DIGITAL VIDEO IN MEXICOA Growing Viewership Attracts Content and AdvertisingMARCH 2013

Osbaldo Franco

Contributors: Tobi Elkin, Monica Peart

DIGITAL VIDEO IN MEXICO: A GROWING VIEWERSHIP ATTRACTS CONTENT AND ADVERTISING ©2013 EMARKETER INC. ALL RIGHTS RESERVED 2

EXECUTIVE SUMMARY

Digital video appears to be at an inflection point

in Mexico. Video consumption is widespread, but

viewers are mostly watching short-form content. In

addition, advertisers have committed a very small

portion of their budgets to the video channel.

But the sheer size of the market will likely spur an increase in ad spending. TV programmers are also paying greater attention to digital viewers, which should lead to higher consumption.

This report provides an overview of Mexico’s digital video consumption patterns and nascent video advertising market. It includes insights from key brands and video platforms about audience patterns and preferences. In addition, it explores mobile video’s growing audience and its implications for marketers.

KEY QUESTIONS ■ How widespread is digital video viewing in Mexico?

■ Who are these digital video viewers?

■ What are digital video viewers in Mexico watching?

■ How are content producers and advertisers tapping

into Mexico’s digital video viewership?

% of respondents

Online Video Categories Watched by Online VideoViewers in Mexico, Nov 2012

Music videos 44%

News 29%

TV series 28%

Movies 27%

YouTube bloggers 26%

Amateur video 17%

Documentaries 16%

Cartoons 12%

Sports 11%

Concerts 10%

Short films 10%

Note: ages 13-70; yesterdaySource: Interactive Advertising Bureau México (IAB México), "Estudio deconsumo de medios entre internautas mexicanos" conducted by MillwardBrown, Jan 29, 2013151716 www.eMarketer.com

CONTENTS3 Digital Video Viewership in Mexico

6 Digital Video Advertising

8 Conclusions

8 eMarketer Interviews

8 Related eMarketer Reports

9 Related Links

9 Editorial and Production Contributors

DIGITAL VIDEO IN MEXICO: A GROWING VIEWERSHIP ATTRACTS CONTENT AND ADVERTISING ©2013 EMARKETER INC. ALL RIGHTS RESERVED 3

DIGITAL VIDEO VIEWERSHIP IN MEXICO

Digital video usage has grown rapidly in Mexico.

Last year, it outpaced overall internet adoption

growth. But this medium is still a new format in a

developing internet market. Consumers mainly watch

short-form video, and video advertising is just in the

experimental phase.

Data about digital video uptake in Mexico is relatively scarce, but the available numbers signal its widespread use—and potential for growth.

A February 2013 comScore report estimated that there were more than 23 million online video viewers in Mexico in December 2012. This figure, which includes internet users ages 15 and older and excludes access from mobile devices and internet cafe connections, represents a nearly 10% year-over-year increase, or an additional 2 million internet users watching online video since December 2011. comScore put Mexico’s online video user penetration rate at 81% of all internet users.

% of internet users

Online Video Viewers in Select Countries andWorldwide, Dec 2012

Argentina 96%

Chile 92%

US 85%

Brazil 82%

Mexico 81%

Worldwide 84%

Note: ages 15+; home and work locations; excludes traf�c from publiccomputers such as internet cafes and access from mobile phones andPDAsSource: comScore Video Metrix, "A Market Unbalanced - The Dollars Aren'tFollowing The Engaged Audiences," Feb 7, 2013152241 www.eMarketer.com

A November 2012 survey from Interactive Advertising Bureau México (IAB México) conducted by Millward Brown found a higher penetration rate, reporting that 93% of internet users ages 13 to 70 in Mexico were digital video viewers. The higher number likely reflects the inclusion of mobile viewers.

% of internet usersDigital Video Viewers in Mexico, Nov 2012

Watch online videos93%

Don'twatch

7%

Note: n=1,156 ages 13-70; view via any deviceSource: Interactive Advertising Bureau México (IAB México), "Estudio deconsumo de medios entre internautas mexicanos" conducted by MillwardBrown, Jan 29, 2013151715 www.eMarketer.com

IAB México’s and comScore’s data confirmed that digital video is used widely by Mexico’s online population. But it’s less clear how deeply users are engaged with the video they consume.

