HD in Western Europe Tom Morrod Head of TV Technology Screen Digest 9 November 2009

After three years, HD broadcasts available everywhere in Europe 2005 2006 2007 2008

However, service provision is only one part of the equation to HD watching…

The result is that HD is a very small subset of viewers Screen Digest: May 2009 Western Europe 2009 All TV homes 167m HD-display homes 75m Active HD-enabled homes:9.2m (2.5%)

The gap between who have HD screens but don’t watch HD is persistent, although closing

And this problem is also persistent in pay TV Western European HD STB installed base vs. HD subscribers (m) Just 30% of the HD STBs in W.E. homes were being used to watch HD content at the end of 2008 This will rise to 67% by the end of 2013

Western European HD STB installed base vs. HD subscribers (m)

Just 30% of the HD STBs in W.E. homes were being used to watch HD content at the end of 2008

This will rise to 67% by the end of 2013

So there is a massive opportunity to close this HD gap In Western Europe there are 66m households without HD content but with HD TV screens – only 12% watching In the Netherlands there are 3.6m households – only 11% watching What does this mean? There is latent demand for HD content if consumers can be given value But there are several other questions to ask… Does uptake differ across Europe? How technically ready is the consumer base for HD? How much is HD an opportunity or a cost?

In Western Europe there are 66m households without HD content but with HD TV screens – only 12% watching

In the Netherlands there are 3.6m households – only 11% watching

What does this mean?

There is latent demand for HD content if consumers can be given value

But there are several other questions to ask…

Does uptake differ across Europe?

How technically ready is the consumer base for HD?

How much is HD an opportunity or a cost?

Europe seems split between those with ‘active’ HD interest and those without

But it’s not a technical disadvantage since they all have TV screens and services…

But pay TV penetration is a very strong driver since there is so little free HD content Consumer don’t change platforms ‘for HD’

Screen Digest June 2009 And this is corroborated by the data… free does not drive HD

So what is can drive HD migration? Coming to Spain : HD on DTT PSB TVE introducing HD feed in 2009-2010 After ASO (April 2010), existing free DTT channels will be given spectrum to go HD French-style HD tuner obligation to be introduced for TV sets over 21” Coming to Germany : a rebirth of HD in 2010 RTL and Vox to launch HD simulcast in Autumn 2009 ARD/ZDF to launch in Feb 2010 after showcases in 2009 Astra launching HD+ sat platform with RTL onboard Sky takes over Premiere and relaunches HD (5 new channels announced) HD drivers in place early 2009 Spain and Germany to witness a new boost in 2010

Coming to Spain : HD on DTT

PSB TVE introducing HD feed in 2009-2010

After ASO (April 2010), existing free DTT channels will be given spectrum to go HD

French-style HD tuner obligation to be introduced for TV sets over 21”

Coming to Germany : a rebirth of HD in 2010

RTL and Vox to launch HD simulcast in Autumn 2009

ARD/ZDF to launch in Feb 2010 after showcases in 2009

Astra launching HD+ sat platform with RTL onboard

Sky takes over Premiere and relaunches HD (5 new channels announced)

And in the consumer home? The installed base of TV sets continues to grow

HD is driving growth in the Western European set-top box market Annual pay TV STB shipments to Western Europe (m) HD STBs accounted for 30% of all STBs shipped to W.E. in 2008 This will rise to over 52% by 2013 There will still be demand for low-cost SD STBs to convert secondary TV sets as W.E. approaches analogue switch off

Annual pay TV STB shipments to Western Europe (m)

HD STBs accounted for 30% of all STBs shipped to W.E. in 2008

This will rise to over 52% by 2013

There will still be demand for low-cost SD STBs to convert secondary TV sets as W.E. approaches analogue switch off

So the average household looks like this… Western Europe 2009 Western Europe 2012 1.5 SD TVs 0.6 HD TVs 1.0 SD STB 0.1 HD STB 0.8 SD TVs 1.3 HD TVs 1.8 SD STB 0.3 HD STB

What about content? HD channel count in Western Europe has overtaken US HD channel count 2006 2007 2008 2009 2010 UK 10 12 28 38 42 France 6 13 20 24 28 Netherlands 2 7 16 23 27 Sweden 4 8 14 21 23 Italy 4 5 7 10 13 Spain 0 2 4 6 7 Germany 3 3 2 2 7 Western Europe 31 58 112 182 217 US 39 93 137 147 162

And this has driven channel launches from more diverse content types

So what are the key challenges to broadcasters and operators to continue HD rollout? Production facilities – very little HD ready and high cost for 1080p Transmission costs – 4x bandwidth Set-top box fleet – HD boxes 2x the price Advertising revenue – no incremental advertising revenue So what are the drivers for HD? Subscriber revenue – HD subscription revenue And competitive pressures and consumer demand...

Production facilities – very little HD ready and high cost for 1080p

Transmission costs – 4x bandwidth

Set-top box fleet – HD boxes 2x the price

Advertising revenue – no incremental advertising revenue

So what are the drivers for HD?

Subscriber revenue – HD subscription revenue

And competitive pressures and consumer demand...

Across all broadcasters and production facilities, there is still a lack of HD equipment

Set-top box fleet replacement is very expensive and time consuming Upgrading all set-top boxes in Western Europe to HD would over $25bn 1 Cost is higher for operators since there is often a truck roll involved and conditional access systems But operators drive HD, so cost must be borne by subscriber revenue Free to air market is much harder to switch because consumers demand is harder to stimulate – it will take 8-12 years to naturally transition all DTT installed base to DVB-T2 HD MPEG-4 boxes 1. Assuming proportion of PVRs remains stable and all TV sets were equipped with basic FTA HD boxes Subscribers/households Pay TV cost ($m) Retail consumer cost ($m) 10,000 1.02 0.62 100,000 10.2 6.2 500,000 51 31 1,000,000 102 62 2,000,000 204 124 4,000,000 408 248

Upgrading all set-top boxes in Western Europe to HD would over $25bn 1

Cost is higher for operators since there is often a truck roll involved and conditional access systems

But operators drive HD, so cost must be borne by subscriber revenue

Free to air market is much harder to switch because consumers demand is harder to stimulate – it will take 8-12 years to naturally transition all DTT installed base to DVB-T2 HD MPEG-4 boxes

1. Assuming proportion of PVRs remains stable and all TV sets were equipped with basic FTA HD boxes

HD doesn’t drive ad revenue, but subscription revenue is partially driven by HD

3D: the next big thing but sure to face many of the same challenges again

So some final thoughts... HD platforms operate in virtually every country in Europe But delivering HD is about developing an ecosystem of TVs, set-top boxes, service platforms and channels And the volume of content is growing fast and diversifying But there are challenges , including production facilities, transmission costs and business models for ROI And the future will demand another upgrade for 3D !!

HD platforms operate in virtually every country in Europe

But delivering HD is about developing an ecosystem of TVs, set-top boxes, service platforms and channels

And the volume of content is growing fast and diversifying

But there are challenges , including production facilities, transmission costs and business models for ROI

And the future will demand another upgrade for 3D !!

Thank you. Any question? [email_address] www.screendigest.com TV Technology, Television; Advertising, Broadband; Mobile, Games, Cinema, Video On-line media Intelligence databases; Single client consulting; Reports & Analysis; Due-diligence

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