1. © Screen Digest. Not for distribution TV economics and the digital switchover A seminar hosted by Screen Digest at The Institute of Physics, London 22 nd February 2008

2. © Screen Digest. Not for distribution Digital platforms in the age of analogue switch-off Guy Bisson, Senior Analyst

3. © Screen Digest. Not for distribution Digital platforms in the age of ASO Market context Primary set and DTT success DTT: the channel market Pay TV, DTT & competitive impact

4. © Screen Digest. Not for distribution Switch-off: years scheduled for transition 2012 2010 2012 2007 2014 2010 2012 2008 2011 2007 2012 2010 2006 2009 ASO Data shows years from first launch. Does not account for re-launches

5. © Screen Digest. Not for distribution % homes wholly reliant on terrestrial at ASO 2012 2010 2012 2007 2014 2010 2012 2008 2011 2007 2012 2010 2006 2009 ASO

6. © Screen Digest. Not for distribution Digital platforms in the age of ASO Market context Primary set and DTT success DTT: the channel market Pay TV, DTT & competitive impact

7. © Screen Digest. Not for distribution Methodological note: considering primary set is central to modelling whole markets Simplification of a multi-combination environment based on basic but robust market-specific assumptions Primary set is the primary viewing/reception mode in a TV household The primary set may be the only TV in the house or one of many There may be several different reception methods in the home. These may each be on a different set or, increasingly, on a single set which may also be the main set in the home. Is not a factor of the number of TV sets in the house The primary set is not a measure of the total reach of a platform But it does provide a better measure than total of the competitive dynamics All platforms must be considered even if they are hybrid platforms

8. © Screen Digest. Not for distribution Coming soon to TV Intelligence….

9. © Screen Digest. Not for distribution DTT penetration* of TV HH since launch *DTT penetration (% TVHH) is for the primary set usage

10. © Screen Digest. Not for distribution DTT penetration* of TV HH since launch *DTT penetration (% TVHH) is for the primary set usage

11. © Screen Digest. Not for distribution DTT penetration* of TV HH since launch *DTT penetration (% TVHH) is for the primary set usage

12. © Screen Digest. Not for distribution DTT penetration* of TV HH since launch *DTT penetration (% TVHH) is for the primary set usage

13. © Screen Digest. Not for distribution Market summaries: DTT in the big five UKFranceItalySpainGermany Reliance on terrestrial high low Pay/Multichannel penetration highModeratemoderatelowhigh DTT launch year2002 (re-launch)200520042005 (re-launch)2002 Influence of incumbents in DTT moderatehighmoderatehigh Broadcaster support for DTT Unique DTT channels NoYes No HardwareLow cost. No regulation. But service-driven innovations Split: low cost/pay TV-MPEG 4. Mandated minimum spec. Full interactivity, CA. Mandated minimum spec. Low cost no regulation Low cost. DTT five year ranking 23415

14. © Screen Digest. Not for distribution Strength of multichannel pay TV impacts DTT Pay TV penetration at launch vs. yr 5 DTT penetration Freeview falling behind Freeview held up as benchmark for DTT success Now being outpaced by platforms in France and Spain Future legacy hardware issues exacerbated by early success and promotion of low cost access options Regulatory involvement in hardware specification a feature in both France and Italy but market-led in UK Freeview has not yet embraced provision of premium pay TV Freeview and UK ASO now trending towards Parkinsons Law? At around 40% pay TV penetration, DTT uptake seems to be impacted More difficult to correlate with: analogue dependency years scheduled for transition * France excludes analogue terrestrial pay TV (single channel) and Cable Antenna

15. © Screen Digest. Not for distribution But digital terrestrial already dominant Shows market share of primary digital TV homes in UK, France, Italy, Spain (Germany excluded due to cable skew) 2007 2012 60m homes 91m homes

16. © Screen Digest. Not for distribution And increasingly important for second set 90m+ DTT homes in big five markets by 2012: Half (48%) will use DTT as secondary device

17. © Screen Digest. Not for distribution Digital platforms in the age of ASO Market context Primary set and DTT success DTT: the channel market Pay TV, DTT & competitive impact

