Redefining the Pay TV Experience SP Video Market Trends and Case Studies

Home , Adult Swim, Sky Store, TV Everywhere

Aunindo Ghosh Senior Product Manager – Service Provider Video BU

July 2015 Agenda

1. Pay TV Updates

2. Time Shifted Viewing Trends

3. Next-Gen UX Trends

4. Latest on OTT

Total Pay TV Subscribers and Annual CAGR by Regions (in M)

+4.4% 603 530

0% +1.3% +2.1% +5.3% +4.9% 112 112 120 125 82 88 52 61 12 14

Africa and Middle East Asia Pacific Central and Eastern North America South and Central Western Europe Europe America

2012 2013 2014 2015 2016 2017 2018

Source: IHS Screen Digest, 2/2015 Screen, Screens, Screens

90%

Smartphone Laptop/PC Tablet Television of all media interactions are screen based

On average we spend 10% 4.4 hours of our leisure Radio Newspaper Magazine time in front of screens of all media each day. interactions are non-screen based

Source: Google, Sterling Brands & Ipsos: The New Multi-Screen World, 2012

Share of Television Viewing by Device TV is still the main household video consumption device 3 Screens 4 Screens

10% 4% 5% 18% However, almost a third of 4-screen 16% owners regularly watch TV on other video-enabled devices 77% 69%

Size matters: Consumers prefer the biggest screen available at any point: TV Computer Smartphones Tablets TV at home, 3G/4G Dongle on the move, else mobile

Source: IAB – The Multi-Screen Marketer, 5/2012 © 2013-2014 Cisco and/or its affiliates. All rights reserved. Will Content Providers Go “All In” on OTT in 2015? . Two major Go-to-Market strategies: White-Label and Aggregation Portal

. Both monetize via combination of paid subscription and dynamic ad insertion

White-Label Platform Aggregation Portal

Platform

Owner CBS MLB DISH DirecTV

Disney: ESPN, Disney Channel beIN SPORTS en Affiliated CBS, MLB,ESPN, Turner Broadcast: Español, Cine Sony Networks Showtime WWE, HBO Adult Swim, TNT, Television, MTV, CNN, TBS, HLN, ¡Hola! TV Cartoon Network

. DirecTV and Dish each spend 45-52% of their revenue on programming

Annual US Multichannel Network Programming Expenses (in $Bn) 36.1 33.9 31.5 29 26.4 24 21.7 18.6 19.8

2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: SNL-Kagan, 2014 Increasing Costs and Competition Bring SPs to Consolidate

Revenue Synergy Sum Paid Total Subs Buyer Seller/s ($Bn) (M) . Upsell / Package upgrades 49 27 . Advertising scale Cost Synergy 45 32.6 . Sales & Marketing 25.4 24.5 . Support & Maintenance 10.1 8.5 . Reduce content acquisition costs as a result of increased bargaining power 7.5 17.8 . Network / Backbone 2.2 0.7

Service & Technology Innovation – Dish Case

Non-Dish subs: “Sling TV” Premium subscribers: 4K Mainstream subs: New RC, UI . Pure OTT service for linear TV Joey and Vevo music video app . $20/month (no commitments) . Uses BCM 7448 SoC capable of . The Hopper voice controller is 4K playback at 60fps or side-by- equipped with a touchpad, . Adding News or Kids packages side HD display responding to swipe gestures will cost an extra $5 each . Available this summer. New 4K . In addition, a new UI will coming . Offers linear streaming from ~12 content partnerships deals are in to the Hopper DVR this year as basic and premium cable the works well as a Vevo app networks including ESPN . Compatible with current Hopper . Features pause, rewind and STB and works with any 4K sets replay of (some) live shows for (unlike Comcast, DirecTV) up to 3 days after airing

. “To date, DirecTV has offered “synthetic” bundles with AT&T and Verizon, which combine TV, Internet and phone. But those bundles aren’t integrated, requiring two truck rolls and two separate bills. Last year only 9% of DirecTV’s customers opted for such a “synthetic” bundle.”

− Mike White, DirecTV president and CEO

. “AT&T sees opportunities to extend DirecTV service in other areas, too. We are planning to expand the satellite TV service into the auto market (as a way of entertaining kids in the back), building on ours agreement with General Motors to deliver 4G LTE to the select vehicles.”

