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What future for the

European TV
sector?

Annet Aris

TV 2010, Digital & Beyond


Copyright 2006 Annet Aris. No part of it may be circulated, quoted, or reproduced for
distribution without prior written approval from Annet Aris. This material was used by
Annet Aris during an oral presentation; it is not a complete record of the discussion.
ACT Brussels, April 27, 2006
BRU_BTM076_20050914_INSEAD Advisory Board

AGENDA

1. Impact of trends: how big is it really?

2. How are commercial TV channels responding?

3. What works, what doesn‘t work?

4. Future priorities?

1
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TRENDS AFFECTING FREE TV IN EUROPE ILLUSTRATIVE

Act!
TIMING
High, Observ
soon Prepare
Ignore

Digital
HDTV
channels

User Digitization
Time shift
Generated viewers to BB
Content

Mobile TV IP-TV

Low,
later Low High
Interactive IMPACT ON FREE TV
TV Platform Operators
integrating backward
Advertsing
PVR‘s VoD
shit to BB
Source: Aris 2
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TRENDS AFFECTING FREE TV IN EUROPE-AUTHORS GUESS ILLUSTRATIVE

ACT!
TIMING
High, Observe
soon Prepare
User Digital Ignore
Generated Platform Operators channels
Content integrating backward

Mobile TV
IP-TV
HDTV

VoD
Advertsing
Time shift
shit to BB
viewers to BB
Interactive PVR‘s
TV

Low,
later Low High
IMPACT ON FREE TV

Source: Aris 3
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Marketshare of UK Channels by platform


Share of viewing by platform (2003)

16,4 18
total bbc 29
12,7 48,8
14,5
itv1 4,4
4,8
18,5

c4 7,8

63,2 29,5
58,3
other 35,6

12,8
five
9,1 4,4 8,8
3,3
digital digital digital cable analogue
terrestrial satellite terrestrial
no. homes (1.7m) (6.6m) (2.2m) (13.4m)
source: barb, Sept / Oct. 2003, all individuals

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Experienced users spend less time time on newspapers,


magazines and TV Non-users
Leisure activities: Average hours per week New users (< 1year)
Very experienced users
(6 or more years)

-36%
16,0

13,2
10,2
8,6 8,8
7,8 -25% 7,4
6,4 -23%
5,1 5,3 4,9
4,2 4,0 3,5
3,0 2,6 2,4 2,0
1,3
0,5 0,9

Reading Playing Listening to Reading Reading Listening to Watching


books Video/ recorded newspaper magazines the radio television
computer Music
games

Source: The UCLA report, Surveying the Digital Future, 2003


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BROADBAND PENETRATION IS EXPECTED TO DOUBLE UNTIL ESTIMATES


2010
percent of households

Source: Goldman Sachs Research estimates 6


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GLOBAL CARRIERS ARE AGGRESSIVELY TRIALING AND NOT EXHAUSTIVE

LAUNCHING IPTV SERVICES

NA ILEC

NA Other

European
Incumbents

European
Attackers

Asian
Incumbents

Source: Literature search; Gartner; Yankee; company websites 7


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European incumbents and ISPs are the major protagonists in the IP-TV market

Top 8 IP-TV Players Key service featured


Country IP-TV subscribers TV/
Telco IP-TV brand 2005 (Sept.), ‘000 VoD PVR VoIP BB

159 9 9 9 9
Italy
142
* 9 9 9
** **
20 9 9 9
France
* 165 9 9 9

123
Spain 9 9 9

UK 34 9 9 9

Belgium 10 9 9 9

* Refers to “premium” subscribers only


** Through LiveBox

Source: E-media Institute, “Top 10 European IP-TV players”, September 2005, INSEAD analysis
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…and those who still haven’t launched it have plans for IP-TV
Telenor: owns Already launched
BT: IP-TV service cable TV, trialing
supplementing TV over DSL
Planning to
Freeview service Telia: TV over DSL
planned for ‘06 launched. 70%
coverage in ‘05
KPN: terrestrial
Eirecom: based service
no plans launched in ‘04 TDC: 40% household served
through TDC kabel, planning
to extend to TV over DSL
Belgacom: TV over DSL
service launched in May ‘05 DT: Trials for TV over DSL in
‘05 through T-Online
FT: Ma Ligne TV over
DSL launched in ‘04; Swisscom: TV over DSL trial in
competing with Free 2005, launch planned for ‘06
and Neuf Telecom

