GLGi: Broadband Video Content

1. GLGi: Broadband Video Content Greg Fawson President and Principal Analyst X Media Research

2. Council Member Biography Greg Fawson is the President and Principal Analyst at X Media Research, a technology research company focusing on emerging consumer electronic platforms and services. He has been responsible for the development of market intelligence services, launching international operations and creation of numerous industry forums and events. Greg has been a consultant to semiconductor device manufacturers and original equipment manufacturers. He has also published numerous reports on computing, communications and consumer electronics platform architectures and the associated semiconductor device technologies. He has worked on projects such as: Telecom TV (IPTV), Portable Media Players, Digital Video Broadcasting (DVB-T, DVB-H, ISDB-T), and Video Codec’s. Mr. Fawson has also published reports on Mobile Digital TV Broadcast technologies such as DVB-H, MediaFLO, DMB and ISDB-T. His latest work includes analysis of the Digital TV market and the integration of DMA (Digital Media Adapter) functionality.

3. Topics • How will broadband video and the inherent social networking aspect impact traditional broadcast / subscriber TV services? • What is the outlook for CE devices and gaming platforms that deliver broadband video content? • What do consumers look for most from broadband video and what are potential business models? • How will operator-deployed CPE (customer premises equipment) evolve to take advantage of IP video delivery?

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7. About X Media Research • Industry analyst veteran with 10+ years experience • Areas of focus: • Consumer Electronics • IPTV Services • Home Networking Technologies • Operator Deployed Customer Premises Equipment

8. Questions • What iTV delivery models are working? • Impact on traditional broadcast / cable TV • What is the outlook for CE devices such as AppleTV, TiVOand Gaming platforms that deliver Internet Video content? • How will operator-deployed CPE (Customer Premises Equipment) evolve to take advantage of IP video delivery? • What companies will benefit most from the Broadband Video explosion? • Is the Internet ready for HD streaming?

9. What is Internet Video? • Video delivered over open Internet infrastructure or via dedicated streaming video servers • Can be managed or unmanaged video content • Can be streamed or downloaded • Internet Video is not IPTV • Internet Video is delivered to multiple devices, not just the PC • Internet Video is NOT only UGC (user-generated content)

10. Types of Internet Video Offerings • Movie Streaming • Cinemanow, MovieLink (now Blockbuster), Netflix • Movie Download / Rental • VUDU, Akimbo, Amazon Unbox • Video Clips / UGC • YouTube, Revver, Veoh • Premium Content • ABC, Fox, Hulu, NBC, HBO • Web-Only Content and Channels • Prom Queen, Lady Wasteland, NoGood.TV

11. Internet Video ComplexityMany Moving Parts – Everyone Has a Stake Content Owners Content Aggregators Internet Infrastructure Cable, DBS, Telco, ISP Operators Internet Video Device Manufacturers Advertisers

12. Massive Changes Means Opportunity • Emergence of digital media and Internet TV places owners and distributors of video at the epicenter of change • Despite changes, content is still king • New opportunities exist for companies that can provide the right mix of premium, niche and long-tail content to the TV • Search and Discovery will be key

13. Business Models Still Largely Experimental • Mix of free, subscription, rental, download to own, advertising supported. Some are proven, some are not • Each model is constantly changing and nothing is set in stone • Just look at AppleTV and NBC • All paid content pulled and moved to an advertising model on Hulu.com

14. User-generated content is coming to TV Current TV MTV Flux

15. Internet Video as a Business has been Negatively Impacted by: • LOW Quality of Experience (QoE) • HIGH Total Cost of Delivery (TCoD) • NO scalability to millions of simultaneous viewers • HIGH demand and LOW availability of more than “snack” video – Demand for long form, “live,” and HD

16. Consumer Expectations Increasing • Improvements in streaming delivery • ABC, FOX, CW, and others now streaming long-form video with few negative events • Larger video sizes, higher quality encodes • Online video reaching maturity • Real market • Broadcasters recognized for moving online streaming from “interesting marketing experiment” to rational business • Crowded space with vendors and integrators • Recognized convergence • Consumers want TV-like experience as measured by responsive, quality video • Consumers want source and device interoperability • Promise of lifestyle viewing delivered through substitute technologies

17. Phenomenal Growth • Consumers are spending more time online and watching more video online. Has become a more accepted medium • In 6 months from about 2 hours per month to almost 3 hours • In 2007 almost a billion more videos were viewed in November than in June • Veoh grows from 2.5 million users per month at beginning of year to 21.5 million unique by end of year. Growth of over 760% • Pick any stat…it all points toward massive growth of online video content and viewership

18. Predictions

19. Prediction #1 • Internet TV / Broadband video will evolve away from PC-centric model. Video to the TV is where its at!

