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Cannes, France

www.mipworld.com

All rights reserved

April 2012

The CE device and content

services landscape

Opportunities and challenges

for IP video distribution

By Merrick Kingston, Senior Analyst-TV Technology, IHS Screen Digest (UK)

All rights reserved

What do we want to cover?

• Changes in the consumer electronic (CE) device market

• The content delivery opportunities that CE devices are creating

• The firms who are seizing this opportunity

• The challenges and economic realities that define the intersection of CE devices and content today

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The Big Picture: the CE device landscape is changing

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And CE devices aren’t simply ‘on the market’ – they

are rapidly starting to overtake broadcast devices

0

500

1000

1500

2000

2500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Devic

es

in

sta

lle

d (

m)

North America, Western Europe: devices types installed

Non-connectable TV sets

IP connectable devices: handsets, tablets, PMPs, game consoles, PCs, TV sets, BD players

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Why does this matter in the media space? Because

there’s an easy way to provision a connectable CE

device with content…

Digital Video

Internet! closed network

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And thankfully, broadband penetration is there to

support this IP delivery

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2005 2010 2015

Broadband penetration by country Hong Kong

South Korea

France

Turkey

Spain

UK

Italy

USA

Germany

Australia

South Africa

Japan

China

Russia

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So what happens in a world where the TV set cedes

10% of its position every 4 years?

0%

10%

20%

30%

40%

50%

60%

2006 2010 2014

per

cen

tage

(%

)

North America and Western Europe: percentage of devices installed

Standalone IP streamer

Connectable Blu-ray

Hybrid set-tops

Smartphones

PCs

Total TV sets

Connectable games console

Connectable TV set

Tablets

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We inch toward having 4 connectable CE devices

accessible per TV household…

0,0

0,5

1,0

1,5

2,0

2,5

3,0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Devic

es

per

TV

ho

use

ho

ld (

un

its)

North America, Western Europe: connectable devices per TV household

Total TV Sets PCs Smartphones

Tablets Connectable TV set Games Consoles

Connectable Blu-ray Hybrid set-tops Standalone IP streamer

1.6 video devices (non-PC/TV)

4.0 video devices (non-PC/TV)

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Now the usual suspects are taking advantage of this

opportunity, but in different ways

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On the whole, pay-TV has not gravitated unilaterally

toward multiscreen, IP video distribution

NAM, WEU 2011:

145 major

pay-TV

operators

WEU

Multiscreen

30

NAM

Multiscreen

13

NAM pay-TV:

21 major

operators

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But trends are what matter; pay-TV operators are

increasingly embracing connectable CE

0

2

4

6

8

10

12

14

16

2005 2006 2007 2008 2009 2010 2011

NAM and WEU: cumulative pay-TV operator multiscreen deployments

Cable

IPTV

DTH

DTT

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And the portable device ecosystem – smartphones,

tablets – has been a key driver of these deployments

0

10

20

30

40

50

60

70

Pay-TV multiscreen deployments by device

2009

2012

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By and large, operators are bundling multiscreen, IP-

video services within their TV subscriptions

0

5

10

15

20

25

30

35

40

45

Dep

loym

en

ts (

#)

Pay-TV multiscreen deployments by business model

Bundled

Additional subscription

Transaction-based acces

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The changing CE space is also allowing hardware

vendors to provision their devices directly with

content – by going over-the-top

What is over-the-top:

•TV delivered via open internet to PCs, set-top boxes, games consoles,

etc., TVs

•this can include online services from pay TV operators

What it is not:

•Delivery via a managed network (i.e. IPTV)

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In effect, device vendors are becoming virtual

operators

Can you create an app? you can become a content provider that is carried on-

device

Can you curate streaming apps within a blended UI? you become a network

aggregator…which makes you a virtual pay-TV operator

Netflix Hulu Plus YouTube CBS Amazon VoD Vudu Own Content

Store

Sony Con, TV, BD Con, TV, BD TV, BD TV, BD TV, BD All

Vizio TV, BD TV, BD TV TV TV All (Roxio)

Samsung TV, BD TV, BD, T BD, T TV TV TV, BD

Microsoft Con Con All

Apple STB, T, P T, P STB, T, P All

Virtual operators and multiscreen OTT networks in the US

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What we are witnessing is the rise of an ‘ecosystem’

model, where vendors distribute seamlessly across

multiple screens

TVs… PCs…

Portables…

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Does ecosystem ownership matter? Online movies

sales are dominated by those who do

• Worldwide leader

• 44.8% of transactions

• Second largest

• 10.7% of transactions

• Third largest

• 7.3% of transactions

Global online movies transactions:

market leaders’ share 2011

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And the online movie business generated $1bn in

