1. 1 What Impact Will Over-the-Top Video Have On Cable Operators? Minnesota Telecom Alliance (“MTA”) Annual Convention and Trade Show March 26-27, 2012 Brian T. Grogan, Esq. 612-877-5340

2. Nothing May Change It is possible that cable TV as we know it will: –Remain available primarily via cable and DBS –People will continue to pay for bundled services –Young adults will come back to Cable TV But it is also possible that change will occur –Perhaps not overnight – but slowly over time Better to be prepared –Ahead of the change –Rather than reacting after the fact 2

3. What is Happening Now? Subscribers are disconnecting from cable –Growth of DBS has been significant –“Over the Top” cable is having an impact Wireless devices (iPad, Smart Phones) Netflix Hulu, YouTube –Economy – high cost New generation not dependant on cable –Few college students subscribe to cable –All college students have broadband service 3

4. 4 2010 Top 15 Cable Operators Subscribers 1.Comcast Corporation 22,363,000 2.Direct TV19,760,000 3.Dish Network Corporation13,945,000 4.Time Warner Cable, Inc.12,109,000 5.Cox Communications, Inc. 4,789,000 6.Charter Communications, Inc. 4,371,000 7.Verizon Communications, Inc. 3,979,000 8.AT&T, Inc. 3,583,000 9.Cablevision Sys. Corp. 3,264,000 10.Bright House Networks, LLC 2,109,000 11.Suddenlink Communications 1,268,000 12.Mediacom 1,100,000 13.Insight Communications 670,000 14.CableOne, Inc. 628,000 15.WideOpenWest Networks, LLC 432,000 Source: NCTA website – September 2011

5. Goldman Sach's Media Conference in NY Verizon Communications CEO Ivan Seidenberg –future generations of consumers won't have any interest in buying service bundles, which can include Internet, pay TV, and telephone –"Young people are pretty smart. They're not going to pay for something they don't need to.” Credit Suisse, financial services company –downgraded media stocks –upgraded Netflix (Pre-Starz termination) –saying its studies show that young adults are now turning to Netflix to acquire film and TV shows. 5

6. Netflix – North America 6

7. Basic Cable Subs ’95- ‘10 7

8. 8 DBS Subscribers 200218,240,000 2003 20,360,000 200423,160,000 2005 26,120,000 2006 27,973,000 201133,500,000+ Source: Jan 2009 FCC report on Competition

9. Has Cable Lost Subscribers? Multichannel Video Service Customers Incumbent cable operators –58.3 Million basic cable subs –2001 total = 66.9 million subs September 2011 NCTA website Non-Incumbent –42.9 Million basic cable subs –Includes DBS, Verizon, AT&T and others September 2011 – NCTA website 9

10. 10 High Speed Internet Customers

11. Basic Cable Phone Subs Year / SubsYear / Subs 1998.1 2005 5.9 1999.3 2006 9.5 2000 1.02007 14.9 2001 1.5 2008 19.6 2002 2.5 2009 22.2 2003 3.02010 23.9 2004 3.8 SNL Kagan – NCTA website 11

12. Cable Industry Data Homes Passed 129.7 M Basic Video subs 58.3 M Basic Cable Penetration 45.0 % Homes Passed by Internet 124.8 M High Speed Internet subs 46.4 M Cable Phone subs 25.0 M Source: SNL Kagan – NCTA website (as of September 2011) 12

13. 13 Cable Industry Revenue (,000s) YearRes VideoOther RevTotal Rev 1996 $24,136 $2,984 $27,120 1997 $26,270 $3,532 $29,802 1998 $27,626 $6,152 $33,778 1999 $30,050 $7,341 $37,391 2000$32,541 $9,575 $42,116 2001 $35,734 $9,743 $45,477 2002 $36,738 $11,160 $47,898 2003 $39,338 $15,056 $54,394 2004 $41,813 $18,212 $60,025 2005 $43,832 $21,846 $65,678 2006 $46,518 $25,354 $71,872 2007 $49,105$29,719 $78,824 2008 $51,467$34,470 $86,281 2009$53,040$36,861$89,901 2010$55,470$38,310$93,780 2011$56,938$40,660$97,598 Source: SNL Kagan – NCTA website (in millions)

14. Cable Statistics National Cable Programming Networks –565 (2006) Price per viewing hr of digital video service –21.1¢ in 2010 Cable advertising revenue –$27.2 B (2010) Franchise Fees Paid by Cable Operators –$2.7 B (2010 est.) Source = NCTA website September 2011 14

15. How Do You Watch TV? 2007 Nielsen Co. study –the average TV household has over 118 channels –but watches just 16 of them... –around 13% What would you pay to watch your 16 channels? Is Cable over the Top the answer? 15

16. Cable Over the Top Models Advertising –$30-$60 per every 1000 viewers Internet views (about the same as TV rates) Cost of an average show = $2-5 million –Excludes reality shows – lower budget –$60 x 5 ads/hr @ 6 million viewers = $1.8 million –CSI Miami = 13 million viewers –Mad Men – maybe 3 million viewers Source = David Colarusso March 2010 http://www.huffingtonpost.com/david-colarusso/the-future-of-cable- telev_b_501895.htmlhttp://www.huffingtonpost.com/david-colarusso/the-future-of-cable- telev_b_501895.html 16

17. Cable Over the Top Models Pay-per-view via: –micro payments; –Subscriptions – monthly payment - all you can eat –standard pay-per-view - $5 per movie $1.99 (e.g. iTunes rate) –for every hour of television watched online –for every show downloaded –Will 1.5 million people pay to view each show? If you pay to view – will you accept ads? 17

18. Online Advertising Revenues 18

19. 2010 Internet Ad Revenues U.S. Internet advertising revenues –2010 $26 Billion –2011 revenue up 22% since Q3 2010 Q3 2011 - $7.88 billion Search-related ads – 11.6% revenue growth Display-related ads - 15% revenue jump Digital video ad revenues up 31% Source - Interactive Advertising Report and PricewaterhouseCoopers. 19

20. Conclusion Charles H. Duell, Director of the U.S. Patent Office 1899 –Everything that can be invented has already been invented. –Charles was wrong! –Every day a new threat to cable TV is developed What options are available? –Be careful regarding retransmission/programming agreements –Sports programming Can’t live without it – Can’t afford it NFL programming about to get very expensive –Will subscribers pay you for programming that is offered for free over the web? –Carefully consider how system capacity is utilized –Listen to subscribers – Program packaging, bundled options, value 20

21. 21 Thank You! Brian T. Grogan, Esq. Moss & Barnett 4800 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402-4129 Phone: 612-877-5340 Facsimile: 612-877-5999 E-mail: groganb@moss-barnett.comgroganb@moss-barnett.com