Key Issues in the Digital Home Transition Steve Betz Thomson, Inc N. Meridian, INH 425 Indianapolis, IN 46290

Page 2 Page N° 2 20-Oct-03 A Business Profile Evolution 55% 14% 21% 9% 1% CP Mainstream Essentials Components Content & Network Licensing 1997 Revenues 5,800 M€ 31% 12% 15% 38% 4% Essentials Components Content & Network Licensing CP Mainstream 2002 Revenues 10,187 M€ A significant repositioning toward high growth, high margin activities

Page 3 Page N° 3 20-Oct-03 36% 45% 19% An expanding customer base Media Customers Retail Customers Patents, Licensing, Components

Page 4 Page N° 4 20-Oct-03 Vital Offerings Along the Chain

Page 5 Page N° 5 20-Oct-03 TheaterDVD, VHSSatelliteOver AirCableInternet Video Delivery Infrastructure License and Aggregate Distribution to Service Operators Last “100 Feet” – Home Networking Preparation, Post Production & Management Media Asset Mgmt Distribution Networks Customer Premises Equipment DVD and VHS Players Satellite Set-Top Boxes Television Cable Set- Top Boxes Personal Computer and ???? Theatrical Packaged Media Satellite Over The Air CableInternet Projection Booth Unanswered questions Established, mature business models ??

Page 6 Page N° 6 20-Oct-03 The Digital Home Living Room Kid’s RoomHome Office Kitchen

Page 7 Page N° 7 20-Oct-03 Wired Video Distribution Video Delivery Taxonomy HPNA-Coax a b g a HiperLANII EthernetL-Band ATSC HPNA HomePlug *RG59 = installed in- House coax cable Video Delivery RG59* RG6 RG59* Cat5 Phone Line Power Line WiredWireless Video Networking

Page 8 Page N° 8 20-Oct-03 Data Networks vs. Video Networks Video services have higher requirements for video networks IssueData Service EffectVideo Service Effect Data JitterImmuneVideo frame skips and repeats BufferingImmuneSlows channel change times Packet ErrorsImmune except for UDP style services Video artifacts Video decode failure Low BandwidthSlows throughputVideo decode failure QOS/Priority Management Latency issue for games; otherwise immune Video frame skips and repeats in mixed video/data networks Topology IssuesSlows throughputVideo frame skips and repeats Video decode failure

Page 9 Page N° 9 20-Oct-03 Guaranteed Effective Bandwidth vs. Coverage Video services demand guaranteed bandwidth across all locations and conditions Assume 8Mbps required for two video channels Ethernet can guarantee bandwidth because environment is controlled (point to point copper wire – simple topology/environment) DHN Technology cannot provide guaranteed bandwidth across all environmental conditions Problem area is where DHN technology crosses under required bandwidth.

Page 10 Page N° Oct-03 DHN Customer Care Issues  DHN Complexity –Protocols –DHCP, TCP/IP, UDP, ARP, RARP, etc. –Data networking vendors are still learning how to manage phone support for the typical customer –Subtle Problems –Multiple servers (e.g., DHCP) on the same network can stop operation of specific devices  Combining Data and Video networks on one can create new problems –Uncontrolled devices disrupt video networks

Page 11 Page N° Oct-03 What a difference five years makes… “Even though it's possible to use CD-R to record custom music CDs, the price of the CD-R drive plus blank discs and authoring software, along with the general difficulty of digitizing the source audio has kept the practice from becoming widespread. It will be interesting to see if this changes as CD- R becomes cheaper.” - Jim Taylor, "DVD Demystified", McGraw-Hill, © 1998 “Global sales of pirate CDs have more than doubled in the last three years and now generate an illegal international business of $4.6bn, according to the recording industry. Sales of pirate CDs are estimated to have risen by 4%, exceeding 1 billion units for the first time last year, meaning that one in three of all CDs sold worldwide is a fake. Copying is now more accessible with most computers equipped with CD-Rs and a $65 CD burner.” - Houlhan Lokey Media & Entertainment Weekly Update (July 11, 2003)

Page 12 Page N° Oct-03 Paving the Way to Broadband Entertainment Key Issues 1.Technology: Advanced video compression needed 2.Infrastructure: Delivery mechanisms & business models 3.Security: Only a secure system will get quality content within the release window(s) Thomson Assets 1.Technology: co-developer of MPEG2, now advancing the next generation of compression which is 3X as efficient 2.Infrastructure: Premiere manufacturer of Satellite, DVD & Cable distribution systems, #1 share in Broadband DSL. Video set-top boxes for IP networks. 3.Security: SmartRight content protection scheme for end-to- end security in home networks Thomson technology, assets and relationships will help build a secure broadband entertainment delivery “ecosystem”

Thank You Steve Betz Thomson, Inc N. Meridian, INH 425 Indianapolis, IN 46290