© 2009 IBM Corporation1 Telco, media, entertainment and consumer electronics companies face an overlapping set of challenges and opportunities Companies have strategic alternatives to consider through innovation, collaboration and insight Growth in new services will continue to have unexpected consequences Value shifts continue to be significant among content, distribution, and device industries

© 2009 IBM Corporation2 Media and Telecommunications industries continue to fragment with winning and losing segments becoming clearer Sources: Veronis Suhler Communications Forecast, PwC Global Media Outlook 2009 – 2013, IBM Analysis US Media Projected Audience and Revenue Growth Size of bubble = 2008 revenues Industry Challenges Ad-supported new distribution platforms not offsetting analog losses Consumer behavior outpaces suppliers Contention between audience fragmentation and quality programming Value shifts to device manufacturers as connected services become the norm Home Video Newspaper Pay TV Online Advertising Video Gaming Radio Magazine Consumer Book Box Office Broadcast TV Music -15% -10% -5% 0% 5% 10% 15% -15%-10%-5% 5%10%15% 2008 – 2012 (E) Revenue Growth 2008 – 2012 (E) Time / User Growth 25% Mobile Advertising Pay TV Advertising

© 2009 IBM Corporation3 Media and Telecommunications industries continue to fragment with winning and losing segments becoming clearer Global Telecommunications Projected Penetration and Revenue Growth Mobile Content Mobile Broadband Fixed Broadband M2M Fixed Voice -10% 10% 20% 30% -5% 0% 5%10%15%20%35% (E) Revenue Growth 2008 – 2012 (E) Penetration Growth Mobile Voice and SMS IPTV Size of bubble = 2008 revenues Sources: iDATE, PwC Global Media Outlook 2009 – 2013, IBM Analysis Industry Challenges  Service/device saturation and competition from low cost or free alternatives  Maintaining wireless ARPU while growing broadband, adjacent, and vertical services  Investments seem to undervalue the threat of IP players

© 2009 IBM Corporation4 Unique monthly visitors grew from 475,000 to 55 million in the last 18 months Twitter Revenue to date = $0 “Twitter has had the single greatest impact on making or breaking a movie since the advent of television.” Michael Lynton, CEO Sony Pictures Growth of new services are creating some unexpected consequences Sources: Economist Media Convergence, MPAA Movie Analysis, web site searches, IBM Analysis Traffic is exploding…. Revenue is minimal…. The impact is real….

© 2009 IBM Corporation5 Hulu has more monthly unique viewers than the top two largest US cable operators combined Traffic is exploding…. Online revenues/thousand viewers estimated at 1/10 th of Broadcast Revenue is minimal…. “An entire generation is growing up, if we don’t figure out how to change their behavior so it respects copyright and subscription revenue on the part of distributors, we’re going to wake up and see cord cutting.“ Steve Burke, COO Comcast Source: D7 summit, CTAM 2009 Summit, UBS Pay TV analysis, LA Times, IBM analysis Growth of new services are creating some unexpected consequences The impact is real….

© 2009 IBM Corporation6 Traffic is exploding…. Skype 2008 revenues ~ $550M Skype has 8% volume share, but less than 1% of revenue The impact is real…. In 2008, Skype, Ltd. became the world’s largest provider of international voice, with 33 Billion minutes Source: TeleGeography, Financial Times, Wired Magazine, IBM analysis “Google is saying it wants to be the world’s communication hub, and hundreds of companies — ranging from mobile phone operators to Skype to Microsoft better be listening.” Wired Magazine Growth of new services are creating some unexpected consequences Revenue is minimal….

© 2009 IBM Corporation We will discuss alternative strategies around innovation, collaboration and insight during the next two days 7 Innovation Insight Collaboration Develop programming content to align costs with consumer willingness to pay Acquire content to protect existing distribution assets Create flexible pricing and distribution models to match consumer preferences Source: IBM analysis Succeeding in the new economic environment

© 2009 IBM Corporation We will discuss alternative strategies around innovation, collaboration and insight during the next two days 8 Innovation Insight Collaboration Create product/ service exclusivity Create apps platform for innovation and value creation Incorporate use of shared services within and across an organization Enable cross-device content portability DECE Source: IBM analysis Succeeding in the new economic environment

© 2009 IBM Corporation We will discuss alternative strategies around innovation, collaboration and insight during the next two days 9 Succeeding in the new economic environment Innovation Insight Collaboration Maximize transaction intelligence Focus on personalized, self programmed experience Outsource idea generation Source: IBM analysis