The Strategic Impact of 4K on the Entertainment Value Chain

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Section Page 1. Introduction: Defining 4K 4 2. Executive Summary 6 3. 4K in Digital Cinema 9 4. 4K in Broadcast 12 5. 4K Standards and Delivery to the Consumer 20 a) Pay TV 24 b) Blu-ray 25 c) OTT 26 6. Consumer Electronics: 4K Issues and Forecasts 27 a) USA 31 b) Western Europe 33 c) UK, Germany, France, Italy and Spain 35 7. 4K in Professional Displays Markets 37 8. Appendix – Company Overview 48

4K is the latest resolution to be hailed as the next standard for the video and displays industries. There are a variety of resolutions that are claimed to be 4K, but in general 4K offers four times the resolution of standard 1080p HD video. A number of names or acronyms for 4K are being used across the industry including Quad Full HD (QFHD), Ultra HD or UHD and 4K2K. For the purposes of this report, the term 4K will be used. ● These terms all refer to the same resolution: 3,840 by 2,160. ● The EBU has defined 3,840 by 2,160 as UHD-1.

Within the consumer TV market, the Consumer Electronics Association (CEA) has officially designated 4K as Ultra HD and defines it as one that displays at least 8 million active pixels, with a lower resolution boundary of 3,840 by 2,160.

In Digital Cinema there are multiple variations of 4K in existence including 4096 x 2304, 4096 x 2160 and 4096 x 2048.

Photo credit: HDMI.com

Executive Summary (i) 4K is seen by many in the industry as a major new opportunity, but serious obstacles will need to be overcome to enable development of the market. Most notable of these are the very limited supply of 4K content, lack of distribution standards and the need for an installed base of 4K TV sets to create an addressable audience. As many elements of the broadcast equipment market become increasingly commoditised, manufacturers continue to explore technological advancements that will capture the imagination and allow price points to be stabilised. In addition, as global demand for TV displays starts to soften, LCD TV panel and set makers are looking for the next value-add feature to kick-start a wave of consumer flat panel replacement. 3D in the home was an attempt to achieve this and, while the technology hasn’t died away, it has yet to become the solid success that many had hoped for. 4K represents a more natural progression for the industry, but one that brings its own problems. For the panel makers, the issues of producing 4K panels at higher yield rates are many, while prices for commercialized sets are expected to remain out of the reach of mass market consumers for several years. Furthermore, TV makers face the task of persuading consumers to upgrade to a higher resolution set at a time when most consumers are just starting to recognize and enjoy the benefits of full HD. Despite these barriers, Asian panel makers are moving forwards with the production of large screen 4K TVs and most major TV brands will likely launch models over the next 12 months. Looking to the broadcast industry and pay TV, the primary challenge is the increased bandwidth required to transmit 4K. Providing four times the resolution of 1080p HD, 4K demands four times the data rate. In addition, due to motion-blur being more visible at higher resolution, the frame rate should ideally be doubled to counter this. This would mean the data rate would then also be doubled, hence the uncompressed data rate of 4K would be eight times that of 1080p and 16 that of 1080i. Clearly this has implications for the compression industry and while the new High Efficiency Video Codec (HEVC) is due to be ratified in January, hardware-based, real-time encoding required for live transmission is realistically at least two years away. 6 © 2012 Futuresource Consulting Ltd

Executive Summary (ii)

As with HD and more recently 3D, 4K consumer technology is ahead of the rest of the content chain and, while 4K equipment is starting to emerge, there is currently no cross-platform 4K video source material available for the market, meaning the TV or projector has to upscale the incoming signal to 4K resolution. Sony is, however, bundling a 4K hard drive media player with its 84-inch 4K TV in the USA. The player comes pre-loaded with 10 4K movies and some short-form content from Red Bull Media House. According to Sony, the player will periodically be updated with new content. The consumer electronics industry is showing willing to market 4K capable TVs and create an audience (as it has previously done with ‘HD ready’ and ‘3D ready’ sets) but a sustained flow of 4K content will be critical to its long term success. Hollywood will be a key source of 4K content and will be keen to see the implementation of a Blu-ray 4K standard in the near future. This will then usher in a new generation of 4K capable disc players. A number of Pay TV operators have commenced testing of 4K acquisition and are expected to continue investment in development technologies to enhance existing services and stave off competition. With the backing of the consumer electronics, television and motion picture industries, Futuresource believes that there is a positive commercial scenario for consumer 4K, although realistically this is likely to take at least 5 to 6 years to develop.