2011…

-

0,2

0,4

0,6

0,8

1,0

1,2

1,4

1,6

1,8

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Global Online Movie Consumer Revenue ($bn)

Retail Rental

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How about online TV? This is a $3.7bn industry, which

mostly goes back to broadcasters

0

1

2

3

4

5

6

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Global Online TV consumer and advertiser revenues ($bn)

DTO PPV Subscription Ad funded

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And given their realities of the advertising value chain,

broadcasters are enviably positioned within this

online TV space

73%

19%

8%

Germany

Broadcasters Portals

42%

49%

2% 6% 1% Italy

Pay-TV operators Premium cable channels

57% 22%

0%

16%

2% 3%

USA

76%

4%

3% 1% 7%

9% UK

87%

6%

4% 1% 2%

France

57%

37%

2% 4% Spain

Sports leagues Others

2009 share of ad-supported online TV revenues

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iPlayer in particular is a model to look to; it is

becoming a connected devices network with few

restraints

• BBC’s iPlayer available not just on PC,

but also via:

• Virgin Media cable TV

• Nintendo Wii

• PS3

• Xbox360

• iPhone

• >20 mobile devices

17%2%

5%

70%

6%

Virgin Media Wii PS3 Computers Mobile devices*

*Mobile devices includes iPad & iPod Touch

iPlayer views by platform 2010

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But IP video traffic isn’t free, particularly for content

owners and OTT aggregators who have to rely on 3rd

party distribution

0

2

4

6

8

10

12

14

16

18

20

2009 2010 2011 2012 2013 2014

Online video traffic globally – Exabytes (EB) transfered

premium online video: movie and TV pay operator IP-VoD: total bits user gen: total bits

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And in the grand scheme of things, online consumer

media spend is still small

2%

54%

10% 1%

6%

2%

2%

10%

12%

Western Europe 2011: consumer leisure spend

Pay-TV VoD

Pay-TV subscriptions

Games

Mobile Games

Mobile Video

Mobile Music

On-line video

On-line music

Physical music

Physical rental

BD disc rental

DVD retail

Cinema

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All of which makes supporting multiple devices a real

challenge, particularly for those who…

…have to develop apps across operating systems, rely on 3rd party networks,

aggregate content, but don’t have a core CE business

Unique

app

platform

Unique

app

platform

Unique

app

platform

headend headend

headend headend

core

router

core

router core

router

network

core

access

network

aggregation

router

core

router

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The online media space becomes even less of a picnic

when tensions between pipe ownership, and content

distribution, flare…

Content and

app blocking

KT Broadband

household

(SK)

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Where does this leave us?

• Pay-TV has a strong position in IP video to CE – they own the last mile infrastructure that anybody’s content must transit

• But can pay-TV generate revenue from IP video services that are being bundled into TV subscriptions? Advanced ad serving holds promise…but requires the cooperation of channels, networks, and broadcasters

• The broadcast world has been at the forefront of multi-device, catch-up TV delivery; however, with audiences and views moving away from the TV set – as new devices enter the picture – margins from ad-funded, online content do necessarily smooth viewership fragmentation

• Vendors have had success tying their proprietary devices into content ecosystems; but in a supposedly net-neutral world, the backlash associated with these new sources of IP traffic have occasionally been stark

• Purely virtual, online content aggregators are currently pricing well below many subscription pay-TV thresholds, and have done an excellent job of supporting a huge range of devices; subscription numbers are a testament to this

• Can aggregators secure more rights in a manner that’s economically achievable?

• A brave new CE device world indeed!...

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About IHS Screen Digest

• Largest media-focused research firm in the world with > 50 analysts covering over 65 global territories

• 40 years of experience tracking and forecasting media markets worldwide

• Continuous online Intelligence research services

• Constantly updated and comprehensive market data and forecasts

• Flow of analytical reports

• Strategic consultancy

• Recently merged with iSuppli – and both companies acquired by IHS ($1bn leader in “critical information & insight”)

•170 analysts for a complete TMT coverage (technology, media & telecommunications)

•4,400 employees in 30 countries, speaking 50 different languages

Author’s presentation

Within the TV Technology team, Merrick focuses on the strategies, business models, and systems that operators and service providers employ to build content-and-connectable-CE-device ecosystems. Since joining in early 2009, Merrick has helped to develop and launch IHS Screen Digest’s TV Multiscreen Intelligence service, and has experience across a wide complement of work undertaken as part of IHS Screen Digest’s private consulting business. He holds an MSc in Political Economy from the London School of Economics, and speaks fluent Italian, French, and Danish.

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