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US DIGITAL MEDIA AD REVENUE - THE PATH TO 0 BILLION IN ANNUAL REVENUE BY 2021 August 2016 - AWS Simple Storage ...

US DIGITAL MEDIA
     AD REVENUE
     THE PATH TO $100 BILLION IN ANNUAL
     REVENUE BY 2021

     August 2016

     Margaret Boland | Research Analyst

Flickr BI
       / Zak Cannon Copyright © 2016, Business Insider, Inc. All rights reserved.
          Intelligence                                                              1

KEY POINTS
 US digital ad revenue is poised to reach nearly $100 billion by 2021, according
to BI Intelligence estimates. This represents compound annual growth of 8% from
the $68.9 billion expected in 2016. Digital will account for 45% of total ad revenue in
five years, up from a 37% share at year-end 2016, as spending in traditional,
nondigital media formats stalls.

 Increased time spent by consumers on digital media, coupled with brands'
growing comfort with allocating budgets to digital formats, will power the strong
growth of the US digital ad market. Two-thirds of respondents surveyed by the
Interactive Advertising Bureau said they plan on increasing spending on digital video in
the next year, while just one in 10 intend on increasing spending on traditional TV
during that period.

 Mobile will become the top destination for digital ad spending as advertisers
continue to attempt to close the "mobile opportunity gap." While time spent on
phones and tablets has been growing rapidly, these platforms see a relatively small
share of ad budgets.

 Digital video advertising will grow faster than any other format over the next five
years, primarily due to strong mobile demand. Revenue in this category is forecast
to rise at a CAGR of 22%, from $8.5 billion in 2016 to $23 billion in 2021.

 Search ad revenue's growth will be more modest, but it will continue to make up
the largest share of digital advertising revenue. BI Intelligence estimates that
revenue in this category will rise at five-year CAGR of 6% to reach $43.7 billion in
2021. This compares with $32.9 billion in 2016.

 Display ad revenue will post the slowest growth over the next five years. It's
projected to reach $26.4 billion in 2021, up from $22.1 billion in 2016. This represents
a five-year CAGR of 4%.

 Social advertising in all formats is gaining traction and will be among the key
drivers of digital ad growth in the next five years. Social ad revenue is poised to
climb to $30.8 billion by 2021, up from $15.5 billion this year — a five-year CAGR of
15%.

 Artificial intelligence, augmented and virtual reality, and sponsored content will
help propel further digital ad growth in the next decade. These technologies are
the keys to the next $100 billion in revenue for the space.

Download the charts and data in Excel »

INTRODUCTION
Consumers are spending more and more time consuming digital media, and advertisers are
pumping more and more of their ad budgets into digital channels. The influx is not expected to
let up in the near future. The US digital advertising industry will continue to experience
spectacular growth in the next five years, driven primarily by the sustained migration of
ad dollars from traditional TV to digital video and the continued increase of social
spending.

In this report, BI Intelligence forecasts revenue trends over the next five years and explains
key growth drivers for overall digital ad revenue, digital channels (mobile, desktop), digital
formats — including display, search, and video — and the dominance of social platforms in
digital. We also discuss the current major US ad revenue generators, Google and Facebook,
as well as emerging player Verizon, and what their walled garden strategies mean to the
overall industry. Finally, we discuss what's next for the digital ad industry in terms of new
technologies, formats, and potential ad platforms.

BI Intelligence estimates are based on historical data from the Interactive Advertising Bureau,
PricewaterhouseCoopers, and Magna Global; our ongoing tracking of the traditional and digital
media markets; and knowledge of industry trends.

THE US DIGITAL AD MARKET

                      The US digital ad industry is poised to rake in nearly $100 billion in revenue by 2021, up from
                      $68.9 billion in 2016, according to BI Intelligence estimates. This represents a five-year
                      compound annual growth rate (CAGR) of 8%. While digital ads will not eclipse traditional
                      revenues over the period, they will account for an increasing share of total US ad revenue and
                      grow at a faster pace.