For instance, a Garritz Online Media survey found that only 22.4% of internet users polled said that watching video was a “main activity” when they went online. By comparison, more than 95% of respondents said email was a main activity, and more than three-quarters said the same for both social networks and search.

% of respondents in each group

Online Activities of Internet Users in Mexico, by Demographic, July 2012

Gender Age

Email

Social network

Search

News

IM

Listen to music

Download music

Upload photos

Banking

Shop online

Gaming

Video consumption

Upload videos

Blogging

Other

Male95.9%

80.0%

76.0%

77.4%

64.2%

60.1%

48.1%

39.3%

41.1%

41.2%

33.3%

27.2%

17.4%

11.3%

1.7%

Female94.6%

84.9%

79.2%

68.8%

71.7%

60.8%

45.4%

51.5%

34.5%

33.2%

38.4%

17.3%

15.0%

9.7%

2.3%

15-2491.0%

93.7%

68.8%

63.7%

73.3%

72.1%

58.6%

50.8%

13.8%

26.4%

46.6%

32.4%

18.6%

11.4%

1.5%

25-3495.6%

89.8%

78.1%

72.9%

76.3%

65.4%

55.0%

56.3%

43.2%

49.0%

42.5%

28.1%

20.1%

14.3%

1.6%

35-4495.4%

81.6%

78.6%

76.5%

65.3%

55.1%

41.8%

41.8%

41.3%

39.0%

31.6%

15.6%

13.5%

8.7%

2.6%

45+98.0%

68.2%

82.6%

77.7%

58.8%

52.3%

35.4%

34.5%

48.3%

34.1%

25.6%

16.0%

13.6%

8.2%

2.2%

Total

95.3%

82.4%

77.5%

73.2%

67.8%

60.5%

46.8%

45.2%

37.9%

37.4%

35.8%

22.4%

16.2%

10.5%

2.0%

Note: n=1,558Source: Garritz Online Media, "Hábitos multidispositivo online de México,"Oct 1, 2012152805 www.eMarketer.com

DIGITAL VIDEO IN MEXICO: A GROWING VIEWERSHIP ATTRACTS CONTENT AND ADVERTISING ©2013 EMARKETER INC. ALL RIGHTS RESERVED 4

One reason digital video may not be top of mind for most internet users in Mexico is because they currently tend to watch shorter videos. In fact, a global examination of video usage conducted by Cisco found that Mexico’s ratio of long- to short-form video traffic was the lowest among all the nations studied.

Cisco defines long-form video as video content generally greater than 7 minutes in length and short-form video as user-generated video and other video clips generally less than 7 minutes in length.

The Cisco Visual Networking Index found that Mexico’s ratio of long- to short-form video traffic in 2011 was 0.5 times, well below the general Latin America ratio of 1.4 times and the worldwide average of 5.3 times. The US measure came in at 8 times.

But signs suggest that the emphasis on short-form video may be shifting. According to comScore, the share of videos served by Google in Mexico (led by YouTube, of course) has been declining, falling from 70% in December 2011 to 62% in August 2012.

That is not to say that YouTube is not thriving in Mexico. According to John Farrell, director of content partnerships for Latin America at YouTube, “There are about 40 million internet users in Mexico, and YouTube has 90% reach. … Our audience in Mexico has grown more than 180% year over year in terms of views and watch time.”

Instead, the shift likely reflects growing availability of other channels—and long-form channels in particular. For example, broadcasting giant Televisa shifted its digital strategy roughly a year ago and expects to complete a consolidation of its online video properties under the televisa.com website this year.

According to Michel Bauer, general sales director at Televisa Interactive Media, Televisa’s digital arm, “Our reach right now is around 8% to 10% of unique viewers, and the average time spent [on Televisa Interactive Media properties] is around 16 minutes.” It is likely that the company’s most popular categories, 40-minute soap opera episodes and 90-minute soccer matches, will continue to push up the average digital video viewing session.

VIDEO CONTENT AND MOBILE DEVICES Mobile phone penetration and mobile internet adoption are still low in Mexico compared with regional averages. But a large portion of the existing mobile user base is already using the devices to consume video.