TA: AON Digital TV over DSL


launched at the end of ‘05
PT: owns
leading
cable TI: TV over DSL
operator TEF: Imagenio TV (RossoAlice) launched
TVCabo over DSL in ‘05; competing with
launched in ‘04 Fastweb

Source: Goldman Sachs, IPTV primer for media investors, INSEAD analysis

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COMPETITION BETWEEN PLATFORMS DRIVES CONVERGENCE Very strong


Weak

Indepen-
Possibility Opportuni- dency of
Number of to offer ties to quality
TV broad- Return "triple provide Video-on- from
cast channel play" local demand external Mobility /
channels capacity services content capabilities factors** Coverage portability

Terrestrial TV *
broadcast

Satellite TV *
broadcast

Cable TV
broadcast

IP-TV via
xDSL

* Need for telephone connection as upward channel


** Simultaneous user number, weather conditions
Source: McKinsey analysis 10
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CABLE PROMISES MEET REALITY: THE TRIPLE PLAY


Percent, EU cable example
100% = all cable subs

January 2002 March 2005

BB BB

6
5
7
8
15 1
35
5

2 6
67 5
22 18

Phone
Phone
TV TV

Source: McKinsey analysis 11


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PVR's AD-SKIPPING IMPACT CALLS FOR EXTENDED ALTERNATIVE


ADVERTISING

Loss of "minutes of
PVR penetration x % ad-skipping per PVR =
viewed ads"
Forecast PVR penetration Ad-skipping behavior(1) Effect
(%HH)

50% 100%
12%
45% No PVR
loss
40%
PVR
35%
30%
25%
46%
20%
15%
10% 26%

5% 15%
0%
'03 '04 '05 '06 '07 '08 '09 '10

USA UK Ad exposure Ad attentiveness

(1) 70% watched TV in time-shifted form (VCR: only 3%); however: first users of technology usually make more use of it, forecast for rest more conservative
Source: Jupiter Group, Mercer Managment Consulting, Forrester Research 2004; Forrester Research; INSEAD analysis
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DIFFERENT STAGE OF DEVELOPMENT IN MOBILE TV ACROSS


THE WORLD; JAPAN AND KOREA ARE THE CLEAR
INNOVATORS

Source: INSEAD analysis


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HDTV: ASIA AND US IN THE LEAD

HDTV services are being provided across several platforms:


¾ Satellite – US, Japan, Korea and Europe
¾ Terrestrial – US, Canada, Australia and Japan
¾ Cable – primarily the US

Source: INSEAD analysis


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VIDEO USER-GENERATED CONTENT MOVING TO VIDEO BLOGS

Yahoo! Movie Reviews e-Bay Feedback Ratings

Seller information
selling2u-half ( 256 )
Feedback Score: 256
Positive Feedback: 96.0%
Member since Nov-15-01 in United States

Blogs

Source: INSEAD analysis 15


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DISRUPTIVE MODELS WILL CONTINUE: IP VIDEO – FOR FREE?

Open Media Network (OMN)

• Founded by Silicon Valley Veteran


Mike Homer

• Free Service to View and Publish

• Employs a Grid Network … Bit


Torrent on Steroids

• Lot's of Cult / Niche Media Today


– Movies
– Pod Casts
– VideoBLOGs

Source: INSEAD analysis 16


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„OLD“ BUSINESS MODELS COLLAPSING AS REVENUES SHIFT TO NEW


OFFERINGS

New
Business
Model
Consumer
Percentage adoption
Advertsiser
adoption
Technology
roll-out

Old
Business
Model

Contribution
Margin

Time

Source: Annet Aris 17


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AGENDA

1. Impact of trends: how big is it really?

2. How are commercial TV channels responding?

3. What works, what doesn‘t work?

4. Future priorities?

18
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FIRST RESPONSES TV BROADCASTERS

1. Increased cost efficiency

2. Vertical and horizontal growth

3. Launch niche channels

4. Alternative advertising models

5. New revenue sources

6. Digital innovations: VoD, HDTV, Mobile TV, iTV

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EUROPEAN BROADCASTERS HAVE HAVE SIGNIFICANTLY IMPORVED


THEIR COST EFFECTIVENESS OVER THE PAST YEARS

• Process improvements in back office and TV


production

• Programming for profits: from market share


maximization to margin optimization
Measures to
improve cost
effectiveness
• Introduction of yield management techniques in
advertsing sales

• More „cost efficient“ programmes: reality shows,


talent searches, soaps..