                      Ad spending in traditional, nondigital media formats will reach $121 billion by 2021, little
                      changed from a projected $119.9 billion this year. Because of this stagnation, digital's share of
                      total ad revenue will reach 45% of the total in 2021, up from a 37% share at year-end 2016.

BI Intelligence Copyright © 2016, Business Insider, Inc. All rights reserved.                                             4

The strong growth of the overall US digital ad market can largely
be attributed to two factors:

 Increased time spent by consumers on digital media. Already, millennials, the
largest US consumer group, spend 54% of their time consuming media on desktop
computers and mobile devices. Time spent with traditional media is much lower. TV
accounted for less than half of total media time, according to comScore data. As
consumers spend more time on digital devices, advertising dollars and subsequent
revenue will follow.

 Brands' increased comfort with allocating budgets to digital formats. The influx in
digital ad revenue is also because advertisers feel more comfortable spending on
digital formats, particularly on digital video. In a recent 2016 survey of almost 400 US
ad agencies and marketers, the IAB found that two-thirds of respondents plan on
increasing spending on digital video in the next year. Comparatively, only one out of
every 10 respondents planned on increasing ad spending on traditional TV during the
same period. Unsurprisingly, digital video is set to be the fastest growing ad format in
the next five years, rising at a CAGR of 22%.

In the following sections, BI Intelligence examines exactly where the most digital ad revenue
will be generated (mobile vs. desktop), what ad formats are performing better than others
(search, display, and video), and how certain channels like social platforms are garnering the
most attention.

MOBILE SET TO ECLIPSE
                      DESKTOP BY 2018
                      Mobile will become the top destination for digital ad spending as advertisers continue to
                      attempt to resolve the disconnect between the rapid growth in time spent on phones and
                      tablets and the relatively small share of ad budgets that are allocated to such platforms —
                      known as the mobile opportunity gap.

                      Last year, consumers spent 25% of their time accessing media on mobile devices, according
                      to the latest Internet Trends Report from Mary Meeker at Kleiner Perkins Caufield Byers. US
                      advertisers, meanwhile, spent only 12% of their total ad budgets on mobile inventory last year.
                      This gap is narrowing: In 2014, consumers spent 24% of their time on mobile, but advertisers
                      spent only 8% of their ad dollars there. BI Intelligence expects that this gap will continue to
                      narrow as ad buyers become more comfortable with allocating larger budgets to mobile
                      inventory, platforms increase their user analytics and tracking capabilities on mobile, and the
                      industry addresses concerns over mobile ad fraud.

BI Intelligence Copyright © 2016, Business Insider, Inc. All rights reserved.                                           6

Mobile ad revenue is expected to more than double in the next five years, rising to $55 billion
by 2021 from $27.4 billion in 2016. This represents a CAGR of 15%. Desktop ad revenue,
however, will experience largely flat growth over the period, increasing at a five-year CAGR of
1%. Desktop ad revenue is expected to reach $38.2 billion by 2021, up from $36.1 billion by
the end of 2016.

Based on these growth rates, overall mobile ad revenue is anticipated to eclipse desktop
revenue by 2018 — one year earlier than anticipated in our 2015 forecast. The strong growth
of mobile revenue is largely due to robust demand for mobile video ads, which are the fastest-
growing digital format, with a five-year CAGR of 33%. The massive popularity of social
platforms like Snapchat and Instagram has led to an explosion in video viewing on mobile
devices, spurring rapid growth in ad revenue in the medium over the last year.

While mobile is poised to dominate digital ad growth, there are several hurdles that the
industry must address to incite sustained growth:

 A surge in mobile ad blocking. Nearly 16% of US consumers use ad-blocking
software, according to estimates from Optimal.com and Wells Fargo. These figures,
which are based on current ad-blocking rates, consumer awareness of the technology,
and a survey of nearly 2,000 US smartphone users, predict that 37% of US users will
actively employ ad-blocking software in 2020. That equates to more than 100 million
consumers, up from 44 million in 2016. While today many users of ad-blocking
technology run it on their desktop computers, future adopters will embrace ad blocking
on mobile. New mobile ad-blocking apps, browsers that support the technology, and
foreign telecom companies that have started blocking ads across their networks will all
contribute to ad blocking's increased prevalence.

