, there are plenty of open questions for commercial broadcasters, ad-supported OTT video, and technology vendors on competitive positioning in what is likely to be a reshaped TV advertising ecosystem.

Monetizing video effectively is becoming increasingly critical in a crowded and price-sensitive video subscription market. At Ovum, we are keen to stay abreast of the key trends in both paid and free video marketplaces, forecasting slow but steady growth in US OTT pay TV, alongside a robust battle for market share between a few dozen competing services, with the specter of Disney's direct-to-consumer platform looming over it. Some services from online and technology giants may also be run at very low to negative margins, with growth from currently low levels of market share the priority.

The online video advertising outlook is even more interesting given the huge changes that would result from any of the initiatives from Amazon, Facebook, Snapchat, or even Apple gaining traction and share of viewing time. Marrying the data on the digital audience with the targeting of a TV audience offers the potential to monetize inventory more effectively. But there is a lot of work to do to realize the potential. Online video audience measurement has fallen under a cloud of suspicion and advertising, and Google was forced to a launch a very traditional looking TV-type service. While encouraging for makers of TV shows whose value to advertisers is still relatively high, Google and other digital platforms gunning for TV advertising spending have deep pockets and very long investment horizons. The prize of attracting TV advertising budgets is too large to ignore for firms who already dominate their core digital advertising markets.

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