2. iTV branding and retail Business model and service development to 2006

3. © Datamonitor Version 1 - 21-03-02 3 Contents Market Context – development of iTV branding and retail services and European forecasts Customer Focus – likely use of iTV branding and retail by advertisers and retailers according to product type Competitive Dynamics – iTV branding and retail development by national market The Future Decoded – iTV branding and retail within platform level strategies and evolving business models

4. Market context

5. © Datamonitor Version 1 - 21-03-02 5 From ‘killer app.’ to industry pariah iTV retail and branding services were initially the primary focus of iTV strategies Disappointing early results and changes in the economic environment led to widespread scepticism and hindered investment However, branding and retail will become an important part of the digital and interactive TV environment But not the major revenue generator originally thought by some The TV will remain primarily a branding environment, not a retail platform

6. © Datamonitor Version 1 - 21-03-02 6 Four basic types of strategy, in terms of context and primary aim Walled garden – services positioned in a virtual mall, independent of programming, and accessed through an interactive program guide In-channel – opportunities originating in the channel environment and associated with editorial content Retail channel – addition of interactive purchase capabilities to focused retail channels Branding only – exploitation of iTV for branding and customer relationship purposes as opposed to as a direct sales channel

7. © Datamonitor Version 1 - 21-03-02 7 Towards integrated iTV branding and retail strategies Channel environment Retail environment Advertising iTV info and purchase Separate channel and iTV strategies Programming High-street purchase Traditional model Early iTV model High-street purchase iTV branding and retail Multi-platform strategies Developed iTV model Entertainment content and channel presence drives usage and awareness iTV entertainment content Enhanced programming Interactive advertising iTV retail strategy extends across all content interests

8. © Datamonitor Version 1 - 21-03-02 8 Factors determining the success of iTV branding and retail services Positioning iTV retail to drive awareness and interest – strong presence in channel environment and high profile on regularly used iTV services critical iTV usage must prove rewarding – services need to be entertaining or interesting experience; discounts and competitions will lose appeal and be counterproductive Ensuring relevance to viewing experience – products must be relevant to actual viewing experience, not simply the programming content Balancing priorities and channel focus – operators and broadcasters must retain their focus and clear identity as providers of entertainment and content

9. © Datamonitor Version 1 - 21-03-02 9 Walled garden dominates spend but in- channel presence vital In-channel presence critical in driving awareness and interest, but walled gardens expected to account for 60% of iTV retail spend in 2006

10. © Datamonitor Version 1 - 21-03-02 10 Satellite will continue to dominate iTV branding and retail Development on cable slower due to operator focus on driving digital uptake, while limited services on DTT due to greater FTA focus Digital terrestrial Digital satellite Digital cable 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 200120022003200420052006 Transaction revenues ($million)

11. © Datamonitor Version 1 - 21-03-02 11 iTV retail spend remains dwarfed by content spend Operators and broadcasters will earn most of related revenues from sales of media and services, not from a share of iTV retail spend 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 200120022003200420052006 iTV Retail Pay-TV Consumer spend ($million)

12. Customer focus

13. © Datamonitor Version 1 - 21-03-02 13 Factors determining the appropriate iTV strategy for a given business Nature of relationship with consumers – retailers and brands will exploit iTV in very different ways Product association with programming – determines ability to exploit in-channel presence to drive awareness and interest Product association with viewing experience – determines likely strength of audience response and potential for driving impulse purchases Product cost and complexity – determines whether a direct retail or a branding-only strategy is appropriate and extent of competition from other platforms

14. © Datamonitor Version 1 - 21-03-02 14 Product and service type comparison Healthcare Association with programming Association with viewing experience Cost and complexity Automotive Financial Food Housekeeping Travel & leisure Media Toiletries Telecoms Drink **** ****** ** ***** ** ******** **** ***** *** *

15. © Datamonitor Version 1 - 21-03-02 15 iTV strategy by product type FMCG groups will adopt branding-only iTV strategies – challenges in involving the audience make this a key area for innovation Only large supermarket chains to exploit FMCG retail – but still significant challenges Car manufacturers to make powerful use of iTV branding – obtain details and progress to another environment Media items give rise to powerful iTV retail opportunities – in walled garden and channel environments Travel well suited to the iTV environment – high cost requires both direct retail and informational strategies Telecoms and FS groups to focus on branding and customer relationships – use iTV to generate qualified leads

16. Competitive dynamics

17. © Datamonitor Version 1 - 21-03-02 17 Level of development varies considerably across Europe iTV retail channel Basic iTV Benelux France Germany Italy Nordics Spain UK Enhanced TV Walled garden iTV advertising In-channel commerce Very different levels of service choice, sophistication and coverage, even between the more developed markets and across platforms

18. © Datamonitor Version 1 - 21-03-02 18 UK and France by far the most advanced markets In France services are only available on satellite, while in the UK iTV branding and retail is provided on satellite and by both cable operators In the Nordics advanced in-channel retail is available on entertainment channel eTV, but limited walled garden services and no iTV on many cable platforms In Germany and Benelux no iTV branding or retail services are available; in the latter only basic EPG and informational applications have been deployed

19. © Datamonitor Version 1 - 21-03-02 19 UK will be Europe’s most advanced iTV branding and retail market in 2006 More developed digital TV markets generate higher pay-TV spends and provide more advanced iTV branding and retail iTV retail spend per household ($) Pay-TV spend per household ($) UK Spain Nordics Italy Germany France Benelux 40 60 80 100 120 140 160 250300350400450500550 Digital TV penetration

20. The future decoded

21. © Datamonitor Version 1 - 21-03-02 21 Digital operators will remain driving force behind iTV branding and retail Operators are only likely to derive a very small part of ARPUs from iTV retail, however branding and retail will still be a core component of iTV portfolio Primary benefit of iTV will be brand building – operators will increase business revenues through providing greater value to advertisers and channels By encouraging channels and advertisers to exploit iTV, operators will benefit through increased promotion of iTV in general, benefiting the platform as a whole

22. © Datamonitor Version 1 - 21-03-02 22 Required operator offering to drive branding and retail investment The example the operator sets through their own exploitation of iTV is a significant catalyst for third party investment Operators must provide a flexible set of tools and appropriate environment for application and service design, development and operation, with a particular focus on speed and flexibility An integrated service enabling all features to be sold as a combined offering will accelerate the commercial process and enable the greatest possible upsell

23. © Datamonitor Version 1 - 21-03-02 23 Operators will take on more risk where believe service will prove successful Running costs Variable costs Up-front costs Design & development iTV license & application testing iTV premium on media costs IPG listing & links to service Hosting, broadcast & synchronisation Service updates Share of revenue or margin Fee per transaction Return path usage Subscriber information According to product or service type Per feature per week basis Minimum investment commitment High minimum investment and reduced margin = high risk and limited return potential for merchant Existing complex cost structure Increased revenue predictability Identification of success factors Simplified flexible cost structure Balance depends on perceived risk of merchant strategy Even media costs may be subsidized for close partners Lower running costs and operator backing of service enable higher share of revenues Greater up-front costs for higher risk merchants or strategies Lower minimum investment and greater operator stake = lower risk and greater return for close partners

24. © Datamonitor Version 1 - 21-03-02 24 Operators move towards partnership focus Groups looking to invest in iTV branding and retail need to be convinced that the operator has a real incentive to make the service a success Operators will become more selective, not accepting or providing far less favorable financial terms to businesses perceived as unattractive Operators increasingly looking to develop mutually beneficial strategic partnerships with major retailers and brands