 The threat of mobile ad fraud. While bot traffic on mobile currently lags behind
desktop, most experts agree that as ad budgets continue to shift to mobile, the
fraudsters will follow. Already, mobile ad fraud is starting to impact in-app advertising.
Fraudsters can create apps that run ads in the background of a user's mobile device
and serve ads even if the user believes that they have exited out of the program. A
recent Forensiq study examined 12 million mobile devices that had downloaded
suspicious apps and found that 1% of devices in the US and 2%-3% in Europe and
Asia were running apps infected with ad fraud. These apps came from both Google
Play and Apple's App Store.

DIGITAL AD MARKET,
                      BY FORMAT
                      As the share of ad budgets allocated to digital continues to grow, some formats will benefit
                      more than others. Search will continue to make up the lion's share of total digital ad revenue,
                      but its growth will be modest. Meanwhile, display ad revenue — which includes banner,
                      sponsorships, and rich media — will experience the smallest growth over the next five years
                      as advertisers continue to steer away from traditional banner formats on mobile. Finally, digital
                      video ad revenue will almost triple in the next five years as social platforms readily embrace
                      the more interactive format.

BI Intelligence Copyright © 2016, Business Insider, Inc. All rights reserved.                                             8

Digital Video Will Show Spectacular Gains

                      Digital video advertising will grow faster than any other format over the next five years, rising
                      at a CAGR of 22%. BI Intelligence estimates that video ad revenue across mobile and desktop
                      will exceed $23 billion in 2021, nearly three times larger than the $8.5 billion expected this
                      year.

                      The impressive growth of video ad revenue is primarily due to strong mobile demand. Mobile
                      video revenue is forecast to reach $14.3 billion in 2021, up from $3.5 billion in 2016. This
                      represents a five-year CAGR of 33%.

BI Intelligence Copyright © 2016, Business Insider, Inc. All rights reserved.                                             9

Demand is high for mobile video simply because users are spending an incredible
amount of time watching videos on mobile devices. Mobile video's rise is being driven by
the popularity of social video-centric mobile apps like Snapchat and YouTube, as well as
Facebook's pivot to a video-first strategy. In 2015, global consumers spent on average 45
minutes per day watching video on a smartphone, and an additional 20 minutes per day
viewing on tablets, according to a 2015 study from Millward Brown.

As consumers spend more time viewing mobile videos, these ad-supported mobile video
platforms are garnering enormous video audiences:

 Snapchat announced in April that it garners over 10 billion video views per day on its
mobile app, up from 2 billion in May 2015.

 YouTube has seen time spent on its mobile app nearly double since 2013, comScore
reported. In December, the platform's mobile app averaged roughly 21.5 million hours
of viewing per day.

 Facebook reported in January that it attracts 100 million hours of daily video viewing
across its properties. While this figure includes both desktop and mobile viewing, 92%
of Facebook's audience accesses its properties on mobile devices.

Unsurprisingly, the shift to mobile viewing has driven advertisers to allocate an increasing
amount of their ad budgets to the format. Sixty-two percent of global advertisers and
media buyers plan on increasing their mobile video ad budgets in the next 12 months,
according to a 2016 IAB survey. The influx will help video platforms maintain strong ad
revenue gains for the foreseeable future. Already, mobile video platforms are positioning
themselves to capture a share of these new ad dollars by expanding their video ad inventory.

 Snapchat has massively expanded its video ad platform in the past six months. In
2016 alone, the company has launched new products, like ads between user content,
app-install ads, and shoppable ads; added new ad measurement tools; and opened up
its application program interface (API) to select partners.

 Facebook is looking to offer additional monetization opportunities for its video products
to open up more video ad inventory. In addition to now allowing media companies and
brands to run sponsored video ads on its Instant Articles mobile feature, it is exploring
ways to monetize live videos and adding in-stream video ads to its Facebook
Audience Network — the company's mobile ad network.

