1. The impact of TV 2.0 on viewing behaviour Some early data, and a hypothesis Julian Dickens, 3 Reasons Ltd
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Prepared for: London Business School, 7th July 2009
© 3 Reasons Ltd 2009 1

2. To date, TV 2.0 is an overwhelmingly primary set phenomenon
UK penetration of TV 2.0 services at year-end 2008 – primary vs. secondary sets
Integrated PVRs
VOD capability
HDTV
25.1%
2.6% 0%
10%
20%
30%
40%
50%
Primary set
Secondary set
5.0%
0.1% 0%
10%
20%
30%
40%
50%
Primary set
Secondary set
50%
40%
30.3%
30%
20%
10%
2.5% 0%
Primary set
Secondary set
Most secondary set PVRs are DTT devices, although they are found in both FTA and pay homes
We believe that most secondary set VOD is accounted for by cable multiroom subs
And we see very few HD- live secondary sets; such as there are will be Sky subscribers
We believe that this disparity between primary and secondary set capabilities will continue, and that it may be driving changes in viewing behaviour
3 Reasons Ltd © 2009
3 Reasons Ltd © 2009
3 Reasons Ltd © 2009

3. The digital secondary set universe is predominantly FTA, and is likely to remain that way – unless, for instance, Sky bundles multiroom into its pay TV 2.0 tier
Projected digital secondary sets by pay/free
(year-end, UK only, unduplicated) 35 30 25 20
Sets
(m)
28.9
29.3
28.0
28.5
26.8
27.4
25.8 15
24.4
22.7
20.5
17.7 10 5
4.1
4.3
4.5
2.0
2.3
2.6
2.9
3.2
3.5
3.7
3.9
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Pay (Sky/cable multiroom; Top Up/Setanta secondary-set subs)
FTA (DTT; Sky/cable auto-connectors)
3 Reasons Ltd © 2009
3 Reasons Ltd © 2009

4. So we suspect that the quality of the overall viewing experience on secondary sets has deteriorated relative to primary sets, and will take many years to catch up
As discussed, digital penetration of secondary sets has increased rapidly in recent years
But this does not necessarily mean that the perceived quality of the viewing experience offered by secondary sets has been catching up with that offered by primary sets
For not only are primary sets themselves typically newer and – thus – of a higher specification…
LCD/plasma widescreen/flat screen vs. CRT
…but they are bigger, even when the second set is a flatscreen – as some are
And, as we have seen, there has opened up a significant gap in the availability of TV 2.0 services between primary and secondary sets, particularly over the past two years
With 2.0 timeshifting making the bigger, primary screen more accessible for all
We suspect that this renewed gap between primary and secondary set quality might be reflected in viewing dynamics
3 Reasons Ltd © 2009
3 Reasons Ltd © 2009

5. Although overall television viewing has recently been increasing – (and many expect the recession to lift viewing further in 2009)…
Average TV viewing time by UK adults per day – by platform
242
246
235
241
226
225
236
222
220
232
233
240
200
260
2006
2007
2008
All homes
DSat homes
DCab homes
DTT homes
Analogue terrestrial homes
Mins
This shows BARB measurement of consolidated viewing, including all PVR and cable VOD time-shifted programming played back within seven days of original broadcast
3 Reasons Ltd © 2009
3 Reasons Ltd © 2009

6. …this growth has been focused on the primary set
Average UK primary-set TV viewing time per day – by demographic
121.3
128.5
177.2
227.3
125.7
131.2
185.8
235.5
119.7
130.7
178.1
223.3 50
100
150
200
250
Children
Adults 16-24
Adults 25-34
Adults 35+
2006
2007
2008
Mins
3 Reasons Ltd © 2009

7. And since the amount of viewing on secondary sets has been pretty flat for most demographics, the share of secondary set viewing has thus fallen – in all types of home
Share of all UK adult TV viewing delivered by secondary sets – by platform
12.7%
12.0%
11.7%
10.5%
13.2%
11.5%
11.3%
11.8%
12.3%
13.0%
10%
11%
12%
13%
14%
15%
2006
2007
2008
All homes
DSat homes
DCab homes
DTT homes
3 Reasons Ltd © 2009
3 Reasons Ltd © 2009

8. A hypothesis: there are probably two factors at play here
First, TV 2.0 features (especially the ability to avoid schedule clashes) and big primary-set screens are driving increased overall viewing on the main set
Secondly, younger audiences – which historically had a higher share of secondary- set viewing than any other demographic – are going elsewhere
Thus the proportional decline in viewing on secondary sets has been especially pronounced amongst 16-24s and, to a lesser extent, 25-34s
The secondary set contribution has declined by c.25% for 16-24s between 2006 and 2008
And by 16% for the latter
While remaining much more stable for children, and for adults aged 35+
This suggests that teens/young adults who may previously have been watching much of their TV on bedroom sets have now switched some of their viewing
Either to the main – bigger and better – set; main set viewing was up in 2008
And/or to the PC, including on-demand services
And this in turn suggests that TV 2.0 on the secondary set offers the prospect of recovering some TV viewing in an important demographic (albeit on-demand)
3 Reasons Ltd © 2009
3 Reasons Ltd © 2009