1. Entertainment Trends Research Kurt Scherf Vice President, Principal Analyst

2. Slide 2 Attribution Author: Kurt Scherf Executive Editor: Brett Sappington Published by Parks Associates © February 2009 Parks Associates Dallas, Texas 75230 All rights reserved. No part of this report may be reproduced, in any form or by any means, without permission in writing from the publisher. Printed in the United States of America Disclaimer Parks Associates has made every reasonable effort to ensure that all information in this report is correct. We assume no responsibility for any inadvertent errors. Analyst:KS 2/4/09 Exec Edit:BLS 2/4/09 BD: RS 2/4/09 Attribution & Disclaimer

3. Slide 3 Slide Deck Outline Slides 4-6:TV 2.0: Study Goals and Methodology Slides 7-18: Baseline Numbers: Entertainment Users Slides 19-28:Changes in Video Behavior Slides 29-43: Analysis of Changes in Video Behavior Slides 44-49:Consumer Interest in VoD Enhancements Slides 50-54:Consumer Interest in BD-Live Features

4. Slide 4 TV 2.0: Study Goals and Methodology

5. Slide 5 TV 2.0: The Consumer Perspective Survey Methodology TV 2.0: The Consumer Perspective survey fielded in July 2008 to a total of 2,729 heads-of-household in the United States and 1,161 in Canada. Respondents were from a panel recruited by a third-party vendor and interviewed via the Internet. All qualified respondents had equal or greater input in household decision making, are over age 18, and have broadband access at home. The demographic composition of the U.S. sample is based upon Parks Associates’ National Technology Scan and matches the demographics of U.S. households with broadband service. The base sample of 2,729 respondents (U.S.) and 1,161 (Canada) has a +/- 2% and +/- 3% margin of variance, respectively, at a 95% confidence level.

6. Slide 6 TV 2.0: The Consumer Perspective Questionnaire Overview Section 200: Household Services Section 300: Internet Services Section 400: Product Ownership Section 500: Entertainment Habits Section 600: Television Services Section 700: New TV Features

7. Slide 7 Baseline Numbers: Entertainment Users

8. Slide 8 Video Entertainment Habits Surprisingly, respondents with children at home go to the cinema more than those without children. Two factors may explain why. 1) Senior adults (who do not typically have children at home) go to the cinema less frequently than their younger peers. 2) A significant number of respondents will have children old enough to temporarily care for themselves and allow the parents to go to the cinema. Surprisingly, respondents with children at home go to the cinema more than those without children. Two factors may explain why. 1) Senior adults (who do not typically have children at home) go to the cinema less frequently than their younger peers. 2) A significant number of respondents will have children old enough to temporarily care for themselves and allow the parents to go to the cinema.

9. Slide 9 Establishing a Baseline: Premium TV Subscribers The adoption of premium services generally correlates with income; i.e., those with higher incomes are more likely to have these services than those with lower incomes.

10. Slide 10 Establishing a Baseline: TV and Movie Rental Sources Consumers renting DVDs from retail rental stores may soon be a minority thanks to the growing popularity of alternatives. Respondents age 25-34 are more likely to use movies- by-mail services than those in other age groups.

11. Slide 11 Netflix and Blockbuster Subscribers* * Blockbuster’s sub count is an estimate

12. Slide 12 Online Video Trends Nearly one- half of respondents age 18-24 download full- length movies from the Internet. Conversely, only 5% of respondents age 55+ have ever done so. Nearly one- half of respondents age 18-24 download full- length movies from the Internet. Conversely, only 5% of respondents age 55+ have ever done so.

13. Slide 13 Expenditures for Online Video Regardless of their age, a substantial portion of respondents do not pay to download/ stream movies. Those age 25- 34 are the most likely to pay while those age 55+ are the least likely to pay.

14. Slide 14 Where is Online Video Being Viewed? There exists a direct correlation between age and computer/TV/PMP viewing habits. Younger consumers are much more likely to view content on a PMP or TV than are older consumers.

