IPTV BULLETIN MULTIMEDIA RESEARCH GROUP, INC. JULY 2011 AT&T and Verizon Continue to Gain Subscribers AT&T and Verizon’s Subscriber Numbers CONTENTS COVER STORY AT&T and Verizon Continue to Gain Source: MRG, with Company Financial Data Subscribers................................................! 1-2 Netflix Raises Prices By 60%!..................... 1-2 AT&T added 202,000 “U-verse” TV subscribers in Q2/2011, bringing its total to 3.4 million, a growth of 36% from a year earlier. In FEATURES Broadband, AT&T lost 451,000 traditional DSL subscribers, but gained Corrections.....................................................!2 Financial/Legal!............................................ 12 439,000 higher-speed U-verse Broadband subscribers to reach a total Transmedia: A New Concept in Multi-Platform Production!.............................................. 13-14 Continued on Page 2 IPTV TRENDS Regional Updates!....................................... 3-7 ! Asia, Australia & India................................!3 ! Europe!.................................................... 4-5 Netflix Raises Prices By 60% ! Eastern Europe.......................................! 5-6 ! North America!............................................6 ! Rest-of--the-World!.................................. 6-7 Netflix announced price changes for DVDs Hardware & Software!............................... 8-12 by mail and streaming options for ! Advertising!.................................................8 subscribers this month, drawing criticisms ! Cloud-based Services ...............................!8 from many customers. The lowest cost plan ! Content Security/DRM !..............................8 ! Home Networking!......................................8 with one DVD out and streaming increased ! Middleware!................................................9 from US$10 to US$16 per month. A new ! Multi-Screen Distribution............................!9 streaming only plan now costs US$8 per month, however. And a new ! OTT Systems........................................! 9-10 DVD only service also will cost just US$8 per month. This clearly ! Research!................................................. 10 ! Set-top Boxes!..................................... 10-11 separates the streaming service from any physical DVDs, and may end ! Social TV..................................................! 11 up creating more of a demand for the streaming service. ! Video Quality and Monitoring..............! 11-12 Netflix is putting a big focus on its streaming services and is making corporate changes to reflect these changes. A new Netflix executive CABLE, SATELLITE & DTT was appointed to take charge of the DVD by mail service, which will TRENDS ......................................7-8 free other executives to focus on the streaming business. Apparently business is still going strong for Netflix. In Q2/2011, it added 2 million new subscribers to reach 25.56 million (24.6 million in .................................13 CALENDAR the U.S., 970,000 in Canada), a growth of 70% from a year earlier. For the quarter, Netflix had revenues of US$789 million, and net income of US$68 million. Churn in the U.S. increased from 3.9% in the first quarter to 4.2% in this quarter. Continued on Page 2 ________________________________________________________________________________________________________________ © 2011 MRG, Inc. All Rights Reserved Worldwide — Reseller Sample Copy 1 IPTV BULLETIN MULTIMEDIA RESEARCH GROUP, INC. JULY 2011 AT&T and Verizon Continues to Netflix Raises Prices By 60% Gain Subscribers (Continued from Page 1) (Continued from Page 1) Average revenue per subscriber went down quarter- of 16.5 million subscribers, up 3.3% from a year over-quarter, from US$11.97 to US$11.49 in the earlier. In all, U-verse services represent US$6.5 second quarter ended June 30 because 75% of new billion in annual revenue, based on the previous subscribers signed up for the streaming-only plan. quarter’s earnings. AT&T’s U-verse network now reaches 29 million living units and overall According to an analysis by investment firm Piper penetration of eligible living units is 15.5%, while Jaffray, it costs Netflix up to US$0.75 cents to mail penetration in areas marketed for 36 months or a physical DVD, but only US$0.05 cents to stream. more is 25%. According to the company, over three- That’s probably why Netflix is increasing the price quarters of AT&T U-verse TV subscribers have a for DVD subscriptions. The company believes that Triple- or Quad-Play option. Additionally, the shipments for DVDs have peaked, because of the average revenue per unit (ARPU) for U-verse Triple- popularity of the streaming service. During an Play customers in the quarter was US$170, up 8.3% analyst call, Netflix executives said that they are year-over-year. following the competition from Amazon, Hulu and HBO Go. However, they said that the haven’t AT&T’s total wireline revenue for the quarter was US “detected an impact on our business from Amazon $14.9 billion, down 3.2% from a year earlier, while