According to The Competitive Intelligence Unit (CIU), a Mexico City-based telecom consultancy, there were nearly 6 million mobile video viewers in the country in May 2012. This count includes any device that connects to the internet through a mobile broadband subscription and excludes Wi-Fi. According to eMarketer estimates, there were 17.1 million mobile internet users in Mexico for the entire year of 2012, so CIU’s data would suggest that at least one-third of those mobile internet users consumed mobile video.

“This year we will have anywhere between 18% to 22% of our traffic coming through mobile in Mexico,” said Farrell. YouTube expects that figure to continue to grow. “If Mexico follows the trajectory we have seen in some of our more advanced markets, that number will approach 40% to 50%” in the coming years, Farrell added.

It is foreseeable that greater adoption of advanced mobile devices will indeed spur digital video consumption in the year ahead, especially among lower socioeconomic level (SEL) users, who are likely to substitute other forms of entertainment with digital video.

An IAB México and Millward Brown poll found that mobile internet users from SELs C- and lower were more likely to have watched online video on a mobile device (24%). Only 18% of respondents in the upper SELs performed this activity.

DIGITAL VIDEO IN MEXICO: A GROWING VIEWERSHIP ATTRACTS CONTENT AND ADVERTISING ©2013 EMARKETER INC. ALL RIGHTS RESERVED 5

% of respondents in each group

Mobile Internet Activities Performed by MobileInternet Users in Mexico, by Socioeconomic Level*,March 2012

Social networking

Online search

Chat or instant messaging

Email

News

Music downloads

Dictionary/encyclopedia

Online games

Watch online video

Portals

Online radio

Movies (reviews, theater websites)

Technology

Government

ABC+(n=519)

59%

56%

34%

54%

38%

26%

25%

17%

18%

27%

15%

17%

16%

16%

C(n=213)

59%

53%

33%

48%

37%

28%

24%

23%

18%

25%

17%

17%

-

-

C-D+DE(n=141)

70%

54%

46%

40%

32%

27%

24%

24%

24%

20%

16%

15%

15%

-

Note: *as defined by the Asociación Mexicana de Agencias deInvestigación de Mercado y Opinión Pública (AMAI)Source: Interactive Advertising Bureau México (IAB México) and MillwardBrown, "Estudio de Usos y Hábitos de Dispositivos Móviles - NivelesSocioeconómicos" sponsored by Mobext and Terra, Nov 28, 2012150086 www.eMarketer.com

Tablet users, who tend to be affluent, are on the other end of the economic spectrum.

According to Defoe, a market research company based in Mexico City, tablet penetration reached 4% of Mexico’s population, or about 4.6 million people, in May 2012.

An April 2012 CIU study of tablet users in Mexico found that 70% watched video clips or movies on these devices.

% of respondents

Tablet Activities Performed by Tablet Users in Mexico,April 2012

Email88%

Browsing the internet87%

Social networking81%

Games75%

Listening to music72%

Watching video clips or movies70%

Viewing photos68%

Reading documents or ebooks65%

Reading magazines or newspapers46%

Taking photos42%

GPS39%

Note: n=161Source: The Competitive Intelligence Unit, Nov 6, 2012147263 www.eMarketer.com

Using Defoe’s tablet penetration estimate alongside CIU’s tablet video viewership estimate, the approximate number of tablet video viewers in Mexico works out to about 3.2 million in the first half of 2012.

DIGITAL VIDEO IN MEXICO: A GROWING VIEWERSHIP ATTRACTS CONTENT AND ADVERTISING ©2013 EMARKETER INC. ALL RIGHTS RESERVED 6

DIGITAL VIDEO ADVERTISING

Perhaps not surprisingly, digital video advertising is

still in its infancy in Mexico. A May 2012 report from

IAB México and PricewaterhouseCoopers (PwC) put

the total online video ad spend in 2011 at a mere

MXN100 million, or less than $8 million.

That figure seems certain to grow—and quickly. IAB México and PwC’s estimate, which excludes mobile video, works out to barely 2% of total digital ad spending, using eMarketer’s estimate of $373.7 million for 2011. That tiny percentage seems much too low for a market where approximately 80% to 90% of internet users consume online video.

