Digital Television, August 2003

Digital Television 2003: The Emergence of Advanced TV Services August 2003

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Table of Contents 3 Methodology 7

The eMarketer Difference 8

The Beneﬁts of eMarketer’s Aggregation Approach 9

“Benchmarking” and Projections 9 I Key Findings 11 II TV Technology & TV Households Worldwide 13

A. Understanding the Technology 14

B. TV Households 16

C. Global Digital TV Projections 17

D. Digital Terrestrial Television (DTT) 22

E. IPTV – Internet Protocol TV 25

F.The Set-Top Box (STB) 26

Categories of Set-Top Boxes 26

Cable Vs Satellite Vs Digital Terrestrial Set-tops 27

Global Set-top Box Projections 28

G. Digital TV Sets 30 III Advanced Television Services 33

A. Video-on-demand (VOD) 34

Worldwide Revenues 35

B. Personal Video Recorders (PVRs) Worldwide Forecasts 36 IV US 39

A. Digital TV 41

Cable TV 44

Satellite 46

Digital Terrestrial Television 48

Digital TV Sets 49

B. Video-on-Demand (VOD) 50

US Forecasts 53

US PPV Revenues 55

US VOD Revenues 57

Consumer Surveys 61

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C. Personal Video Record (PVR) 71

US Forecasts 72

PVRs - Complimentary or Competing Against VOD? 76

Consumer Surveys 78

D. High Deﬁnition Television 82

US Forecasts 83

Consumer Surveys 88

E. US Competitive Landscape 92

Cable Vs DBS 92

F.Leading US Multichannel TV Providers 94

Comcast 94

DirecTV 95

Time Warner Cable 96

EchoStar 97

Charter Communications 97

Cox Communications 98

Adelphia Communications 99

Cablevision 99

Mediacom 100

Insight Communications 100 V Appendix: Glossary of Acronyms 101

Glossary of Acronyms 102 Index of Charts 103

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August 2003

Welcome to eMarketer

Dear Reader:

Ben Macklin Senior Analyst, eMarketer The August 2003 Digital Television: The Emergence of Advanced TV Services report provides an [email protected] overview of the growing digital TV market in the US and around the world. The emergence of digital eMarketer, inc. 821 Broadway TV has spawned a number of advanced TV services such as video-on-demand, high-deﬁnition TV and New York, NY 10003 personal video recorders, all of which are transforming the TV viewing experience. This T: 212.677.6300 F: 212.777.1172 transformation is forcing advertising, media, content and TV distribution companies to re-examine their traditional business models. The Digital Television: The Emergence of Advanced TV Services report provides the necessary data and analysis so companies can make better decisions in this rapidly changing digital marketplace.

Ben Macklin Senior Analyst

Written by Ben Macklin

Also contributing to this report: Reuse of information in this document, without prior authorization, Yael Marmon, director of research is prohibited. If you would like to license this report for your Tracy Tang, researcher organization, please contact David Iankelevich at David Berkowitz, senior editor [email protected], or 212.763.6037. Allison Smith, senior editor Kwanza Osajyefo Johnson, data entry associate Dana Hill, production artist

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Digital Television 2003

Methodology 7 The eMarketer Difference 8 The Beneﬁts of eMarketer’s Aggregation Approach 9 “Benchmarking” and Projections 9

I Key Findings 11

II TV Technology & TV Households Worldwide 13

III Advanced Television Services 33

IV US 39

V Appendix: Glossary of Acronyms 101

Index of Charts 103

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Methodology eMarketer’s approach to market research is founded on a philosophy of Key Findings aggregating data from as many different sources as possible. Why? Because TV Technology & TV Households Worldwide there is no such thing as a perfect research study and no single research Advanced Television Services source can have all the answers. Moreover, a careful evaluation and

US weighting of multiple sources will inevitably yield a more accurate picture Appendix: than any single source could possibly provide. Glossary of Acronyms

Index of Charts The eMarketer Difference eMarketer does not conduct primary research, it therefore has no testing technique to defend, no research bias and no client contracts to protect. eMarketer prepares each market report using a four-step process of aggregating, ﬁltering, organizing and analyzing data from leading research sources worldwide.

Aggregate

Analyze Filter

Organize

Using the Internet and accessing a library of electronically-filed research reports and studies, the eMarketer research team first aggregates publicly available e-business data from hundreds of global research and consultancy firms. This comparative source information is then filtered and organized into tables, charts and graphs. Finally, eMarketer analysts provide concise and insightful analysis of the facts and figures along with their own estimates and projections. As a result, each set of findings reflects the collected wisdom of numerous research firms and industry analysts.

“I think eMarketer reports are extremely useful and set the highest standards for high quality, objective compilation of often wildly disparate sources of data. I rely on eMarketer’s research reports as a solid and trusted source.” — Professor Donna L. Hoffman, Co-Director, eLab, Vanderbilt University

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Methodology The Beneﬁts of eMarketer’s Aggregation Key Findings

TV Technology & Approach TV Households Worldwide

Advanced Objective: information is more objective than that provided by any single Television Services research source US

Appendix: Comprehensive: gathered from the world’s leading research firms, Glossary of Acronyms consultancies and news organizations Index of Charts Authoritative: quoted in leading news publications, academic studies and government reports All in one place: easy to locate, evaluate and compare Readily accessible: so you can make quick, better-informed business decisions Above the hype: accurate projections that business people can use with confidence Time saving: there’s no faster way to find Internet and e-business stats, online or off Money saving: more information, for less, than any other source in the world

“Benchmarking” and Projections Until recently, anyone trying to determine which researcher was most accurate in predicting the future of any particular aspect of the Internet did not have a definitive source with which to do this. For instance, over 10 firms predicted e-commerce revenues for the fourth quarter 1998 online holiday shopping season, and yet no single source could be identified after the fact as having the “correct” number. In the Spring of 1999, however, the US Commerce Department finally began measuring e-commerce B2C activity so business people and others could have a benchmark with which they could compare and evaluate projections. eMarketer has adapted its methodology to recognize that certain government and other respected, impartial sources are beginning to provide reliable numbers that can be consistently tracked over time. Most of these established sources, however, only measure past results; typically, they do not make predictions.

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Methodology Today, eMarketer formulates its essential e-business numbers by ﬁrst Key Findings identifying the most established, reputable source for a given sector being TV Technology & TV Households Worldwide measured and then adopting that organization’s ﬁgures as benchmarks for Advanced Television Services the historical/current period. For instance, eMarketer’s US Internet user

US ﬁgures will be based on a combination of the most recent data from the US Appendix: Census Bureau and the International Telecommunication Union. Using this Glossary of Acronyms

Index of Charts data as the benchmark for 2000 and 2001, eMarketer will make projections for subsequent years based on the following factors: a comparative analysis of user growth rates compiled from other research ﬁrms additional benchmark data from Internet rating ﬁrms, e.g., Nielsen//NetRatings, comScore Media Metrix, which use panels to measure Internet user activity on a weekly and monthly basis an analysis of broader economic, cultural and technological trends in the US Similarly, US e-commerce revenues are being “benchmarked” using historical data from the US Department of Commerce, and broadband household and penetration rate forecasts are being built off baseline data from the Organization for Economic Cooperation and Development (OECD). Through this benchmarking process, eMarketer will be holding itself – and its projections – accountable.

“When I need the latest trends and stats on e-business, I turn to eMarketer. eMarketer cuts through the hype and turns an overabundance of data into concise information that is sound and dependable.” — Mark Selleck, Business Unit Executive, DISU e-business Solutions, IBM

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Methodology 7 I Key Findings 11

II TV Technology & TV Households Worldwide 13

III Advanced Television Services 33

IV US 39 I V Appendix: Glossary of Acronyms 101 Index of Charts 103

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Methodology Digital TV households worldwide will number 100 million by the end Key Findings of 2003, and 400 million by 2010. (Strategy Analytics, 2003). TV Technology & TV Households Worldwide The US will have nearly 60 million digital TV households in 2005, up Advanced Television Services from 40 million in 2002 (eMarketer, 2003).

US Only the United Kingdom has a higher household digital TV Appendix: penetration than the US (Strategy Analytics, 2003). Glossary of Acronyms Index of Charts US video-on-demand users will grow at a CAGR of 71% to 2006, and revenues will grow from $228 million in 2002 to $1.76 billion in 2006 (eMarketer, 2003). Personal video recorders are in less than 4% of US homes currently, but this will rise to 13.3% by 2006 (eMarketer, 2003). High-deﬁnition TV is available to over 55 million US households, but only about 2 million households will be viewers of HDTV in 2003. HDTV households, however, will grow at a CAGR of 128% to 2006, numbering 16.4 million in that year (eMarketer, 2003). All major US cable and satellite TV providers have launched or are testing advanced TV services. The competition between cable and DBS will continue to be ﬁerce.

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Methodology 7

I Key Findings 11 II TV Technology & TV Households Worldwide 13 A. Understanding the Technology 14 B. TV Households 16 C. Global Digital TV Projections 17 II D. Digital Terrestrial Television (DTT) 22 E. IPTV – Internet Protocol TV 25 F.The Set-Top Box (STB) 26 G. Digital TV Sets 30

III Advanced Television Services 33

IV US 39

V Appendix: Glossary of Acronyms 101

Index of Charts 103

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Methodology A. Understanding the Technology Key Findings TV Technology & Television pictures the world over are transmitted into homes by means of TV Households Worldwide

Advanced three main technologies: terrestrial, cable and satellite. Television Services

US Terrestrial TV, also called over-the-air broadcasting, is transmitted through

Appendix: the air from a large antenna, usually situated at a high location, and Glossary of Acronyms received by an internal or external antenna in the home. TV became a mass Index of Charts medium in most countries during the 1950s by over-the-air broadcasting. Some of the problems that have been experienced with terrestrial TV transmission over the last 50 years have been that the spectrum, which is shared among many broadcasters, limits the amount of channels that can be broadcast over the air in a given city, and obstructions and long distances can often degrade the TV signal. Cable TV transmission receives, converts and transmits the TV signal along hybrid ﬁber/coaxial cable. Cable TV was developed to deliver TV signals to small isolated communities and later used to increase the number of channels available to viewers. Since cable TV provides a dedicated ‘pipe,’ with more usable bandwidth than regulators allocate to terrestrial broadcasters, cable operators can offer subscribers many more TV channels, normally with clearer pictures. Cable networks cost a lot of time and money to build, but recent technological developments have allowed cable TV operators to also utilize the cable network to offer additional revenue-generating services such as high-speed Internet and telephony. Satellite TV, also called direct-to-home (DTH) or Digital Broadcast Satellite (DBS), is the transmission of TV signals from orbiting satellites at about 35,000 feet directly to small receiving dishes attached to a household. Anyone who can install a receiving dish and point it to the sky can receive satellite TV. Most DTH satellite systems are already digital, so they can offer a wider selection of channels than can analog cable.

IPTV – Internet protocol TV Terrestrial, cable and satellite are the three main TV distribution platforms the world over, but emerging technologies are allowing TV signals to be transmitted on technologies such as DSL, ﬁber and wireless technologies using Internet protocol. This will mean that TV will be available to people’s Internet devices including PCs, mobile phones and PDAs. Already in the Japanese market, one can receive TV through mobile phones, and other markets are sure to follow shortly. With DSL quickly becoming the most popular broadband Internet technology throughout the world, digital TV through DSL will grow steadily in the coming years.

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Methodology Digital vs Analog Key Findings The major difference between analog TV signals and digital TV signals is TV Technology & TV Households Worldwide that digitizing the TV signal increases the capacity of the transmission Advanced Television Services technology, thereby allowing TV providers to offer a greater number of

US channels. A digital TV signal can be transmitted using any of the Appendix: distribution technologies mentioned previously, so digital TV is possible on Glossary of Acronyms

Index of Charts cable, satellite, terrestrial and other emerging technological platforms. Mobile phone operators around the world made a similar transition in the 1980s and 1990s when they moved from analog transmission to a digital transmission. This provided mobile phone users with better reception and functionality, but more importantly for the operator, they were able to better utilize their spectrum and service many more customers. Like mobile phone operators, however, cable, satellite and terrestrial operators need to upgrade their systems and networks in order to provide customers with digital TV and for the consumer, they need to purchase different equipment to receive digital TV. Digital TV is already available in many markets around the world in conjunction with Analog TV. Typically, there is no single digital TV standard throughout the world. Rather the US digital TV system (ATSC) is different from Europe (DVB), and Japan and China are developing their own. Many national governments, including Australia, the US and Taiwan, have mandated that TV broadcasters cease transmission of analog TV at a certain date. In the US, this date was tentatively set at 2006, but it looks likely that this will be pushed forward to give broadcasters more time to get ready for digital. When the analog signal is turned off, TV viewers who are not currently subscribed to a digital TV service will only be able to receive a TV signal if they purchase a digital TV, or alternatively, a set-top box that will translate the digital signal into viewable pictures on their existing analog TV.

HDTV and ITV The other important element to digitizing the TV signal is that it provides operators with a viable opportunity for offering consumers high-deﬁnition TV (HDTV) - with double the resolution of standard TV, CD-quality sound and a wider picture - as well as interactive TV functions, video-on-demand (VOD) and personal video recorder (PVR) functions. With cable operators spending billions of dollars upgrading their analog networks to digital, they are looking to advanced TV services such as VOD, HDTV and PVRs as the key revenue drivers for their future networks.

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Methodology B. TV Households Key Findings TV Technology & There are over a billion TV households worldwide and at least 1.4 billion TV Households Worldwide

Advanced television sets, according to Baskerville Communications and Merrill Television Services Lynch. The United States represents less than 10% of worldwide TV US households, while China boasts over 30%. Appendix: Glossary of Acronyms Index of Charts Geographic Distribution of TV Households Worldwide, 2000 (as a % of total households)

Middle East/Africa 2% North America South America 13% 7%

Europe Asia-Pacific 28% 50%

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Methodology C. Global Digital TV Projections Key Findings TV Technology & Informa Media Group estimates there will be nearly 100 million digital TV TV Households Worldwide

Advanced households worldwide at the end of 2003, with North America containing Television Services over 51% of the total. Europe, the next largest digital TV region, will US contain 30.7 million digital TV households, or 31.7%. Appendix: Glossary of Acronyms Index of Charts Digital TV Households Worldwide, by Region, End of 2002 & 2003 (in thousands)

Asia-Pacific 7,851 12,306

Europe 26,921 30,721

Latin America 3,590 4,020

North America 42,840 49,685

Total 81,202 96,732

By 2010, there will be 393 million digital TV households worldwide, with the Asia-Paciﬁc region being the largest market, according to Informa Media Group.

Digital TV Households Worldwide, by Region, 1995-2010 (in millions) 1995 2002 2003 2005 2010 Asia-Pacific 0 8 12 36 157 Europe 0 27 31 43 97 Latin America 0 4 4 6 23 North America 2 43 50 66 116 Total 2 81 97 151 393 Source: Informa Media Group, April 2003 049040 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology Strategy Analytics predicts 374 million digital TV households worldwide Key Findings by 2008, up from 103 million in 2002. TV Technology & TV Households Worldwide

Advanced Digital TV Households Worldwide, 2000-2008 (in Television Services millions) US

Appendix: Glossary of Acronyms 2000 54.9 Index of Charts 2001 76.7

2002 103.3

2003 135.8

2004 175.2

2005 221.5

2006 272.2

2007 324.4

2008 374.0

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Methodology While cable penetration is very high in North America, it is not as high in Key Findings other parts of the world. This is why satellite TV (DTH/DBS) will be the TV Technology & TV Households Worldwide dominant digital TV platform at the end of 2003, with nearly 57% of the Advanced Television Services market, compared to digital cable at 38%.

Appendix: Digital TV Households Worldwide, by Delivery Glossary of Acronyms Platform, End of 2002 & 2003 (in thousands) Index of Charts Digital terrestrial (DTT) 1,566 3,237

Digital cable 28,647 37,305

Digital satellite (DTH/DBS) 50,470 55,088

DSL entertainment 519 1,102

Total 81,202 96,732

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Methodology The United Kingdom will have the highest digital TV household penetration Key Findings in the world at 44% at the end of 2003, followed by the US, at 42%, and TV Technology & TV Households Worldwide Canada at 40%. Advanced Television Services Leading Digital TV Countries Worldwide Ranked by US Penetration*, End of 2003 Appendix: Glossary of Acronyms Index of Charts UK 44%

US 42%

Canada 40%

Ireland 35%

New Zealand 33%

Sweden 27%

Malaysia 26%

France 21%

Finland 17%

South Korea 16%

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Methodology The US digital TV market is over four times as large as the next largest Key Findings digital TV market, the UK, according to Informa Media Group. TV Technology & TV Households Worldwide

Advanced Leading Digital TV Countries Worldwide, End of 2003 Television Services (in thousands of households) US Appendix: US Glossary of Acronyms 45,041 Index of Charts UK 10,824

Japan 5,572

Canada 4,834

France 4,717

Germany 3,916

Italy 2,768

South Korea 2,302

Spain 1,769

Poland 1,433

“Digital video households, while still far fewer than analog video households worldwide, represent one of the fastest growing sectors in electronics today. Anticipated growth from 2002 to 2005 is approximately 67%” — Multimedia Research Group, April 2003

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Methodology D. Digital Terrestrial Television (DTT) Key Findings TV Technology & While cable and satellite are currently the two dominant digital TV TV Households Worldwide

Advanced platforms, two others will also grow in prominence over the coming years – Television Services DTT and DSL. US Digital terrestrial television is coming because many national Appendix: Glossary of Acronyms government have said so. Countries such as the US, Australia, Canada, Index of Charts Taiwan and others have already made the decision as to when they will be ceasing analog TV transmission.

