The Outlook for Home Entertainment Helen Davis Jayalath, Head of Video

Media-Tech Asia Macau, 15 March 2011 IHS Screen Diges t: w ho are we ?

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• Global entertainment spending • Trends in physical media • Focus on movies • The impact of Blu-ray Disc • Trends in diggyital delivery • The changing digital landscape • Focus on movies • Outlook to 2014

• Consumers spent $80bn on physical media in 2010 ($104bn in 2001) • But ph ysi cal’ s sh are of spendi ng has fa llen from 50% to 24% in 10 years

Global consumer spending on entertainment 2001-2010 350 300 250 Non- 200 physical

nn media 150 $b 100

50 Physical media 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Physical rental VHS retail VCD retail DVD retail Blu-ray Disc retail Games Physical music Cinema Cable and Sat. Subs PPV and VoD Mobile games Mobile music Mobile video Online music Online video Online games

Notes: Global = sum of all 37 territories covered by Screen Digest Video Intelligence where data is available. Online games data available for USA and Europe only.

• Without them, physical still accounts for around half of entertainment spending • With mus ic accoun ting for the biggest dec line

Global consumer spending on entertainment 2001-2010 160 140 120 Non physical 100 media

nn 80

$b 60 40 Physical media 20 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Physical rental VHS retail VCD retail DVD retail Blu-ray Disc retail Games Physical music Cinema PPV and VoD Mobile games Mobile music Mobile video Online music Online video Online games

Notes: Global = sum of all 37 territories covered by Screen Digest Video Intelligence where data is available. Online games data available for USA and Europe only.

Home ent: $78.2bn • Worldwide, home entertainment was worth $80bn in 2010 • Two-thirds of this were generated by movies 52% • 90% of movie spending was generated by DVD and Blu-ray 4% • None of the non-physical forms of delivery had a significant impppgact on spending trends

85%

Cumulative growth in global consumer Mov ies: $55. 5bn Physical video spending on home entertainment 2010 Pay TV VOD 0% Online video -13.1% -5.5% -4.6% -2% -4.7% -4.2% -3.2% 51% -5.8% -4% 2% -6% -8% -10% -12% -14% 90% DVD re ta il +BD+ BD re ta il +VCD+ VCD re ta il Notes: + online retail + physical rental + online rental Global = sum of all 37 territories covered by + TV VOD Screen Digest Video Intelligence Local currencies converted at fixed 2010 exchange rates Copyright © 2011 IHS Inc. All Rights Reserved. Even when theatrical is included, physical generated almost half of all movie spending

• The prevalence of the retail business model means packaged media’s share of volume is even greater - 60%

Global movie spending by platform Global movie transactions by 2005-2010 platform 2005-2010 60 10

50 8

40 6 30 ($bn) 4 20 (billions) 2 10

0 0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010

Physical Video Theatrical Pay TV VoD Online video

• Japan’s relatively strong video market means physical accounted for 76% of spending • Down from > 90% in 2008 • While the low prices prevalent in some markets means its share of volume was just 70%

Asian movie spending by platform Asian movie transactions by 2005-2010 platform 2005-2010

12 2.5

10 202.0 8 1.5 6 (bn) ($bn) 101.0 4 0.5 2

0 0.0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Physical Video Theatrical Pay TV VoD Online video

Global units sold (m) • Hardware take-up has been slower than initially expected but 147 it i s now i ncreasi ng • BD’s share of retail sales rose from 4% in 2009 to almost 8% 81 • BD premium over DVD averages 100% globally 2009 • In less developed markets it can cost 5x to 10x as much • BD generated 14% of global retail video spending last year 1,972 2010 1,821

Average consumer price of DVD and BD in 2010 Global retail sppgending (()$bn) ($) 80 DVD 3.9 BD 60 2.3

40 2009 20 26.8 2010 0 23.8 Notes: International = sum of all 34 territories outside North America DVD BD covered by Screen Digest Video Intelligence Local currencies converted at fixed 2009 exchange rates

Europe: Hardware penetration (%) Asia: Hardware penetration (%) 100 25 80 20 DVD 15 60 VCD 40 BD 10 DVD 20 (inc PS3) 5 0 0 2006 2008 2010 2012 2014 1996 1998 2000 2002 2004 2006 2008 2010 Europe: Volume sales to consumers by format Asia: Volume sales to consumers by format 100% 100% 80% 80% 60% 60% DVD VCD 40% 40% BD DVD 20% 20% 0% 0% 2006 2008 2010 2012 2014 1996 1998 2000 2002 2004 2006 2008 2010

Europe: Average consumer price ($) Asia: Average consumer price ($) 50 30 40 25 20 30 DVD 15 VCD 20 BD 10 DVD 10 5 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 1996 1998 2000 2002 2004 2006 2008 2010 Copyright © 2011 IHS Inc. All Rights Reserved. What’s the bottom line for physical media?