Digital Cinema – the 4K Pioneer (i) The digital cinema industry has been one of the pioneers of 4K video over the past few years, largely due to the transition away from film. Before 2007, there were a number of digital cinema cameras on the market, but the first camera that made a real impact was the revolutionary Red One from Red Digital Cinema. The launch of the Red One kick-started the digital revolution in the world of cinema, but also ushered in the age of 4K. The Red One can shoot in resolutions of up to 4.5k and so anyone opting to shoot digitally also had the option to shoot in 4K from this point onwards. Fast forward to 2012 and there are now a number of 4K digital cinema cameras on the market, at varying price points and from various brands. ● In addition to the Red One, digital cinema cameras currently available include: . Red Epic . Red Scarlett . Sony F65 . Sony F55 . Sony F5 With 4K digital cinema equipment now ubiquitous, Hollywood is embracing 4K production. Many studios have been acquiring movies in 4K for the past 18 months in order to future proof productions for the time when a format is available for delivery to the consumer. 4K digital cinema productions are heavily centred on Hollywood or Hollywood-affiliated productions currently. Other major film industries such as Bollywood have yet to make the transition to 4K, although the move to digital is starting to gather pace. In addition to this, existing titles are being scanned at 4K resolution to add to the 4K back catalogue. ● Titles so far given this treatment include Lawrence of Arabia, Jaws and Taxi Driver. 9 © 2012 Futuresource Consulting Ltd Digital Cinema – the 4K Pioneer (ii)

Despite the extensive amount of 4K production taking place, the number of titles making it to the cinema in 4K is limited. So far only around 50 have done so. 4K digital cinema projectors have been available for several years but only represent a small but growing proportion of the installed base. The limited number of 4K-equipped screens means that the demand for 4K content is currently limited, but will grow considerably over the coming years. One of the factors holding back investment in 4K is that many movie theatres purchased digital cinema projectors over the past five years in order to show 3D content. After making such a significant capital outlay, many will be looking to recoup some of the investment before upgrading to 4K. As many movie theatres are unable to show 4K, content acquired in 4K is downscaled to 2k or transferred to film for cinema distribution.

Movies released in 4K

4K in Broadcast - Situation Report (i)

4K within professional video production is currently largely limited to digital cinema productions and experimentation by broadcasters. High profile broadcasters such as BSkyB and ESPN have confirmed that they have 4K cameras and are experimenting with production techniques, while some broadcasters are already using 4K for high-end production genres such as drama, but are downscaling to HD in post-production. One of the key reasons behind the lack of television production is the dearth of 4K equipment currently on the market. With the exception of products targeting the digital cinema market, there are very few products available for mainstream 4K television production. Products, including JVC’s low-end GY-HMQ10 4K camcorder and Sony’s PMW-X300 4K production monitor, are slowly being released to aid mainstream production, but 4K products remain extremely rare. The Sony PMW-X300 4K Production Monitor Even in the world of digital cinema, certain aspects of the production chain are far from ideal. ● For example, in order to grade 4K films at full resolution, expensive 4K digital cinema projectors are used as there are no 4K reference monitors available on the market. ● There are a number of 4K professional broadcast video monitors available today, but so far sales have been far from significant. . In EMEA, a grand total of just three 4K monitors The JVC GY-HMQ10 4K Camcorder aimed at the broadcast market were shipped in 2011. 12 © 2012 Futuresource Consulting Ltd 4K in Broadcast - Situation Report (ii) When looking at the current state of 4K production in broadcast it is important to put it in context of the market overall. Real-time Multi-screen 4K is coming along when the transition to HD is still very Transcoder Market Value 80 much in full swing, even in the regions with the most

advanced broadcast industries. 70 ● For example, at the end of 2011 42% of US 60 households still do not receive HD programming and, 50 in parts of Europe, production is still migrating from analogue to digital. 40 4K is also up against a more pressing technological 30 advance for the industry: multi-screen delivery.

Market Value ($m) Value Market 20 ● Multiscreen programming is becoming expected of operators and is one of the areas of the industry 10 showing real growth. 0 . The global real-time multi-screen transcoder 2010 2011 2012 2013 2014 2015 2016 market is expected to grow to $187m by 2016. North America Europe ● Investment in multi-screen programming and delivery APAC Rest of World is therefore taking budget away from potential The explosion in the number of smartphones and investment in 4K, especially for publicly funded tablets owned by consumers has meant that broadcasters. demand for content for mobile devices is increasing . Publicly-funded broadcasters’ revenues are rapidly. This has resulted in significant growth in dependent on licence fees or government the transcoding market as content needs to be grants, sometimes enhanced by advertising repurposed for use on these devices revenues, and remain relatively stable at best, irrespective of investment needed in new technology. 13 © 2012 Futuresource Consulting Ltd 4K in Broadcast - Situation Report (iii)

4K is also being introduced to an arguably more cynical market after 3D failed to live up to its over-inflated hype. 3D was promoted as revolutionising the broadcast EMEA Professional Monitor industry but after a few years the hype has died away Shipments to reveal that 3D is, at the moment at least, a niche 100% 0.4% 3.1% 1.9% 0.7% requirement within broadcast. 80% There is a considerable risk that 4K will be associated with 3D in terms of being a similar attempt by the 60% broadcast equipment industry to find the “next big 99.6% 96.9% 98.1% 99.3% thing”. 40% ● Certainly demand is currently very much being 20% pushed from the manufacturer side rather than generated by the end users themselves. 0% ● 4K does have advantages over 3D, though. 2009 2010 2011 2012* . The main advantage is that production 2D 3D techniques can remain the same. 3D *2012 – Jan to Sept required content to be shot differently and

for different expertise to be hired. After initial investment by production . Another advantage is that 4K content could companies and broadcasters looking into 3D be described as giving the same viewing production, 3D pro monitor sales dropped off experience as HD just enhanced, whereas in EMEA 3D is a completely different experience and one that requires glasses.