Digital Terrestrial Television (DTT) Start and Analog Switch-Off Dates for Selected Countries, 1998-2010 DTT Start Analog switch-off UK 1998 ND US 1999 2006 Canada 1999 2007 New Zealand 1999 ND Spain 1999 ND Sweden 1999 ND Singapore 2000 ND China 2000 ND Finland 2000 ND France 2000 2010 Hong Kong 2000 ND Ireland 2001 ND Netherlands 2000 ND Portugal 2000 ND Australia 2001 2008 Korea 2001 ND Taiwan 2001 2006 Japan 2003 2010 Note: ND refers to 'not determined' Source: Screen Digest, October 1998 036838 ©2002 eMarketer, Inc. www.eMarketer.com

In those countries where over-the-air broadcasting dominates and cable and satellite TV are not widely available, DTT will garner signiﬁcant subscribers. When the analog TV signal stops, TV viewers won’t be able to watch TV unless they purchase a new digital TV set or a set-top box that will translate the digital signal so that television is viewable on their analog TVs. There are two major digital TV technology standards in the world today, ATSC and DVB. Japan is using an alternative standard, ISDB, and China is developing its own standard.

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Methodology The following tables provide an update of the deployment of digital TV Key Findings across the world as of 30 June 2003 from the digital TV standards body, TV Technology & TV Households Worldwide Advanced Television Systems Committee (ATSC). Advanced Television Services ATSC Digital Terrestrial TV (DTT) Deployments US Worldwide, 2003 Appendix: Glossary of Acronyms ATSC Index of Charts Argentina Adopted ATSC in 1998. Experimental ATSC broadcasts in Buenos Aires. Canada First commercial station in early 2003. Service in Toronto, Montreal, Ottawa and Vancouver by end of 2003. Mexico Expected to formally adopt ATSC in 2003. Test broadcasts of ATSC HDTV 45hr/week in Mexico City for past five years. One commercial ATSC station operating in Tijuana. South Korea Launched in late 2001, already reaching 48% of the population with DTV signals. 70% by the end of 2003, nationwide by 2005. World leaders in interactive DTV services, using the ATSC DASE Standard. US More than 1,000 DTV stations on air, reaching 98% of the population. Nearly 500 DTV/HDTV products on the market. By the end of 2002, 5 million units had been sold, representing a consumer investment of $9 billion. Note: ATSC=Advanced Television Systems Committee Source: ATSC Forum, June 2003 050999 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology

Key Findings DVB Digital Terrestrial TV (DTT) Deployments

TV Technology & Worldwide, 2003 TV Households Worldwide DVB Advanced Television Services Australia Australia uses the DVB standard in commercial DTV US service but with Dolby audio. Unlike Europe, Australia Appendix: offers HDTV among its DTV services. Lack of HDTV Glossary of Acronyms receivers led to a wasteful requirement to simultaneously Index of Charts broadcast separate SDTV and HDTV streams. EU countries Mandated via European Commission decision. Only standard-definition television available in Europe. No HDTV whatsoever - not by cable, satellite or terrestrial broadcast. France Implementation plans keep getting deferred. Germany Rapid transition planned, including government subsidy of DTV receivers, in order to recover spectrum for other uses. (Terrestrial TV is only used by a few percent of German viewers.) New Zealand Adopted DVB without considering other options, but has not launched any commercial service. Scandinavia Broadly deployed terrestrial DTV services operating in Sweden. Less broadly deployed terrestrial services operating in one or two other Scandinavian countries. Singapore Adopted DVB Standard, but with Dolby audio. Only DTV service operating or contemplated is a mobile service to buses and subways. Reception quality is so poor that the audio is simulcast over FM radio. UK and Spain Major terrestrial pay DTV services launched in each country went bankrupt and ceased operations in 2002. UK said their service failed due in large part to poor technical reception. UK re-launched a free-to-air services but with only about 2/3 the bit rate in order to provide more robust reception. (This system only delivers 13.6 Mbps, compared to 19.4 Mbps for ATSC, in a 6MHz channel. Note: DVB=Digital Video Broadcasting Source: ATSC Forum, June 2003 051104 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology E. IPTV – Internet Protocol TV Key Findings TV Technology & Digital Subscriber Line (DSL) has been touted as the potential fourth platform TV Households Worldwide

Advanced for digital TV, but it is unlikely this market will emerge as a true competitor to Television Services the other digital platforms for some time. DSL is a broadband technology, US which utilizes the existing phone line and provides bandwidth from 200kbps Appendix: Glossary of Acronyms –to 50+Mbps depending on the ‘flavor’ of DSL deployed. The service is Index of Charts predominately offered by telecommunications companies, so if digital TV over DSL is to become widespread, then telecom companies will need to work out how to become TV broadcasters as well. This may very well be the factor which prevents digital TV via DSL from becoming widespread. Strategy Analytics projects that the number of people around the world using television and video services delivered through Internet protocol (IPTV) will grow from just 110,000 in 2002 to 20.44 million by 2008. Strategy notes that 2003 will be the year for the most significant growth in the number of IPTV subscribers with a rate of 662%. The research firm believes that Europe and Asia-Pacific will be the regions leading the overall market. Strategy studied 30 commercial and planned IPTV deployments and determined that IPTV technologies help reduce the costs of both market entry and operation for broadband television service providers about to enter the arena.

IPTV* Subscribers Worldwide, 2000-2008 (in millions)

2000 0.01

2001 0.03

2002 0.11

2003 0.83

2004 2.19

2005 4.53

2006 8.23

2007 14.02

2008 20.44

Note: *term describing television and video services that are delivered to television receivers using IP-Internet Protocol Source: Strategy Analytics, December 2002 045386 ©2002 eMarketer, Inc. www.eMarketer.com

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Methodology F.The Set-Top Box (STB) Key Findings TV Technology & The piece of hardware that transforms the TV into an advanced digital and TV Households Worldwide

Advanced interactive device is the set-top box (STB) – labeled such because it is a box Television Services that usually sits on top of your TV set. STBs could be described as US computers since they have microprocessors, memory, and various inputs Appendix: Glossary of Acronyms and outputs, but a typical STB does not have the processing power nor Index of Charts local storage capability of a standard PC. However, emerging STBs are becoming more sophisticated.

Categories of Set-Top Boxes The importance of the set-top box, and the strategy the various digital TV players are taking, are directly related to the possible advanced TV services and applications a digital TV user will have available. According to Chorus Senior Technology Strategist Gerard O’Driscoll, set- top boxes can be broadly classiﬁed into six major categories. The following table illustrates the so-called ‘fat’ versus ‘thin’ client strategy taking place within the set-top box industry. Those with thin set-tops have limited memory and processing power and therefore offer limited functionality; fat set-tops have greater memory, processing power and functionality.

Categories of Set-Top Boxes (STBs) Worldwide, 2002 Analog set-top boxes Perform the functions of receiving, tuning and de-scrambling incoming television signals Dial-up set-top boxes Allow subscribers to access the internet through their TV Entry-level digital Are capable of receiving broadcast digital set-top boxes television and complemented with a pay-per-view system and a very basic navigation tool. Usually low cost, limited memory and processing power Mid-range set-top Include a return path for communication with the boxes server at the head-end. Usually double the processing and storage capabilities of an entry-level STB Advanced digital Bear a close resemblance to a multimedia PC. set-top boxes Usually contain 10 times the processing power of low-level STBs and significantly more storage capabilities in conjunction with high-speed return path which allows advanced services such as video conferencing, IP telephony, video-on-demand and high definition television Advanced digital These STBs include a hard disk drive which set-top box with PVR allows users full VCR functionality allowing functionality recording of shows and skipping of ads, etc. as well as all the functionality associated with an advanced digital STB Source: Chorus, 2001; eMarketer, 2002 036727 ©2002 eMarketer, Inc. www.eMarketer.com

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Methodology “Over the next ﬁve years, we anticipate seeing an Key Findings increase in the mid-range set top boxes that will TV Technology & TV Households Worldwide enable network operators to initially deploy iTV Advanced Television Services services such as weather, e-mail and horoscopes, US and then transition to more advanced services Appendix: Glossary of Acronyms such as t-commerce and premium video games.”

Index of Charts — James Ackerman, CEO OpenTV, 29 January 2002

Cable Vs Satellite Vs Digital Terrestrial Set-tops The major difference between cable, satellite and digital terrestrial set-tops is the greatly enhanced two-way capabilities of the cable network. Upgraded cable networks can both send and receive real-time signals to the home, while satellite and digital terrestrial networks generally can only send signals one way to a subscriber. This is critical in services such as telephony and video-on-demand, but to-date, this lack of a high-speed return path has not overly hampered the roll-out of interactive services from satellite or digital terrestrial TV providers. On the contrary, the fact remains that the most successful interactive TV provider, BskyB in the UK, is a Satellite TV provider. Sky’s interactive subscribers only have the phone line as a return path, yet their variety of interactive applications far outnumber any interactive service offerings from cable TV providers around the world.

“Interactive TV through digital broadcasting is slow because uploading — that would be the interactive part — goes through the phone line. This causes a noticeable delay that few channel surfers can tolerate. PC users are accustomed to annoying delays; TV viewers are not.” — Steve Mollman, J@pan Inc, February 2001

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Methodology Global Set-top Box Projections Key Findings According to Morgan Stanley, 31 million of the 55 million cable and DBS TV Technology & TV Households Worldwide installed set-tops in the world were in North America in 2000, with Europe, Advanced Television Services the next closest region with 15 million installed set-tops. By 2005, US however, Morgan Stanley predicts Asia will surpass Europe with over 60 Appendix: Glossary of Acronyms million digital STBs.

Index of Charts Worldwide Cable and Digital Broadcast Satellite (DBS) Set-Top-Box Installed Base, by Region, 1999-2005 (in millions) 1999 2000 2001 2002 2003 2004 2005 North America 19.7 30.6 43.3 55.0 65.9 77.3 92.2 Europe 9.2 15.2 22.0 28.8 35.1 40.6 48.2 Latin America 2.0 3.0 4.4 6.1 8.2 10.4 13.5 Asia 3.5 6.0 12.7 21.2 32.5 43.9 60.7 Worldwide total 34.5 54.8 82.4 111.1 141.6 172.2 214.6 Source: Morgan Stanley Dean Witter, March 2001 036518 ©2002 eMarketer, Inc. www.eMarketer.com

Strategy Analytics’ break-down of set-top box shipments worldwide shows that cable and satellite STB were neck and neck in 2002, but by 2008 the number of digital cable STB shipments will almost double that of satellite. The research ﬁrm predicts annual average growth in set-top box revenues of 24% until 2008.

Digital TV Set-Top Box Market Forecast Worldwide, 2002 & 2008 (in millions of units)

2002 21.6 21.6 0.8 0.6

2008 82.9 47.8 6.1 10.9

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Methodology “Market leaders such as Motorola, Inc., Scientiﬁc- Key Findings Atlanta, Inc., Thomson Multimedia, Philips TV Technology & TV Households Worldwide Electronics and Pace Micro Technology will take Advanced Television Services heart from this latest forecast, but the analysts also US identify emerging Chinese manufacturers as the Appendix: Glossary of Acronyms biggest long-term threat to today’s leading players.”

Index of Charts — Peter King, Senior Analyst, Strategy Analytics, 2002

Shipments of advanced set-top boxes, which provide PVR functionality and/or act as a media hub are forecast to rise to nearly 30 million units worldwide in 2008, according to Strategy Analytics, from only 1 million in 2002. The research ﬁrm estimates that basic PVR functionality will increasingly become the norm in new digital STB, but it will take some time before the STB becomes the ‘media home-gateway’ according to their estimates.

Advanced Digital TV (DTV) Set-Top Box Market Worldwide, by Functionality, 2002-2008 (in millions of units) 2002 2003 2004 2005 2006 2007 2008 Basic PVR 0.96 2.25 3.61 6.12 10.37 15.49 21.00 Broadband media center 0.01 0.29 1.05 2.33 3.82 5.61 8.01 Total 0.97 2.53 4.67 8.45 14.19 21.10 29.01 Note: includes cable and satellite set-top boxes only Source: Strategy Analytics, October 2002 044175 ©2002 eMarketer, Inc. www.eMarketer.com

Allied Business Intelligence is even more optimistic than Strategy Analytics on worldwide STB shipments with PVR functionality. The research ﬁrm estimates that 72.5 million STBs will be sold in 2008 and 68% (49.2 million) will have PVR functionality. This is more than double the estimated ﬁgure from Strategy Analytics.

Set-Top Box (STB) Shipments Worldwide, 2002 & 2008 (in millions)

STBs with PVR functionality 3.8 49.2

Total STBs sold 33.4 72.5

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Methodology G. Digital TV Sets Key Findings TV Technology & It is not necessary to have an actual digital television set in order to receive TV Households Worldwide

Advanced digital television, as a less expensive set-top box is able to translate the Television Services digital signal so it is viewable on an analog TV set. However, with a US growing amount of digital terrestrial content being broadcast, as well Appendix: Glossary of Acronyms increasing numbers of digital cable and satellite TV subscribers, there is a Index of Charts corresponding growing number of digital television sets being sold worldwide. As digital TVs are still extremely expensive compared to their analog counterparts, however, the market is still very small.

Estimated Worldwide Digital TV Set Market Projections, 2001 & 2005 (in millions)

North America 1.0 7.0

Japan 0.4 8.0

Europe 0.2 7.0

Asia Pacific* 0.3 4.0

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Methodology Consumer electronics association (CEA) estimates that DTV product sales in Key Findings the US will number 10.5 million in 2006, which is the year the US TV Technology & TV Households Worldwide government originally mandated that analog TV signals will cease. Advanced Television Services Digital TV (DTV) Product* Sales in the US, 2002-2006 (in US millions of units) Appendix: Glossary of Acronyms

Index of Charts 2002 2.1

2003 4.0

2004 5.4

2005 8.0

2006 10.5

Note: *DTV products are defined as integrated sets and monitors displaying active vertical scanning lines of at least 480p and, in the case of integrated sets, receiving and decoding ATSC terrestrial digital transmissions Source: Consumer Electronics Association (CEA), September 2002 043462 ©2002 eMarketer, Inc. www.eMarketer.com

For additional information on the global digital TV marketplace, see eMarketer’s eStat Database at http://www.emarketer.com/products/database.php

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Digital Television 2003

Methodology 7

I Key Findings 11

II TV Technology & TV Households Worldwide 13 III Advanced Television Services 33 A. Video-on-demand (VOD) 34 B. Personal Video Recorders (PVRs) Worldwide Forecasts 36

IV US 39 IIIV Appendix: Glossary of Acronyms 101 Index of Charts 103

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Methodology The growth of digital TV around the world has spawned the emergence of Key Findings advanced TV services such as video-on-demand, personal video recorder TV Technology & TV Households Worldwide functions, high-deﬁnition TV and interactive TV content and services. It is Advanced Television Services these emerging services that TV broadcasters and distributors are hoping

US will be the driver of revenue growth in the next decade.

Appendix: Glossary of Acronyms

Index of Charts A. Video-on-demand (VOD) While revenues from DVD/VHS sales and rentals far exceeds that of pay- per-view movie revenues, there is nevertheless a healthy and growing pay- per-view (PPV) market in the US and worldwide. This is one of the main reasons why those in the industry think VOD has potential, as both a revenue earner and a service to reduce churn. Pay-per-view (also called near video-on-demand, or NVOD) differs from VOD in that PPV movies and events are on at scheduled times, usually at staggered intervals on multiple channels. Users, however, are not unable to watch the movie more than once, nor are they able to pause or rewind the movie, as is possible with VOD. It is likely that the PPV market will be the ﬁrst to embrace video-on-demand. Informa Media Group estimates that in 2002 there were 94.4 million households worldwide with access to on-demand (which includes PPV and VOD) television services. North America currently accounts for nearly 50% of the market while Europe makes up 30%. By 2007, Informa Media Group estimates that on-demand television households in the Asia-Paciﬁc region will number 93 million, just shy of the 98 million they forecast in North America.

