1. KEY SLIDES: Digital Entertainment – Consumers’ Perspectives on Digital Rights Management (DRM) A Jupiter Multiclient Report Peter Sargent Psargent@jupitermedia.com February 2003

2. 2 © 2003 Jupiter Research a division of Jupitermedia Corporation Research Objectives Through collaboration with leading media companies and technology providers, Jupiter is providing research and analysis regarding: –Consumers’ preferences for the consumption of certain types of media and applications across both PC and non-PC devices, as they are packaged and restricted to meet with copyright mandates. –Which features or attributes of a media product/service drive the purchase decision and thus make for an effective pricing and bundling strategy. –Consumer price elasticity given certain copy and file sharing restrictions in accordance with copyright laws. –The best strategy for positioning and communicating these restrictions to end users so as to minimize losses of revenue or goodwill. Media companies and technology providers have been unable to reach common ground on a standard approach for implementing copyright technologies for media content and services.

3. 3 © 2003 Jupiter Research a division of Jupitermedia Corporation Overall Findings – Digital Music Online consumers believe that the terms of ownership and the freedom to copy digital music to other devices is more important than price. –Nearly twice as many consumers are willing to pay $17.99 for a CD that has unrestricted copy abilities versus a CD at only $9.99 that cannot be copied. Caution to content owners wishing to introduce copy restrictions at current prices. Online consumers consider the PC to be the central hub for the copying and porting of music. Online consumers are not interested in renting music.

4. 4 © 2003 Jupiter Research a division of Jupitermedia Corporation High Level Findings - Music “Albums” Introducing copy restrictions to music products at current prices will dramatically affect sales volumes. –At $17.99 for a CD, 41% of online consumers will buy, given the freedom to copy. Only 10% would pay if the CD cannot be copied. –At $9.99 for a CD, 58% of online consumers were willing to buy, given the freedom to copy. Only 23% of consumers would pay if the CD cannot be copied. An album (CD or set of digital [MP3] files) at $17.99 will sell slightly better than an album at $12.99. Demand increases even more significantly when the price is dropped to $9.99. –The difference of $3 between a CD priced at $9.99 and one priced at $12.99 resonates with online consumers. Online consumers have been conditioned to assume that digital music files, once on their PC, can be ported to any playback device.

5. 5 © 2003 Jupiter Research a division of Jupitermedia Corporation High Level Findings - Music Singles At current pricing, Jupiter sees a market for single songs over the Internet. –Online consumers are more likely to purchase a song at 99 cents than they are a CD at $17.99. Consumers are still nearly as likely to purchase a song at $1.99 per song, as the CD at $17.99. Online consumers will not pay for single songs downloaded to their PC that cannot be copied to other playback devices. –47% of respondents would pay 99 cents for such a song, provided it can be copied. Only 17% are interested if the song cannot be copied. Online consumers who also Rip or Burn CDs and those that pay to access music online show greater willingness to purchase music on CDs or via the PC, than most online consumers. File sharers are as likely to purchase digital music as the greater online audience.

6. 6 © 2003 Jupiter Research a division of Jupitermedia Corporation Copied to multiple devices Album on a CD Album downloaded to your PC Single Song downloaded to your PC You Own it Rented for 30 days Rented for 7 days Copied to your PC hard drive Copied to a Disc Copied to a portable device Cannot be copied $17.99 $12.99 $9.99 $1.99 $0.99 Media Source Terms of Rent/Own Copy Allowance Price 17%32%28%22% Importance : Purchasing Preferences for Music Source: Jupiter/The NPD Group, Inc. Custom Media Survey (12/02), n = 892 (US only)

7. 7 © 2003 Jupiter Research a division of Jupitermedia Corporation Overall Findings – Digital Movies Unlike music, price is the primary concern for online consumers when they consider movie purchases/ rentals. Online consumers see little advantage to longer rental agreements (7 days, 30 days) for their movies. Online consumers are willing to pay a premium for the ability to copy their movies, despite the fact that very few consumers can, or actually do, copy them today. Super Net Vets (5+ years online tenure) are less interested in movies on their PC, than the average online consumer. Despite less buying power, 18 to 24 year olds who use the Internet are no more price sensitive to purchasing/ renting movies than the typical online consumer.

8. 8 © 2003 Jupiter Research a division of Jupitermedia Corporation High Level Findings – Movies Continue to restrict copying of DVDs and other digital movie files. As the technology develops, look to introduce copy-permitted movies at premium prices. Online consumers will pay for the freedom to copy as they see fit. –47% of online consumers were willing to pay $19.99 for the freedom to copy their DVD as they see fit. Only 41% of online consumers would pay just $9.99 ($10 less) for the same DVD, if it couldn’t be copied. Developing technology to ease the playback of movies via PC will encourage a niche market. A portion of online consumers will pay for such entertainment - demand exceeds current activity. –One-quarter of consumers said they were willing to pay $9.99 for a movie to be viewed exclusively on their PC. Yet, only 1% of those surveyed have paid to view movies off the Internet on their PC. –43% will pay $9.99 to port that movie from their PC to DVD, their TV, or a portable device. Continue to pursue online users ages 18 to 24 for advanced digital (including PC-based) movie services/products. They are no more price-sensitive than most online consumers.

9. 9 © 2003 Jupiter Research a division of Jupitermedia Corporation High Level Findings – Movies Do NOT specifically target consumers who have longer (5+ years) online tenure for PC-based movie viewing. Savvy users are quicker to acknowledge the inherent limitations of today’s technology and dismiss such services. Online consumers who either rent or purchase just one DVD per month show significantly greater interest in digital video than the more casual consumer. Jupiter believes that (given the technology) online consumers will purchase movies for viewing and storage exclusively through their TV. –37% of online consumers would pay $9.99 for a movie they could store on their TV. Dropping the price of DVD rentals from $5.99 to $3.99 will only result in a 10% increase in volume of rentals. Continue to offer movie rentals with terms from 3-7 days. Longer rental agreements will not spur greater consumer demand. –33% of online consumers would pay $5.99 to rent a DVD for 7 days. Just 34% would rent the same DVD for up to 30 days.

10. 10 © 2003 Jupiter Research a division of Jupitermedia Corporation Movie on a DVD Movie (downloaded on to your PC) Movie (Pay- per-view on TV) You Own it Rented for 30 days Rented for 7 days Rent it for a single viewing Copied to a portable device Copied to PC Hard Drive Copied to a DVD Copied to multiple home devices Cannot be copied $24.99 $19.99 $9.99 $5.99 $3.99 Purchasing Preferences for Movies Media Source Terms of Rent/Own Copy Allowance Price 16%24%17%43% Importance : Source: Jupiter/The NPD Group, Inc. DRM Survey (12/02), n = 871 (US only)