4K is one of the most widely discussed topics in the Pro Camcorder ASP ($) - USA broadcast industry at the moment and one of the key 7,000 reasons behind this is that many hardware manufacturers 5,846 need 4K to maintain revenues. 6,000 5,592 5,154 5,073 At the lower end of the market, technology is 5,000 improving to the point where low-end equipment can often do a good enough job and so is replacing 4,000 higher-end equipment. This is forcing down the

ASP (US$) ASP price points of professional video equipment, in 3,000 some cases commoditising the markets. 2,000 A good example is the professional camcorder market. In the US, price points have fallen 13% 1,000 ($773) over a four year period. 0 ● Over the same time period, volume is up by 12%, whilst value is down by 2%. (Based on Q1- 2009 2010 2011 2012* 3 2009 vs Q1-3 2012). *2012 – Jan to Sept New technology drivers are needed to bolster price points and since 3D has failed to live up to the The pro camcorder market is just one example of hype, vendors are now starting to look at 4K. a market where professional video equipment is becoming commoditised and is in need of a new technology to help maintain price points

15 © 2012 Futuresource Consulting Ltd Barriers to 4K in Broadcast (i) Upgrade Fatigue The broadcast and professional video industries have been through over 20 years of upheaval brought about by continual innovation. Past Future

Tapeless Digital 16:9 1080i 1080p 3D Multiscreen 4K Workflow

Some of the many technological advancements over the past 20 years

The pace of change in the industry and the constant need to upgrade to the technologies listed above have left many in the industry fatigued. ● Often, products have an effective lifespan far in excess of the length of time they are actually used for in the first instance. The majority of these upgrades have come at a time of relative economic prosperity, however. ● The economic situation in some of the countries that tend to lead the way technologically is certainly not as bad as it has been, but the economic downturn has significantly changed attitudes. ● In the past, engineering teams took centre stage in the purchase decision, but the financial pressures that arose during the economic downturn forced a change towards an operations or finance team led decision-making process. ● End users are now much more concerned with reducing CAPEX and OPEX, with a focus on equipment that is “good enough”, not “best in class” as once was the case. It is against this backdrop that 4K needs to gain traction but at the same time competing for budget with other new technologies such as multi-screen. 16 © 2012 Futuresource Consulting Ltd Barriers to 4K in Broadcast (ii)

Lack of Interfaces There are currently no interfaces capable of coping with the extreme bandwidth demanded by uncompressed 4K. There are a number of solutions available, though. ● 3G-SDI is the fastest real-time link available for the broadcast environment at the moment and so the use of a quad 3G-SDI solution (four individual 3G-SDI interfaces used concurrently) is one option. ● The second option is to use a fibre optic-based link that exists – 10GSDI, although this still may not be enough to handle 4K unless a degree of compression is applied. For 4K to be embraced throughout the production chain, an industry standard interface is essential.

Motion Blur The paradox of 4K video is that whereas when static or slow moving images are shown the picture quality is noticeably better, when fast moving images are introduced motion blur is also more noticeable. This is a significant problem as historically sports has been the genre that has encouraged uptake of new technologies and fast-moving action or rapid moves of the camera are endemic to sports coverage. The way to counter motion blur is to increase the frame rate, but this brings its own problems in that it also increases the bit rate, which for 4K is already significant.

Camera Technology Most 4K cameras and camcorders on the market today feature large sensors and are largely targeted at the digital cinema and high-end drama markets. For 4K to succeed in broadcast, it needs to be possible to shoot 4K using cameras with sensors sized from 1/3" to 2/3". Unfortunately, this means that investment in sensor development needs to be made, specifically in the area of light sensitivity. ● This is due to the need to make the pixels smaller in order to fit them onto a smaller sensor. Smaller pixels means that less light is picked up by each pixel. ● Increasing gain is one way around this, but this renders the encoding process less efficient, which is far from ideal due to the need to compress 4K as much as possible. ● In addition to this, if frame rate is doubled to counter motion blur, half the amount of light will reach the sensor, Some of the large sensor cameras currently available which again furthers the need for much more sensitive sensors. 18 © 2012 Futuresource Consulting Ltd

5. 4K Standards and Delivery to the Consumer

4K and the HEVC Standard

HEVC (High Efficiency Video Codec) is the next generation compression standard that is due to be ratified in January 2013. It offers between 33% and 50% greater encoding efficiency when compared to H.264 (dependent on vendor). The high bandwidth required for 4K means that for many 4K and HEVC are intrinsically linked. When bandwidth is tight, using HEVC brings the bit rate of 4K down to manageable levels. ● In tests, a bandwidth of 18 to 20Mbps for HEVC 4K is achievable, which is similar to the bit rate of MPEG-2 HD, making 4K commercially viable. ● Luckily the higher resolution of 4K means that the encoding process can be completed a lot more efficiently than with HD. Whilst uncompressed 4K requires four times the bandwidth of 1080p, this does not equate to four times the compressed bandwidth. HEVC is going to be particularly important for contribution and distribution over satellite as transponder space is already at a premium. A sound business case will have to be built, though, as many will question the economics of carrying one 4K channel in place of multiple SD channels. Contribution and distribution of live content requires low-latency encoders but arguably the only way to achieve this in real-time is to use hardware-based encoders and decoders. Unfortunately, the dedicated silicon needed for such products is not yet available. Expectations are that the first HEVC silicon will be available by the end of 2013 at the earliest, indicating a likely launch of the first generation real-time HEVC encoders around NAB 2014, if not a little earlier. There is an argument that 4K does not depend on HEVC. Where bandwidth isn’t at a premium; where a cable operator has invested heavily in a fibre optic network for example, then 4K can be distributed using H.264. This would mean that 4K services would theoretically be viable much earlier than previously thought.