18. © Screen Digest. Not for distribution Keys to success? Platform/digital brand? –Freeview vs. the rest Offering something new (more and different). For free? –In analogue dependent markets (elsewhere pay TV-only model can work) Retail cross-promotion? –Plus regulated hardware specification… Providing optional access to a pay TV tier? –France, Italy vs. Spain Killer content? –Soccer helped in Italy but initial burst now levelling

19. © Screen Digest. Not for distribution Brand

20. © Screen Digest. Not for distribution Incumbent* broadcaster role % of all DTT channels that are incumbent-owned Increasing incumbent role Relatively stable channel mix: at launch 40% of Freeview channels were incumbent owned *Incumbent means main national analogue terrestrial broadcasters. UKItalyFranceGermanySpain # channels3718283220

21. © Screen Digest. Not for distribution Incumbents channel families Analogue vs. digital channel families *Incumbent means main national analogue terrestrial broadcasters.

22. © Screen Digest. Not for distribution Incumbents % increase in channel family size since digital launch

23. © Screen Digest. Not for distribution European top five: advertising market (m) Chart shows net advertising revenue (m) for the national channels (national channels previously available in analogue) and new digital channels.

24. © Screen Digest. Not for distribution Advertising has dominated Western European TV market for the past decade…

25. © Screen Digest. Not for distribution But in the US, pay TV revenue has already overtaken advertising

26. © Screen Digest. Not for distribution And in 2009, the same will happen in Europe

27. © Screen Digest. Not for distribution Digital platforms in the age of ASO Market context Primary set and DTT success DTT: the channel market Pay TV, DTT & competitive impact

28. © Screen Digest. Not for distribution DTT pay TV strategies Not possible under current regulation. TV groups lobbying for change (Mediapro) hoping to replicate Italian model. Third- party pay TV platform (Dahlia TV) waiting in wings. No current plans Market led by main commercial FTA broadcast groups. Centred on soccer PPV strategy now migrating towards pay TV subscription (with movies and TV). Helped by early national hardware strategy Premium pay TV provided by main pay TV gatekeeper (Canal Plus) and thematic channels. Open market for distribution and packaging of thematic pay TV channels. Free market approach has created mixed bag of pay TV options. Lack of premium content as no current involvement of key content gatekeeper (pending?). Pay options increasingly based on technology-led innovations (push VOD, IP hybrids)

29. © Screen Digest. Not for distribution DTT: Competitor defensive measures Over 40* digital TV channels including Virgin1, FILM4 and more A massive library of films, TV, music available on demand Catchup TV - our pick of last 7 days' telly for free FREE with Virgin Phone Conversely, Freeview has pushed UK pay TV operators towards free digital offers Move has yet to be replicated in other markets where existing pay TV operators tend to have more direct involvement in DTT Fill in satellite services with public service role have opportunity to leverage position with service innovations (HD on Freesat) Free DTT can be flipped to provide core linear channel offer with on-demand pay TV booster

30. © Screen Digest. Not for distribution Free platforms follow pay TVs HD lead Free access to HD led by DTT and Freesat after 2010 France DTT : at least 4 HD channels (of which 3 free-to-air broadcasters) to start broadcasting in 2008, and possible 4 more within a year UK satellite: Freesat to launch in Spring carrying free HD channels but only BBC and ITV have confirmed their support. UK DTT: The current OFCOM/BBC plan is to start offering HD on DTT as soon as 2009 in turned-off regions. Our forecasts are based on that. However the OFCOM plan is dubbed by some technical experts as being unrealistic (DVB- T2, MPEG-4, restructuring of existing multiplexes) This will contribute to a stronger take-up in France: 11m HD viewers at end-2012 v. 8m in the UK

31. © Screen Digest. Not for distribution Final thoughts… Difficult (impossible?) to correlate single market factors with DTT success Analogue dependence, pay and multichannel TV penetration and speed of transition all contribute Branding as distinct platform does not seem to be factor But content offer is crucial Support of incumbent broadcasters and willingness to develop new channel concepts has been key driver in most successful markets Can be viewed largely as defensive measure, but also provides back route into pay TV market Retail support also crucial, consumer labelling campaigns where mandatory hardware specifications absent Natural migration of free DTT service towards provision of pay TV tiers. Will increasingly follow pay TV lead with PVRs, HDTV, on- demand, push services…triple-play?

