Technology, Media & Telecom: Content & Distribution

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Barton Crockett 703.312.1873 [email protected] William Bird, CFA 646.885.5463 [email protected] Howard Ma 646.885.5482 [email protected] Michael Gallagher 646.885.5480 [email protected] Marvin Fong, CFA 646.885.5477

December 4, 2014

_{Industry Update}

Loyalty Survey Reaffirms Content Leverage over Distribution;

Highlights a la Carte Potential

Summary and Recommendation

In collaboration with ClearVoice Research, LLC, we have completed our fourth Loyalty Index survey, gauging consumer allegiance to major TV networks. Despite ratings headwinds that buffeted TV networks this summer and fall, we find that average network loyalty grew 200 bps year over year, arguing that, despite recent ratings headwinds, content providers retain substantial leverage to extract higher affiliate and retransmission fees from multichannel TV service providers. In this report, we also find that: (1) An á la carte TV model is potentially economically viable, as the costs for average consumers to cover the revenues of networks they are loyal to would be less than the average current cost of a multichannel video subscription; and (2) There is potentially a niche opportunity for premium networks HBO, Showtime, and Starz to add subscribers with untethered over-the-top offerings.

Key Points

■ Loyalty, despite ratings headwinds, has grown. With ClearVoice Research, we conducted a nationally representative, online survey of over 2,000 consumers asking a key question: Would you cancel or switch your pay TV service if a network were dropped? We label the cancel or switch percent "loyalty." We focused on a group of 53 basic tier cable networks, plus leading regional sports networks and premium networks HBO, Showtime, and Starz. Our finding: average loyalty was 21%, up 200 bps from a similar survey a little over a year ago, and above the 19% to 20% average range in the previous surveys. This, we believe, argues that despite ratings headwinds in the summer and fall, TV network companies continue to have as much leverage as ever to extract higher affiliate and retransmission fees from multichannel TV service providers.

■ Broadcast nets, led by CBS, continue to lead in loyalty. Broadcast network loyalty rates ranged from a low of 41% at Fox to a high of 46% at CBS, the TV network ranked first in loyalty, overall. Among cable networks, regional sports networks, as a group, generate an average of 41% loyalty, followed by ESPN at 36%. FX, in this survey, was the biggest gainer among nationally distributed networks, rising 500 bps in loyalty to 26%, while A&E was the biggest decliner, down 600 bps to 20%. Measured by company, Comcast/NBCU led in loyalty share, at 11.6%. But CBS would have the most to gain in a readjustment of fees to loyalty share, with this exercise arguing for a nearly 530% rise in its retransmission fees. While Disney would be the biggest loser in such a scenario, with its fee revenues dropping over 50% if adjusted to match loyalty share, Disney's fees, we believe, are in no danger of going down, with nearly all of its distribution locked into multiyear deals driving long-term, high-single-digit affiliate fee growth. ■ A la carte lens. Since our last survey, TV network companies have raised the profile of á la carte, with Time Warner announcing plans next year for an á la carte HBO, and CBS announcing an á la carte subscription-based CBS app. So this year we used our survey to analyze the potential viability of a fully á la carte industry structure. To do this, we calculated how much consumers would have to spend to cover all of the affiliate, retransmission, and advertising revenues of those networks to which they are loyal. Our conclusion: average spending for the nine networks an average consumer is loyal to would total nearly $37, below the average video ARPU nationally of nearly $93 in 2014, as estimated by SNL Kagan.

■ Premium opportunity. According to our survey, 32% of respondents would be interested in an untethered HBO, 26% in Showtime, and 24% in Starz; 7% would be willing to pay $15 or more per month for these services.

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Survey Highlights Continuing Loyalty to TV Networks

Since May 2012, we have worked with ClearVoice Research, LLC to conduct an online survey measuring consumer loyalty to TV networks. We measure this by asking consumers if they would cancel or switch multichannel pay TV service providers if a specific TV network or channel were dropped.

We see this as a way to gauge content leverage over distribution. TV networks’ ability to demand higher affiliate and retransmission fees rests mainly on consumer “loyalty.” This loyalty is most clearly expressed in a willingness to switch TV service providers if a network is dropped in a dispute over fees.