15. Slide 15 How Interested are Consumers in “Over-the-Top” Set-top Boxes? Few consumers find over-the-top, VoD devices appealing. However among those planning to subscribe to a pay-TV service, nearly two-thirds rate the idea a 5+ (i.e., at least somewhat appealing). Such devices will find a market opportunity as familiarity spreads.

16. Slide 16 Willingness to Spend on an “OTT” STB Factoring price points with interest levels suggests that OTT VoD devices will garner the most revenue if they are priced at $100 or less. Today, demand is concentrated among consumers age 18-34. Factoring price points with interest levels suggests that OTT VoD devices will garner the most revenue if they are priced at $100 or less. Today, demand is concentrated among consumers age 18-34.

17. Slide 17 Important Features for an “OTT” STB Early release of movie titles will clearly be the strongest driver for OTT VoD device adoption. Predictably, early release is particularly important to respondents with children in the home. It is also relatively important to consumers age 18-34.

18. Slide 18 What are Consumers Willing to Pay to Get Content at an “OTT” STB? Consumers are willing to pay a premium, on average, in order to see films sooner. However, many respondents reported a willingness to pay exorbitant amounts (>$100). These respondents must be assumed to be either outliers or commercial pirates hoping to profit from early release of the film. Once they are removed, average amounts remain at a premium, albeit a smaller one.

19. Slide 19 Changes in Video Behavior

20. Slide 20 Notes on Changes in Video Behavior Economic factors are dampening cinema attendance. –Respondents with an income under $100k are more likely than those with higher incomes to report that their cinema attendance has dropped in the past two years. Movie downloading is popular among young broadband users for a variety of reasons. –Nearly one-half of respondents age 18-24 download full-length movies from the Internet. –Those age 18-34 download nearly 4 movies per month, on average. –Among those age 18-24, downloading & streaming movies: 53% do so because the movies are free 44% feel it is more convenient than alternatives 40% feel the selection online is better.

21. Slide 21 Summary: What Entertainment Trends are Gaining and Which are Losing Ground? Cinema viewing is taking the hardest hit in terms of reduced video viewing. Respondents with moderate incomes (under $100K) are more likely to report decreased viewing, presumably due to economic factors.* Consumers age 25-34 also appear to be polarizing into high and low viewing groups. 42% said viewing was decreasing while 19% said viewing was increasing. Both figures are above the overall average. *In the past 2 years, cinema tickets have increase $0.50 on average per the National Association of Theater Owners. Cinema viewing is taking the hardest hit in terms of reduced video viewing. Respondents with moderate incomes (under $100K) are more likely to report decreased viewing, presumably due to economic factors.* Consumers age 25-34 also appear to be polarizing into high and low viewing groups. 42% said viewing was decreasing while 19% said viewing was increasing. Both figures are above the overall average. *In the past 2 years, cinema tickets have increase $0.50 on average per the National Association of Theater Owners.

22. Slide 22 VoD Use Notes VoD is very important to households with children. –Households with 2+ children are more likely than other HHs to watch VoD, feel VoD features are important, and say their VoD use is increasing. –Nearly 50% of respondents with 3+ children at home say they would watch more VoD if the titles were available on the same day as the theatrical release. –Early release of VoD titles is particularly likely to trigger rentals by respondents with 2+ children at home.

23. Slide 23 Changes in VoD Habits VoD usage is increasing in general, particularly so among HHs with 2+ children. More eyeballs at home translates into more usage.