32. © Screen Digest. Not for distribution Thank you guy.bisson@screendigest.com

33. © Screen Digest. Not for distribution Balancing the TV pie Television advertising trends Vincent Létang, Senior Analyst

34. © Screen Digest. Not for distribution Television advertising trends Advertising trends: new data from Screen Digest Advertising revenues forecasts Focus on European broadcasters Long term strategic outlook

35. © Screen Digest. Not for distribution New Screen Digest Intelligence data Example: second dimension tables

36. © Screen Digest. Not for distribution Television advertising trends Advertising trends: new data from Screen Digest Advertising revenues forecasts Focus on European broadcasters Long term strategic outlook

37. © Screen Digest. Not for distribution Advertising revenues: short-term outlook The ongoing slowdown in advertising spending will continue in 2008- 2009 In 2008, television revenues will experience near-flat growth: quadrennial events will compensate for adverse economic conditions 2009 however could be the year for a full-blown TV ad recession, esp. in the US and in France (for local reasons)

38. © Screen Digest. Not for distribution Short-term outlook Will there be an adspend recession in 2008? YES! When economic conditions get rough, advertisers cut marketing spending right away TV is highly dependent on some badly-oriented sectors like automotive Advertisers may prefer to keep investing online where accountability is better NO! 2008 is quadrennial year with major events that always drive ad spending Advertisers have already adjusted their ad spending in 2007 No bubble that needs deflating (dotcom-crash-like) and CPMs are reasonable Global media agencies claim advertisers will keep to their 2008 plans (cf SuperBowl)

39. © Screen Digest. Not for distribution Short-term: key forecasts Total ad market - Europe and US

40. © Screen Digest. Not for distribution Short-term: key forecasts Television ad market - Europe and US

41. © Screen Digest. Not for distribution Long-term outlook A three-tier story Advertising spending will resume growth in 2010-2012 –However, it will not rebound as strongly as in the early 2000s Only online advertising will post real net growth –Without search online advertising, total display advertising spending will grow much below economic growth rate in the Western world Television will maintain its overall market share –Internally, market share will adjust to better reflect the growing audience share of digital channels All other media will shrink in market share, if not absolute revenues

42. © Screen Digest. Not for distribution Europe Ad spend to grow GDP growth

43. © Screen Digest. Not for distribution Europe Only (search) online advertising is really growing

44. © Screen Digest. Not for distribution Europe Television forecasts

45. © Screen Digest. Not for distribution USA Television forecasts: recession in 2009

46. © Screen Digest. Not for distribution Television advertising trends Advertising trends: new data from Screen Digest Advertising revenues forecasts Focus on European broadcasters Long term strategic outlook

47. © Screen Digest. Not for distribution European broadcasters Top 12 European broadcasters

48. © Screen Digest. Not for distribution European broadcasters Digital channels are saving big guys growth in 2007 ITV TF1 Online advertising: +77%

49. © Screen Digest. Not for distribution Television advertising 2007-2012 Advertising trends: new data from Screen Digest Advertising revenues forecasts Focus on European broadcasters Long term strategic outlook –SWOTs for (TV) advertising –Ad revenues to become second to pay TV revenues –DVRs and advertising –Emerging formats

50. © Screen Digest. Not for distribution Growth factors and opportunities Threats Short-term (2008-2009) - Quadrennial factors of 2008 (Olympics, Euro Football, US elections) benefit mostly to big FTA channels/networks - Credit squeeze and low consumer confidence threaten ad spending from big categories (automotive, financial) Mid-long term (2010-2012) - DVR-based advertising solution can help better targeting - DVR-based ad-skipping threatens ad-viewing - More flexible TV regulation (European Directive, PP, CRR) - Regulatory threats on unhealthy food and children advertising - Mobile and online TV potentially expanding the audience pie (long term, measurement issue) - Mobile and online TV potentially disturbing value chain and business model -Digital multichannel TV becomes universal, maintaining overall TV viewing - Digital multichannel reaching critical mass audience and challenging established networks Long term outlook Threats and opportunities for TV advertising

51. © Screen Digest. Not for distribution Threats to the ad-funded linear-broadcast-TV business model Alternative leisure: gaming DVRs and ad-skipping Alternative TV/VOD platforms

52. © Screen Digest. Not for distribution DVR and advertising DVR impact on ad-viewing: UK case 13 time-shift 96 live Before (without) DVR After (with) DVR 100 100 live 6 as live 96 live 7 ad- skipped + 9 109 Minutes of viewing (index) 102 of total ad- viewing (live + as live) 2 gain Source: BARB, Sky, NDS

