The Ying and Yang of the TV/Internet Convergence

1. TWO WAYS AT ONCE THE YIN AND YANG OF THE TV - INTERNET CONVERGENCE Fall 2011

2. As television and the interwebs converge, it seems as if there are two divergent paths for every issue that arises. It’s impossible to tell which side will eventually prevail or if a new, third way will arise. This Executive Summary is an attempt to clarify the current situation for our clients

3. ISSUE 1: PAY TV PROVIDERS VS DIRECT DISTRIBUTION

4. Pay TV Operators Are Beefing Up Their VOD Inventory As They Look To Take On Netflix. Content Producers Are Striking Their Own Distribution Deals Via OTT Operators and Facebook

5. VOD DISTRIBUTION • Verizon, Comcast , Time Warner and Amazon are busy striking deals with networks and studios to add more content to their inventory. • They are looking to sell beyond their subscriber base: FIOS’ new iOS app allows non-subcribers to rent movies using a credit card. • Comcast recently struck a deal with Universal to rent the new Eddie Murphy/Ben Stiller movie“Tower Heist” two weeks after it opened for a whopping $60 • Theater chain operators threatened to pull the movie and Universal reneged1 • Time Warner then announced plans to offer movies the day they opened2 • Miramax and Universal have apps that let users rent their movies directly or via Facebook’s new Social Cinema app, thus eliminating the middleman • HBO just struck a deal with Roku to offer HBO Go as an OTT option3 • HBO Go offers much more content than PayTV VOD catalogs always a superior user experience • Amazon has been striking deals with studios to offer content via Amazon Prime and the new Kindle Fire tablet4 • YouTube has also been rumored to be negotiating deals with major studios to launch pay VOD channels for movies and TV series, including original content5

6. KEY TAKEAWAY: Viewers will soon be able to rent movies from any number of sources. Loyalty will be fleeting as consumers choose based on price and availability of popular recent titles

7. ISSUE 2: SMART DEVICES VS SET TOP BOXES

8. Manufacturers Are Pushing “Smart TVs”For Christmas And Apple, Boxeeand Roku Have All Rolled Out New Devices Cablevision Announced They Want To Add Netflix And Other OTT Services Via Their STB6

9. SET TOP BOXES SMART DEVICES • Boxee and Apple TV recently introduced new devices that retail at around the $100 mark • Rumors of an iOS-based Apple television set abound on the tech blogs7 • Roku has a new device that retails for just $50 • Google is also about to release the latest version of GoogleTV8 • Industry reports expect sales of “Smart” TVs to double in 2012 to 52.85 million units9 • Other US PayTV providers are likely to follow Cablevision’s lead and put OTT channels on their set top boxes • TiVo, the company originally displaced by DVR-enabled pay tv set top boxes, just launched a partnership with Virgin in the UK that offers users a unique and beautifully designed set top box interface that integrates with Spotify, YouTube, BBC Red Spot and other services10 • The newest version of the program is currently in beta in just two UK markets

10. KEY TAKEAWAY: Viewers will always choose the path of least resistance and if they can get OTT broadcasts via their current provider’s set top box, they are not going to add an additional device. Look for pay tv operators to try and license technology from Roku and Boxee while Amazon, Netflix and Hulu morph into OTT versions of pay cable

11. ISSUE 3: SOCIAL TV BUZZ VS SOCIAL TV REALITY

12. “Social TV”Has Become The Buzzword-du-Jour Along With An Army Of New Apps There’s No “Breakout” Social TV App Yet

13. NO BREAKOUTS BUZZ • GetGlue, the industry leader, has made deals with several brands and TV shows to provide social check-ins and offersMiso, another check-in service, recently struck deals with DirectTV and Uverse to link with the set top box and provide automatic check-inUverse also struck deals with three other social TV apps to provide automatic connection to their set top box11 • Clicker and Jinni, popular social guide/recommendation engines were purchased by CBS12 and Microsoft13, respectively • TV Guide claims to be making money hand-over-fist from their social TV apps14 • The iTunes App Store now has around 300 “social TV” apps • None of the new “Social TV” apps connects to both the user’s set-top-box and social graph. • Many allow users to post to Facebook and Twitter, but do not show activity from the user’s social graph • The TV Everywhere apps from the big US TV providers lack any real social functionality beyond the ability to post to social networks • “Second Screen” content is overwhelmingly weak, limited mostly to head shots and/or links to Wikipedia or IMDb

