TV 2.0 Trends: Consumer Video Habits Analysis

1. Entertainment Trends Research Kurt Scherf Vice President, Principal Analyst Parks Associates April 29, 2009

2. Presentation Outline Slides 3-5: Research Overview Slides 6-14: Changes in Video Habits Slides 15-21: Video-on-Demand Use and Appeal of New Features Slides 22-25: Interest in BD-Live Features Slide 2

3. Research Overview Slide 3

4. Research Goals • Identify how video behavior is changing • Profile profiling of consumers to determine what demographics or other characteristics play a role in changing video habits • Correlate changes in video behavior to the following consumer electronics products or alternative video consumption habits, among them: • DVR penetration • Online video • Video-on-demand use; and • Game consoles • Understand consumer demand and willingness to pay for video-on-demand • Quantify consumer demand for BD-Live features Slide 4

5. TV 2.0: The Consumer PerspectiveStudy Overview • TV 2.0: The Consumer Perspective survey fielded in July 2008 to a total of 2,729 heads-of-household in the United States and 1,161 in Canada. • Respondents were from a panel recruited by a third-party vendor and interviewed via the Internet. • All qualified respondents had equal or greater input in household decision making, are over age 18, and have broadband access at home. • The demographic composition of the U.S. sample is based upon Parks Associates’ National Technology Scan and matches the demographics of U.S. households with broadband service. • The base sample of 2,729 respondents (U.S.) and 1,161 (Canada) has a +/- 2% and +/- 3% margin of variance, respectively, at a 95% confidence level. Slide 5

6. Changes in Video Habits Slide 6

7. How the Analysis was Conducted • Are consumers trading some media habits for others? • Analysis of how certain entertainment activities may impact others • Focus on consumers reporting an increase in entertainment activities in the past two years • Do consumers have “digital distractions?” • Analysis of how the presence of game consoles, DVRs, home theater systems, and other consumer electronics may be changing entertainment habits from outside the home to inside • Analysis of how online video and online DVD rental services may impact other entertainment habits Slide 7

8. Changes in Video Viewing Habits Slide 8

9. Key Takeaways from the Analysis, I • Is “primetime anytime” replacing movie theater habits? Notable declines in reported theater attendance among: • Consumers watching more primetime TV; • Lower-income households; • Respondents age 25-34; and • Consumers watching more free VoD • Who’s watching more primetime TV? • Younger consumers (age 18-34); • Lower-income households (less than $50K); and • TiVo/DVR owners • Declining frequencies of watching purchased movies are more pronounced among • Subscribers to Netflix or Blockbuster online rental services • Declining frequencies of watching rented movies are more pronounced among: • Lower-income households (less than $75K) Slide 9

10. What Accounts for Decreases in Theater Viewing? Slide 10

11. Who is Watching More Primetime TV? Slide 11

12. Who’s Watching Fewer Purchased Movies? Slide 12

13. Key Takeaways from the Analysis, II • Declining frequencies of rentals and purchases of TV series on DVD are most pronounced among: • Lower-income households (less than $50K) • Digital products are not the problem • Increases in video consumption across the board are more likely with the introduction of Xbox 360s and PlayStation 3’s. • Among digital products, DVR/TiVo is the only device that shows a statistically significant, negative impact on the frequency of seeing movies in the theater. • Online video’s impact is negligible • We can find no evidence to support the theory that online video is causing churn from traditional entertainment activities. It appears to be more of a complement for consumers already heavily engaged in video habits. • Age is a strong determinant in both increases and decreases in activities. • As could be expected, older age groups start to move entertainment inside the home, reflecting decreases in watching movies in the theater. • VoD becomes an important component of entertainment habits for consumers in the 24-35 age range, reflecting marriage and the starting of families. Slide 13

14. The Impact of Online Video on Primetime TV Even among the most avid online video viewers – consumers who are actually paying for online video – there is not a decrease in the frequency at which they reportedly watch primetime television. Of course, we believe that consumers are shifting their viewing from the TV to the PC, which will impact ad revenue models long-term as online viewing becomes a substitute in some respects for TV viewing. Slide 14

15. Video-on-Demand Use and Appeal of New Features Slide 15

16. What Do We Know about VoD? • Use is up significantly in digital cable households • 37% of U.S. digital cable households rent a VoD movie at least monthly (up from 21% in 2004) • Active VoD use = high satisfaction • 74% of weekly cable VoD users very satisfied with service, compared to 40% overall Slide 16

17. What Do Consumers Want from their TV? Slide 17

18. Enhancements to VoD: Where is the Demand? • VoD enhancements tested: • Day-and-date (theater); • Purchase and burn movies to DVD; • $1 less with 1-3 minutes of ads; • Extended time for viewing rentals; • Day-and-date (DVD); • More HD titles; • Purchase title on DVD (mailed to home); • Extras (director’s cuts); and • Ability to purchase and download movies to PC hard drive • The results for all of the VoD enhancements are very consistent, in that the groups showing statistically significant more interest are: • Respondents age 25-34 • Households with children • Households with Xbox 360/Blu-ray players Slide 18

19. Top VoD Enhancements Nearly 50% of respondents with 3+ children at home say they would watch more VoD if the titles were available on the same day as the theatrical release. This compares to just 30% of those without children at home. 20% of these respondents willing to pay $20 for the VoD movie Slide 19

20. Next VoD Enhancements Younger respondents are generally more likely to say viewing would increase if new features were added. Slide 20

21. Willingness to Rent VoD Movies with Features for $4.99/$5.99 Younger respondents are more willing to rent VoD movies if new features are offered. Early release of VoD titles is particularly likely to trigger rentals by respondents with 2+ children at home. 16% of all respondents 12% of all respondents 12% of all respondents 8% of all respondents Slide 21

22. Interest in BD-Live Features Slide 22

23. Appeal of BD-Live Features The PC/Internet access features hold relatively strong appeal among those age 18-24. The virtual viewing party feature appeals to those age 25-34 in particular. Slide 23

24. Appeal of BD Interactive Disc Features Respondents age 25-34 generally express more interest in these features, except for the season preview feature. That particular feature appeals more to those age 18-24. Slide 24

25. Willingness to Pay for BD-Live-enabled Player Of the tested features, electronic movie rental has, by far, the strongest relation to a willingness to pay more.* Respondents will pay around $50 (on average) for new features. Respondents age 18-34 and those with a HH income above $100K will pay more than other respondents.** *Based upon a regression analysis of willingness to pay & feature appeal. ** At a 99% confidence level. Slide 25

26. Contact Information scherf@parksassociates.com 972-996-0209 www.parksassociates.com Slide 26