Meanwhile, content choices are growing rapidly, which should in turn spur consumption. Major telecom and broadcasting companies such as América Móvil (Clarovideo and UnoTV), Cinépolis (Klic), Grupo Salinas (TotalMovie), Netflix and Televisa have launched or revamped streaming services in Mexico in the last 18 months.

And the 2014 FIFA World Cup is likely to drive big gains as well, with Mexico’s avid soccer fans watching video of the event via just about any device available.

According to YouTube data, its video views in Mexico quintupled between 2010 and 2012, and its ad revenues have grown more than 100% annually in recent years. YouTube usage has increased to such extent in Mexico that the country ranks among the company’s top five operations worldwide, according to Farrell.

Where and how advertisers will focus their video efforts remains to be seen, but patterns are emerging.

Digital video viewers in Mexico tend to watch music videos (44%) more than any other type, according to a survey from IAB México conducted by Millward Brown. News (29%) and TV series (28%) completed the top three categories.

% of respondents

Online Video Categories Watched by Online VideoViewers in Mexico, Nov 2012

Music videos 44%

News 29%

TV series 28%

Movies 27%

YouTube bloggers 26%

Amateur video 17%

Documentaries 16%

Cartoons 12%

Sports 11%

Concerts 10%

Short films 10%

Note: ages 13-70; yesterdaySource: Interactive Advertising Bureau México (IAB México), "Estudio deconsumo de medios entre internautas mexicanos" conducted by MillwardBrown, Jan 29, 2013151716 www.eMarketer.com

Similar to these findings, YouTube’s most popular types of video are entertainment and music.

Following the eyeballs, L’Oréal México is aiming to cover some of those popular categories. According to Jimena Sainz, corporate digital manager at L’Oréal México, “We are planning to have our digital video ads around music, fashion and some TV series.”

Coca-Cola México has used digital video advertising since 2009, gaining experience that it is now leveraging to target consumers by brand in various categories. “Music and sports are the most universal passion points for our audiences,” said Ernesto Almada, interactive marketing manager at Coca-Cola México. But the type of content targeted, he added, depends on the brand.

Targeting the right audience also requires knowing what demographic groups are more likely to consume the content offered. In the case of digital, that audience is often young and skews slightly male. “Our sweet spot is what we call the C Generation—young men and women ages 13 to 30 years. … We call them the C Generation because they are connected, they create content and they curate content,” said YouTube’s Farrell.

DIGITAL VIDEO IN MEXICO: A GROWING VIEWERSHIP ATTRACTS CONTENT AND ADVERTISING ©2013 EMARKETER INC. ALL RIGHTS RESERVED 7

Unsurprisingly, pre-roll is the dominant ad format, and repurposed TV ads are the most common creative. “We run pre-roll using spots that run on TV, but we are changing that,” said Televisa Interactive Media’s Bauer. “We are trying to convince our clients that an ad with a call to action or an [online] promotion will work better than TV reruns.”

For now, brands are focusing their digital video strategy on the largest digital media properties in Mexico. In interviews, marketers tended to mention YouTube, Facebook, Google+ and Televisa as their preferences.

Televisa and the Webnovela

With more than 60 years of experience producing content for mass audiences in Mexico, Televisa is now zeroing in on digital. Naturally, the world’s largest Spanish content producer is leveraging its vast inventory of traditional TV content. But realizing the potential of the digital space, the company is producing web-exclusive content, too.

During Q4 2012, the internet-only soap opera “Te presento a Valentín” kicked-started the “webnovela” genre for the company. The webnovela, comprising 15 6-minute episodes, had such an impact that Televisa already has three new productions of this type in its pipeline. In an interview on televisa.com, Eugenio Cobo, soap opera producer at Televisa, said, “We will continue to experiment with genres that target young viewers. It is [this young audience] that seeks content through mobile devices at any time.”

Sports, the other top online genre in Televisa’s offer, will also get plenty of attention going forward. After streaming the 2010 FIFA World Cup online and expanding to mobile devices for the UEFA Euro 2012, the company is already planning its digital coverage of the 2014 FIFA World Cup in Brazil. Unsurprisingly, in this soccer-crazy nation, the hopes for the national team to qualify for the tournament are high. “It is very important for the Mexican team to go to the World Cup in Brazil next year. We think that would double the amount of video watched through our platforms [in 2014],” said Bauer.

