The Ying and Yang of the TV/Internet Convergence

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

As television and the interwebs converge, itseems as if there are two divergent paths forevery 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

ISSUE 1: PAY TV PROVIDERS VSDIRECT DISTRIBUTION

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

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

KEY TAKEAWAY: Viewers will soon beable to rent movies from any number ofsources. Loyalty will be fleeting asconsumers choose based on price andavailability of popular recent titles

ISSUE 2:SMART DEVICES VSSET TOP BOXES

Manufacturers Are Pushing“Smart TVs” For Christmas AndApple, Boxee and Roku HaveAll Rolled Out New Devices Cablevision Announced They Want To Add Netflix And Other OTT Services Via Their STB6

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

KEY TAKEAWAY: Viewers will alwayschoose the path of least resistance andif they can get OTT broadcasts via theircurrent provider’s set top box, they arenot going to add an additional device.Look for pay tv operators to try andlicense technology from Roku andBoxee while Amazon, Netflix and Hulumorph into OTT versions of pay cable

ISSUE 3: SOCIAL TV BUZZ VSSOCIAL TV REALITY

“Social TV” Has Become TheBuzzword-du-Jour Along With AnArmy Of New Apps There’s No “Breakout” Social TV App Yet

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

KEY TAKEAWAY: The Killer App is still nothere. When it arrives it will:(a) seamlessly pull in likes, ratings and what shows a user’s Facebook friends are currently watching(b) allow the user to take immediate action on that information directly from the app by either changing the channel or recording the show

ISSUE 4:TV EVERYWHERE VS TV STUDIOS

Providers Are Starting To Roll OutTheir TV Everywhere Efforts Producers Aren’t Playing Along

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

KEY TAKEAWAY: This one is hard to call: current TVEefforts are tentative and inconsistent. Both networksand movie studios may see their own branded TVEapps as a way to cut pay tv providers out of the loop.Another wild card is the possibility the FCC mayallow pay tv providers to sign up internet-onlysubscribers from outside their territory, which wouldopen up much larger audiences for VOD content andgive the providers more leverage when negotiatingwith content producers.

ISSUE 5: STREAMING VSDOWNLOADING

Streaming Video Provides InstantGratification Commuters And Travelers Prefer Downloads

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

KEY TAKEAWAY: Streaming from a cloud-basedservice is the way of the future, but downloading stillhas 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 orso, which makes downloaded video a viable optionfor the near future

SOURCES1 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.html2 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#ixzz1bNOAnEeS3 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, 2011http://www.fierceiptv.com/press-releases/amazon-announces-increased-prime-instant-video-selection-kindle-fire-and-pr#ixzz1bNTpIgXT5 HollywoodReporter, “YouTube to Add TV Channels With Premium Content From Hollywood Providers,” Oct. 14, 2011, http://www.hollywoodreporter.com/news/youtube-add-tv-channels-premium-2488766 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.php7 Fast Company, “The Great Tech War of 2012,” Oct. 19, 2011, http://www.fastcompany.com/magazine/160/tech-wars-2012-amazon-apple-google-facebook8 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 Virgin Media Tivo Blog, “More details for Virgin Medias Winter 2011 software update for TiVo,” Oct. 13, 2011, http://virgintivo.blogspot.com/2011/10/more-details-for-virgin-10 Themedias-winter.html11 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.html12 Clicker Blog, “Clicker Joins CBS Interactive!” March 4, 2011, http://www.clicker.com/blog/clicker-joins-cbs-interactive-10011.html13VideoNuze.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=320714LostRemote.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/16VideoNuze.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=325617 Ibid.18The 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/ Los Angeles Times, Company Town blog, “Apple prepping movie cloud service.” Oct. 12, 2011, http://latimesblogs.latimes.com/entertainmentnewsbuzz/2011/10/apple-prepping-19movie-cloud-service-devices-may-work-with-ultraviolet.html20 Ibid.21 ZatzNotFunny.com, “DirectTV Launches DVR-Shifting Nomad,” Oct. 11, 2011, http://www.zatznotfunny.com/2011-10/directv-launches-dvr-shifting-nomad/

THANKYOU KIT Digital Alan Wolk Managing Director, Social Strategy

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The Ying and Yang of the TV/Internet Convergence

by Alan Wolk

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