It has been our view that TV networks have leverage over pay TV services because pay TV services are, to a large degree, commoditized. By and large, the major multichannel TV services all carry the same core networks. And these networks are why people subscribe. Everywhere in the country, there are at least two satellite service providers (Dish and DirecTV). In most of the country there is at least one cable provider. In many places there is also a telco TV service such as Verizon FiOs.

So consumers can switch, and their loyalty has been seized upon by TV network companies to drive high-single-digit growth in cable network affiliate fees and triple-digit growth in retransmission fees for TV stations.

Similar to our methodology before, in this survey, we queried over 2,000 consumers, broadly similar to overall national averages in gender, race, household income and geographic dispersion, pay TV service profile, and usage of online services like Netflix. The survey has a margin of error of +/– 2% in most questions.

Key conclusions include:

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Broadcast networks led the pack in loyalty share, consistent with our prior surveys, topped by CBS, with 46%, and followed by NBC, ABC, and Fox with 42%, 42%, and 41%, respectively. This compares with the average across 53 major networks of 21%, up 200 bps from the last survey in August 2013.

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CBS has the greatest imbalance between loyalty share and fees for TV networks (retransmission and affiliate), suggestive of significant room for growth.

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Among cable networks, the leaders in loyalty are those focused on sports. Regional sports networks, as a group, had 41% average loyalty. ESPN had 36%.

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After sports, cable networks that ranked high in loyalty included the History Channel (27%), and TNT and FX, each at 26%.

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Among premium networks, HBO led in loyalty with an adjusted share of 21%, followed by Showtime with 16% and Starz with 13%.

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TV Network Loyalty Index

Source: FBR Research and ClearVoice Research, LLC

The biggest gainer in loyalty among nationally distributed networks was FX, up 500 bps. Premium networks also improved, each up 300 bps to 400 bps. The biggest decliners were A&E, down 600 bps,

12% 13% 13% 13%13% 13% 13% 13%14% 14% 14% 14%14% 15% 15% 15%16% 16% 16% 16%16% 17% 17% 17%17% 17% 17% 18%18% 18% 19% 19%19% 19% 19%20% 21% 21% 22% 22% 23% 23% 23%23% 24% 24% 25%26% 26% 27% 29% 36% 41% 41% 42%42% 46% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Sprout FYI Nick Jr. CMT "Get Country" WeTv Oxygen Starz The HUB Military Channel MTV OWNVH1 BET CNBC Spike E! Entertainment TV ABC Family Bravo CW TV stationShowtime Nickelodeon MSNBC Animal Planet Science Channel Disney Channel Cartoon Network/Adult Swim Hallmark ChannelTruTV Travel Channel Investigation Discovery TLC Comedy Central TV Land CNN/HLN Lifetime A&E Network HBO National Geographic ChannelFox Sports 1 TBS HGTV Syfy The Weather Channel Fox News Channel AMC Food Network Discovery Channel USA FX TNT History Channel ESPN FOX TV station RSNs Average ABC TV station NBC TV station CBS TV station

% of respondents that would cancel or switch if network dropped Oct. 2014: Avg. 21% Aug. 2013: Avg. 19% Dec. 2012: Avg. 20% May 2012: Avg. 19%

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Change in Loyalty

Ratings are not necessarily the best gauge of loyalty. In general, cable networks garner greater loyalty share than their TV audience share, and broadcast networks less. Some cable networks with big brands have hefty loyalty and modest ratings, including the new Fox Sports 1 (22% loyalty, up 400 bps) and the National Geographic channel (21% loyalty).

-6% -2% -2%-1% -1%-1% -1%-1% -1%0% 0%0% 0% 0% 0%1% 1%1% 1%1% 1%1% 1%1% 2%2% 2%2% 2%2% 2%2% 2%2% 2%2% 3%3% 3%3% 3%3% 3%3% 3%3% 4% 4%4% 4%4% 4%4% 4%4% 5% -6% -4% -2% 0% 2% 4% 6% A&E Network Discovery ChannelAMC Animal PlanetABC Family Disney ChannelNBC TV station Nickelodeon Comedy CentralABC TV station CW TV station National Geographic ChannelFood Network Nick Jr.TNT TBS Lifetime Cartoon Network/Adult SwimFYI TruTVBravo MTVSyfy CBS TV station Fox News ChannelHistory Channel Sprout Science Channel E! Entertainment TVTravel Channel CNN/HLNOWN TLC VH1 Hallmark ChannelESPN MSNBC Military ChannelOxygen USABET The HUBSpike WeTv Showtime CMT "Get Country"CNBC Investigation DiscoveryHBO HGTV FOX TV station The Weather ChannelFox Sports 1 TV LandStarz FX