Households with On-Demand Television Services Worldwide, by Region, 2000-2002 & 2007 (in millions) 2000 2001 2002 2007 Asia-Pacific 4.0 7.7 15.2 93.0 Europe 16.8 23.3 29.0 73.5 North America 25.6 34.0 44.5 98.9 Latin America 2.8 4.2 5.8 16.0 Total 49.2 69.2 94.4 281.4 Source: Informa Media Group, April 2002 039423 ©2002 eMarketer, Inc. www.eMarketer.com

Direct-to-home (DTH) satellite television providers dominated the PPV market over the last few years. Since the vast majority of all DTH (also called direct broadcast satellite – DBS) services are digital, their additional capacity has allowed them to offer numerous movie channels dedicated to PPV providing a near video-on-demand experience. According to Informa Media Group, however, the dominance of DTH providers in the on-demand television market will not last long. Their data shows that by 2007 cable

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Methodology households with on-demand television services will number 176 million Key Findings compared to 70.7 million DTH households. TV Technology & TV Households Worldwide True VOD requires an advanced set-top box and signiﬁcant bandwidth Advanced Television Services both downstream and up. This means that satellite and terrestrial TV

US services are less suitable for VOD because there is no high-speed back Appendix: channel. VOD distributed via cable and DSL will be the two major Glossary of Acronyms

Index of Charts technologies utilized for VOD, according to Informa Media.

Households Using On-Demand Television Services Worldwide, by Platform, 2000-2002 & 2007 (in millions) 2000 2001 2002 2007 Cable NVoD 14.0 24.9 44.1 176.6 DTH NVoD 34.8 43.4 48.6 70.7 Cable VoD 0 0.1 0.5 16.6 DSL VoD 0.4 0.7 1.3 17.5 Total 49.2 69.2 94.4 281.4 Source: Informa Media Group, April 2002 039426 ©2002 eMarketer, Inc. www.eMarketer.com

Worldwide Revenues On-demand television service revenues will total $12 billion worldwide, up from $4 billion in 2002, according to Informa Media Group. Revenue from cable PPV (NVOD) and DTH PPV will make up the vast majority of revenues. Informa Media Group estimates that VOD revenues worldwide will only total $1.7 billion by 2007, which is considerably lower that many research ﬁrms predict for the US market alone at the same time.

On-Demand Television Services Revenue Worldwide, by Platform, 2000-2002 & 2007 (in millions) 2000 2001 2002 2007 Cable NVoD $532 $998 $1,689 $6,690 DTH NVoD $1,446 $2,013 $2,420 $3,762 Cable VoD 0 $7 $22 $916 DSL VoD $12 $21 $45 $781 Total $1,990 $3,039 $4,177 $12,149 Source: Informa Media Group, April 2002 039427 ©2002 eMarketer, Inc. www.eMarketer.com

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Methodology B. Personal Video Recorders (PVRs) Key Findings

TV Technology & Worldwide Forecasts TV Households Worldwide

Advanced PVRs, also called digital video recorders (DVRs), have the full functionality Television Services of a VCR with additional storage and tools allowing users to automatically US record programs by time, genre, actor and other criteria without the ads, as Appendix: Glossary of Acronyms well as allowing users to pause and fast-forward live TV…and also ads, of Index of Charts course. Early PVR incarnations were just a stand-alone box priced at nearly $500, but now PVR technology has been included within set-top boxes that users require for cable or satellite TV. In fact, 70% of all PVR homes in the US are digital broadcast satellite (DBS) subscribers utilizing PVR technology through their set-top box. While PVRs are in only a handful of homes worldwide now, Informa Media Group predicts that by 2010, they will be in 172 million homes.

Personal Video Recorder (PVR) Households Worldwide, 2001, 2002, 2005 & 2010 (in millions)

2001 0.8

2002 2.0

2005 24.1

2010 172.0

Infoma Media Group forecasts that by 2010, PVRs will be in 44% of North American homes, up from 3% in 2002. In Asia-Paciﬁc, Europe and Latin American households, 25% to 30% of households will have PVRs by 2010, up from 1% in 2002.

Personal Video Recorder (PVR) Household Penetration Rate Worldwide, by Region, 2001, 2002, 2005 & 2010 (as a % of digital TV homes) 2001 2002 2005 2010 Asia-Pacifc 0% 1% 9% 27% Europe 0% 1% 9% 30% Latin America 0% 1% 9% 25% North America 2% 3% 13% 44% Total 1% 2% 10% 31% Source: Informa Media Group, September 2002 044125 ©2002 eMarketer, Inc. www.eMarketer.com

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Methodology Screen Digest forecasts that by 2005, there will by three times as many PVR Key Findings households in the US as there will be in Europe at the same time. TV Technology & TV Households Worldwide Advanced Digital Video Recorder Sales in the US and Europe, Television Services 2002 & 2006 (in millions) US

Appendix: Europe Glossary of Acronyms 0.3 Index of Charts 5.0

US 2.3 15.3

PVR functionality will be available in set-top boxes offered by cable, DBS (also called DTH), digital terrestrial and DSL providers. DBS is currently the dominant PVR platform worldwide, but by 2005, Informa Media Group predicts cable providers will take the lead.

Personal Video Recorder (PVR) Households Worldwide, by Delivery Platform, 2001, 2002, 2005 & 2010 (in thousands) 2001 2002 2005 2010 Digital Cable 200 576 13,181 106,895 DSL 1 15 965 11,309 Digital DTH 594 1,393 7,568 26,598 DTT 0 36 2,348 27,241 Total 795 2,020 24,062 172,043 Source: Informa Media Group, September 2002 044118 ©2002 eMarketer, Inc. www.eMarketer.com

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Digital Television 2003

Methodology 7

I Key Findings 11

II TV Technology & TV Households Worldwide 13

III Advanced Television Services 33 IV US 39 A. Digital TV 41 B. Video-on-Demand (VOD) 50 C. Personal Video Record (PVR) 71 IV D. High Deﬁnition Television 82 E. US Competitive Landscape 92 F.Leading US Multichannel TV Providers 94

V Appendix: Glossary of Acronyms 101

Index of Charts 103

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Methodology Television is ubiquitous in America. According to the National Cable and Key Findings Telecommunications Association (NCTA) there were 106.6 million TV TV Technology & TV Households Worldwide households in the US in May 2003, 67% of which receive TV through cable. Advanced Television Services Television Households in the US, by Distribution US Platform, 2003 Appendix: Glossary of Acronyms

Index of Charts Other 1.0% Terrestrial 12.4% Satellite 19.2%

Cable 67.4%

Not only are TVs in nearly every US home, but people are watching more hours of TV per day, according to Nielsen Media Research. TV usage has increased one full hour per day over the last 10 years.

Average Television Usage among Households in the US, 1990-2003 (in hours:minutes/day, hours/year, and as a % ncrease/decrease vs. prior year) Broadcast year (Sept-Aug) Hrs:min/day Hrs/year Growth rate 1990-1991 6:56 2,531 0.2% 1991-1992 7:04 2,579 1.9% 1992-1993 7:12 2,628 1.9% 1993-1994 7:16 2,652 0.9% 1994-1995 7:15 2,646 -0.2% 1995-1996 7:17 2,658 0.5% 1996-1997 7:12 2,628 -1.1% 1997-1998 7:15 2,646 0.7% 1998-1999 7:22 2,689 1.6% 1999-2000 7:29 2,731 1.6% 2000-2001 7:47 2,841 4.0% 2001-2002 7:42 2,811 -1.1% 2002-2003* 8:00 2,920 3.9% Note: includes broadcast and cable; *represents data from 23 September 2002 through 12 January 2003 Source: Nielsen Media Research, April 2003 049487 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology A. Digital TV Key Findings TV Technology & eMarketer forecasts the number of digital TV households to reach 56.5 million TV Households Worldwide

Advanced in 2005, up from 38.9 million at the end of 2002. This equates to a rise in Television Services digital TV penetration from 35.9% of households in 2002 to 50% in 2005. US

Appendix: Glossary of Acronyms Digital TV (DTV) Households in the US, 2002-2005 (in

Index of Charts millions)

2002 38.9 108.5

2003 44.7 110.0

2004 50.1 111.5

2005 56.5 113.1

Digital TV households Total households Note: Total households in 2000 is 105.5 million as recorded by the US Census Bureau. Following years are eMaketer estimates Source: eMarketer, July 2003 051005 ©2003 eMarketer, Inc. www.eMarketer.com

There is a reasonable consensus among research ﬁrms forecasting digital TV in the US. Most ﬁrms estimate approximately 40 million digital TV households in 2002, and that the number will rise to approximately 55 million to 60 million by 2005.

Comparative Estimates: Digital TV Households in the US, 2000-2005 (in millions) 2000 2001 2002 2003 2004 2005 Deutsche Bank, February 2002 (1) 23.6 33.1 43.2 52.4 60.8 67.9 eMarketer, July 2003 23.0 31.8 38.9 44.7 50.1 56.5 IDATE, October 2002 (2) – 33.7 – – – – Informa Media Group, October 2002 – – 40.3 – – – Morgan Stanley, February 2002 (3) 24.1 33.4 41.0 47.1 52.3 56.9 PricewaterhouseCoopers (PwC), 20.8 29.8 41.2 54.0 61.0 68.0 February 2002 (1) Yankee Group, January 2003 – – – 43.3 49.5 55.6 Note: (1) includes DBS and digital cable only; (2) includes cable and satellite households; (3) includes DBS and digital cable only; represents all of North America Source: eMarketer, July 2003; various, as noted, 2002 & 2003 051072 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology By way of comparison, digital TV household penetration will signiﬁcantly Key Findings exceed broadband Internet penetration by 2005. By 2005, approximately TV Technology & TV Households Worldwide 30% of US households will have broadband Internet compared to 50% with Advanced Television Services digital TV.

Appendix: Broadband and Digital TV (DTV) Households in the US, Glossary of Acronyms 2002-2005 (in millions) Index of Charts 2002 17.2 38.9

2003 24.2 44.7

2004 30.3 50.1

2005 36.5 56.5

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Methodology While digital broadcast satellite (DBS) has a head start over digital cable, Key Findings this lead will be whittled down over the next 12 months as the digital TV Technology & TV Households Worldwide footprint of cable companies continues to expand. With such a high Advanced Television Services penetration of cable and satellite TV in the US, the prospects for digital

US terrestrial and other technologies competing with the two major digital TV Appendix: platforms does not look promising in the short to medium term. Glossary of Acronyms

Index of Charts Nevertheless, the US government has mandated that, in 2006, all terrestrial television transmission will be digital, so if TV viewers want to watch television and they don’t want to pay for cable or satellite TV, then they will need to purchase a new digital TV set or set-top box capable of translating the new digital signal.

Digital TV (DTV) Households in the US, by Distribution Platform, 2002-2005 (in millions)

2002 38.9 19.2 19.4 0.3

2003 44.7 22.5 21.2 1.0

2004 50.1 24.5 22.8 2.8

2005 56.5 26.9 24.6 5.0

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Methodology Informa Media Group, reporting in October 2002, expects 64% of US TV Key Findings households to have digital TV by 2008, with digital cable making up nearly TV Technology & TV Households Worldwide 40 million of the 70 million digital TV households at that time. Advanced Television Services US Digital TV Households, by Platform, 2002 & 2008 (in US thousands) Appendix: Glossary of Acronyms Cable Satellite DSL DTT Total Digital TV Index of Charts video households as a % of TV households 2002 19,000 20,000 277 989 40,266 38% 2008 39,567 25,510 4,188 1,148 70,413 64% Source: Informa Media Group, October 2002 044687 ©2002 eMarketer, Inc. www.eMarketer.com

Cable TV Recent data from the National Cable and Telecommunications Association shows that there were 71.9 million basic cable customers in May 2003, with approximately 20 million of them being digital cable customers.

US Cable Industry Statistics, 2003 Industry statistics Basic cable customers (May 2003) (1) 71,897,250 US television households (April 2003) (1) 106,641,910 Cable penetration of TV households (May 2003) (1) 67.4% Homes passed by cable (December 2002) (2) 103,700,000 Basic cable/homes passed (December 2001) (3) 69.9% Annual cable revenues (2002) (2) $49.43 billion Total advertising revenues (2002) (2) $14.7 billion Broadband deployment Digital cable customers (April 2003) (4) 20,000,000 Cable modem customers (April 2003) (4) 12,000,000 Homes passed by cable modem service (December 85,000,000+ 2002) (5) (estimated) Residential cable telephony customers (31 December 2,500,000 2002) (4) Source: (1) ACNielsen Media Research; (2) Kagan World Media; (3) Cable TV Financial Datebook; (4) National Cable & Telecommunications Association; (5) Morgan Stanley, 2000-2003 051010 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology eMarketer forecasts 26.9 million digital cable households in the US in 2005, Key Findings rising from 19.2 million at the end of 2002. TV Technology & TV Households Worldwide

Advanced Digital Cable TV Households in the US, 2002-2005 (in Television Services millions) US

Appendix: Glossary of Acronyms 2002 19.2

Index of Charts 2003 22.5

2004 24.5

2005 26.9

The Yankee Group’s recent projections illustrate the strong growth in the sector over the coming years.

Digital Cable Households in the US, 2001-2007 (in millions) 45 39.0 35.4 31.5 27.1 27 22.6 18.9 14.9

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Methodology Forrester Research predicts 38 million digital cable households in 2006, and Key Findings of these, 24.4 million will have advanced set-top boxes which allow a high- TV Technology & TV Households Worldwide speed return path using a cable modem. This will allow cable companies to Advanced Television Services offer such services as multi-user gaming and other advanced interactive

US services that take advantage of the high-speed return path.

Appendix: Glossary of Acronyms US Digital Cable and Satellite Penetration, 2001-2006 Index of Charts (in millions) 2001 2002 2003 2004 2005 2006 Satellite 18.1 19.7 20.7 21.3 21.9 22.4 Analog cable 53.3 46.0 41.8 38.7 36.2 33.7 Basic digital 15.0 20.7 21.7 18.8 16.0 13.6 Advanced STB* 0.1 2.0 6.1 12.8 18.8 24.4 Total digital cable (millions) 15.1 22.6 27.9 31.6 34.8 38.0 Note: *advanced set-top box is STB with cable modem Source: Forrester Research, 2001 033529 ©2001 eMarketer, Inc. www.eMarketer.com

Satellite eMarketer projects there will be 24.6 million digital broadcast satellite households in the US in 2005, from 19.4 million in 2002. While DBS captured early digital TV subscribers with compelling content offerings, this growth is likely to slow as cable companies begin to match, then exceed, the service offerings of their satellite counterparts.

Satellite TV (DBS) Households in the US, 2002-2005 (in millions)

2002 19.4

2003 21.2

2004 22.8

2005 24.6

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Methodology The Yankee Group forecasts 27.1 million DBS households in 2007, up from Key Findings 20.7 million in 2003. The research ﬁrm estimates that DBS growth will fall TV Technology & TV Households Worldwide from 10% in 2003 to 6% growth in 2006 and 2007. Advanced Television Services Direct Broadcast Satellite (DBS) Households in the US, US 2003-2007 (in millions and as a % increase vs. prior Appendix: Glossary of Acronyms year) Index of Charts 2003 20.7 (10%)

2004 22.4 (8%)

2005 24.1 (8%)

2006 25.6 (6%)

2007 27.1 (6%)

There are two major DBS companies in the US, DirecTV and EchoStar. In the latter half of 2001, EchoStar sought to acquire DirecTV, but the FCC did not approve this merger. News Corporation is now the leading contender to acquire DirecTV, which will, if successful, further expand the satellite TV empire of Rupert Murdoch.

US Direct Broadcast Satellite (DBS) Households, by Major Provider, Q1 2003 (in millions and % of total TV households) DirecTV 11.4 EchoStar 8.5 Total 19.9 % of total TV households 18.7% Source: company reports, 2003; eMarketer, July 2003 051013 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology Digital Terrestrial Television Key Findings It is unclear what sort of demand digital terrestrial television will muster in TV Technology & TV Households Worldwide the coming years in the US, but logic suggests that after 2006, when the Advanced Television Services analog TV signal has been ‘switched-off,’ those people who don’t want or US can’t afford cable or satellite TV will have to work with the digital Appendix: Glossary of Acronyms terrestrial signal. Screen Digest is rather optimistic about the prospects for

Index of Charts digital terrestrial, forecasting over 14 million DTT households in 2005 from virtually none in 1999. They have forecast that over 2 million people will access digital terrestrial television through their PC by 2005. International research ﬁrm Baskerville Communications forecasts that, by 2010, only 12.5% of North American digital TV households will be digital terrestrial.

US Digital Terrestrial Television (DTT) Households, 1999-2005 (in millions)

1999 0.06

2000 0.4

2001 1.1

2002 2.7

2003 5.4

2004 9.1

2005 14.4

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Methodology Digital TV Sets Key Findings Data from the CEA shows that the average price of a digital TV set in 1998 TV Technology & TV Households Worldwide was $3,147, but this has fallen to less than $1,500 in 2003. The CEA Advanced Television Services estimates that nearly 4 million digital TV sets will be sold to dealers in US 2003, up from less than a million in 2000. Appendix: Glossary of Acronyms

Index of Charts Digital TV Set and Display Sales to Dealers*, 1998-2003 Unit sales Dollar sales Average unit (in thousands) (in millions) price 1998 14 $43 $3,147 1999 121 $295 $2,433 2000 648 $1,426 $2,201 2001 1,460 $2,648 $1,812 2002 2,535 $4,280 $1,688 2003** 3,846 $5,543 $1,441 Note: *includes direct-view and projection DTVs with integrated digital decoders and stand-alone DTV displays; **preliminary Source: Consumer Electronics Association (CEA), January 2003 050455 ©2003 eMarketer, Inc. www.eMarketer.com

CEA estimates that DTV product sales will number 10.5 million in 2006, which is the year the US government has mandated that analogue TV signals will cease.