24. Slide 24 Premium VoD Use is Growing: Percentage of Digital Cable Subscribers

25. Slide 25 VoD is the Biggest Variable in Determining Customer Satisfaction

26. Slide 26 What Value Does VoD Add to TV Services?

27. Slide 27 Compare Satisfaction of VoD Users to Subscribers to HD Services Source: TV 2.0: The Consumer Perspective Sample base: 2,720 broadband HHs in the U.S., ±2% © 2008 Parks Associates: 74% of active VoD users are highly satisfied

28. Slide 28 Compare Satisfaction of VoD Users to Subscribers of Additional Video Packages 74% of active VoD users are highly satisfied

29. Slide 29 Analysis of Changes in Video Behavior

30. Slide 30 Notes on Video Changes Analysis, I Parks Associates analyzed the variables that would possibly impact a reported decrease of video and entertainment habits –The analysis examined how video and entertainment habits may be decreasing as a result of consumers trading time from established to newer entertainment habits –The analysis first reviewed reported changes / increases among video and entertainment habits (i.e., examining whether consumers are trading time from one habit for another habit): Increase in watching rented movies (n=775, ±4%) Increase in watching purchased movies (n=575, ±4%) Increase in watching movies at a theater/cinema (n=343, ±5%) Increase in watching rented DVD television series (n=395, ±5%) Increase in watching purchased DVD television services (n=456, ±5%) Increase in watching primetime television shows (n=783, ±4%) Increase in watching subscription VoD (HBO) (n=480, ±4%) Increase in watching movies on VoD (n=481, ±4%) Increase in watching free VoD (n=587, ±4%)

31. Slide 31 Notes on Video Changes Analysis, II Parks Associates analyzed the variables that would possibly impact a reported decrease of video and entertainment habits –The analysis also examined how video and entertainment habits may be decreasing as a result of consumers adopting new digital consumer electronics products and using digital media services: Own DVR (n=1,091, ±3%) Own high-definition TV (n=1,400, ±3%) Own home theater system (n=969, ±3%) Own Xbox 360/PlayStation3 (n=530, ±4%) Own Media Center PC (n=1,568, ±2%) Own Blu-ray player (n=167, ±8%) Netflix/Blockbuster TOTAL ACCESS subscriber (n=640, ±4%) Watch online movies at least monthly (n=508, ±4%) Watch online TV at least monthly (n=640, ±4%) Xbox LIVE monthly user (n=108, ±9%)

32. Slide 32 Key Takeaways from the Analysis, I Seeing movies in the theater/cinema is most impacted by trade-offs with new entertainment experiences, particularly increases in the frequency of: –Movie rentals; –Primetime television viewing; –Watching movies on VoD; and –Watching free VoD. Buying DVD movies is most impacted by: –Increases in the frequency of primetime television viewing; and –Having a subscription to Netflix or Blockbuster TOTAL ACCESS; and Renting DVD movies is most impacted by: –Increases in the frequency of primetime television viewing; and Digital products are not the problem. –Increases in video consumption across the board are more likely with the introduction of Xbox 360s and PlayStation 3’s. –Among digital products, DVR/TiVo is the only device that shows a statistically significant, negative impact on the frequency of seeing movies in the theater.

33. Slide 33 Key Takeaways from the Analysis, II Online video’s impact is negligible. –We can find no evidence to support the theory that online video is causing churn from traditional entertainment activities. It appears to be more of a complement for consumers already heavily engaged in video habits. Age is a strong determinant in both increases and decreases in activities. –As could be expected, older age groups start to move entertainment inside the home, reflecting decreases in watching movies in the theater. –VoD becomes an important component of entertainment habits for consumers in the 24-35 age range, reflecting marriage and the starting of families.

34. Slide 34 Video/Entertainment Habits on the Decrease: Watching Movies in the Theater/Cinema Variables that came out as statistically significant in generating a decrease in watching movies in the theater/cinema are: Increase in watching rented movies (n=775, ±4%) Increase in watching primetime television shows (n=783, ±4%) Increase in watching movies on VoD (n=481, ±4%) Increase in watching free VoD (n=587, ±4%) Ownership of digital products and use of digital media services do not provide statistically significant variances. Age is a significant factor in the the frequency of watching movies in the theater. Younger consumers (age 18-24) are more likely to report an increase, whereas consumers age 25-34 are more likely to report a decrease. Variables that came out as statistically significant in generating a decrease in watching movies in the theater/cinema are: Increase in watching rented movies (n=775, ±4%) Increase in watching primetime television shows (n=783, ±4%) Increase in watching movies on VoD (n=481, ±4%) Increase in watching free VoD (n=587, ±4%) Ownership of digital products and use of digital media services do not provide statistically significant variances. Age is a significant factor in the the frequency of watching movies in the theater. Younger consumers (age 18-24) are more likely to report an increase, whereas consumers age 25-34 are more likely to report a decrease.