Change in percent of respondents that would cancel or switch if network dropped (from Aug. 2013 to Oct. 2014)

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Comparison to TV Audiences

TV network loyalty share is comparable to 24-hour TV household audience share, except that loyalty to cable networks tends to be larger than household audience share, while loyalty to broadcast networks tends to be lower than household audience share. This makes sense, as cable networks target avid fans in niche audiences, while broadcast networks reach broader audiences, including some who may not have an avid interest in the programming.

TV Network Loyalty Share Versus Audience Share (24-hour TV Household Delivery)

-7.6% -5.1% -4.1% -3.4% -2.0% -1.8%-0.9% -0.7%-0.6% -0.4% 0.0% 0.0% 0.1%0.2% 0.2%0.2% 0.3% 0.3% 0.3% 0.3%0.4% 0.5% 0.5%0.5% 0.5%0.5% 0.5% 0.5% 0.6% 0.6% 0.6% 0.6%0.6% 0.6% 0.6% 0.6%0.7% 0.7% 0.8%0.8% 0.8%0.8% 0.9%0.9% 0.9%1.0% 1.0% 1.0%1.2% 1.4%1.6% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% FOX TV station CBS TV station ABC TV station NBC TV station Disney Channel Nickelodeon Cartoon Network/Adult SwimCW TV station USA Fox News Channel TNT A&E Network CNN/HLN Investigation DiscoveryABC Family MTVBET HGTVTBS Spike TV Land Lifetime TLC MSNBC Bravo History Channel Nick Jr. Animal Planet E! Entertainment TV TruTV Comedy Central VH1 Oxygen WeTv CMT "Get Country"OWN FYI AMC Food NetworkFX Military ChannelSyfy The HUB CNBC Discovery Channel Science ChannelTravel Channel ESPN National Geographic ChannelThe Weather Channel Fox Sports 1

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Loyalty and Fee Share by Company

We tally up the unduplicated loyalty responses by company. We do this by assuming that one individual can only cancel a service once, so that one individual canceling for four Viacom networks carries the same weight as one individual canceling or switching only for CBS. We add up this loyalty by company, using this to create a loyalty “pie” within which we allocate share by company.

The data places Comcast/NBCU number one in loyalty, followed by Fox and Disney. Interestingly, CBS ranked above Time Warner and Discovery, a testament to audience loyalty to broadcast networks. Time Warner and Discovery ranked at the top of the cable network companies, reflective of loyalty generated by having multiple networks touching multiple different demographics.

Basic Tier TV Network Loyalty Share by Company

Source: FBR Research, ClearVoice Research, LLC, and SNL Kagan

We compare this share of loyalty to a content company’s share of program fees (affiliate plus retransmission/reverse retransmission). This exercise, we believe, highlights who has the most potential to grow affiliate and retransmissions fees, assuming that fees can be matched to loyalty. This data supports the notion that CBS has significant room to grow its fees, with a reset to loyalty share arguing for a 528% rise in retransmission fees.

Interestingly, Discovery also skewed well in this exercise, even though its affiliate fee growth domestically lags peers with growth at a mid-single-digit pace. CBS’s success in raising fees much faster than Discovery suggests that CBS is either more aggressive, or that CBS has more leverage by concentrating its loyalty into a single popular network, or both. Perhaps the difference is akin to local advertising power ratios that illustrate ad market share in excess of audience share among local TV stations that are audience share leaders.

Disney is the leader in share of program fees. It is not the leader in loyalty. A reset in fee share to its loyalty share would, in theory, drive a 53% decline in its program fees. But Disney, in our opinion, is in no danger of seeing its program fees decline. Instead, Disney is wrapping up a cycle of negotiating multiyear distribution deals with leading multichannel TV services driving long-term high-single-digit

5.4% 6.7% 7.9% 8.0% 8.7% 8.7% 8.7% 10.5% 10.6% 11.6% 0% 2% 4% 6% 8% 10% 12% 14% AMC Networks Scripps Networks Viacom A&E Discovery Time Warner CBS Disney 21st Century Fox Comcast/NBCU % of loyalty-share (Oct. 2014)

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growth in cable network affiliate fees. This again is supportive of the notion that there is a power ratio aspect to program fee strength.