Prime.” its consolidated revenue for Q2/2011 was US$31.5 billion, up 2.2% from a year earlier. Net income was In the future, Netflix is looking to expand its down 10% to reach US$3.6 billion. streaming service into 43 countries in Latin America before the end of 2011. AT&T additionally said it had expanded U-verse services into more than 1 million units in the Atlanta, Analyst Comment: Despite the cries of Georgia, U.S.A. area, after first launching in the area agony of some of its customers protesting in December 2007. The milestone is significant this price change, Netflix will probably gain because Atlanta has been popular with Cable in the long-term, so long as it improves its Providers, and has not had much competition for online offerings and streaming services so Pay-TV services. U-verse TV will compete against that most subscribers can see the added Cable Providers Charter, Comcast and Cox. quality and choice of titles. Given the high cost of developing new/compelling content, Netflix appears Verizon added 184,000 “FiOS TV” subscribers in to have made the right decision with this price the quarter, bringing its total to 3.85 million. This change. n makes it the number 7 Pay-TV Provider in the U.S. For Broadband, Verizon gained 189,000 customers and now has 3.965 million subscribers. Overall, the FiOS business unit generated US$2.03 billion in the Corrections quarter, up 20.7% from a year earlier, accounting for 57% of consumer revenue. FiOS TV penetration In the August 2010 issue of the IPTV Bulletin, we was 29.9% compared to 25.9% a year earlier, while reported that Portugal Telecom had 702,000 IPTV FiOS Internet penetration was 33.9% (compared to subscribers. However, this number was actually the 29.9% in the second quarter of 2010). In total, the total Pay-TV (IPTV and Satellite) subscribers. MRG FiOS network passes 16.1 million premises as of the estimates about 1/3rd of Portugal Telecom’s total end of June 2011. Verizon also announced this subscribers are using IPTV, or about 234,000. month that Lowell McAdam will succeed Ivan Seidenberg as CEO, effective August 1st. McAdam In the March 2011 issue of the IPTV Bulletin, we is currently President and COO of Verizon. reported that Deutsche Telekom had 1.6 million IPTV subscribers as of the end of 2010; however, Overall, Verizon posted Q2/2011 revenue of US the correct number is 1.1 million subscribers. As of $27.5 billion, up 2.8% from a year earlier. Net Q1/2011 that number has now increased to 1.3 income was US$1.6 billion, compared to a net loss million IPTV subscribers. of US$1.2 billion a year ago. For the 1st half of 2011, Verizon’s capital expenditures was US$8.9 billion, Also, in the March 2011 IPTV Bulletin, it was compared with US$7.6 billion in the first half of reported that Orange/France Telecom as having 2010. n 3.5 million total subscribers; however, we attributed IPTV to one-third of subscribers or 1.1 million subscribers, with the rest for the company’s Satellite TV service. However, upon further review, we are now attributing 3.1 million to IPTV and 400K to Satellite. n _______________________________________________________________________________________________________________ 2 Reseller Sample Copy — © 2011 MRG, Inc. All Rights Reserved Worldwide IPTV BULLETIN MULTIMEDIA RESEARCH GROUP, INC. JULY 2011 IPTV Trends Telkom Indonesia launched its IPTV service, called “Groovia TV,” available in a few areas around the Regional Updates capital Jakarta. Currently, Groovia TV includes a “basic” package with 40 channels, time-shift TV and a VOD service. The service will include Triple-Play offerings that costs IDR695,000 (US$82) per month Asia, Australia & India for 1 Mbps of Broadband and a 3 Mbps download service for IDR1.745 million (US$205) per month. Telkom Indonesia has about 1.65 million Broadband subscribers and said it hopes to reach 1 million IPTV China Telecom is working with Alcatel-Lucent (A-L) subscribers within three or four years. The IPTV to implement an IMS (IP Multimedia Subsystem) service was first announced almost three years ago, solution to unify communications across the Telco’s after inking a deal with Hong Kong’s PCCW. Set-top fixed, mobile and Web services. The companies will boxes will be available to rent for IDR195,000 (US develop advanced services, such as unified network $23) for an SD version and IDR225,000 (US$27) for address book, multimedia instant messaging HD. (including SMS, text and video) and media sharing. A-L’s division in China, Alcatel-Lucent Shanghai Bell, has been testing its IMS system in the Shanhai and Shandong provinces, with the expectation to expand to more provinces across the country. China Telecom said it is looking to evolve its network infrastructure from PSTN to an all IP system that should make it easier and less costly to operate. Analyst Comment: This makes sense as a way for China Telecom to expand its IP core network until the regulators give the “green light” to expand its IPTV services. Australian Telco Telstra said it is closing its DVD rental service “BigPond Movies” in September 2011.