35. Slide 35 Video/Entertainment Habits on the Decrease: Watching Rented DVD Television Series Variables that came out as statistically significant in generating a decrease in watching rented DVD television series are: Ownership of a Media Center PC Variables that came out as statistically significant in generating a decrease in watching rented DVD television series are: Ownership of a Media Center PC

36. Slide 36 Video/Entertainment Habits on the Decrease: Watching Purchased DVD Television Series Variables that came out as statistically significant in generating a decrease in watching purchased DVD television series are: Ownership of a Media Center PC (and this is a very minor increase) The use of mail-order movie rental services (Netflix) and the use of Xbox LIVE are two variables that are statistically correlated to increases in the frequency of watching purchased DVD television series. Variables that came out as statistically significant in generating a decrease in watching purchased DVD television series are: Ownership of a Media Center PC (and this is a very minor increase) The use of mail-order movie rental services (Netflix) and the use of Xbox LIVE are two variables that are statistically correlated to increases in the frequency of watching purchased DVD television series.

37. Slide 37 Video/Entertainment Habits on the Decrease: Watching Purchased Movies Variables that came out as statistically significant in generating a decrease in watching purchased movies are: Consumers reporting an increase in watching primetime television shows. Use of movie rental services such as Netflix. The presence of a Media Center PC in the household. Younger consumers (18-35) are significantly more likely to report an increase in the frequency in which they are watching purchased movies. Variables that came out as statistically significant in generating a decrease in watching purchased movies are: Consumers reporting an increase in watching primetime television shows. Use of movie rental services such as Netflix. The presence of a Media Center PC in the household. Younger consumers (18-35) are significantly more likely to report an increase in the frequency in which they are watching purchased movies.

38. Slide 38 Video/Entertainment Habits on the Decrease: Watching Rented Movies Variables that came out as statistically significant in generating a decrease in watching rented movies are: Consumers reporting an increase in watching primetime television shows. The presence of a Media Center PC in the household. As in the case with movie purchases, the frequency with which consumers report an increase in watching rented movies is most notable among younger consumers, particularly the 18-24 (39%) and 25-34 (40%) age ranges. Importantly, 28% of the total sample reported an increase in the frequency of watching rented movies. Variables that came out as statistically significant in generating a decrease in watching rented movies are: Consumers reporting an increase in watching primetime television shows. The presence of a Media Center PC in the household. As in the case with movie purchases, the frequency with which consumers report an increase in watching rented movies is most notable among younger consumers, particularly the 18-24 (39%) and 25-34 (40%) age ranges. Importantly, 28% of the total sample reported an increase in the frequency of watching rented movies.

39. Slide 39 Video/Entertainment Habits on the Decrease: Watching Primetime Television Shows The only variable that is statistically significant in its impact on the decrease in watching primetime television viewing is gender. Twenty percent of males indicate that they are watching less primetime television.

40. Slide 40 Video/Entertainment Habits on the Decrease: Watching Primetime Television Shows Even amongst the most avid online video viewers – consumers who are actually paying for online video – there is not a decrease in the frequency at which they reportedly watch primetime television. Of course, we believe that consumers are shifting their viewing from the TV to the PC, which will impact ad revenue models long-term as online viewing becomes a substitute in some respects for TV viewing.

