FUTURE OF TV? 2006 Future of Television Forum NYU Stern School of Business John Rose November 14 th, 2006

Future of TV Lunch v.1 TN.ppt GUIDING BELIEFS Distribution will continue to expand and fragment and video will be watched on an ever increasing number of devices Consumer pay models will not replace advertising based models Small changes in viewer and ad patterns will destroy / create disproportionate amounts of value Interactive / digital services will not “fill the gap” New competitors will emerge from historically unrelated business and win big Appointment TV will gradually disappear

Future of TV Lunch v.1 TN.ppt KEY QUESTIONS WE SHOULD BE ASKING (I) How will the consumer watch video in the future? Wrong question What different viewing patterns will different segments of the population exhibit? Right question

Future of TV Lunch v.1 TN.ppt KEY QUESTIONS WE SHOULD BE ASKING (II) Is there a future for TV? Wrong question Who will create and distribute video experiences? Right question

Future of TV Lunch v.1 TN.ppt KEY QUESTIONS WE SHOULD BE ASKING (III) How can I maintain / grow earnings? Wrong question How will money be made and how can I capture that value? Right question

Future of TV Lunch v.1 TN.ppt CD sales decline......as music consumption soars MUSIC INDUSTRY EXAMPLE: SALES AND CONSUMPTION $ millions CD sales millions of songs Songs consumed (1) RealForecasted (1)Includes: Digital singles + digital albums + Recorded CDs + P2P files. Assuming 12 files per album, average number of P2P files shared per day= 30, growth in P2P similar to estimated growth in digital downloads (2)Data prior to 2004 does not include digital downloads. Data prior to 2003 does not include P2P file sharing. Source:Veronis Suhler Stevenson, PQ Media, Recording Industry Association of America. The BigChampagne Group., Bay TSP report Real (2) Forecasted Distribution CAGR % CAGR % CAGR % CAGR % CAGR %

Future of TV Lunch v.1 TN.ppt MUSIC INDUSTRY EXAMPLE: COLLAPSE OF EQUITY VALUE EMI Share price evolution (GBP) Distribution Jan 00Jan 02Mar 03Jan 04Nov 06 CAGR -23% CAGR -67% CAGR +116% CAGR +21% Per share price (GBP)

Future of TV Lunch v.1 TN.ppt TV INDUSTRY STRUCTURE: YESTERDAY Broadcast Satellite DVD Cable VCR FormatReplayAccess devices Satellite set top box DVD Set top box VCR TV Distribution TV INDUSTRY STRUCTURE TODAY Broadcast Satellite DVD Cable VCR Mobile Streaming Internet Streaming DRM enabled downloads Satellite set top box DVD Set top box VCR Sling box TIVO Blue Ray Mobile phone PC Portable Digital Players TV Mobile Phone Game consoles

Future of TV Lunch v.1 TN.ppt AD SPEND VS. CONSUMER PAY (1)Includes revenue from Home Video, Consumer Books, Pure Play Internet Services, Recorded Music, Newspapers, Consumer Magazines, Box Office and Videogames. (2)Includes revenue from Broadcast TV, Cable & Satellite TV, Pure-Play Mobile content, Broadcast and Satellite Radio Source:Veronis Suhler Stevenson $B Media spend Consumer content (1) Access revenue (2) Consumer pay model vs ad model

Future of TV Lunch v.1 TN.ppt Consumer pay model vs ad model CONSUMER DOWNLOAD MODEL VS. AD REVENUE FOR TV NETWORKS Million Comparison of Revenue of Top 10 TV Show and Equivalent Download Revenue iTunes Download model Network TV Model Equivalent revenue requires ~10-15% increase in audience (1)Assumes $26 CPM for Demo (2)Net of 35% Distribution fee Source:TV Dimensions; BCG (1)(2) AdvertisingDownload

Future of TV Lunch v.1 TN.ppt ALTERNATIVE MODELS FOR APPOINTMENT TV Virtual aggregator controlled 3 Appointment TV Consumer controlled: PVR/DVR 1 Which one do you want? Cable / MSO controlled: VOD 2 Network / MSO controlled: VOD 4

Future of TV Lunch v.1 TN.ppt RECENT ACTIONS CompanyAction Date CBS begin selling downloads of Survivor on CBS.com Feb TV networks sue Cablevision for Network DVR Apr iTunes begins selling movies with Disney as its sole partner Sept NBC dedicates 8 p.m. slot for reality, game shows; phasing out scripted shows in first hour of prime time Oct Top ABC shows available for download; Disney nears half-million sales through iTunes Nov Appointment TV

Future of TV Lunch v.1 TN.ppt Changes in audience EFFECTS OF CHANGES IN AUDIENCE Example: Newspaper Company Equity value declined 27% during this period Index (2000 = 100) Readership (11%) Profit Margin (16%) Revenue 19%

Future of TV Lunch v.1 TN.ppt MUSIC EXAMPLE New competitors

Future of TV Lunch v.1 TN.ppt WHAT DO YOU NEED TO DO ABOUT THIS Segment and micro segment the consumer audience Live the relevant consumer(s) view Let go of the past Experiment to find new value proposition(s) Meet the consumer’s needs first