GROWING INTEREST IN BRANDED CONTENTContent producers are not the only ones creating web-specific content. “We are now trying to generate digital video exclusively for the internet and not just replicate what we do on TV,” said L’Oréal México’s Sainz. “We are looking for choices that guarantee that our target audience is watching the whole video and getting more engaged with our content.”

Original content through branded channels is a common marketing tactic in Mexico, not only among brands but also among government entities and other organizations. A quick search on YouTube turns up official Mexico channels for brands such as Corona Extra, Nissan, Bimbo, Universal Pictures, Warner Bros. Pictures, Movistar, Electronic Arts and Tecate beer.

Coca-Cola México, for instance, is “creating original content that falls into the entertainment or the TV-series category,” said Almada.

And L’Oréal México’s Sainz noted, “We are trying to develop tutorials where a spokesperson shows consumers how to use the product and then consumers can show how they follow the steps and create their look. These tutorials will be shareable.”

DIGITAL VIDEO IN MEXICO: A GROWING VIEWERSHIP ATTRACTS CONTENT AND ADVERTISING ©2013 EMARKETER INC. ALL RIGHTS RESERVED 8

CONCLUSIONS Digital video remains an emerging sector in Mexico. Data is relatively hard to come by in this still nascent market.

Digital video consumption is widespread, but engagement lags. By the existing measures, at least eight out of 10 internet users in Mexico consume digital video. But the medium is not necessarily top of mind, and usage leans toward short-form content.

Mobile internet adoption has been slow in Mexico, but video consumption via mobile shows strength. Mobile could be a source of major growth, particularly for lower-income internet users.

Digital video advertising is still in its infancy. Pre-roll is the main form of advertising used, and creative tends to be repurposed television advertising. But advertisers are looking for more robust, digital-first solutions, not only in paid media, but also in content marketing.

EMARKETER INTERVIEWS

Marketing in Mexico: Televisa Scores Through Novelas and Sports Videos

Michel Bauer General Sales Director

Televisa Interactive Media Interview conducted on February 19, 2013

Marketing in Mexico: YouTube Boasts Cable TV-Size Audience

John Farrell Director of Content Partnerships for Latin America

YouTube

Interview conducted on March 7, 2013

Marketing in Mexico: L’Oréal Grows Video Program

Jimena Sainz Corporate Digital Manager

L’Oréal México Interview conducted on February 26, 2013

Marketing in Mexico: Video Core Part of Coke’s Strategy Ernesto Almada Interactive Marketing Manager

Coca-Cola México Interview conducted on February 25, 2013

RELATED EMARKETER REPORTS

Mobile Mexico: Overcoming Obstacles to Growth

Digital Ad Spending in Mexico: Advertising Giants Finally Join the Pioneers

Mexico Online: Usage Grows as Access Obstacles Give Way

DIGITAL VIDEO IN MEXICO: A GROWING VIEWERSHIP ATTRACTS CONTENT AND ADVERTISING ©2013 EMARKETER INC. ALL RIGHTS RESERVED 9

RELATED LINKS

América Móvil

Bimbo

Cinépolis

Cisco

Clarovideo

Coca-Cola México

comScore

Corona Extra

Defoe

Electronic Arts México

Facebook

Garritz Online Media

Google

Grupo Salinas

Interactive Advertising Bureau México

L’Oréal México

Millward Brown

Movistar México

Netflix

Nissan Mexicana

PricewaterhouseCoopers México

Tecate

Televisa

The Competitive Intelligence Unit

TotalMovie

Universal Pictures México

UnoTV

Warner Bros. Pictures México

YouTube

EDITORIAL AND PRODUCTION CONTRIBUTORS

Cliff Annicelli Senior EditorKaitlin Carlin Copy EditorJoanne DiCamillo Senior Production ArtistStephanie Gehrsitz Senior Production ArtistDana Hill Director of ProductionNicole Perrin Associate Editorial DirectorAllie Smith Director of Charts