Program Fee Potential Based on Basic Tier TV Network Loyalty Share

Substantial Interest in Online Apps

We found substantial interest in accessing TV networks via apps, led again by the broadcast networks, and with ESPN the leader among cable networks, soundly topping RSNs, perhaps illustrating the depth of content on ESPN’s well-regarded app, versus the thinner local game-specific content and lack of apps for most RSNs. In general, this is supportive of the notion of substantial potential consumer interest in authenticated TV everywhere architectures with apps tethered to traditional multichannel bundles, or untethered over-the-top apps tied to network brands.

Company Program Fees, 2014E % Share % of loyalty-share (Oct. 2014) Potential Fees, based on loyalty-share + / - % CBS $566 1.4% 8.7% $3,558 528.5% Scripps Networks $752 1.8% 6.7% $2,739 264.0% Discovery $1,286 3.2% 8.7% $3,542 175.3% AMC Networks $825 2.0% 5.4% $2,216 168.6% A&E $1,393 3.4% 8.0% $3,274 135.0% Other $5,330 13.1% 13.1% $5,330 0.0% Time Warner $4,047 9.9% 8.7% $3,546 -12.4% Comcast/NBCU $5,614 13.8% 11.6% $4,734 -15.7% Viacom $3,962 9.7% 7.9% $3,228 -18.5% 21st Century Fox $7,897 19.4% 10.6% $4,328 -45.2% Disney $9,125 22.4% 10.5% $4,303 -52.8% Industry Total $40,797 100.0% 100.0% $40,797

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Interest in Online Bundle

Survey Highlights Potential for á la Carte

Over the past few weeks, á la carte structures have risen in prominence as an issue for the industry because of announcements by Time Warner of plans for an untethered HBO app next year and from CBS for a subscription-based app. Many, reasonably, wonder if this is a trend, and, if an era of

16%17% 18%19% 19%19% 20%20% 22%22% 23%23% 23%24% 25%26% 27%29% 29% 29% 30% 30%30% 31% 31%31% 31%32% 32%32% 33%33% 34%35% 35%36% 36%37% 38%39% 39%40% 40%41% 41%42% 43%43% 47%47% 48%48% 51% 60% 60%61% 64% 0% 10% 20% 30% 40% 50% 60% 70% Sprout CMT "Get Country"BET The HUBWeTv OWN OxygenVH1 FYI Nick Jr. Military ChannelMTV CNBC E! Entertainment TVMSNBC BravoSpike Nickelodeon Hallmark ChannelCW TV station Cartoon Network/Adult Swim ABC FamilyTruTV TLC Disney Channel CNN/HLNTV Land Science ChannelLifetime Starz Investigation DiscoveryFox News Channel HGTV Fox Sports 1 Animal Planet Travel Channel Comedy Central ShowtimeSyfy TBS Food Network USA RSNs Average National Geographic ChannelThe Weather Channel TNTFX A&E NetworkAMC HBO Discovery ChannelHistory Channel ESPN FOX TV station ABC TV stationCBS TV station NBC TV station

Some companies, such as Sony and Dish Network, are planning to launch online subscription TV packages, which, for a monthly fee similar to or less than the cost of a standard cable or satellite TV subscription, would offer online access to a package of TV

networks. Would you be interested in such an online bundle?

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unbundled access to TV networks is upon us, if other networks follow this lead. Our own view is that there is probably meaningful consumer interest in á la carte access.

Our analysis suggests that á la carte could be an economically viable outcome for content providers. To test this hypothesis, we utilized our loyalty results to derive the subscription price and revenue threshold necessary for a content provider to charge in order to be no worse off than under the current bloated-bundle distribution model. As the analysis below demonstrates, if half of all consumers could maintain what they really want and save money, while the networks’ revenues are at least no worse off, this could work. Of course, some consumers would have to pay more. But there is clearly an affluent consumer niche willing to buy more subscription content.

