March 11, 2004. Call in at 12:55 pm Eastern Time

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March 11, 2004. Call in at 1255 pm Eastern Time
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Theme
On-demand TV is coming. The TV industry must
adjust.
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Definition

• On-demand TV is
• Television watched on the viewers schedule, not
  the networks
• Video on-demand (VOD) or digital video recorders
  (DVRs)

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Agenda

• What consumers want what cable operators plan
• DVRs and VOD
• The future of television advertising
• What it means

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Agenda

• What consumers want what cable operators plan
• DVRs and VOD
• The future of television advertising
• What it means

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Satellite leads in satisfaction . . .
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But digital cable grows more quickly . . .
All numbers in millions of US consumersBased on
consumers stated intentions Source Forresters
Consumer Technographics Q2 2004 Devices Access
Study
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Consumers want on-demand TV
Percent who were very/extremely interested in
these TV enhancements
Source Forrester September 2003 survey of 6,486
US households
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Definition

• VOD
• Video streamed, on-demand, from a server to a
  set-top box (or PC)
• Supports VCR-type controls fast forward,
  rewind, pause
• Available only on cable, not on satellite

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Definition

• DVR
• A device that records and plays pack TV programs
  using an internal hard drive
• Supports VCR-type controls fast forward,
  rewind, pause
• Available for purchases in stores and also as a
  feature of cable or satellite boxes
• Sometimes called personal video recorder (PVR)

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Operators biggest concerns HDTV, DVR, VOD
Rank order these five items by what gets most of
your attention right now.
6
5
4
3
2
1
0
HDTV
DVR
VOD
Interface
Interactive
TV
Top concern
In top 2
Survey of senior marketing and technology
executives at 10 North American cable operators
including the top seven in the US, December 2003
to February 2004
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Agenda

• What consumers want what cable operators plan
• DVRs and VOD
• The future of television advertising
• What it means

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VOD and DVRs Why now

• High consumer affinity for on-demand content
• DVR set-top box costs coming down with Moores
  law
• Digital cable infrastructure in place, low-cost
  set-top boxes
• VOD installation cheap, content plentiful

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DVRs in satellite 2 million (of total 3.5
million)

• Echostar
• Free DVR with new subscription
• More than 1 million DVRs deployed already
• DIRECTV
• 99 DIRECTV/TiVo combination set-top box
• Churn reduced by two-thirds for DVR customers

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DVR standalone boxes 0.8 million

• TiVo
• Price down to 150 after rebate for 40-hour unit
• New devices combine TiVo with DVD player or DVD
  recorder
• Can be linked into home networks
• Other brands fading
• Cutbacks at ReplayTV
• Other cons Electronic devices not true DVRs

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DVR cable boxes 0.7 million

• Scientific-Atlanta Explorer 8000
• 500,000 deployed at Time Warner Cable
• Reduces digital cable churn by half
• Two tuners
• Motorola cable boxes
• Comcast will deploy widely this year includes
  HDTV
• Adelphia, Charter buying Digeo Moxi Media Center
  boxes two tuners plus HDTV

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Cable drives long-term PVR growth
US households (millions)
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DVR transforms users television consumption

• They watch more television, . . .
• . . . Watch recorded programming 75 of the time,
  and . . .
• . . . Skip commercials around 50 of the time

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VOD-enabled households spreading rapidly
US households (millions)
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VOD is not just movies
Todays reality

• Low 25/mo take rate

• Drives use
• Kills churn

• No popular content
• No metering
• Very few ads

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SVOD economics two views
Comcast economics
Network economics

• On-demand is part of digital
• We already paid for that content
• Separate on-demand fees confuse subs
• Lets wait and see who volunteers free content

• Maybe now we can get carriage
• Eventually, well be able to sell ads here
• This stuff loses value fast, we might as well get
  it better exposure
• If it ruins program exclusivity, we better not do
  it

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Whats on the basic VOD tier (so far)

• Shows a network owns (e.g., The Shield)
• Shows with no syndication value (e.g., NBC News)
• Shows from networks seeking carriage (e.g.,
  TechTV, National Geographic)
• Shows an operator owns (e.g., Flyers games)
• MagRack

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Agenda

• What consumers want what cable operators plan
• DVRs and VOD
• The future of television advertising
• What it means

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On-demand TV becomes commonplace
of US households with on-demand services
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What do advertisers think?

• 64 think there will be 30 million PVR homes
  within 5 years
• 74 say PVRs will reduce ad effectiveness
• 54 think their ad agency cant help them with
  the problem

Based on online surveys of 51 national
advertisers in February 2004 Joint study by
Forrester Research and Association of National
Advertisers
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When there are 30 million PVRs, will you reduce
your ad spending on television?
Based on online surveys of 51 national
advertisers in February 2004Joint study by
Forrester Research and Association of National
Advertisers
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If large numbers of people could skip ads, what
would you spend more on?
75
Web ads
55
Search engines
55
Radio
53
Magazine
51
Loyalty programs
49
Email
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If ad-skipping reduces the value of commercials,
what new TV ad formats would you spend more on?
55
Sponsorship
Product
47
placement
Interactive
45
TV ads
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How interested are you in these VOD formats?
Includes somewhat interested and very
interested responses
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The intrigue of targeted TV ads
How interested are you in household-targeted TV
ads?
What premium would you pay?
Not at all
2
Some-
what
Very
45
53
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Agenda

• What consumers want what cable operators plan
• DVRs and VOD
• The future of television advertising
• What it means

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What it means

• Ad skipping wont kill television, but . . .
• . . . Ads will migrate further into programs
• Network power will wane
• DVRs are an integral part of the home network
  picture
• Integrated marketing and VOD will determine the
  future of TV advertising

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Summary

• As cable and satellite compete, the focus shifts
  to on-demand TV
• DVRs will spread rapidly
• VOD ads and targeted ads have the potential to
  save the TV advertising business

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Thank you
Josh Bernoff jbernoff_at_forrester.com www.forrester.
com