1. Video Value Chains Case Study Update: The Evolution of Video Services Natalie Klym Research Associate, MIT nklym@cfp.mit.edu May 31, 2007 Philadelphia, PA

2. The goals of today’s talk Give an overview of the video case study Look at today’s changes in historical context Present a framework for video platforms Examine current competitive dynamics among video services Discuss future trends

3. The evolution of the U.S. TV industry can be broken down into three phases –Original broadcast model (1930s-1940s) –First reinvention of television (1940s-1990s) –Second reinvention of television (1990s – present) Each phase includes a combination of –TV extensions –New delivery platforms –New content providers General trend towards value chain fragmentation Today’s video landscape is messy and complex, and changing quickly Overview of video case study

4. The original broadcast model Big 3 networks TV OTA Simple TV service model –networks produce content –deliver content over licensed spectrum –linear programming, no interactivity –ad-supported service, free to consumers Dominated by big three networks (ABC, CBC, NBC) Vertical integration of production, content aggregation & delivery

5. The first reinvention of television Big 4 networks Cable TV networks TV STB VCR VOD (movies) Recording New delivery platforms New content providers New delivery platform for movies Film studios VCR –late 1970s –time-shifting, ad-skipping, trick plays –on-demand retail channel Cable –retransmits broadcasters signals (1940s) –imports distant broadcast signals (1950s) –Cable content industry is born (1970s) Satellite –Direct-to-home systems (1980s) –Distributes cable & broadcasters programming Satellite TV OTA B&M Cable TV

6. The second reinvention of television Big 4 networks Cable TV networks TV STB/DVR DVD Film studios Digital transmission Digital recording Interactive services (EPG, VOD) VOD added to digital cable PC PDA Transfer of recorded content to PCs, PDAs Satellite TV OTA B&M Post (DVD) Cable TV VOD Linear Digital transmission more channels HDTV enables interactive services (EPG, VOD) Digital recording increases rate of recording enables transfer of recorded content to PCs, PDAs integration with Internet /PC value chain redistribution via Internet

7. Cable TV networks Web video Cell phone PC TV PDA Wireless networks Satellite TV OTA The second reinvention of television Public Internet Private Internet Public Internet B&M Post (DVD) Cable TV VOD Linear Film studios DVD STB/DVR IP STB Big 4 networks New delivery platforms New content providers

8. Video Delivery Platforms PlatformService Examples Public Internet Content accessible over the public Internet Web video: YouTube, iTunes Store, Joost, Innertube, ABC.com Comcast The Fan (MSO Web content accessed from outside the MSO’s network) P2P networks (authorized & unauthorized) Mobile TV services (e.g., Slingbox on VoIP phone) Private Internet (IPTV) Content accessible from the operator’s private IP network Telco IPTV model Verizon FIOS – On Demand content only Comcast The Fan (MSO Web content accessed from inside the MSO’s network) MSO Web content over IP Next Generation Mobile TV services (IP over next generation networks) Proprietary Networks Content accessible from the operator’s private proprietary (non-IP) network Digital cable and satellite services Verizon FIOS – everything but On Demand content Mobile TV services, (e.g., Verizon VCast, MobiTV) Proprietary IP Closed Short tail QoS Open Short + long tail Best effort

9. Video Delivery Platforms PlatformService Examples Public Internet Content accessible over the public Internet Web video: YouTube, iTunes Store, Joost, Innertube, ABC.com Comcast The Fan (MSO Web content accessed from outside the MSO’s network) P2P networks (authorized & unauthorized) Mobile TV services (e.g., Slingbox on VoIP phone) Private Internet (IPTV) Content accessible from the operator’s private IP network Telco IPTV model Verizon FIOS – On Demand content only Comcast The Fan (MSO Web content accessed from inside the MSO’s network) MSO Web content over IP Next Generation Mobile TV services (IP over next generation networks) Proprietary Networks Content accessible from the operator’s private proprietary (non-IP) network Digital cable and satellite services Verizon FIOS – everything but On Demand content Mobile TV services, (e.g., Verizon VCast, MobiTV) Proprietary IP Closed Short tail QoS Open Short + long tail Best effort Web TV services Carrier-based TV services Over IP Over proprietary networks

10. Digital Cable TV (QAM) closed delivery platform short tail content QoS connection non-IP stream Internet open delivery platform short + long tail content best effort connection IP stream MSO acquired content VOD PC modem TV QAM STB TV bridge Apple TV Akimbo Media center TiVo MSO Servers Web Web vs carrier-based TV You Tube iTunes Joost

11. Digital Cable TV (QAM) Internet QoS path for YouTube content MSO acquired content VOD PC modem TV QAM STB IP STB Home Network TV bridge Apple TV Akimbo Media center modem Option B Option A Cable MSO Web Web video over “Cable IPTV” You Tube QAM path for YouTube content You Tube iTunes Joost

12. Will Web TV compete with or complement carrier- based TV services? “Unbundled value chains innovate faster. The Apple’s and Microsoft’s will provide experiences, not pipes and will be more agile than the network operators who provide more integrated services.” “The user has become the master. Consumers know how to put together their own bundle of services. It doesn’t have to be an integrated solution.” “We’re starting to see the tail wagging the dog – the terminal is driving consumer choices. In the future, Sony and Samsung will have TVs connected to the Internet. People will buy devices that happen to connect to content.” “At the end of the day, most people buy bundles of services. The consumer will buy the least costly package.”