To derive the appropriate pricing threshold for an unbundled offering, we calculated the monthly fee that networks would want to charge by dividing a network’s affiliate, retransmission, and advertising revenues by its total count of loyal households, as determined by our survey. We also made a few assumptions: (1) We assumed that, in an á la carte world, consumers would only choose to subscribe to those networks they are loyal to—in other words, that they would only discretely pay for those networks that they said they would cancel or switch TV service providers to maintain; and (2) We assumed that TV network companies would want to charge a fee to those consumers that would allow them to recoup all of their affiliate, retransmission, and advertising revenues, even if all consumers moved to the á la carte model. Among our respondents, 31% were not loyal to any network, the average count of networks people were loyal to was nine, the median six, and the standard deviation approximately 11.

Number of National Basic Networks Consumers Are Loyal To

The ARPU per month was calculated by using SNL Kagan’s estimate for 2014 affiliate and advertising revenues for each network. We allocated Kagan’s estimate for industry retransmission revenues equally between the four major broadcast networks.

We calculated loyal households for a network by multiplying Kagan’s estimate of pay TV households by a network’s loyalty share. Dividing the revenues by loyal households resulted in monthly ARPUs ranging from a high of nearly $18 at ESPN to $0.14 at the Military Network. The cost to obtain all of these basic tier networks would be nearly $188 per month.

0% 1% 2% 3% 4% 5% 6% 7% 0 5 10 15 20 25 30 35 40 45 50 55 % o f re sp o n d e n ts lo ya l t o a t le as t 1 T V n e t

number of basic networks Loyal To

Loyal to 0 Networks: 31% Median: 6

Average: 9 St. Dev. 10.9

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Total ARPU Required for “Loyalists” to Cover Affiliate/Retrans + Advertising Revenues

Hallmark Travel Nick Jr. ID Oxygen WeTV TV Land Own Tru TV MSNBC CW TLC E! Syfy Comedy HGTV FS1 AMC BET History A&E VH1 CNBC Lifetime Spike Bravo FX CNN/HLN TBS USA MTV FOX $0 $5 $10 $15 $20 Military HUB Sprout Science FYI Weather CMT Hallmark Travel Nick Jr. Animal Planet National Geographic ID Oxygen WeTV TV Land Own Tru TV MSNBC CW TLC E! Syfy Comedy HGTV Food Network FS1 AMC BET History A&E VH1 CNBC Lifetime ABC Family Cartoon Network Spike Bravo Discovery Disney Channel FX CNN/HLN TBS Fox News USA MTV FOX TNT ABC Nick CBS NBC ESPN

ARPU Per Month Per Loyalist

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ARPU Required for "Loyalists" to Cover Affiliate/Retrans Fees ARPU Required for "Loyalists" to Cover Advertising Revenues

Loyal to 0 TV networks: 31% Total for all TV networks: $187.76 Average: $3.54 $0.69 $17.78 $9.68 $9.61 $8.13 $8.07 $7.73 $7.41 $6.99 $6.11 $5.75 $5.72 $4.76 $4.02 $3.82 $3.92 $3.78 $3.77 $3.74 $3.37 $3.29 $3.25 $3.13 $3.13 $3.04 $2.98 $2.79 $2.72 $2.71 $2.58 $2.56 $2.37 $2.27 $2.16 $2.12 $2.09 $1.68 $1.68 $1.55 $1.54 $1.49 $1.48 $1.38 $1.33 $1.27 $1.23 $1.03 $1.00 $0.99 $0.78 $0.57 $0.38 $0.14

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The majority of ESPN’s ARPU is driven by affiliate fees, at nearly $14 per month. The total cost of affiliate and retransmission fees for all of these networks is nearly $88 per month.

The bulk of the nearly $7 to $10 total ARPUs for broadcast networks is from advertising. This is interesting, because, in an á la carte world, we suppose it is possible that a meaningful percentage of, and perhaps nearly all, ad revenues could be sustained, with higher CPMs for targeting mitigating the impact of lower audiences, or that audiences might not decline much, because the loyalists are the main people watching anyway. This would suggest that ARPUs could be set lower than we assume to break even.

We then went across each respondent and tallied up the monthly ARPU for each respondent to maintain all of the networks they said they were loyal to. Again, 31% did not want any network, so we assume they don’t subscribe to anything. The average cost for the nine networks on average that other respondents were loyal to was nearly $37 per month; the median was $28. That is well below the nearly $93 average ARPU for a multichannel video subscription in 2014, as estimated by SNL Kagan.