− Ralph de la Vega, president and CEO of AT&T’s mobility division

Source: Goldman Sachs’ Communacopia conference, 9/2014 Catch-Up and Box Sets

Catch-Up TV (up to 30 days from Sky Box Sets (TV Series, S-VOD) airing) . Solution targets binge viewers . Up to 60 channels (depends on package) . Examples of available premium content: . Restart TV – enabled only after show ends . Downton Abbey S1-4 (Feb 14) (currently in SKIT, UK launch later this year) . The Walking Dead S1-5a (Oct 14) . True Detective S1 (Mar 2014) . The Following S1-2 (Apr 14)

Sky Movies On-Demand (S-VOD) Sky Store (Movies, Transactional VOD) . Netflix equivalent (mostly long-tail) . Rental, Purchase-to-Own, Pre-Order . VOD must be downloaded to HDD . Downloads can be archived to save DVR . Counts against BB usage caps space (only title metadata is saved) . Filtered by Cast and Genre . DVD shipped within 5 business days . Also includes push-VOD items (found on . Plans to enable device access via apps “Showcase” section) and link to Sky Store . Non-Sky TV customers will be able to purchase via the Sky Store website © 2013-2014 Cisco and/or its affiliates. All rights reserved. DTH Monetize Content While Cable Monetize the Pipe

Provider Sky Deutschland Viasat Virgin Media Com Hem

Footprint Germany & Austria Scandinavia UK Sweden

Platform DTH DTH Cable Cable

TV Subs 3.5M 580K 3.7M 612K

Service Snap Viaplay Netflix on TiVo

Audience Subs & Non-Subs Subs & Non-Subs Existing Subscribers

Content VOD VOD + Live Sports Netflix VOD Catalogue

Subs: Free Subs: €4.90 £5.99/month $11.57/month Price Non-Subs: From Non-Subs: €9.90 (to Netflix) (to Netflix) $12/m

UK Live vs. Time-Shifted Viewing (in %), 1/2006 - 1/2015 100 90 80 70 60 50 Time- Shifted 40 30 20 Live Viewing 10

Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14

Oct-10 Oct-12 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Apr-11 Oct-11 Apr-12 Apr-13 Oct-13 Apr-14 Oct-14

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Source: BARB, Feb 2015 The Younger They Are, The Less Linear They Will Watch Linear accounts for only half of video consumption among ages 16-24, while time-shifted content account for almost 30%

UK Video Consumption by age (in %), 2013

100% 2 8 7 5 4 3 3 3 4 13 6 7 13 12 80% 6 20 6 17 7 18 Short Online Clips 60% 16 DVD/Blu-Ray Online Subscription 40% 80 82 VOD/Catch-Up 69 61 64 PVR 50 20% Linear TV

0% 16-24 25-34 35-44 45-54 55-64 65+ (4:14) (3:51) (3:50) (4:31) (4:37) (4:36)

Source: Ofcom, Aug 2014 Original Programming Accounts for Bulk of TSTV Viewing

Total UK Viewing Time by Genre, Time-Shifted and Linear (in %), Feb 2015 18.6 18.2

14.4

13.7 15.4 8.3 8.8 8.2 8.0 12.0 6.2 Linear 4.5 TSTV 7.0 7.6 3.7 7.3 7.9 5.7 5.0 4.0 3.5 0.6 2.8 2.4 0.1 0.2 0.1 0.0 1.3 1.2 0.9 0.5 0.5 0.2 0.2

Source: BARB, Feb 2015 TSTV Challenges Methodology for Audience Measurement 71% of time-shifting occurs within the first 24hrs after airing; 87% of time-shifted viewing occurs within the first 3 days

UK TSTV Viewing by Playback Delay, 2013 47

10 6 5 4 3 1

Same day as live Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7

Source: Statista Why Does This Matter? Advertising. Networks campaign to retire live and same-day ratings

. Showtime: “Its been years since the network last paid attention to live viewing.” . 60-70% of Dexter viewers watch via VOD or DVR . Only 32% of Homeland’s 7M weekly views occur during a live Sunday night telecast