Source: Annet Aris 20


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FIRST RESPONSES TV BROADCASTERS

1. Increasingly sophisticated management methods for


free channels

2. Vertical and horizontal growth

3. Launch niche channels

4. Alternative advertising models

5. New revenue sources

6. Digital innovations: VoD,HDTV, Mobie TV, iTV


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SOME KEY BROADCASTERS IN EUROPE STRENGHTENED THEIR


CAPABILITIES THROUGH SIGNIFCANT INVESTMENTS IN CONTENT
GENERATION/PRODUCTION AND/OR PLATFORMS
ITV’s acquisition
of Granada

In addition…
BSkyB enters
Broadband Comcast’s bid for Disney
GE’s acquisition of VUE

RTL’s acquisition of Sony’s bid for MGM


Fremantle Media Bronfman Group’s acquisition
of Warner music

4 Telefonica’s
acquisition (and
Media Capital’s sale)of Endemol
acquisition of
NBP
Source: Citigroup, INSEAD analysis

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RTL has become a true Pan European Television Broadcaster

Recent
Recentaquicisition
aquicisitionof
of
30% stake of REN TV
30% stake of REN TV

1) RTL Televizija launched on 30th April 2004, average audience share


2) among private broadcasters

Source: RTL 23
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FIRST RESPONSES TV BROADCASTERS

1. Increased cost efficiency

2. Vertical and horizontal growth

3. Launch niche channels

4. Alternative advertising models

5. New revenue sources

6. Digital innovations: VoD, HDTV, Mobile TV, iTV

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U.S. NICHE TV CHANNELS ARE LESS PROFITABLE


THAN MAINSTREAM CHANNELS; 1999

Cash flow "Must carry"


USD millions channels
E.g., ESPN Key messages
600 (sports),
Nickelodeon • Criticial subscriber mass is
500 (kids), MTV about 35 million
• Profitability of niche
400 channels is relatively low

300
• "Must carry" mainstream
Niche channels channels are paid by cable
E.g., Discovery operators, while niche
200 channels have to pay to be
Health, BET Jazz,
ZDTV carried by operators
100
Number of
0 subscribers
0 20 40 60 80 100 Millions
-100

-200

Source: Kagan Associates, McKinsey 25


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EUROPEAN THEMATIC CHANNELS LACK CRITICAL Main revenue


source
MASS TO ATTRACT ADVERTISERS

Total revenues Thematic channels have


Percent grown significantly in recent
U.S. Europe Latin America years:
Subscription
fees
40 90 - 95 90 - 95 • Only a few formats generate
enough reach/frequency
+

Revenues Advertising 55 5 - 10 5
• Depend still too heavily on
subscription revenues rather
+ than advertising in the short
term
Other 5 0-5 0-5
• Only top tier is profitable
provided very low costs

Source: Idate, "Economic of Basic Cable Networks 2000"; Paul Kagan Assoc., "Economics of Basic Cable Networks 2001" 26
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FIRST RESPONSES TV BROADCASTERS

1. Increased cost efficiency

2. Vertical and horizontal growth

3. Launch niche channels

4. Alternative advertising models

5. New revenue sources

6. Digital innovations: VoD, HDTV, Mobile TV, iTV

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SPECIAL FORMS OF ADVERTISING ARE CHANGING


THE MEDIA LANDSCAPE
From ... To ...