Fees per “Loyalist” Required to Cover National Basic Tier Affiliate/Retrans + Advertising Revenues

0% 1% 1% 2% 2% 3% $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110 $120 $130 $140 $150 $160 $170 $180 % o f re sp o n d e n ts lo ya l t o a t le as t 1 T V n e t

Total ARPU per loyalist to pay for channels loyal to

Loyal to 0 TV networks: 31% Median: $27.64

Average: $36.59 St. Dev. $39.41 2014E Avg Video ARPU $92.61

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Potential Niche for Premium Network Stand-Alone Apps

We estimated loyalty for premium networks HBO, Showtime, and Starz by multiplying the percent of respondents who said they had the networks by the percent who said they would cancel or switch to maintain them. This resulted in loyalty of 21% for HBO, 16% for Showtime, and 13% for Starz. Among respondents, 32%, 26%, and 24%, respectively, expressed interest in an untethered app from HBO, Showtime, and Starz, respectively; 7% would be willing to pay $15 per month or more for such apps.

Premium Network Loyalty

Interest in Over-the-Top (OTT) Premium Network Service

13% 16% 21% 43% 50% 55% 31% 32% 38% 0% 10% 20% 30% 40% 50% 60% Starz Showtime HBO % of Respondents who subscribe to premium network

Yes, I definitely would cancel or switch

Calculated loyalty share (subs % x loyalty %) 24% 26% 32% 0% 5% 10% 15% 20% 25% 30% 35% Starz Showtime HBO

Interested in online app or video service separate from

Pay TV service?

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Willingness to Pay for Over-the-Top (OTT) Premium Network Service

3% 4% 11% 82% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% $20 or more $15 $10 $5 or less

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Regional Sports Networks

We calculated a 41% national loyalty level for regional sports networks by averaging loyalty across the 36 RSNs we covered in our survey. While no RSN has national coverage, nearly all multichannel homes have RSNs on their basic tier, so we found the averaging approach to be a reasonable proxy for the group.

TV Network Loyalty Index – Regional Sports Networks (RSNs)

30% 35% 36% 37% 37% 37% 37% 38% 38% 38% 38% 39% 39% 39% 39% 40% 40% 40% 40% 40% 40% 41% 41% 42% 42% 44% 44% 45% 45% 46% 46% 46% 46% 47% 49% 57% 0% 10% 20% 30% 40% 50% 60%

FOX Sports Florida FOX Sports Carolinas FOX Sports West Time Warner Cable SportsNet/Deportes FOX Sports Southwest MSG -- Madison Square Garden Network FOX Sports Arizona Comcast SportsNet Houston Comcast SportsNet Bay Area Comcast SportsNet Philadelphia Comcast/Charter Sports Southeast FOX Sports South Comcast SportsNet Chicago SportsTime Ohio FOX Sports Midwest Comcast SportsNet New England Comcast SportsNet Northwest FOX Sports North FOX Sports Ohio Mid-Atlantic Sports Network Root Sports Rocky Mountain Comcast SportsNet California Time Warner Cable SportsNet LA Sun Sports FOX Sports Detroit Root Sports Pittsburgh SportsNet New York FOX Sports Wisconsin FOX Sports Tennessee YES Network SportSouth Root Sports Northwest Comcast SportsNet Washington Prime Ticket New England Sports Network Altitude Sports & Entertainment

% of respondents that would cancel or switch if network dropped Avg. 41%

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FX Gains in General Entertainment

We found loyalty for general entertainment networks in this survey to be 25%, within the past range. In this group, FX network stands out as a gainer, with a 500-bp rise in loyalty from the last survey to 26%. AMC’s loyalty, by contrast, fell 200 bps to 24%.

General Entertainment Loyalty

23% 20% 26% 22% 25% 25% 27% 26% 24% 29% 22% 26% 23% 21% 27% 22% 24% 26% 26% 27% 0% 5% 10% 15% 20% 25% 30% 35% TBS AMC USA FX TNT

% cancel or switch if network dropped

Yes, I would cancel or switch (Oct. 2014) Yes, I would cancel or switch (Aug. 2013) Yes, I would cancel or switch (Dec. 2012) Yes, I would cancel or switch (May 2012)

Oct. 2014 Avg. 25% Aug. 2013 Avg. 24% Dec. 2012 Avg. 26% May 2012 Avg. 23%

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In Kids, Nick Slips, HUB Grows Gains

In kids networks, total average loyalty near 15% was near the past range. But within the group, Nickelodeon has slipped from a 19% to 20% level in 2012, to 16% now. The Disney Channel had a similar trend. But The Hub (now Discovery Family) has grown from 10% to 13%.

