1. U.S. DTV Environment Overview TV-Anytime IDE San Jose, CA 20 September 2004 Skip Pizzi Manager, Technical Policy Media/Entertainment & Technology Convergence Group Microsoft Corporation

2. US Digital TV environment Terrestrial TV Terrestrial TV  Second channels assigned to existing licensees  ATSC standard, 6MHz channels in VHF and UHF bands  MPEG-2 video; Dolby Digital (2.0 or 5.1 ch) audio  Analog shutoff now set for 2009  Regulatory (FCC) vs. Legislative rulings (Congress)  “Broadcast Flag” operation begins July 2005 Cable TV Cable TV  Digital cable deploying now (CableLabs OpenCable std)  Unidirectional Plug & Play (“Digital Cable-Ready”) regulations now coming into effect  Bi-directional Plug & Play under development Satellite TV Satellite TV  DIRECTV (proprietary)  Dish Network/Echostar (DVB-S)  VOOM (all HD)

3. Terrestrial DTV Terrestrial DTV Conversion of broadcasters to DTV now nearly complete (analog continues until at least 2009)… Conversion of broadcasters to DTV now nearly complete (analog continues until at least 2009)… Although only about 10% of US homes are OTA-only Although only about 10% of US homes are OTA-only  Cable ~70%  Satellite ~20% ATSC support now mandated in receivers and cable systems (phase-in requirement) ATSC support now mandated in receivers and cable systems (phase-in requirement) Satellite adding local DTV carriage in 2005 Satellite adding local DTV carriage in 2005 Broadcast Flag now mandated Broadcast Flag now mandated

4. Broadcast Flag “Redistribution Control Descriptor” “Redistribution Control Descriptor” Marks content for protection by receiver Marks content for protection by receiver Content is in the clear during broadcast, but encrypted in consumer equipment Content is in the clear during broadcast, but encrypted in consumer equipment Only unauthorized use is Internet redistribution of content Only unauthorized use is Internet redistribution of content FCC has approved 13 technologies from 10 companies for BF content protection FCC has approved 13 technologies from 10 companies for BF content protection Separate but similar process underway for digital cable content protection Separate but similar process underway for digital cable content protection

5. HDTV’s appeal is strong HD content growing on local OTA broadcast channels (mostly national network content) HD content growing on local OTA broadcast channels (mostly national network content) Broadcast networks running much of prime time programming and some sports in HD Broadcast networks running much of prime time programming and some sports in HD Non-broadcast cable/sat HD channels include movies, sports and documentary content Non-broadcast cable/sat HD channels include movies, sports and documentary content  HBO, Showtime, HDNet (2), ESPN, Discovery, Bravo, Adult  More national HD channels and PPV/VOD emerging  Local HD channel carriage increasing on digital cable/sat  Broadcast network HD feeds on satellite for rural areas HD-PVR debuted in Spring 2004 HD-PVR debuted in Spring 2004

6. Emergence of the PVR Strong desire yet relatively low penetration Strong desire yet relatively low penetration Hardware + subscription purchase hurdle Hardware + subscription purchase hurdle Cheap or freely provided Sat/Cable STB+PVR overcoming consumer resistance Cheap or freely provided Sat/Cable STB+PVR overcoming consumer resistance Ad-skipping and Internet redistribution concerns remain Ad-skipping and Internet redistribution concerns remain New metadata standards under development New metadata standards under development  ATSC T3/S8-3  CableLabs

7. Next-gen PVRs More storage (50-100 hrs) More storage (50-100 hrs) HD capability (10-12 hrs) HD capability (10-12 hrs) PVR included in new cable STBs PVR included in new cable STBs PC as PVR (e.g., WindowsXP Media Center Edition) PC as PVR (e.g., WindowsXP Media Center Edition) Storage of content beyond A/V Storage of content beyond A/V Enabling home media networks Enabling home media networks More intelligence More intelligence  Improved searching  Segmentation/Micro-navigation (DVD-like)

8. DTV Datacasting Advanced codecs used for additional A/V streams Advanced codecs used for additional A/V streams Adds narrowcast content to terrestrial DTV Adds narrowcast content to terrestrial DTV Allows file downloads or web content delivery to wireless devices Allows file downloads or web content delivery to wireless devices Demos in place at several TV stations today Demos in place at several TV stations today USDTV is first commercialization USDTV is first commercialization

9. DTV Market Summary Digital TV offers opportunities for more content delivery Digital TV offers opportunities for more content delivery  TV style via multicast  IP style via datacast Digital TV is changing usage patterns and adding personalization to TV Digital TV is changing usage patterns and adding personalization to TV Convergence can provide powerful new communication platform Convergence can provide powerful new communication platform N. American DTV market is large but fragmented N. American DTV market is large but fragmented