Classic commercials

U-WB 14 15 10

Identification
number Special advertisement forms
Time code
(3 pm)
Price category
Commercial break Sponsoring Individual ads Split screen

Label Sponsoring Advertainment Countdown

Event Sponsoring Telepromotion Diary

Trailer Sponsoring Spotpremiere 7x7

Competitions Ad in/out

Game shows Split break

Source: Sevenonemedia 28
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ADVERTISING FORMATS WILL BE ADAPTED DEPENDING EXAMPLES


ON ADVERTISING GOAL
TV On-line Teletext Events Merchan-
Direct
dizing
Branding dimension

• Short com- • Banner, pop- • Poster blitz, – Depends on a product and budget –
Awareness munications up, power- Earspace
layer pop-up

• Long spots, • Streaming, • Classic • Sweep- • Merchand.


excl. sports flash adver- event stakes for events
Image advertain- tising, e.g., sponsoring
ment pop-ups

• Classic spots • Web-event • Advertising- • “Open • Distribution • Merchand.


with response with back- site with house", of product for events
Consideration elements, ground background Events at samples
telepromo- information information POS
tions
• Telepromotion • “Bargain tip" • Advertorial • “Open • Mobile: • Merchand.
• Interactive TV, • Market place: house" push-infos for events
Purchase teleshopping teletext/ • Events at
shopping tips POS

• Spots, ad- • Web event: • Advertising • Classic • Call center • Merchand.


vertainment, service func- site event as consultant for events
Loyalty programming tionalities, sponsoring • Individual
e.g., "pollen- (depending mobile
Info" (also on size of services
per SMS) budget)

Source: McKinsey, SevenOne Media 29


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FIRST RESPONSES TV BROADCASTERS

1. Increased cost efficiency

2. Vertical and horizontal growth

3. Launch niche channels

4. Alternative advertising models

5. New revenue sources

6. Digital innovations: VoD, HDTV, Mobile TV, iTV

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NON-ADVERTISING REVENUES STILL REPRESENT A VERY


LIMITED CONTRIBUTION TO MEDIA COMPANIES

Contribution of advertising to total revenues in 2004


% 100 1 4 5 5 8 10 11
18 18 92%
Weighted ave-
rageg
80

60

99 96 95 95 92 90 89
40 82 82

20
Non-advertising

Advertising
0
Antena 3 Tele 5 MediaSet ITV Antenne
Grece

RTL ProSiebenSAT1 SIC SBS


Germany Impresa

Source: Companies annual reports; INSEAD analysis


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HOWEVER, SOME GROUPS ARE EMERGING AS BEST PRACTICES IN


DEVELOPING STRONG DIVERSIFICATION OPPORTUNITIES

Contribution of advertising to total revenues in 2004


• Tele Shopping
• eTF1 – Internet businesses
• Co-production of events
• Portal and downloads
• Merchandising
58 42

• Home Shopping (24h)


• Co-production of theatre
plays and concerts
49 51 • Publications and DVDs
• Music
• Web portal
• Retail collections
• Corporate events
• M6 Webcam
0 20 40 60 80 100 % • Many others

Non-advertising
Advertising
Source: TF1 and M6 2004 annual reports and websites; INSEAD analysis
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SOME MEDIA GROUPS ARE EMERGING AS CLEAR


LEADERS IN REVENUE DIVERSIFICATION
Type of revenue
generation Revenue sources Examples of analyzed companies

1. Books, Music and Multimedia


Consumer goods/
retailing 2. Home Shopping

3. Collection series and

merchandising

Online content 4. Downloads and games

5. Music

6. Auctions
Interactive
activities 7. SMS and Phone calls

8. Webcams and MMS

9. Voting with prizes


Production
10. Content (DVDs, CD)

11. Theatre plays and Concerts

Branded 12. Corporate Events


products
13. Mobile phones and Webcams
Source: INSEAD analysis
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14. Credit cards
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FIRST RESPONSES TV BROADCASTERS

1. Increased cost efficiency

2. Vertical and horizontal growth

3. Launch niche channels

4. Alternative advertising models

5. New revenue sources

6. Digital innovations: VoD, HDTV, Mobile TV, iTV

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MEDIASET | The Big “Serie A”, until 2007

Juventus Milan Inter Roma Sampdoria Atalanta Messina Livorno Siena

79.5% of Italian Football Supporters

“Serie A” MEDIASET LAUNCH TRIAL OFFER


FERRARI CHALLENGE
ƒ 152 matches in a season, 38 “DIRETTA
ƒ Worldwide presentation new F1 car (F2005)
PREMIUM”
ƒ 6 Ferrari “360 Challenge” Races
ƒ 3€ per match
ƒ 3€ per race
ƒ 9€ and 18€ cards