Digital TV (DTV) Product* Sales in the US, 2002-2006 (in millions of units)

2002 2.1

2003 4.0

2004 5.4

2005 8.0

2006 10.5

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Methodology B. Video-on-Demand (VOD) Key Findings TV Technology & Watching any movie or TV show at any time of the day or night with full TV Households Worldwide

Advanced VCR functionality is undoubtedly an attractive proposition for most Television Services consumers, but VOD is by no means a fait accompli. Video-on-demand has US serious competition, ﬁrst and foremost from the existing home video Appendix: Glossary of Acronyms market, which is not going away in a hurry, as 92% of TV households in the Index of Charts US have a VCR; second, from the growing DVD market, which the Consumer Electronics Association reported was the fastest growing consumer electronics product sold in 2001 and 2002; and third, from PVRs, which are allowing TV viewers to better utilize the 4 hours a day they spend in front of the box.

“Unless video-on-demand can provide a service less expensively than home video, it will have difﬁculty gaining traction.” — PricewaterhouseCoopers, May 2001

Digital Video Disc (DVD) players are in an increasing number of American homes. The Consumer Electronics Association estimate that 12.5 million stand-alone players were sold in 2001, 17.6 million in 2002 and 20.1 million will be sold in 2003.

US Sales of Select Digital Video and Audio Products, 2002 & 2003 (in millions of units)

Stand-alone DVD players 17.6 20.1

DTV sets 2.7 3.8

LCD TVs 1.0 1.1

MP3 players 1.7 2.1

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Methodology Approximately 35% of households had a DVD player at the start of 2003, Key Findings according to the CEA. TV Technology & TV Households Worldwide

Advanced Top 10 Video Products Found in US Households, 2002 Television Services US Color TVs 98% Appendix: Glossary of Acronyms VCR decks 92% Index of Charts Color TV with stereo 69%

Monochrome TV 39%

DVD players 35%

TV/VCR combos 23%

Direct-to-home satellite 21%

Projection TV 18%

All LCD TV 13%

DTV sets 4%

Just as the CD replaced the audiotape, the DVD is rapidly replacing the VHS Video tape. Now that DVD recorders have hit the market, the days of the VCR are numbered. According to Mercer Management Consulting, within two years, sales of DVDs reached levels it had taken VHS seven years to achieve. Sales in the US were $8.7 billion in 2002, compared with $4.8 billion for VHS, according to Morgan Stanley. The same pattern is also occurring in Europe.

DVD and VHS Movie Sales in the US, 2002 (in billions)

DVD $8.7

VHS $4.8

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Methodology Adams Media Research estimates that by 2005, consumer spending on DVD Key Findings rental and sales will total $22.5 billion in 2005, up from $4.7 billion in 2000. TV Technology & TV Households Worldwide

Advanced US Consumer Spending on DVDs, 2000 & 2005 (in Television Services billions) US Appendix: DVD Rentals Glossary of Acronyms $0.66 Index of Charts $8.27

DVD Sales $4.03 $14.19

Total $4.69 $22.46

The ﬁlm industry has responded to the emergence of new delivery mechanisms by adjusting their ﬁlm releases to maximize their returns on each movie title. For example, movie titles typically do not become available on pay-per-view (PPV) (including VOD) until some 8 to12 months after its theatrical release and 2 to 6 months after it is available for sale or rent, according to Mercer Consulting Group.

Movie Release Schedule, by Distribution Channel, 2003 Theatrical release 0-6 months DVD/VHS rental and retail 6 months PPV (VOD/NVOD) 8-12 months Premium Pay TV 10-21 months Free TV 21-24 months Note: This table is indicative only. Significant variations occur depending on title, studio and territory Source: Mercer Management Consulting, April 2003 050969 ©2003 eMarketer, Inc. www.eMarketer.com

DVD rentals and sales have now become so lucrative for ﬁlm studios that it exceeds revenue from domestic theatrical ﬁlm releases. PPV and VOD have therefore not emerged as a revenue priority for the major studios. This is also why VOD has been relatively slow to market. With reluctance from the studios to fully embrace VOD, there has been a corresponding reluctance to provide an extensive movie library to content aggregators and operators. Combine this with the fact that the movie industry fears a Napster-type scenario occurring in the movie industry and one understands the reluctance.

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Methodology US Forecasts Key Findings eMarketer estimates there will be nearly 30 million VOD-enabled TV Technology & TV Households Worldwide households in the US in 2006, up from approximately 7 million in 2002. Advanced Television Services While millions of households will have access to VOD in the coming years, US a considerably smaller percentage will be regular users. It will take some Appendix: Glossary of Acronyms years for digital TV subscribers to be educated and comfortable about VOD

Index of Charts before all those households with it available use it regularly.

Video-on-Demand (VOD)-Enabled Households and VOD Users in the US, 2002-2006 (in millions)

2002 7.2 1.9

2003 15.8 6.0

2004 20.8 9.6

2005 25.6 13.3

2006 29.6 16.3

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Methodology eMarketer has assembled a variety of comparative estimates for VOD- Key Findings enabled households in the US, and the consensus among research ﬁrms TV Technology & TV Households Worldwide shows that in 2002 there were approximately 7 million VOD households, Advanced Television Services and this will rise to approximately 30 million by 2006.

Appendix: Comparative Estimates: Video-on-Demand Glossary of Acronyms (VOD)-Enabled Households in the US, 2002-2007 (in Index of Charts millions) 2002 2003 2004 2005 2006 2007 eMarketer, July 2003 7.2 15.8 20.8 25.6 29.6 – Forrester Research, May 2002 8.5 18.1 24.3 29.2 32.9 36.7 Kagan World Media, 2001 4.0 8.8 17.5 28.4 – – Morgan Stanley, October 2002 7.4 –––31.2 – Multimedia Research Group, April 2003* 3.9 ––18.0 – – Strategy Analytics, March 2002 7.6 ––––– Yankee Group, March 2003 6.8 11.4 18.2 24.7 32.5 – Note: *North America Source: eMarketer, July 2003; various, as noted, 2001-2003 050971 ©2003 eMarketer, Inc. www.eMarketer.com

Data from Morgan Stanley indicates that nearly 100% of households with digital cable in 2006 will have access to VOD services. This is a signiﬁcant rise from 2002 when less than 40% of digital cable subscribers could access VOD.

Digital Cable and Video-on-Demand (VOD)-Enabled Households in the US, 2002 & 2006

VOD-enabled households 7.4 31.2

Digital cable households 19.2 32.3

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Methodology Kagan estimates that by 2010, there will be 67.7 million VOD households Key Findings equating to 95% of digital cable subscribers. TV Technology & TV Households Worldwide

Advanced Video-on-Demand (VOD) Households in the US, Television Services 2000-2005 & 2010 (in millions) US

Appendix: Glossary of Acronyms 2000 0.2 Index of Charts 2001 0.9

2002 4.0

2003 8.8

2004 17.5

2005 28.4

2010 67.7

US PPV Revenues Data from Paul Kagan Associates and Showtime Event Television indicates that the PPV market in the US was worth over $2.4 billion in 2002, up from $1.7 billion in 2000.

Pay-per-View* TV Revenues in the US, 2000-2002 (in billions)

2000 $1,731

2001 $2,050

2002 $2,446

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Methodology Unsurprisingly, movies dominate the revenue in PPV, but growth was also Key Findings experienced in boxing and adult entertainment over the last couple of years. TV Technology & TV Households Worldwide

Advanced Pay-per-View* (PPV) Revenues in the US, by Content Television Services Category, 2001 & 2002 (in millions) US Appendix: Boxing Glossary of Acronyms $93 Index of Charts $163

Wrestling $179 $180

Total events $286 $363

Pornography $529 $609

Movies $1,240 $1,474

Total PPV $2,050 $2,446

“Convenience has always been considered an advantage for pay-per-view and video-on-demand. We believe that the opposite is true and that convenience has actually hampered the pay-per- view market because it placed it in a more competitive environment.” — PricewaterhouseCoopers, Global Media & Entertainment Outlook, 2001- 2005, May 2001

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Methodology US VOD Revenues Key Findings eMarketer estimates that VOD revenues (including SVOD) will reach $1.76 TV Technology & TV Households Worldwide billion by the end of 2006, up from only $228 million in 2002. Advanced Television Services

US Video-on-Demand (VOD) Revenues in the US,

Appendix: 2002-2006 (in millions) Glossary of Acronyms Index of Charts 2002 $228

2003 $720

2004 $1,152

2005 $1,596

2006 $1,760

The estimates eMarketer has assembled are widely divergent. In 2005 revenues range from $1 billion to $3.5 billion. eMarketer’s estimate of $1.76 billion in 2006 is one of the more conservative estimates, but Jupiter’s estimate of $2.2 billion in 2007 and PricewaterhouseCoopers’ estimate are also on the conservative side relative to other ﬁrms.

Comparative Estimates: Video-on-Demand (VOD) Revenues in the US, 2002-2007 (in millions) 2002 2003 2004 2005 2006 2007 eMarketer, July 2003 $228 $720 $1,152 $1,596 $1,760 – In-Stat/MDR, January 2002* – – – $1,750 – – Jupiter Research, March 2003 – $349 – – – $2,200 Kagan World Media, 2001 $490 $1,040 $1,950 $3,010 – – PricewaterhouseCoopers, $350 $680 $840 $975 – – May 2003 Strategy Analytics, March $287 $1,000 $2,100 $3,500 $4,900 $6,600 2002 Yankee Group, June 2001 $420 $970 $1,430 $1,980 – – Note: *North America Source: eMarketer, July 2003; various, as noted, 2001-2003 051073 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology eMarketer’s revenue estimate is based on the following scenario: Key Findings Firstly, eMarketer estimates that 95% of digital cable subscribers will TV Technology & TV Households Worldwide have access to VOD in 2006, but only 55% of those will purchase at least Advanced Television Services one VOD program per month. eMarketer estimates that the average

US household spend per month for VOD will be $10 for the next few years until Appendix: 2006 when the competitive marketplace will force a price reduction. Glossary of Acronyms

Index of Charts Revenues will reach $1.76 billion in 2006.

eMarketer Video-on-Demand (VOD) Revenue Scenario in the US, 2002-2006 2002 2003 2004 2005 2006 Digital cable subscribers (in millions) 19.2 22.5 24.5 26.9 31.2 VOD-enabled households (in millions) 7.2 15.8 20.8 25.6 29.6 % of VOD-enabled households using 27% 38% 46% 52% 55% VOD VOD users* (in millions) 1.9 6.0 9.6 13.3 16.3 Average monthly VOD spend $10 $10 $10 $10 $9 Annual revenue (in millions) $228 $720 $1,152 $1,596 $1,760 Note:*Households purchasing at least one VOD or SVOD program per month Source: eMarketer, July 2003 050981 ©2003 eMarketer, Inc. www.eMarketer.com PricewaterhouseCoopers has a conservative estimate for VOD revenues relative to other ﬁrms. Their revenue assumptions are based on the fact that the average annual spend per VOD household will fall from $175 in 2002 to $60 in 2006. In contrast eMarketer assumes that average annual spend per VOD household will stay about the same ($120), at least for the next three years.

“VOD will provide cable operators with a new revenue stream that will be helpful, but it won’t be the home run they were expecting.” — PricewaterhouseCoopers, May 2003

PricewaterhouseCoopers (PwC) Video-on-Demand (VOD) Revenue Scenario in the US, 2002-2006 2002 2003 2004 2005 2006 VOD/SVOD households (in millions) 2.0 8.5 12.0 15.0 18.0 Annual spend per household $175 $80 $70 $65 $60 Aggregate annual spend (in millions) $350 $680 $840 $975 $1,080 Source: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates, May 2003 050983 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology Kagan World Media has looked at a number of scenarios, with the cable Key Findings operator in mind, which take into account costs and potential revenues of TV Technology & TV Households Worldwide VOD. Their analysis indicates that video-on-demand could be proﬁtable Advanced Television Services for cable companies in as short a time as 19 months or as long a time as 6

US years, depending on consumer demand.

Appendix: Glossary of Acronyms Video-on-Demand (VOD) Payback Analysis in the US, Index of Charts 2001 Downside Upside Scenar- Scenar- Scenar- Scenar- io 1 io 2 io 3 io 4 VOD revenue per VOD household/ $10 $15 $10 $15 month VOD users % basic subscribers 15% 15% 25% 25% Revenue per basic subscriber $1.50 $2.25 $2.50 $3.75 VOD cash flow margin 45% 45% 45% 45% VOD cash flow per basic $0.68 $1.01 $1.13 $1.69 subscriber/month Server cost per stream $300 $300 $250 $250 Network & infrastructure cost per $200 $200 $150 $150 stream Total cost per stream $500 $500 $400 $400 Maximum concurrent usage per 10% 10% 8% 8% node Cost per basic home $50 $50 $32 $32 Months to pay back 74 49 28 19 Note: includes Subscription Video-on-Demand (SVOD), as well as pay-per-view Source: Kagan World Media, 2001 036679 ©2002 eMarketer, Inc. www.eMarketer.com

By 2010, Kagan expects VOD revenues to exceed $5.5 billion.

Video-on-Demand (VOD) & Subscription VOD Revenues in the US, 2000-2005 & 2010 (in billions)

2000 $0.03

2001 $0.12

2002 $0.49

2003 $1.04

2004 $1.95

2005 $3.01

2010 $5.55

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Methodology Recent evidence of initial VOD offerings indicate that revenue per VOD Key Findings household averages at $10 to $15 per home, per month. Kagan’s model is TV Technology & TV Households Worldwide slightly more conservative, acknowledging the fact that whenever a new Advanced Television Services service moves out to mass deployment, the per-home revenue tends to drop.

US Kagan’s forecasts assume per household, per month revenue of $11.40 Appendix: initially in 2000, which will fall to $8.82 in 2005 and $6.80 in 2010. As the Glossary of Acronyms

Index of Charts novelty factor of VOD wears off, price will need to move down accordingly.

Average Movie and Subscription Video-on-Demand (VOD) Revenues per VOD Household per Month in the US, 2000-2005 & 2010

2000 $11.40

2001 $10.83

2002 $10.29

2003 $9.77

2004 $9.29

2005 $8.82

2010 $6.83

Jupiter Research is one of the more conservative forecasters for the VOD sector. It estimates that VOD revenues will total $2.2 billion in 2007, up from $349 million in 2003. Subscription VOD revenue will make up 36% of VOD revenue in 2007, compared to only 16% in 2003, according to Jupiter.

US Video-on-Demand (VOD) and Subscription Video-on-Demand (SVOD) Revenues, 2003 & 2007 (in millions)

2003 $293 $56 $349

2007 $1,400 $800 $2,200

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Methodology Consumer Surveys Key Findings Cable TV providers are hoping VOD will stop the tide of churn to DBS TV Technology & TV Households Worldwide providers. Will it work? Leichtman Research Group surveyed cable TV Advanced Television Services subscribers and DBS subscribers interested in on-demand services. Of cable US subscribers, 58% said that such services are more likely to keep them with Appendix: Glossary of Acronyms their cable provider.

Index of Charts US Cable TV Subscribers’ Likelihood of Staying with Cable TV If Video-on-Demand (VOD) Is Available, 2003 (as a % of respondents)

1 (no more likely to stay) 6%

2 5%

3 16%

4 14%

5 (much more likely to stay) 58%

Of satellite TV subscribers interested in VOD, however, only 28% said the services would be enough to make them switch from satellite to cable, while nearly one-quarter say the on-demand offering would make no difference to them.