 Less than a year after opening up its platform to advertisers, Instagram sees more
video ads than photo ads on its platform. In Q1 2016, 60% of ad impressions on
Instagram were video, double that of the previous quarter, according to a new study by
Brand Networks that tracked 3.8 billion Instagram ad impressions in the last six
months of 2015 and first three months of 2016.

New media-buying technologies will also promote digital video's ad revenue growth in the next
five years. The continued expansion of programmatic video — or using automation in the ad-
buying process — allows the industry to buy and sell video ads in greater volume. While
analytics and measurement tools are more limited for programmatic mobile video than
programmatic desktop video, as mobile technologies become more sophisticated and as video
platforms evolve, programmatic mobile video will likely reach parity with its desktop
counterpart. Ultimately, this will boost mobile video spending and revenues.

New Technologies Will Help Boost Search Revenue

                      Search ad revenue, also known as paid search, will continue to make up the bulk of total US
                      ad revenue, but its overall share will slightly decline as video makes up a larger chunk of the
                      total.

                                Search ad revenue will grow as at a modest five-year CAGR of 6% to reach $43.7
                                 billion in 2021, up from $32.9 billion in 2016.

                                Search ads will account for 44% of total digital revenue by 2021, down from 48% in
                                 2016.

                                Mobile search ad revenue is responsible for the overall growth of ad revenue during
                                 the period, rising at a five-year CAGR of 13%. Mobile now accounts for over 50% of
                                 Google's search queries.

BI Intelligence Copyright © 2016, Business Insider, Inc. All rights reserved.                                           12

Search ad revenue, particularly mobile search, will be heavily boosted by new technologies
and the entrance of Facebook into search advertising. Artificial intelligence (AI) and machine
learning incorporated in search engines, voice-activated search, location-based targeting, and
smart keyboards will all help tailor search results to the user, leading to more accurate search
results, an increase in queries, and ultimately will contribute to an increase in inventory.

Machine learning and AI. Google, far and away the leader in search, now powers all of its
search results using RankBrain — a machine-learning AI system — in its algorithm. This is up
from just 15% of search queries in 2015. While Google keeps under wraps how exactly the
tech helps refine search results, it is understood that it takes users' past searches and post-
search clicks and helps curate search results to best match those specific users rather than
the overall pool of past searchers. Using machine learning and AI in search queries will
improve users' search experience, giving them the more relevant answers to their questions.
Not only will this encourage users to search more, but it will also help advertisers ensure that
they're targeting the audience that they wish to reach. This could lead to more clicks on search
ads and encourage users to spend more of their budgets on the format.

Facebook is also apparently using AI technology in its search results, but does not divulge
how and in what capacity. When Facebook opens up its search tool to advertisers, just as it
confirmed in its Q2 2016 earnings call, AI will have a similar impact as at Google.

Voice-activated search. Voice-activated technology and devices — including Amazon's
Alexa, Apple's Siri, Google Now, and Microsoft's Cortana — will also help boost search. While
the technology currently suffers from latency issues and produces too many irrelevant results,
new advancements in language recognition and search functionality, as well as machine-
learning tech that builds on itself over time, stand to improve voice assistants and ultimately
increase voice-activated queries.

Companies that support voice-activated search aren't monetizing the technology through ads.
But this will likely change in the near future. Google has already confirmed that it's looking at
ways to incorporate search ads in Google Now. Others are bound to follow suit, and the
revenue opportunities could be huge. Google already says that 20-25% of its mobile app and
Android devices are voice-activated. And the technology is catching on with more users. About
60% of smartphone owners who have utilized voice assistants for search queries have done
so in the past 12 months, according to a survey of 1,800 US smartphone users from
MindMeld.