Despite much of the current hype in content being the ability to Broadcast/Pay-TV view video on portable devices, content owners are still keen to maintain viewership on the primary device for which the content 65m+ HD Households (WEU) was created and in the highest quality. The main TV-set and 4K 80m+ HD Households (NA) represents the natural evolution of continued improvement in Consumers Still Want High image resolution. Quality Content It is evident through the continued rise in pay-TV penetration, growth in new CE hardware adoption and popularity of new OTT services (e.g. LoveFilm and Netflix) that consumers still have a Blu-Ray keen interest in the consumption of high quality premium 34m BD HH (WEU) content. 52m BD HH (NA) However, securing the public’s viewing time and in turn generating revenues is more challenging than ever as consumers Large Installed Base of are presented with more options for consuming media, with Compatible Hardware several platforms across multiple devices now offering services and content. Online (OTT) As content owners look to differentiate and add value to their 140m Broadband Homes (WEU) product proposition, improvement in image quality will be a key consideration. The success of HD, particularly in broadcast, 130m Broadband Homes (NA) indicates consumer’s willingness to pay for higher quality video New Platform Driven by Rising content. However, the relative failure of 3D indicates that not all Speeds Penetration new features prove successful.

Several pay-TV operators have already begun to undertake evaluation and testing of 4K acquisition, particularly on live events (predominantly sports). As operators are likely to apply premium pricing to 4K channels/content, they can justify the financial outlay in light of the potential revenue stream. Although no standard has yet been ratified by the Blu-ray Disc Association (BDA), Blu-ray is also expected to become a distribution platform for 4K content. The uptake of hardware, although lower than anticipated, has still secured a significant footprint, present in 86m households (inc. PS3) across North America and Western Europe. Hollywood is expected to be keen to support 4K through Blu-ray in an effort to improve disc sales, which to date have been relatively disappointing. Improved broadband speeds are allowing the distribution of broadcast quality video content over IP, as a result of which OTT video services now represent an alternative delivery platform for content owners to deliver high quality video content to consumers. With several significant players present in this space, including Amazon, Apple, Google and Microsoft all of which are keen to exploit their respective video services, the launch of 4K content offers a new level of quality and value to the customer base.

Pay-TV operators continue to be on the Key Operator Activity cutting edge of new service development, enhancing and evolving their platforms in • Early adopters of many new technologies order to attract and retain subscribers, in • Announced head-end upgrade roadmap incorporating addition to seeking to create new revenue 4K compatibility • Possible test channel launch in 2013 streams through the roll-out of new services and the enhancement of existing ones. • Demo of test broadcast with NBC Universal • NBC link likely to drive 4K roll-out & monetisation This continual development is driven by through cable platform. competition between operators and a need to • No announced 4K channel roll-out yet stave off competition from traditional free-to- • In Oct’ 12 commenced test 4K broadcasts air broadcast services and newer OTT • Initial test have been on Football operators that are vying for a share of the • No definitive plans to roll out 4K, currently evaluating premium content space by securing premium ahead of TV-set roll-out content deals across movies and TV content. • Sky Deutschland also announced 4K tests. Particularly in Western Europe and North • Currently evaluating 4K production. America, where subscriber numbers are • Understood to be planning dedicated 4K channel. saturated, the requirement to drive up • Sports & movie content will be key genres revenues through upsell of existing subscribers • In advance of forthcoming Football World Cup & through the sale of 4K content, for example, Olympics, currently testing 4K acquisition with is of paramount importance. intention to air 4K broadcasts of both events. Although some services such as 3D have • SES planning to launch 4K showcase channel in 2013. failed, operators will continue to invest in • Several demonstrations of 4K transmission tests, order to satisfy subscribers’ needs through the including live content at IBC in conjunction with Sony. continual enhancement of their services.

As margins continues to be pushed down on CE products, vendors are continually seeking new Blu-ray Hardware Installed Base opportunities to offer value-add features and 70 improvements on existing technologies to increase the price point and attractiveness of the product. 60 Furthermore, as the video industry seeks out new revenue streams to compensate for the erosion of 50 DVD, it too is looking to promote and entice 40 consumers to new products, namely Blu-ray which traditionally commands a premium price point. 30 In both instances, 4K is likely to be key to each 20 industry's’ strategy moving forward. At launch BDA Ratification of 4K & [should Blu-ray push 4K], it is certain to attract a 10 Product Launch Expected premium price point. 2013 To date, Blu-ray has seen disappointing uptake and 0 industry feedback indicates scepticism as to how 2012 2013 2014 2015 2016 much of a positive impact 4K will have on the Western Europe USA overall Blu-ray trend. Finally, 2013 is also expected to see the launch of Key Concerns for 4K Blu-ray additional 4K up-scaling Blu-ray players, reducing the requirement to purchase dedicated 4K Blu-ray • Consumer confusion about 4K & 3D Blu-ray software. • Threat from Over-the-Top Services e.g. Netflix, LoveFilm

