1. IS MPEG-2 DEAD? The Future of Home Entertainment Systems and Advanced Codec Technology That Will Make it Work. Peter Forman January 8, 2004 CES

2. Background Executive and Consultant in Digital Media Industry Since 1989. First PC-based Hardware Codec – New Video Corporation, 1990 First Software-based, Real-time MPEG-2 Codec for PC’s – Ligos Corporation 1998 CEO and Consultant to DemoGrafx, Inc. - Sold to Dolby Labs - 2003

3. The Battle for Home Entertainment Dominance

4. Sony Strategy Based in Entertainment Cluster Emphasis on Features and Gaming Tie-in –PSX –Blu-ray Recording Networking Focus - Support Local Devices in Entertainment Cluster –Less Dependent on Robust Wireless Video Connectivity

5. Microsoft Strategy PC-Centric “Hub and Spoke” Topology –Xbox is a Terminal, Not a Hub –PC Migrates From Home-Office Workstation to “Closet” Server Windows XP Media Edition and Windows Media 9 Play Central Role Robust Wireless Networking of Video is Key to this Approach

6. MPEG-2 THE International Standard for Video Compression Since 1995 –Digital Cable, Broadcast, DBS, DVD Capable of Producing Reasonable SD Quality at Between 1.5 and 2 Mbps – Reasonable HD at 11 Mbps or Higher Easily Encoded on Today’s Pentium Class CPU, and Decoded on Almost Any Processor Widely Available as Inexpensive Hardware and Software Implementations for Every Application

7. More Advanced Codecs MPEG-4 Part 2 (2001) DivX (Based on MPEG-4 Part 2) (2002) Windows Media Video 9 – WMV9 (2003) On2 VP6 (2003) MPEG-4 Part 10/AVC/H.264 (2003+) Layered Codecs – Pixonics pHD (2003)

8. Benefits vs. MPEG-2 More Bandwidth Efficient –MPEG-4 Part 2 – 25% - 50% –WMV9 – 200%+ –AVC – 200%+ (SD) up to 400%+ (HD) Special Capabilities –MPEG-4 Part 2 and AVC – Resiliency –pHD – HD with Backward Compatibility to MPEG-2 Better Licensing Terms –On2 and EVD (China) –WM9

9. Costs vs. MPEG-2 More Costly to Encode and Decode –AVC = 5x+ Encode and 3x Decode –WMV9 = 3x Encode and 1.5x Decode More Costly/Difficult to Implement –Fewer solutions available –More difficult to multi-source –Licensing Issues WMV9 is an Elegant, Well-Positioned Codec

10. Market Drivers for Advanced Codecs Bandwidth and Storage Limitations –Red Laser HD DVD (DVD-9) –Video Over Wireless Networks –Sony PSP –Solid State Memory Applications Increased Bandwidth Requirements –HD –Multi-user Home Entertainment Systems

11. Possible CE Applications HD on DVD-9 In-Home Video Redistribution Over Wireless Hand held Entertainment Devices PREDICTIONS: 1) THROUGH 2007 ADVANCED CODECS WILL BE CHOSEN OVER MPEG-2 ONLY WHEN MPEG-2 CAN NOT BE MADE TO DO THE JOB = <15% OF OVERALL MARKET 2) AVC WILL TEND TO DOMINATE OVER PROPRIETARY CODECS (THOUGH WM9 HAS A CHANCE IF CUSTOMERS CAN OVERCOME MS PHOBIA) 3) PROVIDED LICENSING DOESN’T GET IN THE WAY AVC WILL REPLACE MPEG-2 FOR MOST IF NOT ALL CE APPLICATIONS OVER THE NEXT 10 YEARS

12. AVC in Home Media Bulletin available from Jon Peddie Research The Battle Over Home Entertainment and the Future of Video Compression There is a conflict of epic proportions shaping up between Sony and Microsoft over the storage, delivery and management of digital media in and around the home. At stake for Sony – its continuing dominance of home entertainment electronics as it enters a new era. For Microsoft, it’s about winning or losing new territory for the Windows OS as the market for productivity PC’s matures.

13. Panelists Divx, R. Jordan Greenhall Ligos, George Mancuso VIA, Alan Yuen Vsoft, Thierry Fautier