Location-based targeting. Increasingly sophisticated location data-gathering tools and
technologies will enable advertisers to serve consumers with the right message at the right
time. While the adoption of location-based campaigns is relatively slight, we expect the
technology will see an uptick in use particularly with search ads as users can be served
search answers based on their current and past locations. Revenue from all location-targeted
mobile ads is expected to hit $18.2 billion in 2019, up from $4.3 billion in 2014, according to
estimates from BIA/Kelsey.

AI-infused keyboards. AI-infused keyboards — like Google's Gboard and SwiftKey from
Microsoft — are third-party mobile keyboards that use AI technology to understand a user's
word selection and help recommend subsequent words or phrases. These keyboards act as
plug-ins to a user's current keyboard and can be enabled across a variety of apps.

These keyboards could offer an untapped opportunity for search ads. Google's GBoard, for
example, allows users to access Google Search right in their native messaging app — like
Apple's iMessage — or in other compatible mobile apps just by just typing "G." Users can ask
where the nearest bar is and Google will show a list of bars. While Google currently does not
serve ads in this tool, it's not hard to imagine that it could in the near future. Facebook's
expanding search tool — which also uses AI — could also feasibly use the technology to
serve ads within its own suite of apps like Messenger and Instagram. WhatsApp, however,
operates with end-to-end encryption and is unlikely to adopt such a feature.

Nonmobile Display Inventory Will Continue To Shrink, But Mobile
                      Native Offsets Declines

                      Display ad revenue — including any revenue from banners, sponsorships, and rich media —
                      will show the smallest level of growth over the next five years. Display ad revenue will reach
                      $26.4 billion in 2021, up from $22.1 billion in 2016. This represents a five-year CAGR of 4%.

                                Despite overall display growth, desktop display revenue will fall over the period,
                                 dropping from $10 billion in revenue this year to just $7.3 billion in 2021. This decline
                                 is driven by the migration of ad dollars from desktop to mobile, and the increased
                                 focus on more immersive ad formats like video.

                                Mobile display ad revenue will rise at a five-year CAGR of 10% during the period.
                                 Although this is the lowest growth rate out of any mobile format, it's driven primarily by
                                 the increase of time spent on mobile and shift of ad dollars into native-style display
                                 ads.

BI Intelligence Copyright © 2016, Business Insider, Inc. All rights reserved.                                                 15

Native-style display ads include any native ads that are placed in-feed, as promoted listings, or
displayed through content recommendation widgets, according to the IAB's definition.
Standard ads with native elements are also included. Ads placed in-feed on social platforms
— known as social-native ads — generate the majority of native display revenue. Outside of
social native, native display ads appear most commonly in-feed on publisher properties (for
example, between articles on Yahoo's homepage). BI Intelligence's display forecast does not
include any native video ads or any native-style search ads.

The rise of programmatic buying and selling of native ads will help boost their growth in the
short term. Until recently, native display ads were primarily sold through direct channels to
ensure that the creative and format matched where native ads were being served. Now major
ad networks and exchanges — including Google, Yahoo, Facebook, Twitter, and other smaller
ad tech firms — can support the buying and selling of native ads through programmatic
channels. With programmatic native ads, advertisers can pull together various images and
copy for a single campaign. In the programmatic process, the correct image and copy can be
automatically determined by the exchange depending on where the impression is eventually
served.

Ad spending into sponsored content will also help replace formats that have lower
engagement rates or don't translate well to mobile, namely traditional banner ads. Sponsored
content — also referred to as premium native — can come in the form of content produced in
cooperation with a publisher's editorial team or as branded content, which is original content
produced exclusively by the brand and pushed through an ad on a publisher website. Average
click-through rates for sponsored content are nearly 4X higher than average for traditional,
nonnative display ads in the US, according to data from Polar, a firm that helps
publishers power and monetize their native ad programs.

SOCIAL WILL REAP MAJOR
                      SHARE OF AD REVENUE
                      Advertisers are increasingly shifting ad budgets to social as users continue to spend more
                      time on these platforms. BI Intelligence estimates that social ad revenue in the US will climb to
                      $30.8 billion by 2021, up from $15.5 billion in 2016. This represents a five-year CAGR of 15%
                      and makes social one of the highest generators of digital ad revenue.