4K signifies new opportunities for OTT video platforms such as Netflix, LoveFilm and Apple, strengthening their service proposition to include premium content, delivered in a comparable quality to that on offer from traditional pay-TV platforms. Furthermore, OTT platforms are expected to look to 4K in the future in order to create higher value offerings and higher-priced subscription tiers, which will support continued revenue growth from increasingly saturated subscriber bases. 4K is certain to place increased pressures on the IP infrastructure (which in many places is still struggling to deliver HD). Therefore, in order to guarantee bandwidth and ensure no contention on the network, tie ups between ISPs and video service providers are likely to ensure subscribers obtain a high quality of service. The roll-out of Smart 4K TV-sets also presents an opportunity for OTT services to be delivered direct to the TV-set and possible partnerships between CE manufacturers and content owners to promote 4K – particularly in the early days.

4K in the Consumer TV Market (i) The consumer TV market has been in a state of flux during the last few years. The traditional powerhouse brands in Japan are struggling amid weak demand in developed markets and slowing growth rates in emerging regions. Meanwhile, recent technology innovations such as 3D are not proving compelling enough to consumers to warrant upgrading existing flat panels. TV vendors are now looking to new display technologies and improvements to existing LED set designs to drive replacement moving forwards. The two technologies that have been getting the most attention over the past 12 months are OLED and 4K. OLED is seen as a technology that will ultimately replace existing flat-panel display solutions, offering significantly better picture quality, thinner form factors and perhaps most importantly much lower energy consumption levels than today’s TVs. However, despite the announcement of large-size OLED TVs from Samsung and LG in early 2012, commercialization timescales of these sets have been put back to 2013 at the earliest following difficulties in improving manufacturing yield. Initially, OLED displays will have a resolution of 1080p although 4K versions will inevitably emerge as production techniques improve. 4K, under its official consumer label of Ultra HD, is already beginning to be implemented into the home- theatre environment via home-theatre receivers with either 4K pass-through and/or 4K video upscaling capability, 4K home projectors, Blu-ray players with 4K video upscaling and 4K-capable TV displays. 4K LED TVs have rapidly emerged in 2012 thanks to the far simpler production process than for OLED and most major TV brands are prioritising 4K over OLED in at least the short to mid-term. There are currently no commercialized 4K Plasma TVs although it is technically possible to produce them (Panasonic showed a 152” 4K Plasma set at CES 2010). However, producing 4K plasma panels at sizes under 60” will mean halving the cell size. Plasma R&D is likely to start winding down moving forwards so it is likely that only extra large (100”+) 4K plasma panels will come to market. 27 © 2012 Futuresource Consulting Ltd 4K TV Products and Pricing

Brand Screen Size Panel Supplier Price

Launched in 2012

Toshiba (55ZL2) 55 AUO $10,000

Sony (XBR-84X900) 84 LG Display $25,000

LG (84LM9600) 84 LG Display $20,000

Announced for 2013

Toshiba 50, 60, 84 AUO, LG Display (84) n/a

Samsung 85 Samsung Display n/a

Sharp 60 Sharp n/a

Hisense 50, 58, 65 CMI n/a

*Models expected for launch in the USA and/or W Europe. Several Chinese vendors including Changhong, Konka, Skyworth and TCL are expected to launch 4K TVs into their domestic market soon.

28 © 2012 Futuresource Consulting Ltd 4K in the Consumer TV Market (ii): Key Drivers and Inhibitors The large screen 50”+ TV market is set for strong growth. At today’s best resolution of 1080p, individual pixels can become noticeable at large screen sizes (particularly those upwards of 60”). 4K resolution provides such a high level of visual data that pixels on large screen displays are virtually unnoticeable. The higher resolution of 4K will also benefit current 3D solutions. Passive 3D cuts the horizontal resolution in half to create a 3D image and so a 1080p 3D movie seen with passive glasses is actually viewed at 540p. By doubling the horizontal resolution, a Full HD 3D image delivered to each eye is achieved. Most first generation 4K sets are expected to include Passive 3D technology.  4K is also expected to be a key enabler of auto-stereoscopic (glasses-free) 3D technology as 4K will allow resolution to be regained on multiview lenticular displays. 4K resolution can produce a level of reality that surpasses 3D. Good 4K up-scaling can provide noticeable picture quality improvements in the absence of true 4K source material. All 4K TVs are expected to include up-conversion engines, enabling the TV to deliver higher detail from current SD and HD sources.

Native 4K content is virtually non-existent today. There is no 4K standard for Blu-ray yet. Broadcasters are still in very early trial phases while delivery over the Internet is dependent upon significant improvements in average broadband speeds within the home. The benefits of 4K only start to become visible on very large displays (60”+) under common viewing distance conditions. In order to benefit from 4K on smaller screen sizes, viewing distance would have to be closer than typical consumers are used to.  The rapid shift to 720p and 1080p resolutions was driven by the unprecedented boom in TV sales over the last 10 years – a result of dramatically shortened replacement cycles during the transition from CRT to Digital HD Flat Panel displays. TV upgrade cycles are extending out to previous levels of 8-9 years while most markets are contracting to more natural sales levels.

