The Explosion of Digital Content and TV

1. The Explosion of Digital Content and TV Mike Grant, Partner 2 November 2009

2. Growth in content consumption is obvious across the media sector Number of HD channels in Europe • The evolution of digital broadcast distribution systems have supported rapid expansion in TV content • over 5000 TV channels now available in Europe, increasing by ~200 annually • satellite is currently the leading means of receiving digital TV • advent of HDTV (and in future perhaps 3DTV) will drive demand for further capacity • Broadband underpins user access to content • number of European homes with broadband is similar to number with digital TV (~50% of all homes) • capacity of terrestrial broadband networks is increasing fast • distribution of video content over broadband is an increasingly viable alternative to traditional TV distribution systems Unweighted mean downstream speed / price for residential fixed broadband access in Europe Source: SES, 2009, Analysys Mason, 2009

3. 16 14 12 10 Relative traffic growth 8 6 4 2 0 Oct 2007 Apr 2008 Jan 2008 Feb 2008 Mar 2008 Nov 2007 Dec 2007 Total growth Uplink Downlink Exponential rises in Internet traffic continues Mobile (UK) Fixed (Netherlands) 105% Source: Minnesota Internet Traffic Studies (MINTS) Source: Hutchison 3G UK Ltd

4. An explosion of content generation Competition in content aggregation Fragmentation of consumption The industry faces three major challenges Online Online Personal Personal Professional Professional Content Content UGC UGC media media content content production production Content Content aggregation aggregation Distribution Distribution STBs STBs PVRs PVRs Media servers Media servers Devices and Devices and consumption consumption

5. On average, UK users spend around 60 minutes per day online 27 million users downloaded 3.2 billion videos in June 2008 average monthly DSL traffic per user rose from 2.4GBin Q3 2008 to 4.1GBin Q1 2009 according to the Carphone Warehouse online advertising grew 40% in 2007 to GBP2.8bn, 19% of the total market Time spent online by the US Internet community grew 6% YoY in 2008 78% of downloaded videos in Dec 2008 PC/laptop Internet usage continues to grow as video consumption becomes more viable Online video consumption • Watching videos is a prime activity on the Internet: • Google served 5.9bn videos to 150 million US users • French Internet users watch in average 88 online videos per month • However, users are generally watching for only limited periods – “snacking” Online video viewing habits Time spent on TV and Internet by Americans +4% y-o-y +6% y-o-y Source: Comscore November and December 2008 Source: Ofcom, comscore, Nielsen, 2008, company reports

6. 80% 60 54% 70% 60% Average VoD % of Viewers Feb 52% 50 50% views per user 2008 50% 40% 40 pcm % of Viewers Feb 48% 30% 30 20% Average VoD 2007 46% 10% 20 views pcm 44% 0% (millions) 10 42% TV VoD users (% of 0 40% Mobile phone Movie theatre DVD Portable TV subs) Q3/07 Q4/07 Q1/08 Q2/08 Q3/08 Q4/08 ... but overall TV consumption remains strong Users are adopting new services TV viewing figures remain robust TV viewing benchmarks Source: Ofcom Content watched by US users who stream video Virgin Media VoD usage Source: Virgin Media

7. 90% Relaxation 30% Relaxation 3% Relaxation … and users still engage most in front of the TV Main reasons for using media platforms Source: Ofcom Media Literacy report May 2008. A survey of UK users

8. Web technology is set to transform the TV proposition

9. Initiatives such as Project Canvas will offer a new level of experience to TV viewers Draft Project Canvas service structure Source: the BBC/ Register

10. Managing content choices and discovery on “Web TV” will be key competitive differentiators Project Canvas indicative screenshots: Source: BBC

11. Traditional Future evolution Rights owners Rights owners Games Newspapers Broadcast TV Radio Production Aggregation Distribution Consumption Dedicated production, aggregation, distribution and consumption functions Multiplatform production, aggregation, distribution and consumption functions The transitioning from dedicated value chains to horizontal platforms will accelerate

12. Likely to be valued by the market Those who retain ownership of rights to premium content Device manufacturers who control form factor and function and are able to create premium aggregation experiences High street experience and device distributors Content aggregators who offer a compelling search and discovery experience that consumers want Likely to be disintermediated or commoditised Players with only content transport assets Broadcasters with linear only propositions Players reliant on sales of physical media Disney recognise this and are reshaping their business. http://www.contactmusic.com/news.nsf/story/iger-predicts-profound-changes-in-movie-business_1119527 Adapting to change will be key to success As barriers to entry fall, the media industry is likely to shrink in size. Those who adapt to the new world will prosper

13. Dr Mike Grant mike.grant@analysysmason.com Analysys Mason Limited Bush House, North West Wing Aldwych London WC2B 4PJ, UK Tel: +44 (0)20 7395 9000 Fax: +44 (0)20 7395 9001 www.analysysmason.com