US Satellite TV Subscribers’ Likelihood of Switching to Cable TV If Offered Video-on-Demand (VOD), 2003 (as a % of respondents)

1 (no more likely to switch) 24%

2 12%

3 18%

4 18%

5 (much more likely to switch) 28%

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Methodology Numerous surveys over the last three years have identiﬁed that consumers Key Findings are interested in VOD. Accenture conducted a survey of almost 700 satellite TV Technology & TV Households Worldwide and cable households in 2001, revealing that video-on-demand and PVR Advanced Television Services functions are the most interesting iTV feature. The top three interactive TV

US services are more interesting to people than high-speed Internet, according Appendix: to the survey results. Glossary of Acronyms

Index of Charts US Consumers’ Interest in Selected iTV Services, 2001 (as a % of respondents)

Video-on-demand 40% 20%

Personal video recorders 35% 20%

Enhanced TV 23% 18%

High speed internet 23% 13%

Interactive games 20% 12%

TV based e-mail 15% 10%

TV based commerce 9% 10%

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Methodology A study by the Yankee Group in March 2003, however, suggests that a lot Key Findings of people still need convincing of the value of VOD. The study shows that TV Technology & TV Households Worldwide only 21% of non-VOD users are somewhat or very likely to purchase a VOD Advanced Television Services movie for $3.95

Appendix: Non-Video-on-Demand (VOD) Users in the US Likely to Glossary of Acronyms Purchase a VOD Movie for $3.95, 2002 (as a % of Index of Charts respondents) Somewhat likely 7% Not at all Very likely likely 14% 10%

Neither likely nor unlikely 15% Not very likely 55%

It is clear that finding the right price-points to make video-on-demand attractive to both consumers and profitable to cable companies will be the challenge ahead for those providing the service. The key question for VOD providers is: at what price are users prepared to pay for the convenience of not going to the video store, and not having to rewind the tape or pay for late return fees? Survey data from Accenture indicates that there is definitely a percentage of the population that is willing to pay a $1.50 to $3.00 premium over video store rentals for the convenience of video-on-demand. Accenture indicates that early adopters, unsurprisingly, are the most interested in VOD services, of the consumer segments. Their 2001 survey reveals that between 48% and 58% of these consumer segments are willing to pay a $1.50 to $3.00 premium over video store rentals for video-on-demand.

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Methodology A study conducted by Leichtman Research Group shows that 42% of cable Key Findings subscribers are willing to pay $4.95 per month for subscription VOD, and TV Technology & TV Households Worldwide 29% are prepared to pay $9.95 per month. Nearly 40% of premium movie Advanced Television Services subscribers would be prepared to pay $9.95 per month for SVOD, according

US to the survey.

Appendix: Glossary of Acronyms US Consumer Willingness to Pay for Subscription Index of Charts Video-on-Demand (SVOD), 2002 (as a % of respondents)

$4.95 per month 42% 56%

$9.95 per month 29% 38%

A Yankee Group survey published in March 2003 indicates that only 21% of US Cable TV subscribers are very or somewhat interested in SVOD.

US Cable Subscribers Interested in Subscription Video-on-Demand (SVOD), 2002 (as a % of respondents)

Very interested Somewhat 10% interested 11%

Not at all interested Neither interested 47% nor disinterested 17% Not very interested 14%

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Methodology According to Innovista, viewers who use VOD services are willing to pay $4 Key Findings for a recently released movie and $3 for documentaries and premium TV Technology & TV Households Worldwide network shows. Advanced Television Services Amount US Consumers Would Pay for Select US Video-on-Demand (VOD) Content, 2002 Appendix: Glossary of Acronyms

Index of Charts Recently released movie $4.00

Two-hour documentary $3.18

One-hour premium network shows $2.98

30-minute children's program $2.04

Further ﬁndings from them show that $3 is the price point at which the most consumers are interested in paying for a newly released movie on VOD.

US Consumers’ Willingness to Pay for Recently Released Movies on Video-on-Demand (VOD), by Price Point, 2002 (as a % of respondents) 30 28%

24%

20%

15% 15

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Methodology Innovista data also shows that given the option, 62% of consumers would Key Findings pay more than $10 per month for unlimited VOD per month, and 35% TV Technology & TV Households Worldwide would pay more than $20 per month. Innovista suggests the optimal ﬂat Advanced Television Services fee is $20 per month.

Appendix: US Consumers’ Willingness to Pay for Unlimited Glossary of Acronyms Video-on-Demand (VOD) per Month, 2002 (as a % of Index of Charts respondents)

$0 6%

$1-$5 11%

$6-$10 22%

$11-$15 8%

$16-$20 19%

$21-$25 7%

$26-$30 9%

$31-$35 2%

$36-$40 5%

$41-$45 1%

$46-$50 7%

$51+ 4%

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Methodology Parks Associates conducted a survey in July 2002 which revealed that 64% Key Findings of respondents were very interested in a monthly subscription to VOD TV Technology & TV Households Worldwide services, far more than for a pay-per-use basis. Advanced Television Services Interest in Video-on-Demand (VOD) Services and US Preferred Payment Method in the US, 2002 (as a % of Appendix: Glossary of Acronyms respondents) Index of Charts Very interested 36.1% 63.9%

Moderately interested 42.5% 57.5%

Slightly interested 50.8% 49.2%

Neutral 57.8% 42.2%

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Methodology Newly released movies and kids programming are the two content areas Key Findings most cable subscribers are interested in for VOD. Without newly released TV Technology & TV Households Worldwide movies and adult entertainment, VOD has little chance of succeeding. Most Advanced Television Services operators are offering new releases on VOD for $3.95 or $4.95 and library

US titles for $1.95 or $2.95.

Appendix: Glossary of Acronyms Content Preferences among US Cable Subscribers Index of Charts Interested in Video-on-Demand (VOD), 2002 (as a % of respondents)

Newly released movies 20% 16%

Cartoons and kids programming 9% 6%

Classic films 6% 10%

Recent movies 6% 8%

Pre-recorded sporting events 5% 5%

Concerts 5% 5%

Foreign films 4% 3%

Exercise videos 2% 3%

Cooking and instructional shows 3% 1%

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Methodology E-Poll’s December 2001 survey shows that 18-34 year olds are more Key Findings interested in iTV services than those aged 35-54. Interestingly, the only TV Technology & TV Households Worldwide interactive TV features that those between 35-54 are more interested in Advanced Television Services than the younger age group are Internet, e-mail access and taking

US polls/voting on the TV.

Appendix: Glossary of Acronyms US Consumers "Very Interested" in Selected iTV Index of Charts Services, by Age, December 2001 (as a % of respondents*)

Ability to skip commercials 71.1% 64.6%

Simple recording of TV programming (easier than VCR) 60.2% 57.3%

Video-on-demand 62.5% 54.3%

Ability to pause live television programs 60.6% 52.4%

Ability to record shows relevant to interest 44.0% 43.7%

Instant replay function 43.7% 39.7%

Changing camera angles 41.7% 33.6%

Ability to search and record programs by actor, genre, etc. 40.5% 34.0%

Ability to play along with others on television game shows 40.0% 30.5%

Interactive program guides 37.0% 28.9%

Internet access 33.3% 34.5% continued on page 70

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Methodology Take polls/voting Key Findings 27.8% TV Technology & TV Households Worldwide 32.4% Advanced Television Services E-mail US 28.1% Appendix: Glossary of Acronyms 28.5%

Index of Charts Message board or chat rooms to interact with other viewers 14.8% 9.1%

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Methodology C. Personal Video Record (PVR) Key Findings TV Technology & One would think that from the amount of talk and media column inches TV Households Worldwide

Advanced devoted to personal video recorders (PVRs) they were in every other US Television Services home. PVR users are, without question, an enthusiastic and vocal group, US but PVRs will be in less than 4% of US homes by the end of 2003. Appendix: Glossary of Acronyms PVRs, also called digital video recorders (DVRs), have the full Index of Charts functionality of a VCR with additional storage and tools allowing users to automatically record programs by time, genre, actor and other criteria without the ads, as well as allowing users to pause and fast-forward live TV…and also ads, of course. Early PVR incarnations were just a stand-alone box priced at nearly $500, but now PVR technology has been included within set-top boxes that users require for cable or satellite TV. In fact, 70% of all PVR homes in the US are digital broadcast satellite (DBS) subscribers utilizing PVR technology through their set-top box. DirecTV and EchoStar (Dish Network), the two leading DBS providers in the US, have been very successful at attracting new subscribers with their PVR set-tops, and they are counting on PVR technology to combat the ‘threat’ of video-on-demand (VOD) being offered by cable providers. One very attractive subscriber statistic that has emerged from PVR subscribers is that, on average, they contribute $10 to $20 per subscriber more than non- PVR subscribers, and churn is less than 1%. These two elements have made PVRs very attractive to DBS providers and cable operators are now actively testing or deploying PVR set-tops in their markets.

“People like EchoStar have been very successful at driving PVRs to the market because they are hitting a group of people that really care and enjoy their TV experience.” — Toby Farrand, CTO Diego

DIRECTV Personal Video Recorder (PVR) US Subscriber Statistics, 2002 Non-PVR subscriber PVR subscriber ARPU $60 per month $70-$80 per month Churn 1.6% <1% Source: Kagan World Media, company reports, March 2003 051019 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology US Forecasts Key Findings eMarketer estimates that by 2006 there will be 15.3 million PVR households TV Technology & TV Households Worldwide in the US, up from 1.8 million in 2002. Advanced Television Services

US Personal Video Recorder (PVR) Households in the US,

Appendix: 2002-2006 (in millions) Glossary of Acronyms Index of Charts 2002 1.8

2003 3.6

2004 6.8

2005 10.4

2006 15.3

This equates to 13.3% of households in 2006, compared to 3.3% in 2002.

Personal Video Recorder (PVR) Household Penetration in the US, 2002-2006

2002 1.7%

2003 3.3%

2004 6.1%

2005 9.2%

2006 13.3%

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Methodology Among the comparative estimates eMarketer has gathered, the one that Key Findings stands out is the estimate from Forrester Research. They are bullish on PVR TV Technology & TV Households Worldwide growth, predicting 35.8 million PVR households in 2006, up from 3.3 Advanced Television Services million in 2002. This compares to most other research ﬁrms that predict

US between 15 million and 24 million PVR households in 2006.

Appendix: Glossary of Acronyms Comparative Estimates: Personal Video Recorder Index of Charts (PVR) Households in the US, 2002-2006 (in millions) 2002 2003 2004 2005 2006 Carmel Group, July 2002 1.6 3.9 6.7 10.4 15.0 Deutsche Bank, January 2003 1.9 2.9 7.4 14.4 24.0 eMarketer, July 2003 1.8 3.6 6.8 10.4 15.3 Forrester Research, May 2002 3.3 9.4 17.2 26.0 35.8 International Data Corporation (IDC), – – – – 23.0 December 2002 Informa Media Group*, September 2002 1.4 – – 10.3 – Screen Digest, 2002 2.3 – – – 15.3 Yankee Group, October 2002 1.8 3.8 7.8 13.0 19.1 Note: *North America Source: eMarketer, July 2003; various, as noted, 2002 & 2003 050892 ©2003 eMarketer, Inc. www.eMarketer.com

“By year-end 2008, there will be an estimated 28.6 million PVR users that will penetrate 25% of US TV households. Of that amount, six companies will account from approximately 73% of the market. Those companies include Diego (Moxi), Metabyte Networks, Microsoft, OpenTV, SONICblue and Tivo.” — Carmel Group, 2002

Breaking down PVR households by delivery platform, eMarketer estimates that DBS households will continue to make up the bulk of PVR households in the next three years. While cable operators are now actively deploying or testing PVR set-tops in their markets, eMarketer believes that their focus on video-on-demand and lack of expertise with this technology will delay their deployment of these set-top boxes and consequently delay consumer adoption. After 2006, however, it is very likely that cable, with their much larger footprint, will be the dominant platform in which to receive PVR services.

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Methodology Stand-alone PVRs are coming down in price, which should encourage Key Findings greater adoption of these products. In conjunction with this, electronic TV Technology & TV Households Worldwide manufacturers such as Sony, Toshiba, Philips and Samsung have Advanced Television Services announced they will be putting PVR technology within new DVD US players/recorders as well as other products, so the technology has a chance Appendix: Glossary of Acronyms to become widespread in the coming years.

Index of Charts Personal Video Recorder (PVR) Households in the US, by Delivery Platform, 2002-2006 (in millions) 2002 2003 2004 2005 2006 DBS 1.1 2.3 3.6 5.1 7.2 Cable 0.1 0.2 0.8 1.9 3.9 Stand-alone/other 0.6 1.1 2.4 3.4 4.2 Total 1.8 3.6 6.8 10.4 15.3 Source: eMarketer, July 2003 051022 ©2003 eMarketer, Inc. www.eMarketer.com

Among the research ﬁrms who have broken their forecasts down by delivery platform, there is a reasonable amount of consensus about where the PVR market is going. eMarketer and the Yankee Group predict that DBS will be the dominant delivery platform for PVRs to 2006, but the Carmel Group estimates that cable will take over DBS by 2006 as the dominant platform. The Carmel Group also does not predict that stand-alone PVR devices will grow very much over the next few years compared to estimates from eMarketer and the Yankee Group.

Comparative Estimates: US Personal Video Recorder (PVR) Households, by Delivery Platform, 2002-2006 (in millions) 2002 2003 2004 2005 2006 DBS Carmel Group, July 2002 1.0 2.2 3.3 4.9 6.8 eMarketer, July 2003 1.1 2.3 3.6 5.1 7.2 Yankee Group, October 2002 1.2 2.3 4.1 6.9 10.2 Cable Carmel Group, July 2002 0.3 1.3 2.8 4.8 7.4 eMarketer, July 2003 0.1 0.2 0.8 1.9 3.9 Yankee Group, October 2002 0.1 0.4 1.0 2.3 4.4 Stand-alone/other Carmel Group, July 2002 0.3 0.4 0.6 0.8 0.9 eMarketer, July 2003 0.6 1.1 2.4 3.4 4.2 Yankee Group, October 2002 0.5 1.2 2.6 3.8 4.5 Source: eMarketer, July 2003; various, as noted, 2002 051023 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology One of the major reasons why widespread consumer adoption of stand- Key Findings alone PVRs has not occurred is cost. The Consumer Electronics Association TV Technology & TV Households Worldwide reports that the average unit price in 1999 was $459, and only 100,000 Advanced Television Services units were sold. They forecast 554,000 units to sell in 2003, with the

US average price at $265. This price fall may just be the ﬁllip the PVR sector is Appendix: looking for to drive greater consumer adoption. A fall in cost in Glossary of Acronyms

Index of Charts conjunction with greater consumer awareness and education are key if PVRs are to become widespread.

Personal Video Recorder (PVR) Sales to Dealers in the US, 1999-2003 Unit sales Average (in thousands) unit price 1999 100 $459 2000 249 $311 2001 336 $429 2002 247 $312 2003 554 $265 Source: Consumer Electronics Association (CEA), January 2003 050893 ©2003 eMarketer, Inc. www.eMarketer.com

TiVo and ReplayTV are the two best-known names in the PVR market, but there are a number of companies that have developed their own technology or are licensing the technology of others. TiVo’s partnership with DirecTV and EchoStar’s partnership with OpenTV are the leading technology/TV distribution partnerships at the moment.

Competitive Position of Major Personal Video Recorder (PVR) Vendors, End of 2002 Company Subscribers Major Partners Digeo (Moxi) 25,000 Charter, EchoStar, AOL MegaByte Networks 200,000 Scientific Atlanta, Canal Plus, Thomson OpenTV 575,000 EchoStar, BskyB, TPS ReplayTV/SonicBlue 120,000 LG Electronics, Samsung TiVo 575,000 DirecTV, AOL, Sony, Toshiba, Philips, Samsung WebTV/ UltimateTV 140,000 DirecTV, Sony, Thomson Source: Carmel Group, July 2002 051024 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology The Carmel Group reports that TiVo was the leading provider of PVRs Key Findings worldwide in 2002 with 29% of the market. By 2006, however, TiVo will be TV Technology & TV Households Worldwide competing with OpenTV and Metbyte Networks for the leading position. Advanced Television Services US Personal Video Recorder (PVR) Vendors' Global US Market Share, 2002 & 2006 Appendix: Glossary of Acronyms 2002 2006 Index of Charts WebTV/Ultimate TV 7% 7% TiVo 29% 20% ReplayTV/SonicBlue 9% 6% OpenTV 29% 17% Metabyte Networks 10% 16% Diego (Moxi) 0% 9% Other 16% 25% Source: Carmel Group, July 2002 050896 ©2003 eMarketer, Inc. www.eMarketer.com

“Time shifting is just the beginning of a new form of TV. PVRs will rapidly evolve to provide a home- based media gateway.” — Manu Mehta, President & CEO, MegaByte Networks

PVRs - Complimentary or Competing Against VOD? One worrying sign, perhaps, for digital TV operators deploying PVRs is that they may actually cannibalize those services with the greatest revenue potential – pay-per-view and video-on-demand services. In a survey of its subscribers, satellite TV operator EchoStar found that subscribers with embedded PVR units significantly reduced their pay-per-view expenditures. Users, it seemed, were getting more out of their existing subscription and finding less need to pay extra for additional programming. If this trend continues when VOD becomes more widely available, then the revenue potential for video-on-demand may not be as significant as digital TV providers hope. If TV viewers of the future have hundreds of national and international channels to chose from, and they can find, sort, record and watch the programs they want to watch through a device like a PVR, then the VOD proposition becomes less attractive, particularly if it is more expensive than renting a DVD or VHS tape.

“PVRs and VOD services that are offered today will end up being competing technologies. This is because ReplayTV is the ﬁrst network PVR and it is going to have VOD services tied to it.” — Andy Wolfe, CTO, ReplayTV

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Methodology An alternative view: Key Findings

TV Technology & TV Households Worldwide “Essentially, VOD is more of a competition to Advanced Television Services Blockbuster, DVD sales and the sale of US prepackaged media than it is to what TiVo is trying Appendix: to provide. The basic PVR functionality is Glossary of Acronyms

Index of Charts complimentary to VOD, not competitive with it.” — Bob Poniatowski, Product Marketing Director, TiVo

The Yankee Group put the value proposition of VOD side by side with PVR, and for both the consumer and operator they are two very different propositions.