The 4K TV forecasts for the USA and Western Europe set out on the following pages assume that a steady flow of native 4K content will emerge over the next 2-3 years. Despite this, Futuresource expects 4K TV sales to remain relatively low for at least the next 4-5 years. 4K is not expected to penetrate the TV market as rapidly as the 720p and 1080p high definition resolutions did, as many TV viewers will struggle to justify paying a premium for a set on which they may find it difficult to see a noticeable difference in picture quality. The rapid growth in demand for 720p and 1080p coincided with the transition from CRT to flat panel as well as the shift in broadcasting standards to digital and HD and there do not appear to be any similar upgrade drivers on the horizon that could facilitate a more rapid build up. Many TV viewers actually struggle to see a difference between 720p and 1080p on 40” or 50” sets and so TV vendors may find it difficult to convince consumers of the benefits of upgrading to 4K. With this in mind, Futuresource expects 4K to be restricted to large screen displays (50” and upwards) for the next 2-3 years with demand coming from wealthy home-cinema enthusiasts. In the USA, 4K is expected to reach just 4% of all TV sales by 2017 (13% of 50” and larger TVs). After this time, price points for 4K will fall to more affordable levels and a wider range of models will emerge including smaller screen sizes below 50”. By 2020 4K will account for 13% of total TV sales (31% of 50”+ sets). Europe will lag behind the USA due to European customers favouring smaller screens. However, large screen TV sales will experience strong growth across the region moving forwards making it a market with high potential for 4K equipment and content.

Annual Sales (000s) Annual Sales (000s) 40000 Total TV Market 12000 Large Screen 50”+ TV Market

35000 10000 30000

8000 25000

20000 6000

15000 4000 10000

2000 5000

0 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2012 2013 2014 2015 2016 2017 2018 2019 2020 Standard Definition 720p/1080i 1080p 4k Standard Definition 720p/1080i 1080p 4k

2012 2013 2014 2015 2016 2017 2018 2019 2020

Sales (m)

Total TV Sales (m) 33.9 32.4 31.6 31.2 31.9 32.7 33.4 33.8 33.9

% 4K 0% 0% 0% 1% 2% 4% 6% 9% 13%

4K TV Sales (m) 0.0 0.0 0.1 0.3 0.7 1.4 2.1 3.1 4.4

< 49” 0.0 0.0 0.0 0.0 0.1 0.2 0.4 0.7 1.1

% of <49” sales 0% 0% 0% 0% 0% 1% 2% 3% 5%

50-59” 0.0 0.0 0.0 0.1 0.3 0.6 0.8 1.1 1.5

% of 50-59” sales 0% 0% 1% 2% 5% 10% 14% 17% 21%

60”+ 0.0 0.0 0.1 0.2 0.4 0.6 0.9 1.3 1.8

% 60”+ sales 0% 0% 2% 6% 12% 18% 25% 34% 47% In Use (m)

4K sets in use (m) 0.0 0.0 0.1 0.4 1.1 2.5 4.6 7.6 11.8

No of Homes (m) 118.0 119.1 120.3 121.4 122.5 123.6 124.7 125.8 126.8

4K TV Saturation 0% 0% 0% 0% 1% 2% 4% 6% 9%

Annual Sales (000s) Annual Sales (000s) 50000 Total TV Market 8000 Large Screen 50”+ TV Market

45000 7000 40000 6000 35000

30000 5000

25000 4000

20000 3000 15000 2000 10000

5000 1000

0 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2012 2013 2014 2015 2016 2017 2018 2019 2020 Standard Definition 720p/1080i 1080p 4k Standard Definition 720p/1080i 1080p 4k

2012 2013 2014 2015 2016 2017 2018 2019 2020

Sales (m)

Total TV Sales (m) 43.1 40.0 38.7 38.4 39.1 39.6 40.1 40.7 41.0

% 4K 0% 0% 0% 0% 1% 2% 4% 7% 11%

4K TV Sales (m) 0.0 0.0 0.0 0.1 0.4 0.9 1.7 2.9 4.5

< 49” 0.0 0.0 0.0 0.0 0.1 0.3 0.8 1.5 2.4

% of <49” sales 0% 0% 0% 0% 0% 1% 2% 4% 7%

50-59” 0.0 0.0 0.0 0.1 0.2 0.4 0.6 0.9 1.2

% of 50-59” sales 0% 0% 1% 2% 6% 10% 13% 18% 24%

60”+ 0.0 0.0 0.0 0.0 0.1 0.2 0.3 0.5 0.9

% 60”+ sales 0% 0% 2% 4% 9% 13% 18% 26% 38% In Use (m)

