Online Content Market in Europe: Film and Video go Broadband IIC Telecommunications and Media Forum Madrid, 25 June 2008 Augusto Preta ITMedia Consulting

TV vs Internet? A different story Internet distribution acts as free advertising Web video may reach consumers who wouldn't otherwise watch TV Web video could gain viewers without causing losses for content creators

A different story

Online content Electronic sell through More and more companies are using broadband internet to distribute Studios films and series Growing number of Download-to-Own services, DTO, in Europe: LoveFilms, Glowria, CanalPlay, CinemaNow, In2Movies … more than 30 services in WE. In the near future physical supports – i.e. DVD – will still represent most of film purchases by consumers, but spending on digital content is to grow quickly. Even though online movies represent only a fraction of the home entertainment market, it’s a growing area, compared with constant revenues from DVD sales

More and more companies are using broadband internet to distribute Studios films and series

Growing number of Download-to-Own services, DTO, in Europe: LoveFilms, Glowria, CanalPlay, CinemaNow, In2Movies … more than 30 services in WE.

In the near future physical supports – i.e. DVD – will still represent most of film purchases by consumers, but spending on digital content is to grow quickly.

Even though online movies represent only a fraction of the home entertainment market, it’s a growing area, compared with constant revenues from DVD sales

Business models TRANSACTIONAL Consumers buy a permanent download [download to own, DTO], hire a temporary download [download to rent, DTR], or buy a temporary access to a stream content [rent VOD] SUBSCRIPTION Users subscribe to a rental service “all included”, offering temporary downloads or streams, charging a monthly fee [Subscription VOD, SVOD] i.e. CinemaNow, Movieflix AD-SUPPORTED Consumers download free content, or watch streaming content for free but they have to accept commercials inserted in the downloaded content [Free VOD, FVOD] i.e. Lovefilm, BBC iPlayer

TRANSACTIONAL

Consumers buy a permanent download [download to own, DTO], hire a temporary download [download to rent, DTR], or buy a temporary access to a stream content [rent VOD]

TV, too… Also TV producers have started to test consumers’ demand for electronic sell through Many broadcasters, like Channel 4 in the UK and ProSieben in Germany have started to offer their content for online distribution 2007: more and more news and entertainment videos from broadcasters appear on the internet, on their own website but also on other service providers’ portal TV broadcasters may convert into a role similar to that of a movie studio, funding high quality content and then distribute it via many channels - online, DVD and television Broadcasters will still be a reference point to the public , start being a distributor for third parties’ content

Also TV producers have started to test consumers’ demand for electronic sell through

Many broadcasters, like Channel 4 in the UK and ProSieben in Germany have started to offer their content for online distribution

2007: more and more news and entertainment videos from broadcasters appear on the internet, on their own website but also on other service providers’ portal

TV broadcasters may convert into a role similar to that of a movie studio, funding high quality content and then distribute it via many channels - online, DVD and television

Broadcasters will still be a reference point to the public , start being a distributor for third parties’ content

Case History: 4oD 4oD Offer all of Channel 4’s commissioned programming 2 0 00 hours of archive – and growing 60-70 hours catch-up every week, with the last 30 days of programming 200 hours of US first run premium films and programming All content can be downloaded, while catch-up content can also be seen as streaming video. Content is available free, PPV, DTO, subscription, downloaded and streamed . At the end of 2007, over 500 000 users have viewed more than 10 million programmes on 4oD on TV and PC . Launch: November 2006 4oD allows some internet, Virgin Media, Tiscali and BT Vision users to view programming recently shown on Channel 4, E4 or More4, or from their archives. 4oD also includes a selection of films and content from the National Geographic Channel and FX

4oD Offer

all of Channel 4’s commissioned programming

2 0 00 hours of archive – and growing

60-70 hours catch-up every week, with the last 30 days of programming

200 hours of US first run premium films and programming

All content can be downloaded, while catch-up content can also be seen as streaming video.

Content is available free, PPV, DTO, subscription, downloaded and streamed .

At the end of 2007, over 500 000 users have viewed more than 10 million programmes on 4oD on TV and PC .

Broadcaster online Broadcasters are in a unique position to take their video libraries and create new forms of media for consumers By adopting web 2.0 techniques - such as consumer rating systems and new combinations of content – TV players could create a sense of community, much like that of social networking sites like MySpace and Facebook Broadcasters have the breadth of content, and could lever onto their brand or other assets, including talents, to promote such services. Broadcasters can launch online initiatives beyond just replicating the content on TV

Broadcasters are in a unique position to take their video libraries and create new forms of media for consumers

By adopting web 2.0 techniques - such as consumer rating systems and new combinations of content – TV players could create a sense of community, much like that of social networking sites like MySpace and Facebook

Broadcasters have the breadth of content, and could lever onto their brand or other assets, including talents, to promote such services.