US Value Proposition: Video-on-Demand (VOD) vs. Personal Video Recorder (PVR), 2003 VOD PVR Consumer interest Medium-high Low Device requirement None for digital cable Required subscribers Cost No set up fee, $2-$9 $300 + for device, $10-$12 PPV, $0-$12 SVOD service fee Content Movies, some TV Any and all TV programming programming Service provider value Medium Very high Source: Yankee Group, March 2003; Kagan World Media, April 2003 051025 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology Consumer Surveys Key Findings Interestingly, survey data from the satellite broadcasting and TV Technology & TV Households Worldwide communications association (SBCA) shows that PVR functionality is more Advanced Television Services interesting to consumers than any other advanced TV services.

Appendix: Interest in Select Digital TV Services in the US, 2002 Glossary of Acronyms (as a % of respondents) Index of Charts PVR 21% 16%

VOD 18% 13%

SVOD 16% 14%

Digital audio 9% 7%

Very interested Somewhat interested Note: n=1,006 households Source: Satellite Broadcasting and Communications Association (SBCA)/Taylor Research & Consulting Group, Inc., October 2002 051026 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology However, the level of interest in purchasing a PVR service (at $199 for a Key Findings device and $12.95 per month) is not as high as VOD or SVOD. The data TV Technology & TV Households Worldwide indicates that 31% of survey respondents would be very or somewhat likely Advanced Television Services to purchase a hit movie on VOD for $3.95 but only 14% of respondents

US were interested in subscribing to a PVR service. This gives a clear Appendix: indication that many people are interested in PVR services, but far fewer Glossary of Acronyms

Index of Charts are able to afford it.

LIklihood to Purchase Select Digital TV Services in the US, 2002 (as a % of respondents)

VOD 14% 17%

SVOD 15% 12%

PVR 6% 8%

Digital audio 5% 4%

HDTV 1% 1%

Very likely Somewhat likely Note: n=1,006 households; assumptions: VOD at $3.95 for 'hit' movie; SVOD at $9.95/month when subscribed to premium channels; PVR with $199 device plus $12.95/month for service; digital audio with $150 for radio plus $12.95/month for service; HDTV $2,000-$3,000 for rear-projection TV Source: Satellite Broadcasting and Communications Association (SBCA)/Taylor Research & Consulting Group, Inc., October 2003 051033 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology Numerous surveys have been conducted over the last three years which Key Findings indicate that one of the features consumers most like about PVRs is the TV Technology & TV Households Worldwide ability to skip ads in live TV as well as recording programs without the ads. Advanced Television Services This, unsurprisingly is why, advertisers and traditional media companies

US have regarded PVRs as a serious threat to their traditional revenue models. Appendix: In 2000 the CEA conducted a survey which showed that 71% of Glossary of Acronyms

Index of Charts respondents were interested in the ability to skip commercials.

US Consumer Interest in Personal Video Recorder (PVR) Features, 2000 (as a % of respondents)

Ability to skip commercials 71%

Ability to pause TV programming and resume watching 59%

Ability to rewind or repeat a scene/instant replay 51%

Ability to skip parts of the show, similar to skipping from song to song on a CD 36%

Ability to record programming with a specific actor or director 22%

More recent surveys also show the same ﬁndings.

Features of Digital Video Recorders (DVRs) that US Consumers Find Appealing, December 2002 (as a % of respondents)

Ability to skip commercials 81%

Ability to watch a show regardless of normal air time 76%

“Advertisers have long since dropped their concerns over commercial skipping even though there are VCRs in nearly every household. We expect advertisers will be equally unconcerned with commercial skipping on digital recording devices once it is shown that incidence of playback remains low.” — PricewaterhouseCoopers

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Methodology A Myers survey conducted in 2003 showed that 30.9% of PVR owners Key Findings skipped or fast forwarded all commercials, and a further 21.7% indicated TV Technology & TV Households Worldwide they did this to most commercials. This means that if 30% of homes have a Advanced Television Services PVR by the end of the decade and 50% of PVR users are skipping all or

US most commercials, TV advertising will become less effective for most Appendix: advertisers. Saying that, the Myers Group survey did also indicate that PVR Glossary of Acronyms

Index of Charts users skip commercials, but 15.3% will stop for selected ones. This gives a clear indication that if advertising is well targeted and appealing, TV viewers will watch.

Personal Video Recorder (PVR) Owners in the US Who Skip/Fast Forward through Commercials, 2003 (as a % of respondents)

All commercials 30.9%

Most commercials 21.7%

Some commercials 12.6%

A few commercials 4.2%

I skip commercials but will stop on selected ones 15.3%

Almost no commercials 0.7%

Never 14.6%

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Methodology D. High Deﬁnition Television Key Findings TV Technology & HDTV greatly enhances the picture and audio quality of the TV signal if a TV Households Worldwide

Advanced viewer has the high-deﬁnition equipment to take advantage of it. To Television Services receive HDTV one needs a digital TV set, plus a digital TV tuner that is US capable of HDTV. Appendix: Glossary of Acronyms The National Cable & Telecommunications Association claims HDTV Index of Charts broadcasts are now available to one-third of U.S. households. Last year’s agreement between TV makers and cable companies should boost that number to 85% by 2006. At the moment cable and satellite TV operators are offering set-top boxes with the capability of receiving HDTV signals and new digital TV sets will increasingly have a tuner in-built so they are able to receive HDTV signals. While the US has been waiting for HDTV for some years, the increasing amount of HDTV content combined with the falling prices of digital TV sets points to a market that will grow steadily in the coming years. Data from the CEA shows that the average price of a digital TV set in 1998 was $3,147 but this has fallen to less than $1,500 in 2003. The CEA estimates that nearly 4 million digital TV sets will be sold to dealers in 2003, up from less than a million in 2000.

Digital TV Set and Display Sales to Dealers*, 1998-2003 Unit sales Dollar sales Average unit (in thousands) (in millions) price 1998 14 $43 $3,147 1999 121 $295 $2,433 2000 648 $1,426 $2,201 2001 1,460 $2,648 $1,812 2002 2,535 $4,280 $1,688 2003** 3,846 $5,543 $1,441 Note: *includes direct-view and projection DTVs with integrated digital decoders and stand-alone DTV displays; **preliminary Source: Consumer Electronics Association (CEA), January 2003 050455 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology eMarketer’s analysis of CEA data reveals that the number of HDTV-ready Key Findings sets available to consumers has grown 195% over the last year, from 20 TV Technology & TV Households Worldwide products in 2002 to 59 products in 2003. In conjunction with this, the Advanced Television Services average price per HDTV-ready set has fallen from $5,105 in 2002 to $2,627

US in 2003.

Appendix: Glossary of Acronyms Number of Integrated High-Definition TV (HDTV)* Index of Charts Models on the US Market and Average Price per Set, 2002 & 2003 March 2002 April 2003 % growth # of integrated HDTV models on 20 59 195% the market Average price $5,105 $2,627 -49% Note: *includes digital decoder Source: Consumer Electronics Association (CEA), 2002 & 2003; interpolated by eMarketer, July 2003 051074 ©2003 eMarketer, Inc. www.eMarketer.com

Falling equipment costs, increases in HDTV content and a commitment by broadcasters, cable companies and equipment makers all point to a sector poised for growth.

US Forecasts According to the NCTA, by 1 June 2003, cable operators offering HDTV service passed 55 million TV households. The service was reaching 112 of the nation’s Designated Market Areas (DMAs), including 78 of the top 100 DMAs, and 34 markets beyond the top 100. With HDTV also available via satellite, 2003 will be the year HDTV begins to grow strongly. eMarketer estimates there will be approximately 16.4 million HDTV households in the US in 2006, up from less than 1 million in 2002. As HDTV-capable sets become more affordable, strong growth will occur in the second half of this decade.

High-Definition TV (HDTV) Households in the US, 2002-2006 (in millions)

2002 0.6

2003 2.2

2004 5.0

2005 9.6

2006 16.4

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Methodology By 2006, 14.3% of households will be receiving HDTV and penetration Key Findings should increase rapidly after that date. TV Technology & TV Households Worldwide

Advanced High-Definition TV (HDTV) Household Penetration in Television Services the US, 2002-2006 US

Appendix: Glossary of Acronyms 2002 0.6%

Index of Charts 2003 2.0%

2004 4.5%

2005 8.5%

2006 14.3%

Strategy Analytics estimates that there were approximately 4.8 million HDTV-capable households in the US in 2002 and this will rise to 29 million by 2006, with approximately half of these households actually viewing HDTV programming.

US High-Definition TV (HDTV)-Capable Households, 2002 & 2008 (in millions)

2002 4.8

2008 29.0

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Methodology By 2008, the number of HD-capable displays in US homes will have Key Findings reached 33.4 million installed units (which includes multiple HDTV TV Technology & TV Households Worldwide households). Of these displays, 27% will be connected to an HDTV service Advanced Television Services via cable, 14% via satellite, and 8% via digital terrestrial television,

US according to Strategy Analytics.

Appendix: Glossary of Acronyms Breakdown of US High-Definition TV (HDTV)-Capable Index of Charts Households, by Platform, 2008

No HDTV Cable service 27% 51%

Satellite 14% Terrestrial 8%

“HDTV has been a long time coming, But sufﬁcient momentum is now building at both content and operator levels to ensure a successful niche market in the longer term.” — David Mercer, Vice President, Broadband Practice, Strategy Analytics

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Methodology Alternative estimates from NBC indicate 16.3 million households will be Key Findings capable of HDTV in 2006 and 15.3 million households will be actually TV Technology & TV Households Worldwide using the service. Advanced Television Services High-Definition TV (HDTV)-Capable and HDTV US Households in the US, 2001-2006 (in millions) Appendix: Glossary of Acronyms

Index of Charts 2001 0.3 1.7

2002 0.6 3.9

2003 1.7 6.5

2004 4.5 9.6

2005 9.1 12.3

2006 15.3 16.3

The comparative estimates for HDTV in the US vary considerably. PricewaterhouseCoopers predicts only 5 million HDTV households in 2005, the Yankee Group predicts over 29 million. The divergent estimates reﬂect a sector that is only just developing.

Comparative Estimates: High-Definition TV (HDTV) Households in the US, 2001-2006 (in millions) 2001 2002 2003 2004 2005 2006 eMarketer, July 2003 – 0.6 2.2 5.0 9.6 16.4 NBC, May 2003 0.3 0.6 1.7 4.5 9.1 15.3 PricewaterhouseCoopers (PwC), 2001 0.8 1.5 2.4 3.5 5.0 – Yankee Group, 2003 – 0.7 3.2 8.7 17.6 29.3 Source: eMarketer, July 2003; various, as noted, 2001-2003 051039 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology Analysis of Strategy Analytics data shows that they estimate there will be Key Findings 16.4 million HDTV-connected displays in the US in 2008, with cable taking TV Technology & TV Households Worldwide the lion’s share of all subscribers. Advanced Television Services High-Definition TV (HDTV)-Connected Displays in the US US, by Distribution Platform, 2008 (in millions) Appendix: Glossary of Acronyms Index of Charts Cable 9.0

DBS 4.7

Digital terrestrial 2.7

Total HDTV households 16.4

“In 2002, announcements from cable operators, programmers and consumer electronics manufacturers signaled a change in the HDTV market. Rapid deployment of HDTV by cable operators and growing availability of HD programming will drive HDTV signals to more than 41.6 million homes by 2007.” — Yankee Group

High-Definition TV (HDTV) Households in the US, 2002-2007 (in millions)

2002 0.7

2003 3.2

2004 8.7

2005 17.6

2006 29.3

2007 41.6

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Methodology “For many people, the ﬁnal obstacle has been cable. Key Findings With approximately 70% of Americans getting their TV Technology & TV Households Worldwide TV programming via cable, the cable industry’s Advanced Television Services acceptance of HDTV is the key to a successful US transition to digital.” Appendix: Glossary of Acronyms — Gary Merson, Editor, The Perfect Vision Magazine.

Index of Charts

Consumer Surveys Nearly 50% of the population does not know how to receive HDTV according to a study conducted by CTAM. HDTV will not be widely adopted for as long as people are without an understanding of what it is and what benefits it has. Satellite TV providers were the first providers to offer HDTV, so it is little surprise to find that 38.4% of satellite TV customers think that HDTV is available from satellite TV.

US TV Subscribers’ Beliefs Regarding How High-Definition Television (HDTV) Is Delevered, by Type of TV Subscriber, June 2002 (as a % of respondents)

Satellite TV subscribers 12.4% 38.4% 9.4% 40.8%

Digital cable subscribers 28.5% 20.9% 7.1% 47.2%

Cable subscribers 24.8% 16.5% 6.0% 51.0%

Total 21.3% 21.4% 7.0% 49.2%

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Methodology The CEA conducted a study in 2002 that showed consumer interest in Key Findings HDTV-ready TV sets at different price points. At $2000 only 4% of TV Technology & TV Households Worldwide consumers were interested in the concept, but at $1000, 37% were interested Advanced Television Services and at $500 72% were interested. Clearly, the sooner the price of digital TV

US sets fall in price the quicker digital and HDTV adoption will take place.

Appendix: Glossary of Acronyms Online Consumers Interested in High-Definition TV Index of Charts (HDTV)-Ready Sets at Different Price Points in the US, 2002 (as a % of respondents)

$2,000 4%

$1,500 9%

$1,000 37%

$500 72%

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Methodology According to a study from Dove Consulting, 13% of US consumers Key Findings currently have a television set that is high-definition compatible, while TV Technology & TV Households Worldwide 81% are aware of high-definition TV (HDTV). Dove surveyed 1,658 people Advanced Television Services in the US and determined specifically that 30.4% of people who do not own

US an HDTV would only be willing to spend between $3.00 and $5.00 per Appendix: month on HDTV programming, but HDTV owners are willing to go higher; Glossary of Acronyms

Index of Charts 21.3% say they would pay between $7.00 and $10.00 per month and another 21.3% say they would pay $10.00 or more.

Amount that US Consumers Are Willing to Pay per Month for a High-Definition Programming Package, 2003 (as a % of respondents)

Up to $3 23.7% 29.6%

$3-$5 21.3% 30.4%

$5-$7 12.4% 16.9%

$7-$10 21.3% 16.9%

$10+ 21.3% 6.2%

Horowitz Associates conducted a similar study to Dove consulting asking consumers their willingness to pay $10.95 per month for HDTV programming. Only 20% of cable subscribers and 27% of digital cable subscribers indicated they were interested.

US Cable and Digital Cable Subscribers Willing to Pay $10.95 per Month for High-Definition TV (HDTV), 2002 (as a % of respondents)

All cable subscribers 20%

Digital cable subscribers 27%

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Methodology The CEA conducted another survey in 2002 to assess the demographic Key Findings proﬁle of those consumers likely to purchase HDTV equipment. Their TV Technology & TV Households Worldwide results showed that music and movie fans and high-income consumers are Advanced Television Services the most likely buyers.

Appendix: US Consumers Most Likely to Buy High-Definition TV Glossary of Acronyms (HDTV) Equipment, 2002 (as a % of respondents) Index of Charts Overall Likely HDTV Short term buyer likely buyer Owns a home theater system 34% 45% 47% Satellite TV household 21% 25% 23% Attended 3 live arts performances 25% 30% 34% in past year Eats out 2+ times per week 22% 25% 30% Paid $20,000 for a car 35% 45% 43% Average hours of TV/week 17.6 18.5 20.6 Self described music fan 48% 46% 57% Self-described movie fan 44% 53% 64% Source: Consumer Electronics Association (CEA), June 2002 051044 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology E. US Competitive Landscape Key Findings TV Technology & Cable companies have spent more than $80 billion dollars upgrading their TV Households Worldwide

Advanced networks to be able to offer advanced TV and Internet services, and they Television Services are now looking for a return on that investment. At the same time satellite US TV operators continue to erode their market share. The multichannel TV Appendix: Glossary of Acronyms market in North America is entering a new digital phase where competition Index of Charts between cable and satellite TV providers will increasingly be fought on the battle ground of advanced TV services such as video-on-demand, high- definition TV and personal video recorder functions. Those companies that are best able to educate the consumer of the benefits of these new services will stand to reap excellent long-term benefits. eMarketer’s assessment of the three major advanced TV services, VOD, PVRs and HDTV, shows that each service will grow strongly over the next few years with HDTV growing particularly strongly at a CAGR of 128.7%.

Video-on-Demand (VOD), Personal Video Recorder (PVR) and High-Definition TV (HDTV) Households in the US, 2002-2006 (in millions and CAGR) 2002 2003 2004 2005 2006 CAGR 2002-2006 VOD* 1.9 6.0 9.6 13.3 16.3 71.1% PVR 1.8 3.6 6.8 10.4 15.3 70.8% HDTV 0.6 2.2 5.0 9.6 16.4 128.7% Note: *Households purchasing at least one VOD or SVOD program per month Source: eMarketer, July 2003 051014 ©2003 eMarketer, Inc. www.eMarketer.com

Cable Vs DBS DBS continues to erode the market share of cable TV for two reasons: The service costs less Customer satisfaction is greater with DBS Data from the Satellite Broadcasting and Communications Association (SBCA) shows that a monthly subscription to DBS (which is digital) is almost $10 per month cheaper than a digital cable subscription.