Kids Networks

19% 19% 20% 13% 11% 20% 20% 18% 15% 10% 17% 18% 16% 12% 10% 16% 17% 17% 13% 13% 0% 5% 10% 15% 20% 25% Nickelodeon Disney Channel Cartoon Network/Adult Swim Nick Jr. The HUB

% cancel or switch if network dropped

Oct. 2014 Avg. 15% Aug. 2013 Avg. 15% Dec .2012 Avg. 16% May 2012 Avg. 16%

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Gains in Female Nets Driven by OWN and WE

In female networks, average loyalty rose 200 bps to 16%, fueled by gains at OWN and WE. Female-Focused Networks

11% 10% 9% 13% 17% 17% 11% 12% 11% 17% 20% 20% 10% 10% 12% 15% 17% 19% 13% 13% 14% 16% 19% 19% 0% 5% 10% 15% 20% 25% WeTV Oxygen OWN Bravo TLC Lifetime

% cancel or switch if network dropped

Yes, I would cancel or switch (Oct. 2014) Yes, I would cancel or switch (Aug. 2013) Yes, I would cancel or switch (Dec. 2012) Yes, I would cancel or switch (May 2012) Oct. 2014 Avg. 16% Aug. 2013 Avg. 14% Dec. 2012 Avg. 15% May 2012 Avg. 13%

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Strengthening of News

In news networks, Fox News leads in loyalty, at 23%, but the group enjoyed a 200-bp rise in average loyalty to 20%, fueled by gains at Fox, MSNBC, and CNN.

News Networks

15% 13% 19% 19% 16% 21% 17% 14% 21% 19% 17% 23% 0% 5% 10% 15% 20% 25% CNN/HLN MSNBC Fox News Channel

% cancel or switch if network dropped

Oct. 2014 Avg. 20% Aug. 2013 Avg. 18% Dec. 2012 Avg. 19% May 2012 Avg. 16%

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Steady at Disney

Disney’s loyalty average at 28% is driven by ABC at 42% and ESPN at 36%. Disney TV Network Loyalty Index

Disney’s half-owned A&E networks had 20% average loyalty, within past ranges, led by History. A&E TV Network Loyalty Index

18% 19% 34% 43% 19% 20% 35% 45% 17% 18% 33% 42% 16% 17% 36% 42% 0% 10% 20% 30% 40% 50% ABC Family Disney Channel ESPN ABC TV station

% cancel or switch if network dropped

Oct. 2014 Avg. 28% Aug. 2013 Avg. 28% Dec. 2012 Avg. 30% May 2012 Avg. 29% 11% 17% 21% 27% 13% 20% 26% 29% 12% 19% 26% 27% 13% 19% 20% 29% 0% 5% 10% 15% 20% 25% 30% 35% FYI Lifetime A&E Network History Channel

% cancel or switch if network dropped

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At Discovery, OWN and ID Rise; Flagship Slips

Discovery’s flagship channel had a 300-bp decline in loyalty. But that was offset by rises at OWN and Discovery ID, pushing total average loyalty up 100 bps to 17%.

Discovery Communications TV Network Loyalty Index

11% 12% 9% 15% 15% 14% 17% 29% 10% 12% 11% 18% 16% 16% 20% 29% 10% 11% 12% 18% 15% 15% 17% 28% 13% 14% 14% 17% 17% 18% 19% 25% 0% 5% 10% 15% 20% 25% 30% 35% The HUB Military Channel OWN Animal Planet Science Channel Investigation Discovery TLC Discovery Channel

% cancel or switch if network dropped

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FX and Sports Fuel Fox

Fox had a 300-bp rise in average loyalty to 27%, fueled by rises at Fox broadcast, FX, and Fox Sports. 21st Century Fox TV Network Loyalty Index

