2013 - Ultraviolet prospects (BSAC)
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2013 - Ultraviolet prospects (BSAC)

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Ultraviolet prospects presentation for BSAC

Ultraviolet prospects presentation for BSAC

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2013 - Ultraviolet prospects (BSAC) 2013 - Ultraviolet prospects (BSAC) Presentation Transcript

  • UltraViolet – impacts and opportunities across the value chain What UltraViolet means to participants across the film industry value chain Jeremy Michaels, Oliver & Ohlbaum Associates BSAC Conference, Thursday 14th March 2013
  • O&O 2 A little bit about us…  We are the leading independent advisor to the UK media, entertainment and sport industries  We provide strategy advice to the organisations, regulators and investors shaping these sectors  As part of this strategy work, we look at the forces that will drive change in the industry over the next decade  We conduct large scale consumer research annually to understand the habits, ownership, attitudes and behaviour of the UK media consumer  We have worked for more than 200 clients in the UK and internationally inc: BBC, ITV, C4, NBCU, Virgin Media, BT, Discovery Networks, Viacom, EOne, FAPL, UKTV, Microsoft, O2, KKR, Goldman Sachs, Ofcom, etc…
  • Contents What is UltraViolet? How is the rollout going? Who is interested in UltraViolet going forward? Why does UltraViolet matter – the broader context? What is the impact likely to be? Some final thoughts 3
  • What is UltraViolet? Our definition of UltraViolet as used in our annual consumer survey “In response to the rise of on-demand movie services, major US studios have developed a system called 'UltraViolet' that allows consumers who purchase a DVD to also have access to a digital copy of their purchased content for any device” Three key points to remember  It is a common DRM standard across multiple devices adopted by DVD publishers/studios and licensed to device manufactures/platform operators to allow consumers to access their digital locker using multiple devices  It is not the only "tethered" package media/digital access system – US and UK retailers have introduced similar ecosystems - e.g. Tesco Clubcard TV/Blinkbox; Walmart/Vudu  It allows for up to six digital users (i.e. intended to be shared with friends and family) - which can be either multiple users or multiple devices/platforms (however, a secondary market for low cost UltraViolet access codes is already emerging in the US and the UK) Definitions and key aspects 4
  • How is the rollout going? Geographic coverage  11m subscribers globally (our October 2012 survey indicated between 500k and 1m in the UK)  Currently available in the US, UK and Canada  The system is operational in Australia, New Zealand and Ireland  Roll out to France and Germany is on track for Q3 2013 Content, providers and retailers  8,700 UltraViolet-enabled movies and TV shows  9 major content providers: BBC, DreamWorks Animation, Fox, Lionsgate, Paramount, Sony Pictures, Starz Anchor Bay, Universal and Warner Bros  9 retailers including Barnes & Noble (NOOK Video), Best Buy (CinemaNow), Cineplex, Flixster, M- GO, ParamountMovies.com, SonyPicturesStore.com, UniversalHiDef.com and Walmart (VUDU) By the numbers: updates as at 1st March 2013 5 Over 11m subscribers worldwidewithminimal marketing to date is an encouraging start for UltraViolet… Source: Braincomm, UltraViolet DECE, Oliver & Ohlbaum analysis
  • Who is interested in UltraViolet going forward? Our annual survey:  An internet-based survey, this year with 3,114 respondents  Sixth year of the survey, allowing for tracking of consumer interest and adoption  Up-weighted sample for Pay TV homes  A boosted sample for e-reader and tablet use as looking for behaviour within these owner groups  Weighted back to be nationally representative of TV type and demographics  Results from previous years – i.e. espoused behaviour vs actual – give us confidence in the data* The O&O ‘Battle for the Media Consumer Survey’ 6 For the last six years wehave run a bespoke online survey of 3,000+ respondents, withan up-weightedsample for pay TV homes, weightedback to be nationally representative. For the last twoyears we have asked about Ultraviolet Source: Oliver and Ohlbaum Analysis Note: * the variance between planned (intended or espoused) purchase of tablets and e-Readers from 2011 to actual behaviour in 2012 provides less than a 1% variance
  • Who is interested in UltraViolet going forward? 7 UltraViolet may carve out a niche, and consumers are willing to pay Source: Oliver & Ohlbaum Consumer Survey 2012 (n=3,114) 3.6% Yes… Have you heard of UltraViolet, are you interested and how might it impact on DVD consumption? …and used it 18.5%…but not used it 78.0%No Are you interested in using it? 7.5%Very 27.9%Somewhat Impact on DVD purchasing? 26.1%Buy more 31.8%Pay more 39% Using or interested in UltraViolet Substantial proportion willing to buy and pay more Our research indicated that 39% are interestedin using UltraViolet… 16.5% 8.5% 4.4% Up to £1 more Up to £2 more Up to £3 more