                      Social platforms — like Facebook, Twitter, Snapchat, Instagram, Twitter, LinkedIn, and
                      Pinterest — have historically reaped the majority of their ad revenue from various forms of
                      display and video ads. Video ads in particular are a bright spot for social. However, Pinterest
                      is attempting to snatch up a share of search revenues, though it remains a fairly small player.
                      Facebook is also expected to jump into search ads in the next few years.

BI Intelligence Copyright © 2016, Business Insider, Inc. All rights reserved.                                             17

Social is attractive for advertisers for three key reasons:

 Massive, predominantly mobile, and engaged audiences. Facebook boasts 1.7
billion monthly active users (MAU), 92% of whom access the platform on mobile
devices. Two-thirds of Facebook's total active users access the platform on a daily
basis. Facebook is not the only platform with a high share of engaged users. Even
relatively smaller social platforms, like newcomer Snapchat, is estimated to have
around 300 million mobile MAU, half of which access the platform on a daily basis.

 Sophisticated ad-targeting tools. Social networks are adept at getting users to
divulge information about themselves including their age, interests, likes, location, and
demographic. These social networks can then use this information to target ads
against them, giving advertisers the ability to better narrow down their audience. While
other digital publishers offer targeting options, social has been particularly successful
at gleaning more specific information about users than other digital properties.

 Native formats. Most ads that appear on social platforms are native — meaning they
blend into surrounding content. Users can also share, comment, like paid posts (ads)
on these platforms allowing the connections of these users to also see the content.
This gives advertisers a larger reach than they initially intended.

FACEBOOK, GOOGLE, AND THE
IMPACT OF WALLED GARDENS
A small number of companies attract the vast majority of digital-ad spending in the US today.
In 2015, just 10 firms controlled 75% of total digital ad revenue, according to the IAB and PwC
annual internet ad report. Google alone commanded 50% of total digital ad revenue in 2015,
while Facebook was responsible for another 13%, according to analysis from Pivotal Research
cited by Bloomberg.

Google and Facebook's all-in-one offerings enable their dominance. Both platforms not only
garner enormous audiences, but they also run huge ad networks and offer sophisticated ad
tech solutions. Thus, advertisers can turn to either company for both distribution and
monetization. This walled garden approach — where both users and advertisers can access
all their needs within one platform — is discouraging for the greater digital media industry. As
Google and Facebook amass larger shares of digital ad revenue, other publishers are left with
a smaller piece of the pie. This has left many trying to find additional ways to monetize their
content, namely through subscriptions.

At the same time, Google and Facebook's position has its benefits. The success that these
companies are having gives greater visibility to the benefits of digital and ultimately are
encouraging advertisers to spend more across the digital landscape. And while Google and
Facebook do currently dominate the ad industry, there are other platforms that could feasibly
chip away at their controlling market share.

Verizon is the most notable of these emerging competitors. The company has spent
nearly $13 billion in the past year on acquiring digital assets most notably acquiring AOL in
June 2013 ($4.4 billion), ad tech firm Millennial Media in September 2015 ($248 million) and
Yahoo in July 2016 ($4.8 billion). While Verizon has not publicly broken out the performance of
its digital business since its acquisition spree, AOL and Yahoo both rank consistently in
comScore's list of top 10 digital media properties by unique visitors. Further, since its
acquisition last year, AOL has invested significantly in building out its programmatic platform,
AOL One. Yahoo's BrightRoll programmatic video ad platform should help strengthen
Verizon's ad tech presence.