. ABC, CBS, NBC, Fox: “viewers are time-shifting more than many might think.” . Last season, the average rating among adults 18-49 grew by 40% in live+C7 ratings alone

Industry is moving towards recognizing longer viewing windows

. It’s Finally Happened: A Big Ad Buyer is Paying for a Week of Time-Shifting (Jun 14) . Multiple broadcasters have reached pacts with ad-buyer GroupM to do prime-time entertainment deals based on 7 days of commercial viewing after shows air

. CBS/Dish Deal: No Skipping Ads With AutoHop (Dec 14) . Ad-skipping functionality of AutoHop will not be available for CBS-owned stations during the C7 window

Frustrations/Concerns With Watching Video Content Over the Internet 60 50 53% 51% 40 45% 30 20 19% 19% 10 17% 12% 0 Advertising during the Time required to Video quality (ie poor Cost of the video Broadband / high- Range of programs Navigation program buffer/download the definition) content speed cost of available experience (i.e. video downloading the search / epg) video

“Cord cutting in general remains less a thing than many pundits would have you believe; The number cord-cutters dropped in 2014, and was the lowest rate since 2008.”

− Leichtman Research Group, Mar 2015

“Yes, some consumers are cutting the cord, but they’re in the low single digits percentagewise. A more real behavior is cord-shaving, where consumers reduce what they spend, rather than eliminating it altogether.”

− eMarketer, Dec 2014

Competition (Past) Co-opetition (Present)

. SPs saw Netflix as a threat • Partnership is mutually beneficial . Used various countermeasures Reduces SP’s content costs on VOD . Imposed bandwidth caps for Netflix traffic Retains cord-cutters in SP’s ecosystem . Launched their own OTT/TVE services Provides a one-stop-shop for video content

. But Netflix kept growing • Does not cannibalize SP business . Netflix’s +23M subscribers account for 1/3 of downstream IP traffic in the US Netflix offers mostly long-tail content with no live or premium VOD, complementing SPs

Several European operators already offer Netflix app American SPs are negotiating…

Target Audience Premium Mainstream Non-Subscribers Business Model Increase ARPU Reduce Churn Monetize Content Offer Type TV Everywhere TV Everywhere Pure OTT Registered Devices 4 2 2 Downloading Enabled Yes No No Available on YouView No No Yes Content Sky Movies & Sports Sky Movies & Sports Sky Movies & Sports Live channels + VOD Live channels + VOD Price Movies: £8.99/m for first Free for Sky TV Extra £5/m 3 months, then £15/m customers Sports: £9.99 day-pass Different consumer segments warrant different business models for TVE

£5 X 12 X 44K = £2.7M SkyGo Extra Months SkyGo Extra annually Monthly Cost Subscribers

£397 X 0.2% X 10.4M = £8.3M New Subscriber Average Annual Total Sky TV annually Acquisition Cost Churn Reduction Subscribers

( £8.99X3 + £15x9 ) X 25K = £4M NowTV Cost for NowTV Cost from NowTV annually first 3 Months 3rd Month Subscribers

. Cast & Crew Info . Rotten Tomatoes . Buzzing on Twitter

. Now Showing In . More Like This . Most Popular Now

. Liner Recommendations . Customizable EPG . Customizable VOD “For You” Menu “Personal, Prioritized Guide” “Kid’s View”

. Restart TV . Predictive Search . Home Automation “Instant On Demand” Surveillance Cameras, Locks

Reduced . 23% reduction in voluntary churn Churn

. +25% Views VOD Uplift . +20% Purchases (Transactional VOD)

DVR . 2x increase in penetration for X1 versus native Penetration

Increased . 75% of new X1 customers are triple play Bundling . 20% of all triple play are X1

Source: Comcast Earnings Release, Q3-FY14 Cox Contour: 9 Months from Launch +40% +30% +20% -15% Shows Viewed Channels Viewed VOD Sales Churn

1 TV Viewing behavior slowly shifting towards On Demand, multi-screen & IP driven

2 Pay TV Innovation happening on STB Middleware, as hardware gets commoditized

3 OTT off-take to be additive to linear viewing rather than cannibalizing

4 Content monetization, advertisement & VAS drivers for ARPU lift

5 Time Shifted TV fundamentally changing consumption behavior, revenue chain