  • Since its’peak in 2004, total home entertainment revenues in the UK have fallen by over 40% in just 7 years, but are now beginning to show signs of stabilisation. UK digital revenues are not likely to have over-taken physical rental this year Why does UltraViolet matter – the broader context? 8 Declining DVD market has only been partially substituted by on-demand revenues… 451 601 821 1,175 1,392 1,557 1,399 1,302 1,440 1,454 1,311 1,267 1,165 427 500 596 721 853 921 910 917 806 783 664 572 584 494 494 462 476 389 327 280 265 263 253 246 63 68 73 74 67 75 96 101 107 114 0 1 39 52 878 1,101 1,911 2,453 2,775 3,027 2,772 2,613 2,601 2,604 2,361 2,238 2,161 0 500 1,000 1,500 2,000 2,500 3,000 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 £ Millions Online VoD* TV VoD Film on video (rental) Non-film on video (retail) Film on video (retail) Source: BVA Yearbook 2012, Screen Digest, Oliver & Ohlbaum Analysis Note: * includes rental VoD (DTR), retail (DTO or EST), subscription (SVoD) and free/ad supported VoD UK home entertainment revenues, 1999-2011
  • 9.55 9.27 6.80 6.39 3.99 5.13 17.96 18.00 0 2 4 6 8 10 12 14 16 18 20 Retail 2011 Retail 2012 Rental 2011 Rental 2012 Digital 2011 Digital 2012 Total HE 2011 Total HE 2012 US$ Billions In the US, home entertainment grew,fuelledby digital growththat wasnearly twiceas large ($1.14bn) as the decline in retail ($0.28bn) and rental ($0.41bn) combined ($0.69bn). By some definitions*,digital is now larger than the rental market Why does UltraViolet matter – the broader context? 9 US home entertainment consumer spending 2011 to 2012 … but US video consumption grew in 2012, fuelled by digital growth and maybe Blu-Ray Source: DEG, Screen Digest, Oliver & Ohlbaum analysis Note: * definitions vary regarding SVoD and subscription disc/digital breakdown Retail 2011-12 - DOWN 2.93% Rental 2011-12 - DOWN 6.03% Digital 2011-12 - UP 28.57% Home Entertainment 2011-12 - UP 0.22%
  • In the pre-web2.0 era (and to a slightly lesser extent since then) DVD wasthe ‘cash cow’for the studios. UltraViolet may be a successful strategic move to defend and protect DVD revenue, and extend the shelf-lifeof physical product Why does UltraViolet matter – the broader context? 10 Typical pre-web 2.0 distributor shares by window and driver of revenues of share Is UltraViolet a defence to protect DVD revenue in the short-term? Gross revenue (exc sales tax) $Bn Distributor share Net distributor revenue $Bn Drivers of share Theatric 25 40% 10 • Concentration of ownership and cinema chains in national market • Adoption of digital cinema DVD/VHS 53 55% 30 • Retail DVD concentration • Mix of retail outlets • Vertical integration of labels by distributors • Role of wholesalers and vendor management TV related 22 50% 11 • Increased ownership concentration of pay TV and free TV • Importance of film versus sport and home grown programming Total 100 51% 51 • Market concentration of distributors • Throughput of film by distributor Source: Interviews, Company Accounts, Oliver & Ohlbaum Analysis, (and “From Middlemen to Mini Majors” © O&O 2007)
  • Why does UltraViolet matter – the broader context? Home entertainment is just part of a 5 way battle for consumer spend 11 Free TV / STB Pay TV / STB IPTV / Games console PC / Home BB Portable PC / Tablet Smart phone TV HOME BEYOND THE HOME Platform / device battle FTA Broadcasters OTT Aggregators / Disruptors Pay TV “packages” Web 2.0 players Packaged Entertainment Services battle On demand is attracting new competitors – often global – to the UK TV industry. As home entertainment migrates across devices this battleground further intensifies,beyond the home and across five types of service providers Source: Oliver & Ohlbaum analysis
  • Four possible scenarios… Why does UltraViolet matter – the broader context? 12 How will the battleground play out? A single aggregator – the ‘Amazon’ of VoD Piracy wins out Studios retain control – individually? Platform operators keep the consumer – the TV / BB ‘bundle’ Note: we think it is unlikely that device manufacturers (Samsung etc.) will, despite their efforts, have a significant position 1 2 3 4