20. Prediction #2 • Internet video will not kill broadcast / cable TV • It will force content owners and operators to evolve to new realities and embrace broadband video

21. Prediction #3 • Non-PC devices will account for almost 20% of all Internet Video accesses by 2012 • Networked Digital TVs, Game Consoles and Operator-deployed STBs and Mobile Devices will lead the way

22. Prediction #4 • Standalone DMA / STBs like AppleTV and VUDU will remain niche players

23. Prediction #5 • Over 30% of streaming Internet video traffic will be at HD resolution (720p) by 2012

24. Prediction #6 • TiVO will be the comeback kid

25. Prediction #7 • Internet Video will command a growing portion of overall ad revenue. Will pull dollars away from traditional TV advertising as audiences fragment

26. Prediction Analysis

27. Prediction #1: Internet Will Evolve Away From PC-Centric Model • First let’s do the reality check – still will be 100’s of millions of users • But as an experience it is • solitary • single user • lean forward • To progress it must become • social • friends and family • lean-back

28. Not the Right Experience

29. The Right Experience

30. Consumer Want TV Connected to Internet “Would you like to have your HDTV connected to the Internet?” Source: S2 Data Corporation

31. Everyone Wants to Get to the TV • Media Center Extenders • Digital Media Adapters • Broadband Set-top Box • Broadband-Enabled Game Console • Networked Television

32. Why Do People View iTV on the PC? • Because the vast majority of the content they can get on the PC is not available on the TV

33. Consumer’s View of TV is Changing Video 1.0 • Linear Broadcast • Limited content • Few streams • Single device • One size fits all content • Scheduled viewing Video 2.0 • Personalized, On Demand • Unlimited content • Time and Place shifting • Multiple devices • Interactive content

34. Prediction #2: Internet TV Will Not Kill Broadcast TV

35. Pay-TV and FTA Subscribers are Growing Source: X Media Research

36. Internet Enhances TV, Does Not Replace • Wasn’t eCommerce supposed to kill off the whole retail sector once and for all? • The Internet fosters closer ties with audience • Broadcast is how we discover new programming and how we discover new Internet sites • Major network TV shows marketed as events • Lost or Heroes direct to Internet would have much smaller audience • Broadcast (cable, satellite, OTA) is far more efficient means to reach large audiences • 30M concurrent viewers of American Idol over the Internet hasn’t been possible

37. Internet Video Helps Re-Discover TV 29.2 million views within first month 3 of the top 25 YouTube videos Now there are now over 62 million Subscribers to the CBS Channel on YouTube “CBS is learning about its audience as never before” Quincy Smith, President, CBS Interactive

38. So What’s the Problem?

39. Internet Video is Cannibalizing Some TV • In the United Kingdom traditional broadcasters have seen their share of television viewing sliding. Channel 4 has seen its share of viewing fall by almost 12% over the year, while Five has fallen by nearly 10%. BBC One and Two are also down by 3%, while ITV dropped nearly 2%. • Veoh reports that 40% of viewing occurs during ‘Prime-time’ • If we continue to do business assuming people will watch television as they always have," said NBC's Wurtzel, "it's a dead-end game."

40. TV Ad Dollars Are Under Threat • Fragmented audiences • Time-shifting reduces relevance • Fast-forward button • New media stealing eyeballs

41. Ad Market Breakdown 2007 Source: X Media Research

42. Prediction #3: Non-PC Devices Will Account for Almost 20% of all Internet Video Accessed by 2012 • Networked Digital TVs, Game Consoles and Operator-deployed STBs and Mobile Devices will lead the way

43. Gating Factors • Accessing Internet Video on the TV has not been without problems • Few devices have been flexible for both “walled garden” & “open” services • Able to upload new software and codec technology • And have massive power • Disparate applications and technologies • The format wars… • WM9, Flash, DivX and so on • DRM (Digital Rights Management) issues • Content wasn’t available on other platforms

44. Key Factors and Trends Bearing on Internet Video on the TV • Broadband penetration • Home networking penetration • New compression standard: H.264/AVC • Internet connected set-top-boxes and game consoles • Changes in perspective of content rights holders • TV Quality experience becoming possible • Device manufacturers becoming content aggregators…or partnering directly • Middleware getting better – Greater synergy between PC and CE for configuration of services • What about OCAP and CableCARD?

45. nDTVs Already on the Market

46. acTVila.com – Big in Japan!

47. Internet Video on the TV – Its What Consumers Want! “Question: If your TV were connected to the Internet, what would be the most important content?” Source: S2 Data Corporation

48. Will Consumers Pay For nDTVs? • Over 55% of consumers surveyed would pay more to have their digital TVs connected directly to the Internet

49. nDTV Market Forecast Millions of Units Source: X Media Research

50. Key Stats • By 2012 Networked DTVs will account for over 15% of total TVs sold • By 2012 more than 70 million TVs will be directly connected to the Internet