4K sets in use (m) 0.0 0.0 0.0 0.2 0.6 1.5 3.2 6.2 10.5

No of Homes (m) 174.1 175.0 175.7 176.4 177.0 177.7 178.3 178.8 179.3

4K TV Saturation 0% 0% 0% 0% 0% 1% 2% 3% 6%

Annual 4K TV Display Forecast: W Europe 4K TV Ownership

Sales (Units 000s) % of homes owning 5000 9% 4500 4000 8% 3500 7% 3000 6% 2500 2000 5% 1500 4% 1000 3% 500 0 2% 2012 2013 2014 2015 2016 2017 2018 2019 2020 Rest of W Europe 0 1 6 28 86 181 367 615 916 1% Spain 0 0 2 9 30 68 136 243 385 0% Italy 0 0 3 13 44 101 194 328 507 2012 2013 2014 2015 2016 2017 2018 2019 2020 France 0 1 5 21 67 143 261 429 621 Germany 0 1 9 36 112 234 434 718 1071 UK Germany France Italy Spain UK 0 1 5 25 81 187 356 616 956

4K in Professional Display Markets - Situation Report (i) 4K displays are gradually entering the professional market, but with sales limited to very specific niche markets where ultra high definition is specifically required. Most of these markets have very specific requirements and often need dedicated sku’s in order to ensure suitability. These high-end commercial markets are likely to act as product innovators for 4K solutions (and effective markets to drive R&D) as the usage requirements are extremely demanding. Vendors such as Sony, Christie and Barco have leveraged their digital cinema platforms to offer high-end 4K projection-based solutions. Many of these 4K models are also 3D and are used in verticals seeking advanced graphics such as simulation, visualisation, planetariums etc.

While the transition to high resolution displays has happened rapidly in the consumer sector, the projector market has seen an extremely slow uptake. The majority of projector sales (over 95%) are into corporate meeting rooms or the education sector where the main usage is for presentation purposes. With PowerPoint/Excel still the main content shown on presentation devices, the sales argument for high definition projectors has not been compelling for ‘mainstream’ market verticals. The use of high definition video however is becoming more common within corporates, especially as large corporates develop their own internal communication channels. Large format flat panels have transitioned at a much faster rate, in part driven by developments at factory level (where the consumer market is rapidly driving the transition towards high definition). Panel vendors are developing 4K solutions and beginning to seek opportunities for 4K in commercial markets.

The Projector Market Is Only Gradually Transitioning To Higher Definition Resolutions The projector market is seeing declining or flat sales in developed countries, with emerging markets providing the overall volume growth opportunities. Most volume in emerging markets is coming from the education sector, purchasing entry-level solutions. WXGA is gradually gaining traction (18% in 2012), but adoption has not been as high as anticipated. Price premiums are reducing but there are still price premiums due to chipset considerations. WUXGA resolutions and above (1080p, 2k,4K) only account for 1.8% of market volume in 2012 YTD (96k) highlighting the fact these resolutions are only selling into niche markets. Global Business-to-Business Projector Market (Excluding Digital Cinema) %’s Refer to HD % of Total Market 8,000,000 24.0% 7,000,000 17.7% 6,000,000 4.1% 1% 8.4% 20.8% HD 5,000,000 4,000,000 SD 3,000,000 2,000,000 1,000,000 0 2007 2008 2009 2010 2011 2012 YTD HD 49,618 200,673 416,288 874,482 1,184,772 1,029,114 SD 4,889,764 5,233,228 4,801,897 5,686,209 5,750,889 4,243,923

Global Business-to-Business Projector Market (Excluding Digital Cinema) – High End Resolutions Only 1,400,000

1,200,000

1,000,000 4k 800,000 2k 1080p 600,000 WUXGA 400,000 720p WXGA 200,000

0 2009 2010 2011 2012 YTD 4k 762 1166 428 799 2k 563 2021 2995 1695 1080p 15879 35807 52247 53197 WUXGA 5709 12675 39297 40023 720p 6057 2108 798 1915 WXGA 387318 820705 1089007 931485

39 © 2012 Futuresource Consulting Ltd The Large Format Flat Panel Market Has Transitioned Rapidly Towards 1080p Driven by developments at factory level, many vendors have transitioned the majority of their commercial ranges across to 1080p. Corporate and Digital Signage are the two largest markets for flat panels, so high definition content tends to be shown on flat panels more frequently than projectors.

Global Business-to-Business Large Format Flat Panel Market 2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 811,422 1,209,440 1,000,000 1,071,679 1080p 800,000 294,335 600,000 720-768p 400,000 689,662 737,121 480p 534,082 200,000 387,338 0 2009 2010 2011 2012 YTD * Data refers to flat panels designed for ‘commercial’ use only, not TV’s sold into commercial markets

40 © 2012 Futuresource Consulting Ltd Existing Product Developments LG – 84” ‘UD’ IWB LG has announced an 84” ‘Ultra Definition’ interactive whiteboard targeting the K-12 Education Sector. The Interactive Whiteboard and Flat Panel market is expected to reach 890k units in 2012, flat on previous years due to the impact of the economic slowdown but additionally the fact that the leading markets of the US and UK are now heavily penetrated and in decline. LG’s solution appears to be significantly ‘over-specified’ for market requirements (the requirement for 4K resolution within education is unclear), with price points rumoured to be starting at over $5000. Flat panel vendors have to compete with leading market providers’ (SMART and Promethean) turnkey offerings that include hardware/software and content designed specifically for education. Sharp – 32” ‘4K’ Monitor Sharp has announced a 32” monitor targeting specific niche markets such as medical and CAD/CAM. High-end projector vendors Barco, Christie Digital, JVC and Sony all have numerous 4K projectors on the market targeting specialist market niches.