Mean Monthly Service Subscription Costs among US Multichannel TV Subscribers, by Type, 2002

Digital cable $59.50

DBS $49.70

Analog cable $41.20

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Methodology Additional data from SBCA shows that satisfaction of DBS service is Key Findings between 10 and 20 percentage points higher in every category measured TV Technology & TV Households Worldwide compared with analog cable. What’s more, satisfaction of digital cable is Advanced Television Services even worse than that of analog cable. These ﬁgures should provide a

US wake-up call to all cable providers.

Appendix: Glossary of Acronyms US Multichannel TV Subscribers Who Are Satisfied Index of Charts with Their Services, 2002 (as a % of respondents)

Transmission quality and reliability 79% 67% 66%

Professionalism, knowledge, courtesy of people 74% 61% 63%

Value for money 68% 37% 36%

Problem resolution 68% 53% 57%

Making customers feel valued 64% 46% 44%

DBS Analog cable Digital cable Source: Satellite Broadcasting and Communications Association (SBCA)/Taylor Research & Consulting Group, Inc., October 2002 051046 ©2003 eMarketer, Inc. www.eMarketer.com

The combination of lower price and higher customer satisfaction is a powerful one for DBS operators. Combine this with the fact that they have been more willing to introduce interactive TV functions, and it is little surprise digital cable churn is so high.

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Methodology F.Leading US Multichannel TV Providers Key Findings

TV Technology & TV Households Worldwide

Advanced Comcast Television Services With Comcast’s recent acquisition of AT&T’s broadband network, Comcast US is the largest mulitchannel TV operator in the US with over 21 million basic Appendix: Glossary of Acronyms cable TV subscribers. As of Q1 2003, Comcast reported 6.8 million digital Index of Charts subscribers, 4 million cable Internet subscribers and 1.4 million cable telephony subscribers. Comcast has carried out an ambitious deployment plan for video-on-demand and has made VOD available to over 6 million homes as of Q1 2003. It is currently offering a ‘free’ package of VOD content for new subscribers to digital TV while also offering new movies for $3.95. Comcast is currently testing a PVR set-top box in selected markets and has HDTV available to 9 million homes.

Comcast US Cable Subscriber Statistics and Advanced TV Services, Q1 2003 Basic subscribers 21.3 (in millions) Digital subscribers 6.8 (in millions) VOD markets 19 (available to 6 million homes) VOD content and New releases $3.95; library movies $2.95 pricing SVOD deployments Philadelphia and Northern NJ; Alexandria, Arlington and Chesterfield, VA SVOD content and pricing Starz on demand, HBO on demand, Showtime on demand. SVOD free with premium subscription VOD vendors/partners Concurrent, In Demand, TVN PVR deployments Tests in Alexandria and Arlington, VA PVR set-top box Scientific-Atlanta Explorer 8000 HDTV markets 15 (available to 9 million homes) HDTV content Showtime, HBO Source: Kagan World Media, April 2003; company reports, 2003 051047 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology DirecTV Key Findings DirecTV is the largest satellite TV (DBS) operator in the US and the second TV Technology & TV Households Worldwide largest provider of multichannel TV. With all of its 11.4 million DBS Advanced Television Services subscribers digital, DirecTV is the largest digital TV provider in the country. US DirecTV has offered HDTV and PVR services for some years now as well as Appendix: Glossary of Acronyms offering enhanced and interactive TV services.

Index of Charts DIRECTV US Subscriber Statistics and Advanced TV Services, Q1 2003 Digital subscribers 11.4 (in millions) PVR subscribers Approximately 500,000 (DirecTV's partner, TiVo reported 700,000 subscribers (which includes DirecTV's share) in April 2003 PVR set-top box DirecTV/TiVo partnership HDTV markets Available to all subscribers with a HDTV set-top box HDTV content Discovery, ESPN, HDNet (sports and events) and HD Movies Source: Kagan World Media, April 2003; company reports, 2003 051049 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology Time Warner Cable Key Findings In the last 18 months Time Warner Cable has rapidly deployed VOD across TV Technology & TV Households Worldwide nearly all its markets and is now beginning to actively market the service. Advanced Television Services Time Warner Cable is using a multi-faceted strategy by offering VOD, US SVOD, PVR, HDTV as well as cable Internet packages in the hope of having Appendix: Glossary of Acronyms so many compelling offerings, customers won’t even think of going over to

Index of Charts satellite TV.

Time Warner US Cable Subscriber Statistics and Advanced TV Services, Q1 2003 Basic subscribers 11.0 (in millions) Digital subscribers 3.9 (in millions) VOD markets 33 of 34 markets VOD content and pricing New movie releases $3.95; library movies $1.95; adult titles $6.95-$9.95 VOD vendors/partners SeaChange, Concurrent, nCube, In Demand (content) SVOD deployments 33 divisions SVOD content and pricing $6.95 per month for up to four services with premium subscription such as HBO on demand; Showtime on demand; Cinemax on demand, the Movie Channel on demand PVR deployments 14 markets PVR pricing $4.95-$9.95 per month PVR set-top box Scientific-Atlanta Explorer 8000 HDTV deployments 32 divisions HDTV content HBO, Showtime, ABC, NBC, CBS, PBS, Fox; varies by market Source: Kagan World Media, April 2003; company reports, 2003 051054 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology EchoStar Key Findings The second largest satellite TV provider, behind DirecTV, EchoStar (DISH TV Technology & TV Households Worldwide Network) has 8.5 million digital subscribers and offers customers a choice of Advanced Television Services three products: standard service, a HDTV set-top box, and a PVR set-top US box. Like DirecTV, EchoStar has had some success in driving PVR technology, Appendix: Glossary of Acronyms although their exact PVR subscriber count has not been made public.

Index of Charts EchoStar/DISH US Subscriber Statistics and Advanced TV Services, Q1 2003 Digital subscribers 8.5 (in millions) PVR subscribers Approximately 550,000 PVR set-top box 33 of 34 markets HDTV markets Available to all subscribers with a HDTV set-top box HDTV content Discovery ($7.99/month), HBO, Showtime, NHL, NBA, Dish PPV programming Source: Kagan World Media, April 2003; company reports, 2003 051056 ©2003 eMarketer, Inc. www.eMarketer.com

Charter Communications Charter Communications has 6.5 million subscribers, of which 2.7 million are digital. The company is exploring a variety of advanced TV services and already has VOD available in 18 markets. Charter recently partnered with set-top box manufacturer Moxi to roll out a STB, which includes multichannel TV, VOD, PPV and PVR functionality. This would be the ﬁrst of its kind in the market.

Charter Communications US Cable Subscriber Statistics and Advanced TV Services, Q1 2003 Basic subscribers 6.5 (in millions) Digital subscribers 2.7 (in millions) VOD markets 18 markets VOD content and pricing New movie releases $3.99; library movies $2.99; adult titles $8.99-$11.99; kids $0.99 VOD vendors/partners Concurrent, nCube and TVN SVOD deployments Testing in two markets SVOD content and pricing $6.95 per month for one or more of HBO, Showtime, Starz, Cinemax, etc.; $3.99 for HBO and/or Showtime with existing premium service HDTV deployments 18 markets HDTV content Networks including Showtime, HBO, HDNet, Discovery Source: Kagan World Media, April 2003; company reports, 2003 051058 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology Cox Communications Key Findings Cox is experimenting with a number of technologies and business models TV Technology & TV Households Worldwide across it footprint. It has rolled out VOD to a few markets and PVRs to Advanced Television Services markets where VOD isn’t available. HDTV is available to 40% of its subscriber US base with the aim of having it available to 70% by the end of 2003. Appendix: Glossary of Acronyms

Index of Charts Cox Communications US Cable Subscriber Statistics and Advanced TV Services, Q1 2003 Basic subscribers 6.3 (in millions) Digital subscribers 2.7 (in millions) VOD markets 4 markets have Entertainment on Demand plus two in test VOD content and pricing EOD free in some markets; New movie releases $3.95 VOD vendors/partners In Demand, iControl SVOD deployments None currently, expected soon SVOD content and pricing $6.95 per month for one or more of HBO, Showtime, Starz, Cinemax, etc. PVR deployments 2 markets PVR pricing $9.95 per month, plus set-top lease PVR set-top box Scientific-Atlanta HDTV deployments 7 markets HDTV content Varies by market. Networks including Showtime, HBO, HDNet, Discovery HD Theatre ranges from $5-$6.99 Source: Kagan World Media, April 2003; company reports, 2003 051060 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology Adelphia Communications Key Findings Aledphia ﬁled for bankruptcy not too long ago, which has obviously TV Technology & TV Households Worldwide slowed it rollout of advanced TV services. Never the less, VOD is available Advanced Television Services in two of its markets and HDTV should be widely available throughout its US network by the end of 2003. Appendix: Glossary of Acronyms

Index of Charts Adelphia Communications US Cable Subscriber Statistics and Advanced TV Services, Q1 2003 Basic subscribers 5.3 (in millions) Digital subscribers 1.7 (in millions) VOD markets 2 markets VOD content and pricing New movie releases $3.99, library content $2.99

VOD vendors/partners Sea Change International SVOD deployments 1 market SVOD content and pricing $5.95 per month for HBO, Showtime or Starz; $3.95 each or $6.95 for two or more HDTV deployments Plans to launch Source: Kagan World Media, April 2003; company reports, 2003 051061 ©2003 eMarketer, Inc. www.eMarketer.com

Cablevision Cablevison has been relatively slow to upgrade its network to digital, but over the last 12 months digital customers have grown strongly. On-demand content is available in nearly all Cablevision’s markets and HDTV is expected to be available in the next 12 months.

Cablevision Systems US Cable Subscriber Statistics and Advanced TV Services, Q1 2003 Basic subscribers 2.9 (in millions) Digital subscribers 0.4 (in millions) VOD markets Throughout Long Island, NY, CT and NJ VOD content and pricing New movie releases $4.95, library content $2.95; adult titles $8.95 VOD vendors/partners Sea Change International SVOD deployments Throughout Long Island, NY, CT and NJ SVOD content and pricing $4.95 per month for IFC on demand, HBO, Showtime, Starz or Playboy; $3.95 each or $6.95 for two or more HDTV deployments Plans to launch throughout footprint HDTV content HBO, Showtime, Fox Sports Net, MSG Network Source: Kagan World Media, April 2003; company reports, 2003 051062 ©2003 eMarketer, Inc. www.eMarketer.com

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Methodology Mediacom Key Findings Mediacom has been busy upgrading its network to digital and is only now TV Technology & TV Households Worldwide beginning to rollout advanced TV services. Video-on-demand has been Advanced Television Services launched in three markets and SVOD will also be launched later in 2003. US HDTV is available to 23% of its footprint. Appendix: Glossary of Acronyms

Index of Charts Mediacom US Cable Subscriber Statistics and Advanced TV Services, Q1 2003 Basic subscribers (in millions) 1.6 Digital subscribers (in millions) 0.4 VOD markets 3 markets VOD content and pricing New movie releases $3.95, library content $1.95-$2.95; kids $0.99 VOD vendors/partners Sea Change, Concurrent, TV Guide, Motorola SVOD deployments Throughout Long Island, NY, CT and NJ HDTV deployments 5 markets Source: Kagan World Media, April 2003; company reports, 2003 051063 ©2003 eMarketer, Inc. www.eMarketer.com

Insight Communications Insight Communications was an early mover on VOD and interactive TV services. VOD and SVOD are now widely available throughout its network and they are also beginning to offer telephony services.

Insight Communications US Cable Subscriber Statistics and Advanced TV Services, Q1 2003 Basic subscribers 1.3 (in millions) Digital subscribers 0.4 (in millions) VOD markets 10 of 14 markets VOD content and pricing New movie releases $3.99, library content $2.99; adult $9.99-$11.99; Mag Rack, $7.95 VOD vendors/partners Sea Change, Motorola DCT-2000 set-top, Liberate middleware, SourceSuite IPG SVOD deployments 10 markets SVOD content and pricing $6.99 kids unlimited plus HBO on demand HDTV deployments 8 markets HDTV content HBO, Showtime, ESPN; $9.99 Source: Kagan World Media, April 2003; company reports, 2003 051064 ©2003 eMarketer, Inc. www.eMarketer.com

For additional information on digital TV in dozens of international markets, see eMarketer’s eStat Database.

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Methodology 7

I Key Findings 11

II TV Technology & TV Households Worldwide 13

III Advanced Television Services 33

IV US 39 V Appendix: Glossary of Acronyms 101 Glossary of Acronyms 102 V Index of Charts 103

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Methodology Glossary of Acronyms Key Findings TV Technology & ATSC advanced television systems committee TV Households Worldwide Advanced DBS direct broadcast satellite Television Services DSL digital subscriber line US DTH direct-to-home Appendix: Glossary of Acronyms DTT digital terrestrial television Index of Charts DTV digital television DVB digital video broadcast DVD digital video disk DVR digital video recorder HDTV high-deﬁnition television IPTV Internet protocol television ISDB integrated services digital broadcasting iTV interactive television MSO multiple system operator NVOD near video-on-demand PPV pay-per-view PVR personal video recorder STB set-top box SVOD subscription video-on-demand VOD video-on-demand

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Methodology 7

I Key Findings 11

II TV Technology & TV Households Worldwide 13

III Advanced Television Services 33

IV US 39

V Appendix: Glossary of Acronyms 101 Index of Charts 103

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Methodology 7 The eMarketer Difference 8 The Beneﬁts of eMarketer’s Aggregation Approach 9 “Benchmarking” and Projections 9 I Key Findings 11 II TV Technology & TV Households Worldwide 13 A. Understanding the Technology 14 B. TV Households 16 Geographic Distribution of TV Households Worldwide, 2000 (as a % of total households) 16 C. Global Digital TV Projections 17 Digital TV Households Worldwide, by Region, 1995-2010 (in millions) 17 Digital TV Households Worldwide, by Region, End of 2002 & 2003 (in thousands) 17 Digital TV Households Worldwide, 2000-2008 (in millions) 18 Digital TV Households Worldwide, by Delivery Platform, End of 2002 & 2003 (in thousands) 19 Leading Digital TV Countries Worldwide Ranked by Penetration*, End of 2003 20 Leading Digital TV Countries Worldwide, End of 2003 (in thousands of households) 21 D. Digital Terrestrial Television (DTT) 22 Digital Terrestrial Television (DTT) Start and Analog Switch-Off Dates for Selected Countries, 1998-2010 22 ATSC Digital Terrestrial TV (DTT) Deployments Worldwide, 2003 23 DVB Digital Terrestrial TV (DTT) Deployments Worldwide, 2003 24 E. IPTV – Internet Protocol TV 25 IPTV* Subscribers Worldwide, 2000-2008 (in millions) 25 F.The Set-Top Box (STB) 26 Categories of Set-Top Boxes 26 Categories of Set-Top Boxes (STBs) Worldwide, 2002 26 Cable Vs Satellite Vs Digital Terrestrial Set-tops 27 Global Set-top Box Projections 28 Digital TV Set-Top Box Market Forecast Worldwide, 2002 & 2008 (in millions of units) 28 Worldwide Cable and Digital Broadcast Satellite (DBS) Set-Top-Box Installed Base, by Region, 1999-2005 (in millions) 28 Set-Top Box (STB) Shipments Worldwide, 2002 & 2008 (in millions) 29 Advanced Digital TV (DTV) Set-Top Box Market Worldwide, by Functionality, 2002- 2008 (in millions of units) 29

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G. Digital TV Sets 30 Estimated Worldwide Digital TV Set Market Projections, 2001 & 2005 (in millions) 30 Digital TV (DTV) Product* Sales in the US, 2002-2006 (in millions of units) 31 III Advanced Television Services 33 A. Video-on-demand (VOD) 34 Households with On-Demand Television Services Worldwide, by Region, 2000- 2002 & 2007 (in millions) 34 Worldwide Revenues 35 On-Demand Television Services Revenue Worldwide, by Platform, 2000-2002 & 2007 (in millions) 35 Households Using On-Demand Television Services Worldwide, by Platform, 2000-2002 & 2007 (in millions) 35 B. Personal Video Recorders (PVRs) Worldwide Forecasts 36 Personal Video Recorder (PVR) Household Penetration Rate Worldwide, by Region, 2001, 2002, 2005 & 2010 (as a % of digital TV homes) 36 Personal Video Recorder (PVR) Households Worldwide, 2001, 2002, 2005 & 2010 (in millions) 36 Personal Video Recorder (PVR) Households Worldwide, by Delivery Platform, 2001, 2002, 2005 & 2010 (in thousands) 37 Digital Video Recorder Sales in the US and Europe, 2002 & 2006 (in millions) 37 IV US 39 Average Television Usage among Households in the US, 1990-2003 (in hours:minutes/day, hours/year, and as a % ncrease/decrease vs. prior year) 40 Television Households in the US, by Distribution Platform, 2003 40 A. Digital TV 41 Comparative Estimates: Digital TV Households in the US, 2000-2005 (in millions) 41 Digital TV (DTV) Households in the US, 2002-2005 (in millions) 41 Broadband and Digital TV (DTV) Households in the US, 2002-2005 (in millions) 42 Digital TV (DTV) Households in the US, by Distribution Platform, 2002-2005 (in millions) 43 Cable TV 44 US Cable Industry Statistics, 2003 44 US Digital TV Households, by Platform, 2002 & 2008 (in thousands) 44 Digital Cable Households in the US, 2001-2007 (in millions) 45 Digital Cable TV Households in the US, 2002-2005 (in millions) 45 Satellite 46 Satellite TV (DBS) Households in the US, 2002-2005 (in millions) 46 US Digital Cable and Satellite Penetration, 2001-2006 (in millions) 46 US Direct Broadcast Satellite (DBS) Households, by Major Provider, Q1 2003 (in millions and % of total TV households) 47