41. Slide 41 Video/Entertainment Habits on the Decrease: Watching VoD Movies Consumers’ age is a significant variable in both increases and decreases in the frequency of watching VoD movies. The youngest consumers surveyed (age 18-24) are the most likely to report a decrease. As for increases, consumers age 25-34 are more likely than other age groups to report watching more VoD movies. Households with digital cable are more likely than non-digital cable households to report an increase in watching VoD movies, confirming the trend that we have seen from the cable MSOs that VoD is starting to become a much more significant component of their businesses. Consumers’ age is a significant variable in both increases and decreases in the frequency of watching VoD movies. The youngest consumers surveyed (age 18-24) are the most likely to report a decrease. As for increases, consumers age 25-34 are more likely than other age groups to report watching more VoD movies. Households with digital cable are more likely than non-digital cable households to report an increase in watching VoD movies, confirming the trend that we have seen from the cable MSOs that VoD is starting to become a much more significant component of their businesses.

42. Slide 42 Video/Entertainment Habits on the Decrease: Watching Subscription VoD Age is again a determinant in how the frequency of watching subscription VoD programming has changed. There are no age ranges where statistically significant evidence of a decrease can be found. However, the 25-34 age range is significant for showing an increase. On either side of this age range, both the 18-24 and the 35-44 age ranges both show slightly higher percentages of consumers who report an increase.

43. Slide 43 Video/Entertainment Habits on the Decrease: Watching Free VoD Among the crosstabs and analyses examined, no variables jump out as statistically significant in determining a decrease in activity. However, increases are noted for: Consumers age 25-34; Lower-income consumers; and Digital cable subscribers. Among the crosstabs and analyses examined, no variables jump out as statistically significant in determining a decrease in activity. However, increases are noted for: Consumers age 25-34; Lower-income consumers; and Digital cable subscribers.

44. Slide 44 Consumer Interest in VoD Enhancements

45. Slide 45 Top VoD Enhancements Nearly 50% of respondents with 3+ children at home say they would watch more VoD if the titles were available on the same day as the theatrical release. This compares to just 30% of those without children at home.

46. Slide 46 Next VoD Enhancements Younger respondents are generally more likely to say viewing would increase if new features were added.

47. Slide 47 Willingness to Rent VoD Movies with Features for $4.99/$5.99 Younger respondents are more willing to rent VoD movies if new features are offered. Early release of VoD titles is particularly likely to trigger rentals by respondents with 2+ children at home. Younger respondents are more willing to rent VoD movies if new features are offered. Early release of VoD titles is particularly likely to trigger rentals by respondents with 2+ children at home.

48. Slide 48 (Among respondents saying day & date VoD release would increase their usage, n=939, +3%) Younger respondents are more willing to purchase day & date VoD movies than older respondents. Willingness to Rent a Day & Date VoD Movie for $20

49. Slide 49 Willingness to Purchase TV Season via VoD Interest among lower income HHs (<$50K) does not disproportionately increase when discounted VoD titles are offered.

50. Slide 50 Consumer Interest in BD-Live Features

51. Slide 51 Appeal of BD-Live Features The PC/Internet access features hold relatively strong appeal among those age 18- 24. The virtual viewing party feature appeals to those age 25-34 in particular.

52. Slide 52 Appeal of BD Interactive Disc Features Respondents age 25-34 generally express more interest in these features, except for the season preview feature. That particular feature appeals more to those age 18-24.

53. Slide 53 Ranking the Top BD Interactive Disc Features Access to movie rentals dominates by 4X any other feature in rankings.

54. Slide 54 Willingness to Pay for BD-Live-enabled Player Of the tested features, electronic movie rental has, by far, the strongest relation to a willingness to pay more.* Respondents will pay around $50 (on average) for new features. Respondents age 18-34 and those with a HH income above $100K will pay more than other respondents.** *Based upon a regression analysis of willingness to pay & feature appeal. ** At a 99% confidence level. Of the tested features, electronic movie rental has, by far, the strongest relation to a willingness to pay more.* Respondents will pay around $50 (on average) for new features. Respondents age 18-34 and those with a HH income above $100K will pay more than other respondents.** *Based upon a regression analysis of willingness to pay & feature appeal. ** At a 99% confidence level.

55. Slide 55 Contact Information scherf@parksassociates.com 972-996-0209 www.parksassociates.com