Broadcasters can launch online initiatives beyond just replicating the content on TV

Internet distribution vs TV Older shows often do surprisingly well on demand, even when they're no longer on the linear network: chance for monetizing archives and catalogue Advertising insertion probably is the biggest key to monetizing this part of the business TV players should not be afraid of the internet as a distribution platform Internet doesn’t replace broadcasters There's still a market for high-quality content. To create programming at a high level of quality is an expensive proposition. TV players have professional skills and resources that others don't have.

Older shows often do surprisingly well on demand, even when they're no longer on the linear network: chance for monetizing archives and catalogue

The market 2007 2 million people in WE used legal pay download services for professional content; more than double downloaded free content – mainly TV programmes. 2007 € 116 million total revenue € 91 million DTR services € 10 million DTO services Online video revenue breakdown Source: ITMedia Consulting 80% 8% 12% 68% 8% 24% 64% 9% 27% 60% 8% 31% 54% 8% 38% 0% 20% 40% 60% 80% 100% 2007 2008 2009 2010 2011 DTR DTO FVOD The take rate for DTO services is still lower than that for DTR services, because of higher prices 2011 € 1300 million total revenue € 700 million DTR services € 100 million DTO services

2007

2 million people in WE used legal pay download services for professional content; more than double downloaded free content – mainly TV programmes.

Critical issues for online services Difficulties in convincing consumers to purchase movies via online services vs. a traditional DVD WE: average DTO film price ~ €12 , average DTR film price < €5. Both prices are higher than hiring a DVD For some times, most downloadable content has been in the form of independent films. Only recently majors have started providing more valuable and attractive content . Downloaded content doesn’t offer the same amount of content as a DVD ex. director’s cut A large segment of the DVD-buying population isn’t very tech-savvy . DTO services get compelling for those users who attach great value to portability These factors, price, portability, together with the window during which downloads are sold, are to drive the growth of DTO and DTR services to mainstream products.

Difficulties in convincing consumers to purchase movies via online services vs. a traditional DVD

WE: average DTO film price ~ €12 , average DTR film price < €5. Both prices are higher than hiring a DVD

For some times, most downloadable content has been in the form of independent films. Only recently majors have started providing more valuable and attractive content .

Downloaded content doesn’t offer the same amount of content as a DVD ex. director’s cut

A large segment of the DVD-buying population isn’t very tech-savvy .

DTO services get compelling for those users who attach great value to portability

These factors, price, portability, together with the window during which downloads are sold, are to drive the growth of DTO and DTR services to mainstream products.

Online video revenues forecast – million € Source: ITMedia Consulting 100 67 45 19 10 DTO 1 298 800 471 229 117 Tot. On demand 497 251 127 55 15 Free VOD 701 482 299 155 92 DTR 2011 2010 2009 2008 2007 Mln €

IPTV in Europe Europe: first market for IPTV in the world, both as for growth rates and as for subscriber base – 5.2 million in 2007 However, the IPTV does not represent a threaten or a competitive pressure onto cable and satellite yet France: biggest market, 2.6 million subscribers. In other countries results are lower than expected

Europe: first market for IPTV in the world, both as for growth rates and as for subscriber base – 5.2 million in 2007

IPTV VoD revenue For coherency, we do not consider revenues coming from linear TV, but only those generated by on demand services, which represented around 25% of total revenues in 2007 The on demand component of the whole IPTV industry amounted to €250 million at the end of 2007, but it will approach €1500 million by the end of 2011, growing at an average rate of 120% per year Source: ITMedia Consulting Despite these results, the video on demand business has grown less than expected: linear TV will represent the largest share of revenues also in the forthcoming years 1450 1050 768 480 250 Tot. On demand 267 198 124 72 25 Free VOD 1193 852 644 408 225 VOD+SVOD 2011 2010 2009 2008 2007 Mln €

For coherency, we do not consider revenues coming from linear TV, but only those generated by on demand services, which represented around 25% of total revenues in 2007

The on demand component of the whole IPTV industry amounted to €250 million at the end of 2007, but it will approach €1500 million by the end of 2011, growing at an average rate of 120% per year

Despite these results, the video on demand business has grown less than expected: linear TV will represent the largest share of revenues also in the forthcoming years

Online content and IPTV The online video market in WE is to grow at such a rate that it will get closer and closer to the IPTV market. It amounted to less than half the IPTV market in 2007, but it will grow at a double pace By 2011, the online video content market will represent 90% of IPTV market Source: ITMedia Consulting

The online video market in WE is to grow at such a rate that it will get closer and closer to the IPTV market.

It amounted to less than half the IPTV market in 2007, but it will grow at a double pace

By 2011, the online video content market will represent 90% of IPTV market

Conclusion Evolving new business models are gradually redefining the value of content in the digital age . We see convergence to reshape business models, industry returns, expenses and profits for content companies willing to follow this trend. Exploiting innovation, they will increase revenue across a spectrum of broadband devices in a highly competitive and open multiplatform environment

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