14. KEY TAKEAWAY: The Killer App is still not here. When it arrives it will: • seamlessly pull in likes, ratings and what shows a user’s Facebook friends are currently watching • allow the user to take immediate action on that information directly from the app by either changing the channel or recording the show

15. ISSUE 4: TV EVERYWHERE VS TV STUDIOS

16. Providers Are Starting To Roll Out Their TV Everywhere Efforts Producers Aren’t Playing Along

17. RIGHTS ISSUES TV EVERYWHERE • Cablevision, Comcast and Time Warner have taken the lead in terms of providing viewers with some form of TV Everywhere experience • Subscribers can watch free content on smartphones and tablets • Uverse and FIOS have focused on a browser-based experience, with FIOS concentrating on pay VOD • A number of networks: CNN, NBC, Fox, TBS, TNT, Discovery and ESPN have introduced their own tablet and smartphone apps that emphasize on-demand programming • Viacom and other content producers have not reacted favorably to the provider’s TVE attempts, suing Cablevision and TimeWarner over rights issues15 • Fox and ABC have instituted longer time gaps between when an episode airs and when it’s available for free online16 • Current TVE experiences are limited, with no interconnectivity between devices and the set top box17 • Rights issues mean that TVE viewing must take place at home18 • There are no social components yet beyond sharing out to Facebook and Twitter

18. KEY TAKEAWAY: This one is hard to call: current TVE efforts are tentative and inconsistent. Both networks and movie studios may see their own branded TVE apps as a way to cut pay tv providers out of the loop. Another wild card is the possibility the FCC may allow pay tv providers to sign up internet-only subscribers from outside their territory, which would open up much larger audiences for VOD content and give the providers more leverage when negotiating with content producers.

19. ISSUE 5: STREAMING VS DOWNLOADING

20. Streaming Video Provides Instant Gratification Commuters And Travelers Prefer Downloads

21. DOWNLOADING STREAMING • Instant gratification and the ability to watch on any device has made streaming video the prefered choice for in-home OTT viewing on the set top box and on tablets • Streaming also avoids file size issues • The major Hollywood studios just launched Ultraviolet, a cloud-based service that allows DVD owners the option to stream their movies to multiple devices by entering a special code19 • Ultraviolet is acknowledged to be an attempt to boost sagging DVD sales • Apple is also planning to introduce a cloud-based movie streaming service via iTunes and is alleged to have lined up several studio deals20 • Streaming is not on option on planes, trains, automobiles and hotel rooms, which creates a market for video downloads • Verizon FIOS’s new VOD iPad app is download-only and Apple’s iTunes has long used a download-only model • DIRECTV just launched its Nomad service that allows users to transfer downloaded videos from their DVRs to as many as 5 devices for offline viewing21

22. KEY TAKEAWAY: Streaming from a cloud-based service is the way of the future, but downloading still has a few more years left. 4G devices will make out-of-home streaming easier, but will not have wide adoption for at least a year or so, which makes downloaded video a viable option for the near future