• BD will continue to coexist with ‘good enough’ DVD, including in BD HHs • Recession may have slowed BD hardware adoption but it has not stalled it • BD will account for one third of global consumer spending on physical video by 2014 Global home entertainment spending 2010-2014 50 45 40 35 30 25 ($bn) 20 15 10 5 0 2010 2011 2012 2013 2014 Rental VCD purchase DVD purchase BD purchase Notes: Local currencies converted at fixed 2010 exchange rates Physical data covers all mainstream genres; Digital includes content delivered over the open internet: retail (movies, TV & sport), rental (movies & TV) and subscription (movies & TV); TV VoD/nVoD covers TV content and movies delivered through walled garden systems

• Broadband is becoming ubiquitous: 680m connections globally by 2014 • Penetration rivals DVD take-uppg in some regions and is ahead of Pay TV VOD availabilit y

Worldwide broadband connections (m) 800

600

400

200

0 2004 2006 2008 2010 2012 2014 W. Europe C. & E. Europe North America Asia Pacific Latin America

• Broadband coupled with connected devices is causing a seismic shift in how consumers use content, and what they expect from entertainment suppliers

US & Western Europe: Addressable US and Western Europe annual connectdliited living room (m ) tablet sa les (m)

300 60

250 50

200 40

150 30

100 20

50 10

0 2010 2014 2010 2014 2010 2014 2010 2014 2010 2014 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 TVs Consoles Blu-ray Pay TV Standalone STBs STB other tablet iPad Connectable Connected Copyright © 2011 IHS Inc. All Rights Reserved. Multiple devices can lead to fragmented consumer experience…

…What the consumer wants is anytime, anywhere,

• Perfect movie rips usually appear several weeks ahead of physical disc street date • As of mid-2010, there were 400+ US TV series freely available online illegally • Often available within one hour of premiere broadcast • Most audiences understand the internet as 'free' and need a compelling reason to spend, because they can already get the same content free from the pirates

Illegal online availability of sample movies

US Theatrical Date of Cam/TeleSync US Home video Date of DVD/BD-rip Title of Film Release Date upload Release Date upload The Wolfman February 12 February 16 (Cam) June 1 May 21 (BD Rip)

Shutter Island February 19 February 21 (Cam) June 8 May 19 (BD Rip)

Alice in Wonderland April 5 April 5 (Cam) June 1 May 13 (DVD Rip)

Date Night April 9 April 17 (Telesync) August 10 June 5 (DVD Rip) Kick Ass April 16 April 17 (Cam) August 3 June 5 (DVD Rip) Prince of Persia May 28 May 29 (Telesync) September 14 August 15 (DVD Rip)

The Twilight Saga: Eclipse July 2 July 02 (Cam) December 4 August 18 (DVD Rip)

The Expendables Aug 13 Aug 16 (Cam) December Aug 29 (DVD Rip)

• EST: electronic sell-thru, also known as DTO (download-to-own) • iVOD: internet video-on-demand • No subscriptions, no ads, no TV shows • Rep lica ting the re ta il an d ren ta l disc bus iness e lec tron ica lly over the open internet – not closed-network VOD, which requires a sub

• Since 2006, tracking services in 26 territories annually • Since 2010, 14 of these territories tracked quarterly

• Collaborate with leading service providers for best of breed data:

• iVOD is growing revenues and thus transactions share • EST volume is growing but prices already falling as service providers try to keep consumers interested in a product that is basically inconvenient

Global EST and iVOD transactions and revenues – 2006-2010 Revenues ($m) Units (m) 700 70 600 60 500 50 400 40 300 30 200 20 100 10 0 0 2006 2007 2008 2009 2010 EST Revenue iVOD Revenue EST Transactions iVOD Transactions

Global EST and iVOD transaction and revenues by region, 2006-2010 Revenues ($m) Units (m)

• Sets market rates for new releases (at less than wholesale cost) • All three market leaders have priorities other than selling digital content • In 2009, ~50 online movie stores closed worldwide because they could not compete

Global: platform share of combined movies EST / iVOD revenues, 2006-2010

Regional share of EST / iVOD revenues by platform, 2010

• South Korea experienced the ‘perfect storm’ • ftfast broa dban d spee ds, re laxe d cu ltura l a ttitu des towar ds p iracy, a bsence o f lega l alternatives, limited title availability, unrealistic pricing • But digital now building the semblance of a market through a mix of ‘3-strikes’ laws aimed at online services, cheap EST and co-operation from user upload sites

South Korea: Movie Spending ($bn) 1.2 1.0 0.8 0.6 0.4 0.2 0.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Physical Digital Retail Digital Rental

• Despite Japan’s traditional resistance to buying packaged media and preference for the cheaper rental option, there is steady demand for movies

Japan: Movie spending ($bn)

2.5

2.0

1.5

1.0

0.5

0.0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

Digital Rental Digital Retail Physical

• Online retail is expected to be fairly flat, with growth reflecting new services • Ret ail growth w ill come from expansion o f iTunes, e tc. to new mar ke ts

Global online movie consumer revenue ($bn) Global online movie transactions (m)

1.8 250 1.6

1.4 200

1.2

1.0 150

0.8 100 060.6

0.4 50 0.2

- 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Retail Rental

• Last year is likely to be the lowest point for movies, before on-demand ,digital and stabilising physical rental in the US, push spending back up • iVOD is only 6% of total movies VOD market revenues globally – although in some markets it’s much higher (eg, US iVOD 13% of all VOD in 2010) • Digital will generate 6% of movie spending in 2014 (30% if TV VOD is included)

Global Movies Home Video Revenues, 2006‐2015 ($m) 35000 30000 25000 20000 15000 10000 5000 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

EST/iVOD Closednet VOD Physical Rental Physical Retail

 By 2014 online will account for 8% of global home entertainment spending  And TV VoD for a further 15%

Global home entertainment spending 2010-2014 50 45 40 35 30 25 ($bn) 20 15 10 5 0 2010 2011 2012 2013 2014 Rental VHS/VCD purchase DVD purchase BD purchase Online retail/rental TV VoD/nVoD Notes: Local currencies converted at fixed 2010 exchange rates Physical data covers all mainstream genres; Digital includes content delivered over the open internet: retail (movies, TV & sport), rental (movies & TV) and subscription (movies & TV); TV VoD/nVoD covers TV content and movies delivered through walled garden systems