THE DIGITAL FRONTIER:
WHERE THE NEXT $100
BILLION LIES
Shifts in ad spending from traditional media to online, from display ads to video, and from PC
to mobile are helping to drive digital ad revenue toward $100 billion annually. But what are the
next drivers for growth? Here are three trends that will help power the digital-ad market over
the next decade:

Artificial Intelligence. AI is poised to promote an increase in digital ad spend by allowing
advertisers to more precisely target ads. Already, AI is used in refining search results to be
tailored to the specific user and makes up the backbone of smart keyboards. IBM now uses
the AI-powered technology in its Watson digital ads. Users can ask questions — either by
voice or through text — on IBM's Weather.com, Weather mobile app, and WeatherFX
platform, and the technology will send responses. For example, a user could ask what they
should have for dinner. Watson then uses data to determine location, weather, time of day,
and serve responses that are essentially ads. Campbell Soup and Unilever, for example, are
early partners of the Watson Ad program. Such AI-powered digital ads, while still very much in
their early days, have the potential to allow brands to not only more accurately target their
audience, but also to give consumers exactly what they are looking for.

Augmented and virtual reality. With the backing of Facebook, Google, and Microsoft,
augmented reality (AR) and virtual reality (VR) will also present a new and immersive way for
brands and marketers to target audiences. AR and VR platforms would not be a dramatic
departure for advertisers. The viral success of Pokemon Go — an AR powered mobile app —
underscores that the technology can garner enormous audiences that brands will inevitably try
to reach. McDonalds, for example, is paying to be a sponsored location in Japan. VR could
see similar opportunities when the headsets hit the mass market later this year.

VR platforms would not be a dramatic departure for advertisers and brands. Brands have
already been experimenting with 3D immersive ad spots. YouTube launched 360-degree
video ads that allow users to drag their mouse or tilt their mobile devices to view ads from all
angles. These 360-degree video ads give advertisers a distinct advantage over other
traditional ad spots in their storytelling capabilities. Early experiments show that 360-degree
videos perform better than standard digital video ad spots. Coca-Cola's 100th anniversary
360-degree video saw a 36% higher view-through rate than standard videos, according to 9to5
Google.

While VR and AR ads could be bought like standard ad units and be shown as pre-roll, mid-
roll, or post-roll ads in between content, we expect that sponsored content offers the most
promise with these new technologies. Sponsored events, apps, and movies won't detract from
the experience and offer an engaging (and innovative) way to interact with audiences.

Sponsored everything. The uptick in ad-blocker usage and the increased focus on bettering
the user experience has brought sponsored content to the forefront for media buyers. This can
include content produced in cooperation with a publisher's editorial team, as well as branded
content, which is original content produced exclusively by the brand and pushed through an ad
on a publisher's website. By 2021, sponsored content will drive $12.6 billion in ad revenue in
the US, up from $3.3 billion in 2016, according to BI Intelligence estimates based on historical
IAB data, company releases, and Polar.

The format has gained traction among advertisers over the past year. In Q1 2016, branded
content campaigns from Polar's customers — which include publishers like AOL, Washington
Post, Conde Nast, and Gannett — grew 366% YoY, according to Polar data shared with BI
Intelligence. Now branded and sponsored campaigns are evolving past just adverts that look
like articles and coming in the form of full-blown partnerships with brands.

Snapchat is also promoting new forms of digital sponsorships, like lenses and geofilters, that
are commanding massive ad rates. Branded filters reportedly cost advertisers close to
$500,000 for weekday campaigns. The cost rises to $750,000 for holidays and weekends,
according to Ad age. As the line between content and ads continues to blur, and in effect
helps better the user experience, we foresee that innovative new forms of digital sponsorships
will drive up revenues.

THE BOTTOM LINE
 US digital ad revenue will approach $100 billion in the next five years, according to BI
Intelligence estimates.

 The rising popularity of digital media with consumers and brands will propel the growth
of this space.

 Mobile devices will eclipse PCs as the top destination for digital ad spending as
consumers shift time spent online to phones and tablets.

 Digital video advertising growth will exceed all other formats over the next five years,
primarily due to strong mobile demand.

 Search ad revenue's gains will be moderate by comparison, but it will still account for
the largest share of digital ad revenue.

 Display ad revenue will post the slowest growth through 2016.

 Social advertising be a key drivers of digital ad growth during that period.

 Artificial intelligence, augmented and virtual reality, and sponsored content will help
propel further digital ad growth in the next decade.

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