23. SOURCES 1 Los Angeles Times, “Universal Pictures abandons “Tower Heist” early VOD release,” Oct 12, 2011, http://latimesblogs.latimes.com/entertainmentnewsbuzz/2011/10/universal-pictures-abandons-tower-heist-vod-release.html 2 FierceCable.com, “Time Warner Cable selling VoD movies same day as theatrical release,” Oct 14, 2011, http://www.fiercecable.com/story/time-warner-cable-selling-vod-movies-same-day-theatrical-release/2011-10-14#ixzz1bNOAnEeS 3 ZatzNotFunny.com, “Roku Brings HBO GO To The Living Room,” Oct. 11, 2011, http://www.zatznotfunny.com/2011-10/roku-brings-hbo-go-to-the-living-room/ 4 FierceIPTV.com, “Amazon Announces Increased Prime Instant Video Selection for Kindle Fire and Prime Customers by Expanding digital video license,” Oct. 19, 2011 http://www.fierceiptv.com/press-releases/amazon-announces-increased-prime-instant-video-selection-kindle-fire-and-pr#ixzz1bNTpIgXT 5 Hollywood Reporter, “YouTube to Add TV Channels With Premium Content From Hollywood Providers,” Oct. 14, 2011, http://www.hollywoodreporter.com/news/youtube-add-tv-channels-premium-248876 6 Multichannel News, “Rutledge: Over-The-Top Could Help Moderate Rising Content Costs” Sept. 15, 2011, http://www.multichannel.com/article/473926-Rutledge_Over_The_Top_Could_Help_Moderate_Rising_Content_Costs.php 7 Fast Company, “The Great Tech War of 2012,” Oct. 19, 2011, http://www.fastcompany.com/magazine/160/tech-wars-2012-amazon-apple-google-facebook 8 ZatzNotFunny.com, “A Google TV 2.0 Sneak Peak,” Oct. 20. 2011, http://www.zatznotfunny.com/2011-10/a-google-tv-2-0-sneak-peak/ 9 InvestmentU.com, “The Future of Smart TV Technology: Samsung, Google... or Apple?” Oct. 17, 2011, http://www.investmentu.com/2011/October/smart-tv-technology.html 10 The Virgin Media Tivo Blog, “More details for Virgin Media's Winter 2011 software update for TiVo,” Oct. 13, 2011, http://virgintivo.blogspot.com/2011/10/more-details-for-virgin-medias-winter.html 11 CNN Money “AT&T’s Uverse embraces the second screen” Oct. 17, 2011, http://money.cnn.com/news/newsfeeds/gigaom/articles/video_att_uverse_second_screen.html 12 Clicker Blog, “Clicker Joins CBS Interactive!” March 4, 2011, http://www.clicker.com/blog/clicker-joins-cbs-interactive-10011.html 13 VideoNuze.com, “Microsoft Licences “Taste and Mood” Video Discovery Technology from Jinni” Sept. 8, 2011, http://www.videonuze.com/blogs/?2011-09-08/Microsoft-Licenses-Taste-and-Mood-Video-Discovery-Technology-From-Jinni/&id=3207 14 LostRemote.com, “Social TV ads bringing in millions, says TVGuide.com,” Oct. 18, 2011, http://www.lostremote.com/2011/10/18/social-tv-ads-bringing-in-millions-says-tvguide-com/ 15 New York Times/Media Decoder, “Viacom Sues Cablevision Over iPad App,” June 23, 2011, http://mediadecoder.blogs.nytimes.com/2011/06/23/viacom-sues-cablevision-over-ipad-app/ 16 VideoNuze.com, “5 Things Holding Back TV Everywhere’s Rollout,” Oct. 19, 2011, http://www.videonuze.com/blogs/?2011-10-19/5-Things-Holding-Back-TV-Everywhere-s-Rollout/&id=3256 17 Ibid. 18 The Wall Street Journal/All Things Digital. “Fox Starts Its Web Pullback and ABC Gets Ready To Follow,’ Aug. 16, 2011. http://allthingsd.com/20110816/fox-starts-its-web-pullback-and-abc-gets-ready-to-follow/ 19 Los Angeles Times, Company Town blog, “Apple prepping movie cloud service.” Oct. 12, 2011, http://latimesblogs.latimes.com/entertainmentnewsbuzz/2011/10/apple-prepping-movie-cloud-service-devices-may-work-with-ultraviolet.html 20 Ibid. 21ZatzNotFunny.com, “DirectTV Launches DVR-Shifting Nomad,” Oct. 11, 2011, http://www.zatznotfunny.com/2011-10/directv-launches-dvr-shifting-nomad/

24. THANK YOU KIT Digital Alan Wolk Managing Director, Social Strategy