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Direct Broadcast Satellite (DBS) Households in the US, 2003-2007 (in millions and as a % increase vs. prior year) 47 Digital Terrestrial Television 48 US Digital Terrestrial Television (DTT) Households, 1999-2005 (in millions) 48 Digital TV Sets 49 Digital TV Set and Display Sales to Dealers*, 1998-2003 49 Digital TV (DTV) Product* Sales in the US, 2002-2006 (in millions of units) 49 B. Video-on-Demand (VOD) 50 US Sales of Select Digital Video and Audio Products, 2002 & 2003 (in millions of units) 50 DVD and VHS Movie Sales in the US, 2002 (in billions) 51 Top 10 Video Products Found in US Households, 2002 51 Movie Release Schedule, by Distribution Channel, 2003 52 US Consumer Spending on DVDs, 2000 & 2005 (in billions) 52 US Forecasts 53 Video-on-Demand (VOD)-Enabled Households and VOD Users in the US, 2002-2006 (in millions) 53 Comparative Estimates: Video-on-Demand (VOD)-Enabled Households in the US, 2002-2007 (in millions) 54 Digital Cable and Video-on-Demand (VOD)-Enabled Households in the US, 2002 & 2006 54 US PPV Revenues 55 Pay-per-View* TV Revenues in the US, 2000-2002 (in billions) 55 Video-on-Demand (VOD) Households in the US, 2000-2005 & 2010 (in millions) 55 Pay-per-View* (PPV) Revenues in the US, by Content Category, 2001 & 2002 (in millions) 56 US VOD Revenues 57 Comparative Estimates: Video-on-Demand (VOD) Revenues in the US, 2002-2007 (in millions) 57 Video-on-Demand (VOD) Revenues in the US, 2002-2006 (in millions) 57 eMarketer Video-on-Demand (VOD) Revenue Scenario in the US, 2002-2006 58 PricewaterhouseCoopers (PwC) Video-on-Demand (VOD) Revenue Scenario in the US, 2002-2006 58 Video-on-Demand (VOD) & Subscription VOD Revenues in the US, 2000-2005 & 2010 (in billions) 59 Video-on-Demand (VOD) Payback Analysis in the US, 2001 59 US Video-on-Demand (VOD) and Subscription Video-on-Demand (SVOD) Revenues, 2003 & 2007 (in millions) 60 Average Movie and Subscription Video-on-Demand (VOD) Revenues per VOD Household per Month in the US, 2000-2005 & 2010 60 Consumer Surveys 61 US Satellite TV Subscribers’ Likelihood of Switching to Cable TV If Offered Video- on-Demand (VOD), 2003 (as a % of respondents) 61

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US Cable TV Subscribers’ Likelihood of Staying with Cable TV If Video-on- Demand (VOD) Is Available, 2003 (as a % of respondents) 61 US Consumers’ Interest in Selected iTV Services, 2001 (as a % of respondents) 62 Non-Video-on-Demand (VOD) Users in the US Likely to Purchase a VOD Movie for $3.95, 2002 (as a % of respondents) 63 US Cable Subscribers Interested in Subscription Video-on-Demand (SVOD), 2002 (as a % of respondents) 64 US Consumer Willingness to Pay for Subscription Video-on-Demand (SVOD), 2002 (as a % of respondents) 64 US Consumers’ Willingness to Pay for Recently Released Movies on Video-on- Demand (VOD), by Price Point, 2002 (as a % of respondents) 65 Amount US Consumers Would Pay for Select Video-on-Demand (VOD) Content, 2002 65 US Consumers’ Willingness to Pay for Unlimited Video-on-Demand (VOD) per Month, 2002 (as a % of respondents) 66 Interest in Video-on-Demand (VOD) Services and Preferred Payment Method in the US, 2002 (as a % of respondents) 67 Content Preferences among US Cable Subscribers Interested in Video-on- Demand (VOD), 2002 (as a % of respondents) 68 US Consumers “Very Interested” in Selected iTV Services, by Age, December 2001 (as a % of respondents*) 69 US Consumers “Very Interested” in Selected iTV Services, by Age, December 2001 (as a % of respondents*) 70 C. Personal Video Record (PVR) 71 DIRECTV Personal Video Recorder (PVR) US Subscriber Statistics, 2002 71 US Forecasts 72 Personal Video Recorder (PVR) Household Penetration in the US, 2002-2006 72 Personal Video Recorder (PVR) Households in the US, 2002-2006 (in millions) 72 Comparative Estimates: Personal Video Recorder (PVR) Households in the US, 2002-2006 (in millions) 73 Comparative Estimates: US Personal Video Recorder (PVR) Households, by Delivery Platform, 2002-2006 (in millions) 74 Personal Video Recorder (PVR) Households in the US, by Delivery Platform, 2002- 2006 (in millions) 74 Competitive Position of Major Personal Video Recorder (PVR) Vendors, End of 2002 75 Personal Video Recorder (PVR) Sales to Dealers in the US, 1999-2003 75 PVRs - Complimentary or Competing Against VOD? 76 US Personal Video Recorder (PVR) Vendors’ Global Market Share, 2002 & 2006 76 US Value Proposition: Video-on-Demand (VOD) vs. Personal Video Recorder (PVR), 2003 77 Consumer Surveys 78 Interest in Select Digital TV Services in the US, 2002 (as a % of respondents) 78 LIklihood to Purchase Select Digital TV Services in the US, 2002 (as a % of respondents) 79

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Features of Digital Video Recorders (DVRs) that US Consumers Find Appealing, December 2002 (as a % of respondents) 80 US Consumer Interest in Personal Video Recorder (PVR) Features, 2000 (as a % of respondents) 80 Personal Video Recorder (PVR) Owners in the US Who Skip/Fast Forward through Commercials, 2003 (as a % of respondents) 81 D. High Definition Television 82 Digital TV Set and Display Sales to Dealers*, 1998-2003 82 US Forecasts 83 High-Definition TV (HDTV) Households in the US, 2002-2006 (in millions) 83 Number of Integrated High-Definition TV (HDTV)* Models on the US Market and Average Price per Set, 2002 & 2003 83 High-Definition TV (HDTV) Household Penetration in the US, 2002-2006 84 US High-Definition TV (HDTV)-Capable Households, 2002 & 2008 (in millions) 84 Breakdown of US High-Definition TV (HDTV)-Capable Households, by Platform, 2008 85 Comparative Estimates: High-Definition TV (HDTV) Households in the US, 2001- 2006 (in millions) 86 High-Definition TV (HDTV)-Capable and HDTV Households in the US, 2001-2006 (in millions) 86 High-Definition TV (HDTV) Households in the US, 2002-2007 (in millions) 87 High-Definition TV (HDTV)-Connected Displays in the US, by Distribution Platform, 2008 (in millions) 87 Consumer Surveys 88 US TV Subscribers’ Beliefs Regarding How High-Definition Television (HDTV) Is Delevered, by Type of TV Subscriber, June 2002 (as a % of respondents) 88 Online Consumers Interested in High-Definition TV (HDTV)-Ready Sets at Different Price Points in the US, 2002 (as a % of respondents) 89 US Cable and Digital Cable Subscribers Willing to Pay $10.95 per Month for High- Definition TV (HDTV), 2002 (as a % of respondents) 90 Amount that US Consumers Are Willing to Pay per Month for a High-Definition Programming Package, 2003 (as a % of respondents) 90 US Consumers Most Likely to Buy High-Definition TV (HDTV) Equipment, 2002 (as a % of respondents) 91 E. US Competitive Landscape 92 Cable Vs DBS 92 Mean Monthly Service Subscription Costs among US Multichannel TV Subscribers, by Type, 2002 92 Video-on-Demand (VOD), Personal Video Recorder (PVR) and High-Definition TV (HDTV) Households in the US, 2002-2006 (in millions and CAGR) 92 US Multichannel TV Subscribers Who Are Satisfied with Their Services, 2002 (as a % of respondents) 93 F.Leading US Multichannel TV Providers 94 Comcast 94 Comcast US Cable Subscriber Statistics and Advanced TV Services, Q1 2003 94

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DirecTV 95 DIRECTV US Subscriber Statistics and Advanced TV Services, Q1 2003 95 Time Warner Cable 96 Time Warner US Cable Subscriber Statistics and Advanced TV Services, Q1 2003 96 EchoStar 97 Charter Communications 97 Charter Communications US Cable Subscriber Statistics and Advanced TV Services, Q1 2003 97 EchoStar/DISH US Subscriber Statistics and Advanced TV Services, Q1 2003 97 Cox Communications 98 Cox Communications US Cable Subscriber Statistics and Advanced TV Services, Q1 2003 98 Adelphia Communications 99 Cablevision 99 Adelphia Communications US Cable Subscriber Statistics and Advanced TV Services, Q1 2003 99 Cablevision Systems US Cable Subscriber Statistics and Advanced TV Services, Q1 2003 99 Mediacom 100 Insight Communications 100 Insight Communications US Cable Subscriber Statistics and Advanced TV Services, Q1 2003 100 Mediacom US Cable Subscriber Statistics and Advanced TV Services, Q1 2003 100 V Appendix: Glossary of Acronyms 101 Glossary of Acronyms 102 Index of Charts 103

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Also Available from eMarketer Security Online: Corporate & Consumer Protection A comprehensive overview of Internet security. Topics include security breaches, the business costs of cyberattacks, tech solutions, Internet fraud and security risks faced by individual users. (117 Pages, 96 Charts) Automotive Industry Online The automobile industry is reshaping itself - putting manufacturing, marketing and sales online creating a value chain connecting suppliers, dealers and consumers. Henry Ford would be proud. (172 Pages, 149 Charts) Privacy in the Information Age Privacy is a growing consumer concern. Many companies use it as a competitive edge - others are skewered for misusing it. Find out why it pays to protect your customers’ privacy. (228 Pages, 191 Charts) IT Spending: Comparative Forecasts and Trends in Technology Spending Provides in-depth analysis and statistics, reinforced by comparative survey data, on IT spending in 2002 and 2003, by region and key technology market segments. (131 Pages, 138 Charts) The Online Content report Examines the emerging trends in online paid content and services in the US consumer sector. Topics include market size and forecasts, leading subscription sites, the broadband factor, music, games, sports, pornography and much more. (184 Pages, 164 Charts) Interactive Marketing: Stats, Strategies and Trends A thorough analysis of the strategies that are reshaping today’s online marketing universe—along with guidelines on how to take advantage of them. (311 Pages, 328 Charts) Consumer Electronics Online Examines how CE manufacturers and retailers are using the Internet to change how they do business. Covers electronics industry IT spending, b2b e-commerce trade, US online shopping grid and electronics industry online ad spending. (83 Pages, 77 Charts) The European Wireless report Analysis of the wireless market throughout Europe, covering retail and business applications, technology infrastructure, subscriber populations, and mobile apps. (121 Pages, 120 Charts)

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The US Online Holiday Shopping report A comprehensive update of the leading trends in e-business and online retailing in the world's largest Internet market, the United States, and also looks at the growing world market. (108 Pages, 107 Charts) Essential E-Business Numbers for Marketers, Q3 2002 A quick-reference, "stats-only" report. Data gathered from hundreds of sources is combined with eMarketer ’s own forecasts, and presented in side-by-side tables, graphs and source comparison charts. (74 Pages, 60 Charts) Latin America Online: Demographics, Usage & E-Commerce A comprehensive update of the leading trends in e-business and online retailing, with a focus on six countries that form the "core" of the region’s online market. (197 Pages, 211 Charts) Interactive Banking: Integrating Online into Traditional Channels A comprehensive overview of the interactive banking market. "Interactive," not just "online," because banking is being transformed into a cross-channel business. (386 Pages, 427 Charts) Retail Industry Online Covers the three major areas of retailers’ business operations that have been impacted by the Internet: 1) IT and e-business spending, 2) online advertising and 3) selling to consumers online. (122 Pages, 126 Charts) North American Wireless Market: On the Road to 3G As mobile voice penetration approaches 50%, a heated marketing battle is shaping up between North American wireless operators. Find out why--and what it means for your business. (160 Pages, 170 Charts) Asia-Pacific Online: Access, Demographics and Usage A comprehensive update of the leading trends in Internet usage and user demographics in the Asia-Pacific region, with a focus on eight "core" countries. (158 Pages, 179 Charts) Asia-Pacific E-Commerce: B2B & B2C Provides a thorough analysis of the demographic characteristics, usage patterns and category preferences of online shoppers in the Asia-Pacific region. (156 Pages, 156 Charts) Online Selling & eCRM A compilation of the latest survey and forecast data examining the current trends facing companies operating commercial Web sites. (125 Pages, 137 Charts)

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Broadband & Dial-Up Access Examines the residential broadband and dial-up Internet access markets in 27 countries across four regions. The report covers technologies, major players and trends in broadband access costs. (338 Pages, 433 Charts) E-Mail Marketing: Strategies, Stats, Techniques & Tools Gathering the latest findings from leading researchers, the report tracks the steady growth of e-mail marketing and shows why it is rapidly becoming one of a marketer's sharpest tools. (188 Pages, 209 Charts) The Pharmaceutical Industry Online An essential reference tool covering all aspects of the pharmaceutical industry online from companies using the Internet for trading, to the consumer using the Internet to research and buy pharmaceuticals. (88 Pages, 111 Charts) Online Investing: Brokers, Investors, Statistics, and Market Trends Provides a wide-ranging analysis of the trends and strategies that shape today's interactive investing market - along with guidelines on how to take advantage of them. (214 Pages, 203 Charts) Europe E-Commerce: B2B & B2C Provides a comprehensive review of data from leading research firms and government organizations regarding revenue forecasts for B2B and B2C e-commerce. (208 Pages, 209 Charts) CPG Online A comprehensive review of how CPG companies are working with each other and with the consumer online. It is the ideal resource for retailers, wholesale/ distributors, consultancies and marketers. (76 Pages, 80 Charts) Europe Online: Access, Demographics and Usage An overview of Internet users and usage in the 12 "core" countries that best represent the region's market, including Internet penetration rates in each country, how users are accessing the Internet, and why. (188 Pages, 195 Charts) The Benefits of Broadband A review of all available research quantifying the economic benefits of broadband. The report covers supply and demand for broadband in the US, and analyzes direct and indirect benefits of widespread adoption. (138 Pages, 124 Charts)

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North America E-Commerce: B2C & B2B A comprehensive overview of e-commerce in the US and Canada, including analysis of online shoppers versus buyers, the factors that influence people to buy online and the demographics of online buyers. (212 Pages, 250 Charts) PDA Market report Reviews the status of the worldwide PDA/handheld computer market from the perspective of data-centric devices, and analyzes the trends that are shaping its future growth. (124 Pages, 128 Charts) Interactive TV: Reality & Opportunity An overview of worldwide iTV usage and revenue prospects, television commerce, iTV advertising, video-on-demand, personal video recorders and iTV services. (194 Pages, 200 Charts) E-Commerce Trade and B2B Exchanges A comprehensive update of the leading trends shaping e-business decisions in 2002, focusing on the multiple channels businesses are using to migrate their business-to-business (B2B) trade onto the Internet. (127 Pages, 134 Charts) Online Advertising A definitive, objective look at the online ad market, including the pros and cons of emerging ad formats and the role of online advertising within a traditional media campaign. (272 Pages, 318 Charts) North America Online A comprehensive overview of the North American Internet user and market, focusing on US and Canadian user demographics, access and usage. (252 Pages, 333 Charts) Travel Market Worldwide Provides a clear picture of the current situation in the travel industry, with information and statistics regarding travel purchased both online and offline. (186 Pages, 205 Charts) For more information, or to order a copy, contact eMarketer at: Phone: 212.677.6300 Fax: 212.777.1172 eMail: [email protected] Web: www.emarketer.com For Sales Inquiries: For Media Inquiries: Nick Lovett David Berkowitz [email protected] Director of Media Relations 212.763.6031 [email protected] 212.763.6038

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