41 © 2012 Futuresource Consulting Ltd Business to Business Markets - Vertical Market Segmentation Initial Demand for 4K Solutions Likely To Come From Niche Markets Leisure / Niche Rental and Corporate Transport Retail Education Healthcare Hospitality Pleasure Verticals Staging

Nursery Meeting Shopping Pubs & Doctors Control Airport Education Hotels Concerts Room Centre Clubs Surgery Rooms (<5yrs)

Fitness Training Train Primary Sports Visualisati Product Grocery and leisure Room Station Education Opticians Stadiums on Launches centres (5-11yrs)

Secondary Digital Undergrou Department Dentist Restaurants Education Racetracks Simulation Exhibitions Signage nd Store Surgery (12-16yrs)

Bus Higher Live Banking Casinos Terminal Education Hospitals CAD/CAM Events (17+yrs)

Broadcast Specialist Training Rooms On-board Museums Post Retailers / Universities Production

Show Amusement Room Parks

Colour Code Potential demand

High potential demand

The Medical Sector The Medical sector is likely to be a key consumer of 4K products. The digitisation of the Medical sector (patient records) is driving the requirement for high definition displays. Patient diagnosis specifically requires ultra high definition displays. Market entry to the medical sector is difficult, however, with stringent product compliance regulations (that often differ by country) and a relatively specialist route to market and, as a result, quick volume wins are unlikely. Dedicated sku’s are typically required in order to penetrate this market.

Patient Diagnosis/Monitoring Operating Theatres Medical Schools

Operating theatres use high definition displays to support complex procedures, especially camera-based surgical procedures such as endoscopy.

43 © 2012 Futuresource Consulting Ltd Opportunities for 4K in Niche Markets (ii) CAD/CAM & Visualisation Advanced visualisation markets require extremely high resolution displays. At present projectors are often blended to develop high resolution large screen displays. This can, however, lead to loss in screen size and shifts in brightness/colour. It is also costly and time consuming to run/align/maintain multiple displays. High resolution, immersive displays (often using 3D and where 4K has the benefit of allowing full 1080p per eye) can be used in the product design phase to speed up time-to-market of a concept product. Visualisation is also used heavily in the science industry (especially by oil and gas providers).

CAD/CAM & Visualisation

44 © 2012 Futuresource Consulting Ltd Opportunities for 4K in Niche Markets (iii) Simulation Simulation The military, police, army and aviation industry all use high-end simulators to train their staff. 4K displays increase the immersive nature of the display and, as with visualisation, have obvious benefits when utilised in conjunction with 3D. Displays are sold as part of a very advanced solution and a very small number of specialist channel providers per country control access to the end user.

Broadcast Post Production 4K projectors are typically used within post production applications such as colour grading and in pre-release screenings.

Control Room Control Rooms

Video wall cube technology remains the dominant technology in control rooms due to reliability and colour reproduction needs. Super narrow bezel flat panel displays gradually gaining traction, however, and 4K displays both projector and flat panel-based could penetrate the control room market. The majority of growth in the control room sector is coming from emerging markets and significant investments into the monitoring of their natural resources (oil and gas industries etc). 45 © 2012 Futuresource Consulting Ltd Opportunities for 4K in Niche Markets (iv)

Museums and Theme Parks Museums and Theme Parks use high resolution displays (often blended and /or warped) to create immersive and impactful entertainment environments. Museums and Theme Parks have to continue to innovate in order to attract visitors. Many Museums are using 3D solutions to create high impact displays.

Casinos - Sports Book Casinos – Sports Book Sports broadcasting is increasingly transitioning to HD. Split-screen 4K solutions could be a cost- effective way of showing multiple feeds in high definition.

46 © 2012 Futuresource Consulting Ltd 4K in Professional Display Markets Summary 4K flat panels are expected to significantly outsell projectors. Vendors are likely to launch 4K panels in the 60”+ ranges from 2013 onwards targeting niche markets and rental channels. Developments in the consumer TV market are then likely to result in a supply-side push of 4K into commercial markets from 2015 onwards with vendors beginning to offer 4K solutions in the more mainstream 40”/55” screen size segments. For 4K to significantly penetrate ‘mainstream’ commercial verticals such as corporate presentations, education and digital signage, major developments in the content/software drivers for these markets will be needed. While viewing high definition content in commercial markets is gradually becoming more commonplace, the number of users regularly utilising multiple content sources (video, graphics, presentation, videoconferencing) will need to grow rapidly for 4K to be required.

Global Business-to-Business Projector Global Business-to-Business Flat Panel Market - 4K Sales (Excluding Digital Market – 4K Sales in Thousands Cinema) in Thousands

10 600 12.4% 9 0.05% 500 8 0.05% 7 400 6 0.05% 7.6% 5 0.04% 300 563.9 4 3.6% 0.03% 6.6 200 3 5.6 6.3 Thousands 0.7% 314.1 2 0.01% 4.4 100 0.3% 1 2.8 135.9 0 1.2 0.4 0.8 0 9.1 22.5 2010 2011 2012 2013 2014 2015 2016 2017 2010 2011 2012 2013 2014 2015 2016 2017

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