21% 10% 19% 22% 38% 22% 10% 21% 24% 41% 21% 18% 21% 21% 37% 21% 22% 23% 26% 41% 0% 10% 20% 30% 40% 50%

National Geographic Channel Fox Sports 1 Fox News Channel FX FOX TV station

% cancel or switch if network dropped

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Steady at Time Warner

Time Warner’s average loyalty of 21% was within past ranges, led by TNT and TBS. Time Warner TV Network Loyalty Index

20% 17% 15% 23% 25% 18% 18% 19% 25% 29% 17% 18% 19% 22% 27% 17% 18% 19% 22% 27% 0% 10% 20% 30% 40%

Cartoon Network/Adult Swim TruTV CNN/HLN TBS TNT

% cancel or switch if network dropped

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Viacom in Past Ranges

Viacom’s average loyalty at 15% was up from last year but close to previous years, helped by improvements at TV Land, Spike, and BET.

Viacom TV Network Loyalty Index

13% 14% 14% 15% 13% 14% 19% 16% 19% 0% 5% 10% 15% 20% 25% CMT "Get Country" BET VH1 Spike Nick Jr. MTV TV Land Nickelodeon Comedy Central

% cancel or switch if network dropped

Yes, I would cancel or switch (Oct. 2014) Yes, I would cancel or switch (Aug. 2013) Yes, I would cancel or switch (Dec. 2012) Yes, I would cancel or switch (May 2012) Oct. 2014 Avg. 15% Aug. 2013 Avg. 13% Dec. 212 Avg. 15% May 2012Avg. 15%

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CBS Holds Strong

CBS’s average loyalty at 46% was up from last year and within the ranges of previous years, while average loyalty of 16% to the CW Network was similar to previous years.

CBS TV Network Loyalty Index

Respondent Profile Charts

The charts below provide more detail on our respondents, illustrating that their use of Netflix, major pay TV service providers, and demographic profile is near national averages.

Subscriptions to Video Services

16% 43% 15% 48% 16% 44% 16% 46% 0% 10% 20% 30% 40% 50% 60% CW TV station CBS TV station

% cancel or switch if network dropped

Oct. 2014 Avg. 31% Aug. 2013 Avg. 30% Dec. 2012 Avg. 32% May 2012 Avg. 30% 9.3% 16.4% 31.8% 42.5% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% Hulu Plus

Amazon Prime Video Netflix None of the Above

Which of the following video services do

you subscribe to?

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Subscriptions to Pay TV Providers

0.9% 3.8% 4.2% 4.6% 6.7% 8.3% 9.8% 10.5% 12.6% 17.1% 21.5% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% Suddenlink Charter Cox Cablevision Other Verizon Fios AT&T U-verse Dish Network Time Warner Cable DirecTV Comcast

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Survey Demographics versus U.S. Census

Survey Census Male 48.6% 49.1% Female 51.4% 50.9% TOTAL 100% 100% 18-24 12.6% 13.1% 25-34 17.0% 17.5% 35-44 16.5% 17.5% 45-54 18.2% 19.2% 55-64 17.9% 15.6% 65+ 17.8% 17.2% TOTAL 100% 100% Midwest 20.6% 21.7% Northeast 21.7% 17.9% South 38.3% 37.2% West 19.0% 23.3% TOTAL 100.0% 100.0% <$25K 18.6% 24.7% $25-$39K 17.0% 16.8% $40-$49K 10.2% 8.9% $50-$74K 18.7% 17.7% $75-$99K 11.5% 11.4% $100-$124 8.6% 7.6% $125-$149K 6.4% 4.5% $150K+ 9.1% 8.4% TOTAL 100.0% 100.0% White/Caucasian 73.2% 72.4% African American 8.1% 12.6% Asian 4.7% 4.8% Native American 0.8% 0.2% Pacific Islander 0.1% 0.9% Other 0.7% 6.3% 2 or more races 0.0% 2.8% Prefer not to answer 0.5% N/A

Total 100.0% 100.0%

Ethnicity Hispanic Origin 12.0% 16.3%

Gender

Age Group

Region

Income

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Rating. _{FBR Research Distribution}1 _{FBR Banking Services in the past 12 months}1

BUY [Outperform] 52.44% 12.02%

HOLD [Market Perform] 44.72% 5.00%

SELL [Underperform] 2.85% 0.00%

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