  • First Second Third Fourth Ultraviolet? TheatricalTheatrical 0m 1m 2m 3m 4m 5m 6m 9m 12m 24m Theatrical DVD Pay Per View/TVoD Terrestrial First pay/SVoD Second pay/VoD Across the value chain, participants are experimentingwithnew ways of windowingcontent, withthe theatricalwindow being shortened (and sometimes bypassed) and VoD windowswidening. UltraViolet maybe disruptive to other windows Why does UltraViolet matter – the broader context? 13 The lines between windows have blurred – UltraViolet provides another substitute DVD retail DVD rental PPV/TVoD First pay/SVoD Second pay/VoD Terrestrial Early 2010 Theatrical window cut short (avoid clash with World Cup) July 2010 To VoD before pay TV Oct 2011 “Margin Call” Day and date Oct 2011 “Tower Heist” Th + 3 weeks Various “Freakonomics” & “House of the Devil”: pre-theatrical VoD Dec 2012 The first time that a major studio has bypassed traditional cable TV outlets for an online distributor Ultraviolet Airplane/Hotel Dec 2012 YouTube on Virgin America Sep 2012 Digital before Blu-Ray/DVD • The theatrical window is being shortened and tinkered with • Digital disruption is impacting all windows • On demand releases before theatrical • Digital releases before Blu-Ray and DVD • Studios bypassing cable TV for OTT distributors • UltraViolet is – of itself – also disruptive • The old window system is over Jan 2013 VoD w/DVD +3
  • Studios wouldideally wantscenario (3), and could continue to be successful withinscenario(4), but wouldmost likely wantto avoid scenario (2) at all costs and ideally avoid (1) as well(learningfrom impacts on the music industry) What is the impact likely to be? 14 UltraViolet may help the studios avoid scenarios (1) and (2), and perhaps achieve (3)? A single aggregator – the ‘Amazon’ of VoD Piracy wins out Studios retain control – individually? Platform operators keep the consumer – the TV / BB ‘bundle’ Note: we think it is unlikely that device manufacturers (Samsung etc.) will, despite their efforts, have a significant position 1 2 3 4
  • Whilst our research indicates strongly that consumers see great benefit from the UltraViolet service, withno distinction based on device usage or the number of viewings,it removes the capacity for effective price discrimination What is the impact likely to be? 15 It reduces the capacity to effectively price discriminate – potentially reducing revenues 5.00 2.00 1.30 1.00 0.40 0.00 1.00 2.00 3.00 4.00 5.00 6.00 Cinema DVD Pay-TV SVoD FTA TV First Second Third Fourth window window window window Per viewer cost of watching a film once – by window (£ net of VAT) By providing content into perpetuity, at a flat rate cost for multi-device usage and with unlimited viewing, it is easy to see why our survey saw a high level of consumer demand for UltraViolet despite minimal marketing However, content owners have in the past been able to generate greater revenue by price discrimination – charging different prices for different methods of viewing the content, and for multiple use across windows Source: Screen Digest, European Audiovisual Observatory, Oliver & Ohlbaum Analysis (and “From Middlemen to Mini Majors” © O&O 2007)
  • What is the impact likely to be? 16 In particular it could cannabilise lucrative pay TV and SVoD windows 44.0% 52.0% Percent of respondents interested in UltraViolet who subscribe to SVoD services: Netflix Lovefilm UltraViolet may provide competition for Pay TV and OTT incumbents and market leaders as people increasinglyaccess each others’digital libraries (be they legitimate or not) or their owndigital libraries on the move… … and using our survey data wewere able to estimate that SVoD revenues for Netflix and Lovefilm in the UK totals between£260m - £275m per annum, indicatingfurther the cannibalisationrisk posed by UltraViolet 46.2% 14.5% Percent of respondents interested in UltraViolet with a Sky Movies subscription: Sky Virgin Media … and using our survey data wewere able to estimate that subscription revenues for Sky Movies across all platforms is in the range of £300m - £325m per annum, and so clearly the cannibalisationrisk that UltraViolet poses to Sky is considerable Source: Oliver & Ohlbaum Consumer Survey 2012 (n=3,114)
  • This is a delicate path to tread… Some final thoughts 17 Three things to be mindful of 1. Trade off between gaining traction and growing to scale without crushing other windows… … but if successful, do integration issues arise? 2. UltraViolet can be a number of different things… • NOW: digital locker for purchased, physical product – Maintains price (e.g. Blu-Ray) for physical product – Establishes a player infrastructure (and a new, unifying window for the future) • FUTURE: ‘pure’ digital locker (or hybrid) … but if successful, do other windows collapse? 3. There are many ways to exploit the opportunities… • B2B: what would happen if UltraViolet was licensed to Blinkbox, for example? (and are retailers better placed to stop ‘leakage’ e.g. through use of discount/loyalty cards etc.?) • B2C: longer term, will one entity dominate the ecosystem as Apple iTunes did for music?
  • Connect For more details: Email: jeremy.michaels@oando.co.uk Phone: 020 7313 5918 Follow: @OliverOhlbaum Blog: www.oando.co.uk/blog/category/entertainment/ Web: www.oando.co.uk 18