Source: Mediaset, Eurisko, Sinottica 2004-1, Makno 2004; Nielsen, Monitor Calcio 2003-2004 | 35
| 35
35| |
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FIRST RESPONSES TV BROADCASTERS

1. Increased cost efficiency

2. Vertical and horizontal growth

3. Launch niche channels


SO MUCH TO DO,
SO LITTLE TIME/RESOURCES!!!
4. Alternative advertising models

5. New revenue sources

6. Digital innovations: VoD, HDTV, Mobile TV, iTV

36
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AGENDA

1. Impact of trends: how big is it really?

2. How are commercial TV channels responding?

3. What works, what doesn‘t work?

4. Future priorities?

37
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STAND ALONE ATTRACTIVENESS OF STRATEGIES FOR COMMERCIAL


BROADCASTERS
Value Creation Ease of Value Creation Ease of
Potential „analogue“ implemenataion Potential „digital“ implemenataion

Cost Launch Digital


effectiveness Channels

Vertical ? VoD
Integration offerings

Growth HDTV
abroad

Alternative
Mobile TV
advertising
models

New
Revenue
iTV oferings ?
Sources

User
Generated ?
Source: Annet Aris Content 38
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WHAT HAPPENS WHEN ALL START DOING THIS?

Potential effect of industry dynamics...

One starts, all other follow


The lemming effect…..
without really knowing the
benefit..

Everyone starts doing the same:


Grasshopper phenomenon..
over-saturation and profit
destruction

Prisonners dilemma.. No real benefits, but cannot afford


to stay behind..

The winner takes it all… Only the most succesfull player(s)


benefits, all others lose

Self reinforcing positive cycle Togehter critical mass is


developed for new demand
Source: Annet Aris 39
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WHAT HAPPENS WHEN ALL START DOING THIS?

Potential effects of industry dynamics... Examples

Newspaper: shift to tabloid?


The lemming effect…..

Cheap formats, alternative


Grasshopper phenomenon..
revenues, digital channels

Prisonners dilemma.. Vertical Integration, HDTV?

The winner takes it all… Increasing advertsing time

Self reinforcing positive cycle Roll-out of set top boxes,


interactive offerings, mobile TV
Source: Annet Aris 40
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ATTRACTIVENESS OF STRATEGIES FOR COMMERCIAL BROAD-


CASTERS FROM AN INDUSTRY PERSPECTIVE
Value Creation Potential „old“ Value Creation Potential „new“

Stand alone Combined Stand alone Combined

Cost Launch Digital


effectiveness Channels

Vertical ? VoD
Integration offerings

Growth HDTV
abroad

Alternative
Mobile TV
advertising
models

New
Revenue
iTV oferings ?
Sources

User
Generated ?
Source: Annet Aris 41
Content
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AGENDA

1. Impact of trends: how big is it really?

2. How are commercial TV channels responding?

3. What works, what doesn‘t work?

4. Future priorities?

42
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IMPLICATIONS FOR COMMERCIAL TV CHANNELS

1. Avoid digital actionitis: being there too is not


enough!

2. Refocus on brands to create consumer oreintation in


overwhelming digital world

3. Create digital offering palette around brands

Source: Annet Aris 43


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LIBELLE HAS DEVELOPED INTO A MULTIPURPOSE BRAND

Magazine Licenses

Internet Special editions

Consumer
events Books/
Agendas

Articles Books/
Syndication
Agendas

Examples:
• Articles: Libelle duvets and pillows, Libelle pots and pans
Together
• Consumer events: Libelle Zomerweek, yearly event with responsible for ca.
75,899 visitors in 2003 15% of Libelle
• Internet: Successful website www.libelle.nl revenues
• Many special Libelle editions published yearly

Source: Sanoma WSOY 44


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IMPLICATIONS FOR POLITICIANS AND REGULATORS

1. Allow media comapnies to build multi media


brands

2. Create boundary conditions for commercial TV channels to


earn money in the digital world, otherwise content quality will
deteriorate!

3. Focus on class rather than mass, e.g.:


• More lenience in advertsing forms rather than
more advertising time
• Use spectrum for HDTV rather than more digital
channels

Source: Annet Aris 45


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EVERYTHING ELSE YOU WANT TO KNOW CAN BE FOUND IN:

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