Private strategies and public policies

1. Private strategies and public policies What needs to change? Network Insight forum - October 16th 2001 William Atkins malcolm long associates Tel: + 61 2 99222657 Fax: + 61 2 99299706 Email: wa@mlongdigital.com www.mlongdigital.com

2. From now on it’s about segments • The digital, multichannel, iTV era marks a shift in the strategic orientation of media companies • Territorially-fixed ‘channels’ have been the traditional brand and marketing platforms for television • BBC1, Channel 4, ABC, CBS • Their power will be challenged in the digital environment • Power will be in premium content and service brands • Cross-border, cross-platform, multi-device – defined by consumer niches - CNN, ESPN, MSN, Bloomberg, MTV, Nickelodeon, Disney • Platforms will gain distribution gate-keeping power

3. Navigation: power of the EPG • Programme listings an early driver of digital iTV • SkyDigital (UK) – 90% of subs use EPG at least weekly • CanalSatellite (France) 77% subs use EPG weekly • More innovative offering – Mosaique – captures 82% of subs weekly • Usage is likely to grow • Driven by better functionality and greater channel choice • Revenue benefit chiefly accrues to EPG operator… • Spot and interactive advertising, EPG preferred placement • … and is most acute in hands of platform operator • ‘First-screen’ advantage, familiarizes audience, sticky app

4. Information: second fiddle to EPG • Weather, news, sports text remain key aggregators • Culture established in analogue era via Teletext and Minitel • TPS (France) weather service used by 85% of subs weekly • CanalSatellite used by 74% • Teletext: news viewed by 63%, sport by 60% of UK households • Such ‘passive’ information services have benefits • Develops ‘interactive habit’ with users • Spot and interactive advertising • Element of wider branded multi-platform offering • ‘Get it on mobile, PC, TV etc’ • Overall, revenue opportunities are modest even with customisation, but traffic can be monetized

5. Many routes to t-consumers • BSkyB is putting emphasis back on the video stream • Channel-based selling is growing • There are more than a dozen independent shopping channels on Sky – 10 of them launched in the past year – chiefly general goods, also travel, jobs, dating • Primarily rely on call-centres to handle return path • Benefits are consumer preference, speed and opportunity to up-sell • Sky shopping channels can be expected soon • As platform operator it has valuable EPG advantage • This by-passes the expensive ‘pure’ iTV infrastructure • For BSB, cost in set-top boxes alone has been £500m ($1.5bn) • ‘Back-end dream team’ of BSkyB, Matsushita, HSBC and BT bore huge costs before folding – and selling Open… to BSkyB • There are valid uses for the click return-path – it’s just one of many

6. Betting is an early iTV winner • Separate from Open, BSkyB developed Sky Interactive • Now Open folded into a single iTV entity – Sky Active • Offers genuine push-button interactivity – harmonized with content via the video stream • Revenues for second half 2000 were £37m - £33m of which came from Sky’s interactive betting service • Uses a small WML browser that allows viewers to watch TV sports coverage and place bets simultaneously • Effectively a WAP browser on TV • Return path is telephone line connected to set-top box

7. DTT missed the starting gun • UK’s incubator experiment with pay-DTT is struggling • ITV digital can’t match firepower of BSkyB and cable • Since digital launch, new subs have favoured BSkyB 2:1 • Still to reach 5% penetration – BSkyB is 30%+ • ITV digital is suffering 23% churn – these subs become FTA • In Spain, Quiero is faring a little better • But investors are baulking at a fresh capital round • In Sweden, MTG has pulled its five channels • France, alone, is mainly free-to-air • Incumbents score two gifted digital channels

8. Short term, DTT will be limited • Early-adopters of premium multichannel already established on satellite and cable • Cable and satellite platforms face less complex launch issues • DTT required more complex soothing of incumbent interests • Digital Terrestrial iTV squeezed by bandwidth limitations and ‘self-installation’ • ‘Plug and play’ sharply reduces telephone return-path usage • ‘Enhanced picture quality’ barely noticeable as a consumer issue in Europe • Best future prospect appears to be a free-to-air model – eroding early analogue switch-off

9. Australia’s serendipitous pause • The DTT-datacasting hiatus in Australia allows industry to reassess commercial and policy settings • 1. A competitive, platform-neutral approach to television and screen services, with regulation guided by ‘market voice’ – required to stimulate innovation • 2. A warehousing of DTT spectrum for drip-feeding on to the market over the coming 10-12 years • Big-bang approaches have been commercially painful • Squirreling of spectrum is speculative and unproductive • Allows for test-bed applications of cross-platform products • 3. First step could be licences for EPG services and East Coast commercial TV channel licence

10. Time to rethink review schedule 2001 Hard launch metro DTTB, soft launch regional DTTB A review in 2002-03 of the entire digital screen industry would be timely to capture the commercial and operational subtleties arising in a fragmented, multi-platform environment 2003 Review of HDTV quotas 2004 Hard regional launch DTTV Review of DTTD 2005 Review of DTTB multichannelling Review of simulcast deadline 2007 New FTA licences? 2008 Analogue switch-off 2000 2010

11. Thank You www.mlongdigital.com