53. © Screen Digest. Not for distribution DVR and advertising Summarising all the DVR effects identified Time Advertising impact Small improvement thanks to DVR targeting DVR initially boosts total viewing DVR net impact soon becomes detrimental to ad viewing Short-term Mid-term Long-term

54. © Screen Digest. Not for distribution Television advertising Trends and forecasts Thank you vincent.letang@screendigest.com

55. © Screen Digest. Not for distribution TV programme spend in Europes big five Tim Westcott, senior analyst

56. © Screen Digest. Not for distribution TV programme spend in Europes big five Contents of this presentation The TV market (value) Relationship with programme spend Free to air (FTA) broadcasters Pay TV platforms The outlook

57. © Screen Digest. Not for distribution Future funding of TV appears uncertain Advertising: audience fragmented, on demand viewing increasing, eyeballs going online... Subscription: pay TV market is maturing, free multichannel is growing faster… Licence fee/government funding: case for funding is in question.

58. © Screen Digest. Not for distribution The broadcasting landscape in the big five (channels included in SD analysis) FranceGermanyItalySpainUK Free to air TF1 France TV M6 Arte ARD ZDF ProSiebenSat1 RTL RTL2 Rai Mediaset Telecom Italia TVE A3 TV Tele5 Cuatro La Sexta BBC ITV plc Channel 4 Five Pay TVCanal+ TPS Premiere DF1 Old Premiere Sky Italia Stream Tele+ SogecableBSkyB

59. © Screen Digest. Not for distribution Value of the TV market in 2007 (bn) 9.2 8.3 14.6 5.7 16.8

60. © Screen Digest. Not for distribution Free to air broadcasters have not significantly reduced programme spend

61. © Screen Digest. Not for distribution There is no rule about how much broadcasters invest in programmes

62. © Screen Digest. Not for distribution The level of programme spend bears little relationship to audience share

63. © Screen Digest. Not for distribution The same is true for TF1…

64. © Screen Digest. Not for distribution …and Mediaset

65. © Screen Digest. Not for distribution One reason is that few FTA broadcasters are purely FTA broadcasters Pay TVTheme channelsProduction & distribution Other media

66. © Screen Digest. Not for distribution Title FTA broadcasters like TeleCinco continue to invest heavily in primetime

67. © Screen Digest. Not for distribution But FTA broadcasters cannot afford to be complacent New generations of viewers accustomed to multichannel world – habits of first channel on dial dying out Potentially, loyalty to national broadcaster (the Beeb, Mamma Rai) also threatened? Analogue switch-off means every TV home will have selection of channels by 2012 PVRs are more widespread (already 15% of UK TV homes), live viewing will diminish

68. © Screen Digest. Not for distribution Pay TV is now at the end of the beginning DTH market in the big five has consolidated Leading players have more leverage over key programme suppliers (film and sports) Subscriber growth is levelling off as pay TV platforms reach maturity Pay TV platforms may still face challenges (Setanta, Mediaset Premium, Orange)

69. © Screen Digest. Not for distribution BSkyB has outstripped pay TV platforms on the other major markets BSkyB

70. © Screen Digest. Not for distribution Pay TV operators have succeeded in controlling programme spend

71. © Screen Digest. Not for distribution …Despite sharp increases in sports costs

72. © Screen Digest. Not for distribution Programme spending over next five years Revenue outlook is not as gloomy as all that…

73. © Screen Digest. Not for distribution Value of the TV market in the big five (bn) +22% +24%

74. © Screen Digest. Not for distribution Programme spending over next five years Revenue outlook is not as gloomy as all that… FTA broadcasters are still able to aggregate a mass audience quickly Broadcasters have found ways of delivering audiences more economically TV is a mainstream medium: technology (PVRs, VoD) will take a long time to impact on the average viewer World Cup final 2006: 84% audience share on Rai in Italy

75. © Screen Digest. Not for distribution Free to air: Germany recovers, but growth across big five is a sluggish 3.5%

76. © Screen Digest. Not for distribution Pay TV: BSkyB reins in as programme costs increase 5% across big five

77. © Screen Digest. Not for distribution TV programme spend in Europes big five Thank you tim.westcott@screendigest.com